ETHICAL
BEHAVIOR
Just as behavioral economists incorporate the insights of
psychologists in their economic models in order to portray a more accurate
picture of human behavior in the marketplace and predict trends, commentators
should be concerned to focus on ethical issues that are ignored when corporate
lawyers sanction the behavior of their clients.
As Michael Rothfeld reports (WSJ), when it comes to
corporate crime, we have a different standard by which to judge or mete
punishment: “Known as ‘deferred prosecution’ or ‘nonprosecution agreements,’
these deals let the U.S. negotiate fines, put companies on probation and get
them to change practices.”
With 1% of the population in prison, with overcrowding
and shrinking state and federal budgets, one must be sympathetic to any
judgment that excludes prison time. The standard questions of deterrence vs.
fairness may fall by the wayside if we cannot afford to staff prisons nor have
enough cells for inmates.
When talking of white-collar crimes, corporate crimes
that are perceived to be victimless, why worry about Libor interest-rate
manipulation, or about the tax-evasion of hedge funds counting fees as “capital
gains” with 15% income tax rate rather than “ordinary income” warranting 35%
marginal tax?
Recall the “too big to fail” mantra that kept inept banks
intact with government bailout funds? Oh, those socialist bankers enjoying the
largess of taxpayers’ generosity? All of a sudden there was a role for government
intervention! Does it hold in the case of bank indictments?
Now we have the “too big to indict” mindset which
suggests banks are in position to defend themselves for years, costing millions
to taxpayers’ representatives, District Attorneys and Prosecutors. Where is the
bank headquartered? Who licenses it (Barclays) to do business on our US shores?
Barclays had no problem paying $453 million in fines
after a criminal probe to its Libor fraud. Think about it: is it simply the
“cost of doing business”? Are the bank’s activities in the US so profitable
that such a fine is just another deductible cost?
If it is, we are in trouble, because no deterrence is in
place, and whatever “agreement” was reached with the authorities will not deter
it from continuing to lie to other banks and the public. If it isn’t, then why
did Barclays agree to pay such a high fine?
Barclays is in good company, though. JP Morgan Chase,
Deutsche Bank, UBS, and Credit Suisse Group have reached similar “agreements”
in the past few years. It has become a common practice. As such, it neither
bespeaks of deterrence—other banking entities aren’t deterred, nor of compliance—they
and others continue to violate American laws with impunity.
“Three strikes and you are out” remains applicable in
baseball and for petty criminals around the country, not for the captains of
finance. In the last “mortgage bubble,” with clear intent to defraud, few
bankers ended up in jail, and few banks and investment houses were crippled by
fines. If you plan on being a criminal, don’t rob a bank; instead, become its
CEO! You are bound to enjoy a hefty end-of-year bonus.
Gibson Dunn & Crutcher, a law firm that follows these
so-called agreements, claims that the Justice Department has collected over
$31.6 billion in fines since 2000 from some 230 agreements. Is that number
staggering? Does it say anything about our rule of law?
Common sense and practice suggest that our laws reflect
our moral principles and social norms. Once we agree among ourselves what is
and isn’t acceptable we turn it into law—enshrining our values in a legal
system (social contract). The Ten Commandments were a bit different insofar as
Moses got them from God, rather than his fellow Israelites. Perhaps that’s why some
cherish them more than the malleable laws we have in regards to corporate
crimes.
But the laws are there, in plain view. It’s their
enforcement that is being challenged daily by the titans of finance. With the
brain-power of Ivy-League graduates, they find ways to remain legally out of
jail, pay fines, and promise to change their ways. But they have lost their
moral compass along the way.
It was Rousseau long ago that warned the promoters of the
Enlightenment that the study of the arts and sciences makes us clever but not
moral, that we can argue our way out of any moral quandary without realizing
that along the way we have lost our humanity, our compassion for other people
and their needs.
Instead of “too big to indict” we should demand “big
enough to be moral,” requiring wealthy financial institution moral leadership
rather than monetary returns.
It is our collective help they turned to when in need;
now that they don’t need us, should they forget us?
Raphael
Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See
previous articles at sassower.blogspot.com
