White collar crime prosecutions

MARY REICHARD, HOST: Coming up next on The World and Everything in It: changes in the way prosecutors handle white-collar crimes.

The phrase “white collar crimes” dates back to 1939, and it means financially motivated, nonviolent crimes committed by business or government professionals.

White-collar criminals lie and conceal information in order to avoid losing money or property, or to gain a business advantage.

NICK EICHER, HOST: That’s the common definition. What’s less common now is prosecution.  

Federal white-collar crime prosecutions are at a 20-year low. In the past five years, they’ve dropped 30 percent.

Syracuse University’s Transactional Records Access Clearinghouse compiled the data. And WORLD Radio’s Sarah Schweinsberg looked into the trend. She has this report.

SARAH SCHWEINSBERG, REPORTER: Although white-collar crimes are typically non-violent, they are not victimless. A single scam can wipe out a family’s savings or destroy a company, costing investors billions and employees their jobs.

That’s why the Department of Justice has always taken these offenses seriously, says Jim Copland, director of the Center for Legal Policy at the Manhattan Institute.

But Copland says how the government addresses white-collar crime has changed.

COPLAND: There’s been a paradigm shift in how white collar crime has been handled.

That shift has been to Deferred Prosecution Agreements or DPA’s. These are agreements the DOJ makes with a company to avoid taking the company, a CEO or some other individual or a company to court. Instead, the DOJ grants the company amnesty. But, in exchange, the company must fulfill certain requirements, such as paying a large fine or agreeing to stricter federal oversight.

Why the change? Jim Copland, who has written extensively about DPAs, says the practice goes back to the Enron scandal. Executives at the Texas oil company cooked the books to make it look like the company was making money. That led to better stock prices and more investors. After Enron collapsed in 2001, employees and investors lost billions. President George W. Bush’s DOJ went after Enron’s accounting firm, Arthur Anderson, one of the five largest accounting firms in the world.

COPLAND: The Supreme Court ultimately vindicated Arthur Anderson, not vindicating the accounting Enron had been using, but vindicating Arthur Andersen in the sense that they shouldn’t have been held criminally liable for their role in this.

But while Arthur Anderson’s legal battle drew out, the company dissolved.

COPLAND: And so at this time, uh, the Bush Justice Department said, well, wait a minute, we don’t want to just destroy companies by indicting them. We need to look for a better way.

DPAs became that better way. Copland says these agreements allow the federal government to hold companies accountable without destroying them in litigation and hurting those who have a stake in the company.

Another perk for the government? Companies are willing to pay tens of millions of dollars rather than risk a criminal conviction. In 2016, companies paid the federal government $4.6 billion through Deferred Prosecution Agreements.

COPLAND: If you’re a pharmaceutical company and you’re faced with prosecution—well, if you’re convicted of a crime—then you can’t get reimbursed under Medicare and Medicaid. So you’re going to go out of business. If you’re a financial company and you lose your banking license or your trading license, you’re going to go out of business.

This practice has grown significantly over the past 15 years. The Clinton administration entered into 17 DPAs. The Obama administration struck more than 400. Copeland says that increase accounts for much of the drop in individual white-collar prosecutions.

But Copland says this system has its own flaws. The money companies pay the DOJ doesn’t fall under congressional oversight, and officials don’t have to account for how they use DPA dollars.

COPLAND: Ultimately this really ought to go into the general fund, but it’s not at all clearly the case that the Justice Department’s not just using this to sort of be an additional self-financing tool.

DPAs also give the government a pass on proving its case.

COPLAND: A lot of these crimes are ambiguous, but it’s easy to get the company to pay out tens of millions, hundreds of millions or even billions of dollars to avoid actually going to trial with the government.

But some companies do fight back. In 2013, the federal government accused Fedex and UPS of intentionally shipping illegal online prescriptions. UPS settled in a DPA with the government, paying $40 million and hiring an independent auditor to monitor the company.

Fedex chose to go to court,  a risky move considering a conviction could have come with a $1.6 billion fine.

But in 2016, the government dropped its case against the company citing a lack of evidence.

Reporting for WORLD Radio, I’m Sarah Schweinsberg.

(AP Photo/Richard Drew) Deputy Attorney General Rod Rosenstein delivers a speech on white collar crime at the New York City Bar Association, in New York.

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