Criminalizing Businesses and blackmail

blackmail irvine californiaWHO runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company.

The amounts are mind-boggling. So far this year, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs and other banks have coughed up close to $50 billion for supposedly misleading investors in mortgage-backed bonds. BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran. Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations. And that is just the financial institutions. Add BP’s $13 billion settlement over the Deepwater Horizon oil spill, Toyota’s $1.2 billion settlement over alleged faults in some cars, and many more.

That kind of money can come in handy. For example, the office of Rhode Island’s attorney-general recently bought the building next door to its headquarters, adding to a statewide shopping spree by law-enforcement institutions that included squad cars, tasers, rifles, a police station and the replenishment of underfunded police pensions. Footing the bill is Google, which chose to pay $500m, split between the state and the federal government, to settle claims arising from its acceptance of ads for prescription drugs from Canada. The only unusual feature about this case is that Rhode Island has provided information on how the cash is being used.

Perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs.

 

 

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