Here is one of the most remarkable aspects of the still-unfolding financial
scandals swirling around Worldcom, Xerox, Global Crossing, Enron, Arthur Andersen,
Tyco and a growing number of other companies: The fraud occurred in the most heavily
regulated and monitored area of corporate activity.
If an epidemic of corporate malfeasance could occur in the financial arena,
how serious is the more general problem of corporate crime?
Consider the checks and balances in place that should have stemmed the wave
of corporate wrongdoing which has reportedly angered even American CEO George
- Disclosure requirements for corporate financial performance are extensive,
and by far the most detailed for any element of corporate activity.
- There is a distinct industry -- made up of accounting firms -- whose function
is to review the financial numbers, audit corporate books and certify the validity
of financial statements.
- There is another distinct industry, separate from the accountants -- this
is the Wall Street investment firms -- whose function is to scrutinize the corporate
reports, interview corporate executives, analyze market performance and provide
investors with independent evaluations of company prospects.
- There is a legal duty for corporate executives to advance the interest of
an important and powerful class of people -- shareholders -- and significant numbers
of these shareholders are increasingly organized and assertive of their rights
(including through pension funds). There is no comparable legal duty for corporate
executives to serve consumer or worker interests, say.
- An array of Securities and Exchange Commission regulations establish rules
for financial reporting, and are backed by the enforcement power of the agency,
as well as the threat of private litigation from shareholders in case of violation.
Other aspects of corporate activity are simply not subject to such robust scrutiny
Given what is now the apparent blatant corporate disregard for the law, even
in areas where executives are most closely watched, what should we expect is occurring
elsewhere? What's happening with consumer rip-offs, sales of unsafe products,
endangerment of workers, pollution of the environment?
Even with inadequate law enforcement, reporting requirements or organized countervailing
institutions, we know enough to know that the epidemic of corporate crime, fraud
and abuse is at least as severe outside of the financial arena as within.
To take just two examples from recent months: In May, drug maker Schering-Plough
signed a consent decree with the Food and Drug Administration, agreeing to pay
a record $500 million in connection with charges that over a three-year period
it produced about 125 different prescription and over-the-counter drugs in factories
that failed to comply with good manufacturing practice. And in April, the Justice
Department announced that it collected more than $1.3 billion in 2001 in connection
with enforcement actions related to health care fraud, and that last year 465
defendants were convicted for health-care fraud crimes. This kind of revelation
occurs regularly, but news accounts rarely combine them -- as they are now doing
with the financial scandals -- to make clear the breadth and depth of the problem.
With the most recent round of disclosures of financial wrongdoing at Worldcom
and other companies, it no longer appears that Big Business's Congressional allies
are going to be able to block all meaningful remedial measures, and the Bush administration
is now preparing a reform package.
If those reforms are limited to addressing financial fraud, however, the biggest
and most serious corporate criminal activity will be able to flourish.
What we need is a full set of restraints on corporate crime. But even small
steps could significantly reduce the toll of corporate crime and violence. Here
are three measures that should be adopted this year, before Congress recesses
and momentum for corporate reform slows:
First, the Federal Bureau of Investigation should be required to compile an
annual report on corporate crime in American, to accompany its current Crime in
the United States report, which is unfortunately confined to street crime.
Second, the federal government should refuse to do business with companies
that are serious and/or repeat law breakers, as well as deny other privileges
(for example, granting broadcasting licenses) to corporate criminals. This would
involve some new or strengthened laws and regulations, as well more stringent
enforcement of debarment, contractor responsibility and good character laws now
on the books. States and local governments should adopt similar measures.
Third, whistleblowers and private citizens should be able to enforce laws regulating
corporate conduct. One way to facilitate this enforcement approach would be to
expand and creatively adapt the False Claims Act, which currently enables whistleblowers
to initiate lawsuits against entities which have defrauded the government, and
which reclaims for the government every year hundreds of millions of dollars stolen
by unethical contractors.
"Cracking down on corporate crime" -- the mantra of the moment -- cannot be
limited just to financial crime, already the most policed form of corporate wrongdoing.
Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational
They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack
on Democracy (Monroe, Maine: Common Courage Press, 1999; http://www.corporatepredators.org).
(c) Russell Mokhiber and Robert Weissman