Bill Black's Top Ten Ways to Crack Down on Corporate Financial Crime

Ninety-five percent of criminologists study blue collar crime.

Five
percent study white collar crime.

Of
the tiny minority who study white collar crime, ninety five percent focus on
the individuals who rip off the corporation.

We
are left with a small handful of criminologists - think Edwin Sutherland,
John Braithwaite, Gil Geis - who have studied or are studying -
corporate crime.

That
would be crime by the corporation.

Bill
Black is one of the most prominent of those living corporate criminologists.

His
specialty - control fraud.

Control
fraud is when the CEO of a company uses the corporation as a weapon to commit
fraud.

Bill
Black is a lawyer and former federal bank regulator.

He's
the author of the corporate crime classic - The Best Way to Rob a
Bank is to Own One: How Corporate Executives and Politicians Looted the S&L
Industry (University of Texas Press, 2005.)

Black
says there are steps we can take as a society to control corporate crime -
in particular financial crime.

In
an interview with Corporate Crime Reporter last week, Black laid out
his top ten.

Number
ten: Hire 1,000 FBI agents.

Pass
legislation (HR 3995) introduced by Congresswoman Marcy Kaptur that would fund
the hiring of 1,000 FBI agents to investigate white collar crime.

Number
nine: Appoint a chief criminologist at each of the financial regulatory agencies.

"Each
agency needs someone who understands white collar crime," Black said.
"If you don't understand fraud schemes, if you don't understand
how accounting is used to run these scams, you will always have a disaster in
the making."

Number
eight: Fix executive compensation.

Black
would tie executive bonuses to long term corporate performance.

Number
seven: Target the top 100 corporate criminals.

"We
need to do a top 100 priority list - the way it was done in the savings
and loan crisis," Black said. "The FBI, the Justice Department and
the regulatory agencies got together and put together a list of top 100 companies
to target. There was a recognition that these were control frauds. The top executives
were using seemingly legitimate savings and loans as their weapons of fraud.
And that is why any serious look will tell you the same thing about this most
recent crisis as well. The criminal justice referral process has collapsed at
the agencies."

Number
six: Regulate first.

"When
you desupervise or deregulate an industry, in fact you are decriminalizing control
fraud. The regulators are the ones who make the bulk of these cases. I'm
not saying they can do it alone. In the current crisis, the FBI had no meaningful
support from the regulators. You have regulators denying they were regulators
and saying that there could be no fraud because the rating agencies were handing
out high ratings. That kind of naivete is ideologically driven. You will not
have effective prosecution with that kind of regulatory regime."

Number
five: Bust up the FBI partnership with the Mortgage Bankers Association.

"Now
we have the FBI standing with what it calls its partners - the Mortgage
Bankers Association," Black said. "But the Mortgage Bankers Association
- that's the trade association of the perps. So, the FBI is partnering
with the perps."

"The
result is - we have seen zero prosecutions of the specialty non-prime
lenders that caused the crisis," Black said. "The mortgage bankers
are going to position themselves as the victims. This has been so successful
that the FBI now has a mantra. They are saying there are two kinds of mortgage
fraud. Fraud for profit and fraud for housing. And neither of them is control
fraud. They have effectively said - control fraud is impossible. Even
though it was the entire story behind the savings and loan crisis, the Enron
wave, and the creation of the most recent housing bubble."

Number
four: Get rid of Ben Bernanke as chair of the Fed. Replace him with Nobel prize
winner Joseph Stiglitz.

"Ben
Bernanke should not have been reappointed as head of the Fed," Black said.
"He was the most senior regulator. And he was an utter failure. Under
President Bush, he was President of the Council of Economic Advisors. So, he
was a failure as a regulator. And he was a failure as an economist."

Number
three: Get rid of too big to fail.

There
are about 20 banks that have assets of $100 billion or more. They are considered
too big to fail. "You do three things," Black says. "First,
you stop them from growing. Second, you shrink them (to below $20 billion in
assets.) You create the tax and regulatory incentives where they have to shrink
below the level where they pose a systemic risk. And third, you regulate them
much more intensively while they are in the process of moving from a systemically
dangerous institution to a more leaner, smaller, more efficient, less dangerous
institution."

Number
two: Create a consumer financial protection agency headed by Harvard Law School
professor Elizabeth Warren.

"The
sine qua non for success as a regulator is independence," Black says.
"So, it's a very bad sign that Congress is moving away from an independent
regulator."

"As we speak, news is breaking that they are moving away from housing
the regulator at the Treasury Department. Now they are talking about putting
it at the Federal Reserve. The Fed is an independent regulator. Unfortunately,
it's an independent anti-regulator. I called putting it at the Treasury
a sick joke. Putting it at the Fed is also a sick joke. They are both recipes
for failure."

Number
one: Fire Treasury Secretary Timothy Geithner, Office of Thrift Supervision
chief John Bowman, Fed chief regulator Patrick Parkinson, and Office of the
Comptroller of the Currency Chief John Dugan.

"Tim Geithner was testifying before Congress a couple of years ago,"
Black said. "And in response to a question from Ron Paul (R-Texas), Geithner
said - 'I have to stop you right there - I've never
been a regulator.' Well, that's true. But you are not supposed to
admit it."

"Can
you imagine. This is the President of the New York Fed, testifying about the
greatest failure in banking in the history of the nation. And he is so completely
out of it - the mindset of capture is so complete, that he says -
I've never been a regulator. This is the ultimate capture. You don't
even think of yourself as a regulator."
"Ben Bernanke in October 2009 appointed Patrick Parkinson as the top supervisor
at the Fed," Black said. "He's the guy who, under Alan Greenspan,
led the Fed charge against Brooksley Born when she wanted to regulate credit
default swaps."

"Patrick
Parkinson, on behalf of the Fed, testified that credit default swaps should
be left completely deregulated."

"The
reasons? If we regulate them, they will flee to the city of London. We should
be so lucky, of course."

"And
two, fraud can't happen in credit default swaps, because the participants
are so sophisticated. This is the most astonishingly naive model of white collar
crime by people who know nothing about white collar crime and don't study
it at all."

"John
Dugan's sole priority and all of his passion as OCC director has been
pre-empting state efforts to protect us from predatory lenders," Black
said.
"And John Bowman should be fired," Black said. "The OTS got
in bed with the industry most openly."