How the Corporation Became a Shield For Crime: Part 2

“A criminal is a person with predatory instincts without sufficient capital to form a corporation”. - Clarence Darrow

Executive immunity for crimes by a large corporation was established in the money laundering case of Wachovia, described in my last post and continues. A recent example is the refusal to charge Boeing’s executives for involuntary manslaughter in the death of 346 people by crashes in Ethiopia and Indonesia.

IN that post, we saw how Lanny Breuer, Assistant Attorney General for the Criminal Division of the U.S. Department of Justice, refused to charge any bankers at Wachovia who were directly involved in money laundering of $363 billion for the Sinaloa Drug Cartel. When the allegations against the HSBC for laundering $60 trillion (that’s not a typo) surfaced, the US Senate did that full report detailing overwhelming evidence of the precise bankers involved at the HSBC outlined in my first post. Did that make any difference?

Breuer, again, was put in charge of the HSBC matter. Breuer brushed aside the Senate report. He sued HSBC in a civil lawsuit. Then, as with Wachovia, he bestowed a non-prosecution agreement on HSBC so it would not be charged criminally for any of the many possible offenses detailed in the Senate Report.

Breuer justified the To-Big-To-Fail reason for not laying criminal charges. He asserted, “Had the U.S. authorities decided to press criminal charges, HSBC would certainly have lost its banking license in the United States, the future of the institution would have been under threat, and the entire banking system would have been destabilized.”

That reasoning is correct:

* Charging a bank criminally could not only put it out of business but endanger the financial system.

* The first losers would be the employees and the shareholders.

For example, while only a few senior partners of Arthur Anderson were involved in the Enron audit opinion, the DOJ charged the firm with fraud. It went bankrupt and 28,000 employees lost their job.

However, the reasoning is incomplete:

* No conviction of any banker could cause any bank to be insolvent.

* A civil fine to a bank, as economist William Lazonick points out, is a penalty that does not punish. Large banks make profits of a couple of billion dollars a day. To them, eye widening billion-dollar fines are like parking tickets to us.

* Even worse: where does the DOJ think banks get the money to pay their fines? Their source is their customers. In fact, it is we, the customers, who pay the fines by higher interest rates or administration fees. Yet, the bankers who did the crime are allowed to keep every cent they earned by the crimes.

Breuer was not alone in his opinion. His boss, Attorney General Eric Holder, felt the same protectiveness towards the executives. Market Watch reports that even though federal investigators found evidence “that senior bank officials were complicit in the illegal activity, no HSBC executives faced charges for their actions. The Wall Street Journal explained that U.S. Justice Department officials, led by Attorney General Eric Holder, overruled lower prosecutors’ recommendation to pursue criminal charges against HSBC in 2012”.

The Revolving Door Revolved

Both Breuer and Holder came from the firm of Covington Burling that specializes in defending the very Wall Street banks that they declined to prosecute. While the two were partners at Covington, the firm’s clients included the four largest U.S. banks — Bank of America, Citigroup, JP Morgan Chase and Wells Fargo & Co — as well as at least one other bank that is among the 10 largest mortgage servicers.

Both returned to that firm upon leaving the DOJ.

In an article appropriately titled , Once More Through the Revolving Door for Justice’s Breuer, the New York Times estimated Breuer would get an estimated salary of $4million.

Civil rights groups hold Holder in high regard for solid achievements in that area. Certainly, he was quite successful and deserves full credit on issues that did not affect his own bank account. However, those accomplishments should not mask the harm he did by establishing the precedent of only charging a corporation.

The Corporation Is Now a Shield for Crime

Because of the precedent of charging a corporation and never senior management, executives now use the corporation as a shield for criminal activity. Take the recent case of the Boeing 737 Max as summarized by Vice chancellor Morgan Zurn of the Delaware Court.

Boeing installed heavier engines on the 737 Max. The plane required a design change to accommodate the heavier engines. With the present design, the engine would cause the plane to go nose up under certain conditions.

However, instead of the needed expensive design change, management put in software that would automatically correct the nose up by tilting the plane nose down to level. Management did not advise the pilots of the issue nor provide a manual override.

A 737 Max crashed in Indonesia (October 29, 2018) killing all aboard.

Boeing’s CEO knew of the software problem.

* He could have admitted the problem and grounded the 737 Max planes until the error was corrected.

* Instead, he claimed it was pilot error.

Five months later another 737 Max crashed in Ethiopia from the same software defect killing all aboard: 149 passengers and 8 crew members. Only then did Boeing admit the problem and ground the 737 Maxes.

Although the DOJ charged Boeing with fraud in covering up the design defect solution, it gave Boeing a Deferred Prosecution Agreement with a condition that Boeing put in better safety protocols with a fine. No executive was charged.

Judge Reed O’Connor, who presided at the Boeing Deferred Prosecution Agreement hearing, commented, “Boeing’s crime may properly be considered the deadliest corporate crime in U.S. history.”

How could the Boeing executives be so confident that they could put out a risky software solution resulting in the death of hundreds of people and would escape charges of criminal negligence. Only because they know corporate America has control over the DOJ.

Bureaucratic Capital

The concern is not conflict of interest once the DOJ attorneys leave, it is the favors they do for the banks and corporations while they have their positions of power within the DOJ. This leniency has been called amassing ‘bureaucratic capital’ that can be spent for lucrative jobs when they leave government.

The solution is to have a term in the employment agreement for any senior member of the DOJ that upon leaving government service, they will never join a law firm that represents corporations or banks that they previously regulated. If they won’t agree to this term, they intend to use their position for their personal benefit.

There are many lawyers as competent as the likes of Breuer and Holder and who have shown that their loyalty to their country is above their loyalty to their paycheck. I have mentioned a few in earlier chapters: Bill Black, Neil Borofsky and Brooksley Born are examples.

In conclusion: the bankers got a couple of clear messages from the HSBC case.

* The power of U.S. Senators is as impotent against the power of the banks as that of Occupy Wall Street protesters.

* And if you’re not going to jail for washing the blood off drug money, you’re not going to jail.

Originally published at https://jandweir.substack.com.