
The U.S. Needs to Crack Down on White-Collar Crime - IBM
https://www.bloomberg.com/view/articles/2018-10-14/white-collar-crime-more-prosecutions-needed
======
zekevermillion
We don't need a "crackdown". The problem with our approach to financial crimes
is that it is based almost entirely on crackdowns -- splashy press releases
that are supposed to deter all the thousands of other financial crimes that we
lack resources to prosecute. Sometimes this leads to injustice, e.g., see the
documentary film Abacus: Small Enough to Jail. The only bank to be prosecuted
criminally for shenanigans in the subprime era.

What we do need is vastly more resources for financial regulators, as well as
courts. Yes the laws and regs could also be improved, but that is a harder
problem. The easy problem is that the people doing good work to combat
financial crimes only have the staffing and money to go after a small, small
fraction of likely targets. And the courts do not have what they need to
handle a high volume of increasingly complex, technical subject-matter.

~~~
atr_gz
The story about Abacus was interesting. I didn't realize they were the only
actual bank to be prosecuted. That said, a handful of employees at other small
banks around the country were prosecuted - I personally know a low-level
mortgage broker who went to prison for fraud related to the 2008 crisis. They
were falsifying mortgage applications for unqualified customers.

The enforcement still wasn't enough in my opinion, but (and I'm struggling to
find a source backing me up) I believe there were several hundred of these
cases. None, however, from the big banks that arguably should take more of the
blame.

~~~
paulie_a
Post 2008 the real estate industry was rife with fraud. I had a boss that got
kickbacks from contractors fixing rigged bids on foreclures to the tune of
500-600k. He never got caught. It was blatantly illegal and involved federal
agencies.

------
pjc50
Well, yes: if you leave enough crime by the well-connected alone for long
enough, in a country with poor election integrity and unlimited campaign
finance spending, then you get a country run by gangsters. It came about
pretty rapidly in Russia where there was no established democracy to displace.

~~~
jjeaff
While there have recently been some issues with some elections in the US, we
definitely don't have an "election integrity" issue.

There is very little evidence that any elections in the US have been affected
by fraud by any significant amount.

~~~
cowkingdeluxe
There are many ways to negatively affect election integrity, both illegal and
legal.

For example, in Georgia, US, one of the candidates himself blocked 53,000
voter registrations just 3 weeks before the election. The demographics of the
53,000 is 70% black.

[https://www.npr.org/2018/10/13/657109536/georgia-
puts-53-000...](https://www.npr.org/2018/10/13/657109536/georgia-
puts-53-000-voter-applications-on-hold-weeks-before-election)

Gerrymandering, strict voter id laws (e.g. requiring drivers license but
removing all but one DMV in the entire county in opponent's strongholds) and
similar are also various ways to negatively affect election integrity.

~~~
deadmetheny
The USA is one of the few countries in the world that doesn't require an ID to
vote. I'm continually astounded by the fact that people consider that having
some sort of identification, which most functioning adults ought to have
anyway, is some sort of horrifying oppression.

~~~
notfromhere
Because it can be used to disenfranchise voters.

When Alabama enacted voter ID, it simultaneously shut down DMV offices in
counties with the most potential black voters.

Or like in Texas where student IDs are specifically prohibited from being used
for voting, even though gun permits are, in order to suppress student turnout.

Or in North Dakota, where voter laws were changed to suppress Native Americans
from voting using tribal IDs.

~~~
ArchTypical
> Because it can be used to disenfranchise voters.

So can knives.

> When Alabama enacted voter ID, it simultaneously shut down DMV offices in
> counties with the most potential black voters.

Most of these problems are now mitigated by years of not needing ID. Now we
have voter registration mailouts and such. Don't just throw away a good idea
because of past abuse. We strive to be better. Giving up is regressive.

~~~
dragonwriter
> Don't just throw away a good idea because of past abuse.

The specific (Alabama) “past abuse” referred to by the grandparent was in
2011-2015, not some distant time where there has been intervening radical
change in the political culture that would render it irrelevant.

> Don't just throw away a good idea

The whole idea was voter suppression. There is no good idea associated with
Voter ID laws in the United States. People involved in them _this decade_ have
admitted the racial and partisan purpose (usually, when they thought only
members of their race and party were around, obviously.)

~~~
ArchTypical
> The whole idea was voter suppression.

The whole idea was for some people.

> There is no good idea associated with Voter ID laws in the United States

I disagree. Voting accountability is treated seriously in every state I've
resided.

------
themagician
You'd have to completely reframe the penalty for crimes to be percentage based
instead of fixed amounts. Even when caught the penalties are often so low that
they don't matter, so white collar criminals go right back to it. When you can
routinely make $10 million doing something a $1 million fine the one time you
get caught just isn't a big deal.

The cost-benefit analysis almost always favors the criminal for white collar
crimes (or any non-violent crime, really) when you have money. If I had $100m+
I wouldn't really pay attention to the law either.

~~~
harryh
What is an actual example where you can make more money committing a crime
than you would be forced to pay back if you are caught and convicted?

I don't think your assertion is true.

~~~
Retric
It's not about criminal convictions. In theory it's just a civil case with a
criminal case to follow. Which is why SEC fines are often less than the net
befit. But, the actual number of criminal cases is rather low.

EX: "In June 2009, the SEC sued Angelo Mozilo, former CEO of mortgage lender
Countrywide Financial, and two other former officers, charging that they
misled investors about the quality of Countrywide's loans while knowing the
company was fueling its growth by letting its underwriting guidelines
deteriorate and originating a growing number of risky subprime loans. In
October 2010, the SEC settled the lawsuit and Mozilo was required to pay a
fraction of the $521.5 million he had earned, just $67.5 million in penalties"
[https://en.wikipedia.org/wiki/List_of_major_SEC_enforcement_...](https://en.wikipedia.org/wiki/List_of_major_SEC_enforcement_actions_\(2009%E2%80%9312\))

~~~
harryh
It's not at all clear that all of Mozilo's earnings came from fraudulent
activity. In fact, it's almost certainly true that this is not the case.

~~~
acidbaseextract
The issue is that Mozilo's behavior resulted in personal gains against extreme
public losses. It's in our best interest as a society to deter such behavior,
while enabling whatever legitimate business Countrywide conducted. How do we
best do that? The public at large wins — Mozilo should win, the public at
large loses — Mozilo should lose.

I think GP's point is that a $60M fine (against $520M in earnings) is not a an
effective deterrent against such antisocial behavior.

~~~
harryh
Maybe the fines are too low. I could be persuaded of that.

I'm just saying that they aren't, as themagician asserted, lower than the
actual gains from the frauds in question.

~~~
Retric
I agree all is a bit much but, it is more than 13% including penalties,
especially when you include the effect the 'boosted' earnings had on the stock
price.

------
rayiner
White collar crimes are problematic. I once saw a case where someone was
convicted for selling prescription sleeping pills. It shouldn't be illegal to
sell under the counter pills, I thought, but otherwise it was hard to fault
the prosecution. The accused was caught trying to sell the pills to an
undercover officer, fled from the police, and apprehended with a wide variety
of illegal substances on his person. There was little doubt that he was at
least guilty of the conduct of which he was accused.

White collar crimes are murkier. There is, for example, nothing illegal about
getting the upper hand in a transaction. But it can be illegal based on little
more than what the seller knew or was thinking at the time of the sale. Even
things like false claims to the government often turn on little more than the
characterization of certain transactions. A great deal of the white collar
prosecutions I've seen have left me unsettled--the evidence was murky or
subject to different characterizations, and the "wrong" often turned on the
unknowable--the accused's knowledge or intent.

~~~
Waterluvian
I'm a bit surprised to find someone suggesting that selling prescription pills
under the counter shouldn't be illegal. Do you mind elaborating on your
perspective?

~~~
jstanley
If there's a willing buyer, and a willing seller, and the goods aren't stolen,
and the seller isn't lying about what the goods are, then who is the victim?

If there's no victim, there's no crime.

(And, yes, identical logic does apply equally to illegal drugs).

~~~
buzer
It depends. Most (all?) antibiotics aren't sold without recipe. If they were
and people started using them without good reason, we could end up in
situation where there are no longer any effective antibiotics for the species
(this is already the case to some degree, but accelerating it certainly isn't
ideal).

~~~
AnthonyMouse
When something has negative externalities, the answer isn't to ban it, it's to
tax it in proportion to the pro rata share of the negative externalities (and
then maybe waive the tax if you have a prescription; but maybe not -- they
seem to be overprescribed as it is, and the negative externalities don't
disappear when you have a prescription).

If you want to pay $2000 for useless antibiotics, no problem. But the price
will deter enough people that we don't get the scale required for widespread
negative consequences, especially when insurance companies won't cover it
without a prescription. Then the money can go to subsidize medicine in general
so there is no net consequence for overall medical costs or insurance
premiums.

And we could do the same thing for heroin with the money going to drug
treatment etc. and do without all this business of SWAT teams and drug
cartels.

~~~
munin
Cigarettes are legal and people still smuggle and sell them on the black
market to avoid paying taxes. Your scheme would be mostly indistinguishable
from the current prohibition and would still be dominated by cartels and SWAT
teams.

~~~
leetcrew
i would argue that if taxes are so onerous as to support a black market for a
legal good, the taxes are probably much too high. for instance, consider the
price of cigarettes in the state of new york. the average cost of a pack
(after tax) is $12.85. the federal tax is about $1 per pack, and the state
government levies an additional $4.35. without accounting for local taxes that
are added in some counties/cities, that amounts to a ~70% tax on a pack of
cigs. in addition to being an absurd tax from the get-go (in my opinion), it
is also quite regressive, since poor people are significantly more likely to
be smokers. when you add states that levy per-pack taxes of less than $1 to
the mix, you basically guarantee that people are going to bootleg cigarettes.

~~~
AnthonyMouse
> i would argue that if taxes are so onerous as to support a black market for
> a legal good, the taxes are probably much too high.

Nah, when something has large negative externalities you set the tax to the
point of mostly discouraging it. That'll be pretty high. It's supposed to be.

> in addition to being an absurd tax from the get-go (in my opinion), it is
> also quite regressive, since poor people are significantly more likely to be
> smokers.

"Regressive tax" only applies to necessities. Cigarettes are a luxury item,
like lottery tickets or whiskey. Nobody ever starved or froze or lost their
job for lack of a cigarette.

~~~
leetcrew
> Nah, when something has large negative externalities you set the tax to the
> point of mostly discouraging it. That'll be pretty high. It's supposed to
> be.

you really think each pack of cigs does $5.35 worth of damage to people other
than the smoker?

~~~
AnthonyMouse
When their insurance premiums or taxes go up to have to cover a million
dollars in claims when you get cancer or other long-term chronic health
conditions, yes.

------
cozzyd
Monetary fines are not enough deterrent in many cases. Even short stints in
prison might be better.

~~~
cronix
I totally agree with this. Take the recent Tesla fiasco. Do you think a $20M
fine means a damn thing to Musk? That's like $0.01 for most people.

Now a $20M fine _and_ a year in prison would make them think twice. More often
than not, they make more in the commission of their crimes than they are
fined, so they still come out in the black. In other words, they aren't truly
punished.

~~~
dragontamer
> I totally agree with this. Take the recent Tesla fiasco. Do you think a $20M
> fine means a damn thing to Musk? That's like $0.01 for most people.

Elon Musk was forcibly removed as Tesla's chairman. That was the real
punishment. Furthermore, Elon Musk agreed that two new board members would be
selected by the SEC. Finally, Tesla promised that they'd watch Elon Musk's
twitter account better.

The $20 Million was a slap on the wrist. The "real" punishment from the SEC
were those new restrictions, which should clamp down on Musk's behavior.

\----------

No one wants to see Tesla or Elon go bankrupt. The SEC just wants Elon to be
more factual in his tweets. Neither jail nor fines help anybody.

IMO, the SEC should have threatened Elon Musk's CEO position a bit more (I
mean... they could push him out of any officer position in publicly traded
companies), but there's a strong argument that Tesla wouldn't survive if Elon
were forced out.

~~~
sokoloff
After his “Naughty by Nature” and “Shortseller Enrichment Commission” tweets,
do you believe that his twitter behavior has been curbed effectively?

I guess, neither of those are blatant securities fraud or libel against a
person, so maybe it has, but...

~~~
dragontamer
> After his “Naughty by Nature” and “Shortseller Enrichment Commission”
> tweets, do you believe that his twitter behavior has been curbed
> effectively?

Obviously not yet. But if Tesla fails to curb Elon Musk, I'd expect the SEC to
continue to clamp down.

Remember: Tesla's settlement was to agree to clamping down on Musk's tweets.
If Tesla violates that, then SEC can bring down the hammer again.

~~~
rrcaptain
So how many chances are we going to give billionaires? Three? Four? One
hundred? Most people get one mistake.

------
jwatte
If we have laws that we don't enforce, then we should strike them from the
books. If we are not willing to fund enforcement of a law, we should not pass
it. This will show us what we really value as a society.

------
pontifier
We need to punish judicial corruption with the death penalty. Judicial
corruption endangers the entire basis of our courts, and is tantamount to
treason.

------
ikeboy
Relevant Twitter thread by Matt Levine

[https://twitter.com/matt_levine/status/1033185120520417280](https://twitter.com/matt_levine/status/1033185120520417280)

Tldr: "cracking down on fraud" will mostly harm poor people

------
Animats
What's needed is to make cracking down on white-collar crime profitable. Like
the setup for drug task forces.

~~~
saalweachter
At ~current funding levels, the IRS brings in ~$3 for every $1 spent on it.
The federal government could bring in more tax dollars just by funding the IRS
at a higher level; it doesn't, for reasons.

~~~
AnthonyMouse
> At ~current funding levels, the IRS brings in ~$3 for every $1 spent on it.
> The federal government could bring in more tax dollars just by funding the
> IRS at a higher level; it doesn't, for reasons.

Here are some of those reasons.

$3 for every $1 is an extremely misleading way of putting it, as though the
IRS is a business and everything is good as long as it's turning a profit. A
better way of putting it is that collecting taxes through enforcement has ~33%
overhead, which is _high_. By comparison, the overhead of normal IRS tax
collection is a fraction of a percent.

It also only accounts for the government's side of the expense, not the cost
(and stress) imposed on innocent taxpayers who get audited to no avail in
order to catch the smaller number of people who were actually committing tax
fraud, and who are almost always small business owners because they're the
ones with unusual tax returns. So the actual cost is even higher and is paid
by a group of innocent people who create a disproportionately large amount of
economic value while being at high risk of becoming unviable when you impose
large surprise costs and time commitments on them like that.

The IRS also prioritizes its enforcement to maximize effectiveness, which
means they're already taking the low hanging fruit and increased enforcement
would be at the margin rather than at the existing average. For the _average_
to be at parity you would need to be doing a lot of audits that cost more than
the revenue they generate in order to cancel out the revenue gained from the
net-positive enforcement that is already occurring.

It's possible that we could actually raise government income by doing _less_
enforcement, because $3 is the average. It would be a net gain to eliminate
the ones where we're spending $1 to raise $.50 (or $0) as long as we keep the
ones where we spend $1 to raise $20.

~~~
mattnewton
We could easily solve the small buisiness problem by making the audit process
happen at the government’s expense and probably still make money. We don’t
have the government just tell you what you owe (like many other nations)
because of the tax prep industry lobbyist and people vested on existing
loopholes.

I don’t believe the driving force is protecting small buisinesses from Audits-
anecdotal, but small businesses in my family are still audited frequently. I
believe it has to do with how unpopular the IRS is with the conservatives for
ideological reasons, and they currently control the government. Our president
bragged about how dodging taxes was an admirable quality- that kind of
attitude is the driving force in american rhetoric, not protecting small
buisiness owners.

~~~
AnthonyMouse
I completely support the idea of the IRS sending individuals a default tax
return which you can just use as-is if you don't have anything to dispute or
amend and be done.

But that doesn't work for small businesses. If you sell hamburgers, the
majority of your customers won't have informed the IRS of the transaction. If
any part of your supply chain includes normal retail outlets, same thing.
Small business tax returns are pretty horrific. (They're at least as
complicated for large businesses too, but they actually like it that way for
all the usual reasons.)

> I don’t believe the driving force is protecting small buisinesses from
> Audits- anecdotal, but small businesses in my family are still audited
> frequently.

And they typically don't uncover major tax fraud, right? Evidence that the
existing level of enforcement is, if anything, too high.

> I believe it has to do with how unpopular the IRS is with the conservatives
> for ideological reasons

That doesn't make any sense. Both of the major parties are ideologically
bankrupt and ruthlessly pragmatic. Some part of their constituency wants it
this way -- and it's probably the small business owners who keep getting
audited even though they're not evading taxes.

> Our president bragged about how dodging taxes was an admirable quality- that
> kind of attitude is the driving force in american rhetoric, not protecting
> small buisiness owners.

Not paying taxes you don't actually owe is textbook capitalism. The idea that
we should be outraged at companies for not paying what the law we passed says
they don't owe instead of replacing the tax laws with ones that cause them to
actually owe taxes is some kind of nonsense populist rhetoric.

~~~
mattnewton
> But that doesn't work for small businesses. If you sell hamburgers, the
> majority of your customers won't have informed the IRS of the transaction.

Hamburger joints getting extra scrutiny at the government’s expense doesn’t
seem like a problem to me, especially since they often already do. The people
who aren’t getting audited often enough are not Mom&Pop hamburger joints, no
one is arguing that. The premise of the parent poster is that the IRS is
underfunded to deal with real large scale white collar crime, and as I
understand you argue that’s not possible without splash damage to small
buisinesses. But they're unrelated: you can specifically target large
buisinesses, and you can make the government pay for audit services for small
buisinesses.

> Some part of their constituency wants it this way -- and it's probably the
> small business owners who keep getting audited even though they're not
> evading taxes.

That’s utter nonsense. The large Republican doners not only have large tax
bills at stake but believe they should not.

[http://time.com/5075076/koch-brothers-tax-bill-
campaign/](http://time.com/5075076/koch-brothers-tax-bill-campaign/)

[https://www.mcclatchydc.com/news/politics-
government/article...](https://www.mcclatchydc.com/news/politics-
government/article147454324.html)

[https://www.pastemagazine.com/articles/2018/05/sheldon-
adels...](https://www.pastemagazine.com/articles/2018/05/sheldon-adelson-
cuts-30-million-check-to-house-rep.html)

Each one of these doners individually spends hundreds of times more than the
national small buisiness association on lobbying
[https://www.opensecrets.org/lobby/clientsum.php?id=D00005433...](https://www.opensecrets.org/lobby/clientsum.php?id=D000054337&year=2017)

And it’s harder to tell the exact numbers, but probably thousands of times
more more than all small buisinesses in donations.

How ideologically bankrupt democrats are is irrelevant and doesn’t change what
is happening here.

> The idea that we should be outraged at companies for not paying what the law
> we passed says they don't owe instead of replacing the tax laws with ones
> that cause them to actually owe taxes is some kind of nonsense populist
> rhetoric.

The idea is we should be outraged at the tax law and fix it, instead of
celebrating the loopholes for billionaires.

~~~
AnthonyMouse
> Hamburger joints getting extra scrutiny at the government’s expense doesn’t
> seem like a problem to me, especially since they often already do.

The problem with "at government expense" is that it annihilates the premise
that this is going to increase government income. If you audit someone, they
not only have to hire a tax professional, they have to spend their own time on
it because they're the only one who knows their own business. But because
they're the only one who knows their own business, they also need to spend
their time running the business. So the amount you would have to properly
compensate them would be at something like the overtime rate, but worse
because it's involuntary, and for someone whose time may already be valued at
six or seven figures.

The government would never actually pay that full cost, so the idea that
everything's fine because the government is paying for it is silly, and if
they did it would immediately put the program deep underwater.

> The premise of the parent poster is that the IRS is underfunded to deal with
> real large scale white collar crime, and as I understand you argue that’s
> not possible without splash damage to small buisinesses. But they're
> unrelated: you can specifically target large buisinesses, and you can make
> the government pay for audit services for small buisinesses.

The problem is large businesses largely aren't the ones committing tax fraud
-- hardly anybody is. Large businesses pay very low taxes because they hire
very good accountants, not because they have fraudulent returns. The problem
isn't that we need more audits, it's that we need better tax laws.

> The large Republican doners not only have large tax bills at stake but
> believe they should not.

Is it surprising that the people with the most money are the largest donors?
It's basically a prerequisite.

> Each one of these doners individually spends hundreds of times more than the
> national small buisiness association on lobbying

Because small businesses don't have huge margins to be spending on lobbying.
They're not a constituency because they donate, they're a constituency because
they vote.

> The idea is we should be outraged at the tax law and fix it, instead of
> celebrating the loopholes for billionaires.

But that isn't where the outrage is directed. Nobody is actually fixing the
laws -- either party. Even the Republican proposals (tax simplification, flat
tax etc.) would fix it, but they never get enough votes to pass it because
it's impossible to pass anything like that with the current level of
polarization. If you can't get a single vote from the other party then it only
takes a small handful in your own party to be corrupted by special interests
and it's impossible to fix the problem.

~~~
mattnewton
It sounds like we are in violent agreement about better tax laws, and where we
differ it’s only on the cost of auditing small businesses. Someone should do a
study :)

------
drb91
Obligatory Chickenshit Club reference:
[https://books.google.com/books/about/The_Chickenshit_Club.ht...](https://books.google.com/books/about/The_Chickenshit_Club.html?id=kOkqDwAAQBAJ&source=kp_book_description)

~~~
nothrabannosir
I've been meaning to read this book, is it actually good? Is it reliable, or
are the contents controversial?

~~~
justtopost
Why are those mutually exclusive in your mind?

~~~
nothrabannosir
Controversial means i have to do a lot of research to determine whence the
controversy and which side to trust, if any. (Which I don’t have the domain
knowledge nor time for.)

Lack thereof, many people agreeing on the contents, is a sign that you can
read the book and (sort of) trust it.

Nothing guarantees nothing, cogito ergo sum and all that, but it’s a good
heuristic.

“In my mind,” of course ;)

