How ordinary Americans suffer when the rich and powerful use tax dodges or break the law to get richer and more powerful--and how we can stop it.
There is an elite crime spree happening in America, and the privileged perps are getting away with it. Selling loose cigarettes on a city sidewalk can lead to a choke-hold arrest, and death, if you are not among the top 1%. But if you're rich and commit mail, wire, or bank fraud, embezzle pension funds, lie in court, obstruct justice, bribe a public official, launder money, or cheat on your taxes, you're likely to get off scot-free (or even win an election). When caught and convicted, such as for bribing their kids' way into college, high-class criminals make brief stops in minimum security "Club Fed" camps. Operate the scam from the executive suite of a giant corporation, and you can prosper with impunity. Consider Wells Fargo & Co. Pressured by management, employees at the bank opened more than three million bank and credit card accounts without customer consent, and charged late fees and penalties to account holders. When CEO John Stumpf resigned in "shame," the board of directors granted him a $134 million golden parachute.
This is not victimless crime. Big Dirty Money details the scandalously common and concrete ways that ordinary Americans suffer when the well-heeled use white collar crime to gain and sustain wealth, social status, and political influence. Profiteers caused the mortgage meltdown and the prescription opioid crisis, they've evaded taxes and deprived communities of public funds for education, public health, and infrastructure. Taub goes beyond the headlines (of which there is no shortage) to track how we got here (essentially a post-Enron failure of prosecutorial muscle, the growth of "too big to jail" syndrome, and a developing implicit immunity of the upper class) and pose solutions that can help catch and convict offenders.
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Defining White Collar Crime
Philadelphia is a city where revolutionary ideas come to life. It was there one cold December evening in 1939 that Professor Edwin H. Sutherland shared a breakthrough theory he'd been developing for over a decade. The soft-spoken sociologist from Indiana University chose the Crystal Ballroom of the eighteen-story Benjamin Franklin Hotel to unveil his transformative criminology framework. The location fit his circumstances. The swank hotel was just three blocks down Chestnut Street from the old Pennsylvania State House, where the founders signed the Declaration of Independence and the framers attended the Constitutional Convention. To be clear, Sutherland's crowd was not a bunch of provocateurs eager to shake up society. This was a stuffy assemblage of sociologists and economists gathered together for the joint annual meeting of the American Sociological Society and the American Economic Association. As the society's outgoing president, Sutherland was scheduled to deliver an address on the first night of the conference. They were not expecting a revolution.
Sutherland's demeanor was genial and his words bland, but the lecture-"The White Collar Criminal"-gave the world a catchphrase and launched an entire discipline. Half a century later, experts acknowledged that it had "altered the study of crime throughout the world in fundamental ways by focusing upon a form of lawbreaking that previously had been ignored by criminological scholars." It was an impressive legacy for a Nebraska-born man who began his career in sociology with a correspondence course offered by the University of Chicago's Home Study Department.
Sutherland crushed the conventional wisdom as to the causes and nature of crime. He asserted that his peers' current "conception and explanations of crime" were both "misleading and incorrect." Crime was not "closely correlated" with poverty or the "psychopathic and sociopathic conditions statistically associated with poverty," he said. To support his fresh perspective, Sutherland attacked the data. He explained that experts drew the wrong conclusions about crime because the data were incomplete. While it was true that "less than two percent of the persons committed to prisons in a year belong to the upper class," this did not mean that the elite were saintly. The way that crime was "popularly conceived and officially measured" was wrong. The standard measurement tools were lacking. Where did the bad numbers come from? He explained that criminologists narrowly studied "criminals handled by the police, the criminal and juvenile courts, and the prisons." They myopically focused on "such crimes as murder, assault, burglary, robbery, larceny, sex offenses [and] drunkenness." Excluded from what should be the accurate count, he said, were "vast areas of criminal behavior of persons not in the lower classes."
Sutherland's core thesis in his address that evening came down to this. The experts were not looking at all crime. By ignoring the criminal behavior of professionals, businessmen, and even tycoons, they had a wildly inaccurate picture of who was in the criminal "class." Based on his own detailed research into fraud and conflicts of interest in business and politics, he surmised that crime was not concentrated among the poor. Pulling no punches, Sutherland named names. First, he spoke of the nineteenth-century "robber barons," deeming them "white collar criminals, as almost everyone now agrees." He quoted American industrialist Colonel Cornelius Vanderbilt as admitting his own criminal tendencies when he once quipped, "You don't suppose you can run a railroad in accordance with the statutes, do you?" Sutherland went on to shame various contemporary "merchant princes and captains of finance and industry." Crime was rampant in all occupations, he informed his audience. In particular, "criminality has been demonstrated again and again in the investigations of land offices, railways, insurance, munitions, banking, public utilities, stock exchanges, the oil industry, real estate, reorganizations committees, receiverships, bankruptcies, and politics." White collar criminals were everywhere, he said. It didn't take academic training to discover this. Just ask around. He suggested striking up a conversation with a businessman "by asking him, 'What crooked practices are found in your occupation?'"
In Search of a Wider Web
Accurately measuring criminal behavior in the upper class was more than just an academic exercise, Sutherland made sure to explain. There were concrete costs and individual victims, and the general public paid a price for these crimes. He contended that the financial cost of white collar crime was likely "several times as great as the financial cost of all crimes which are customarily included in the 'crime problem.'" By way of example, he noted that an "officer of a chain grocery store embezzled" in one year "six times as much as the annual losses from five hundred burglaries and robberies of the stores in that chain." Those costs are passed along to customers via higher prices. He was also concerned with the social impact of white collar criminality. He believed that, more so than street crime, white collar crime creates distrust and "produces social disorganization on a large scale."
Sutherland's most controversial point was that, when studying the crimes of the upper class, scholars should cast a net wider so as to capture more than just actual convictions by criminal courts. Toward this goal, he also wished to include in his definition of criminal behavior those unlawful actions by big-business leaders that led to civil enforcement by government agencies. By way of example, he pointed to antitrust enforcement actions brought by the Federal Trade Commission.
Using Sutherland's framework, I would label former Countrywide Financial CEO Angelo Mozilo a white collar criminal in light of his $67 million settlement of civil fraud and insider trading charges with the SEC in 2010. The government accused him of relying on insider information when he made $140 million in profits selling stock in 2008. According to the SEC, Mozilo also misled investors by claiming Countrywide was in good shape, falsely claiming that they had focused on making high-quality mortgage loans. In reality, as one SEC enforcement attorney explained, Mozilo "knew that Countrywide was gambling with increasingly risky mortgages and he kept those details from investors while he was actively taking his own chips off the table." The settlement was small change for Mozilo, who reportedly earned more than $500 million in the decade leading up to the crisis. Plus, Bank of America (which had purchased Countrywide) chipped in $45 million of the settlement as required under the indemnification provision in Countrywide's employment agreement with Mozilo. As part of the deal, the SEC barred him from ever again serving as an officer or director of a public company. Mozilo was by then seventy-two. A few months later the Justice Department decided to drop the criminal case against him.
Similarly, Sutherland believed that "convictability"-not an actual conviction-should be the defining factor. He also suggested we count as "criminal" any potential conviction that was "avoided merely because of pressure which is brought to bear on the court or substitute agency." While this might seem like a stretch, he reminded his listeners that night that addressing these unprosecuted acts was conventional practice when it came to studying mob activity. "Gangsters and racketeers have been relatively immune in many cities because of their pressure on prospective witnesses and public officials." Yet "conventional criminologists do not hesitate to include the life histories of such criminals as data." The same approach should be used for high-status offenders.
Sutherland also innovatively suggested that accessories to white collar crimes who are not prosecuted should still be included when measuring the extent of criminality. Once again, he used precedent from street crime studies to support his argument. When the FBI investigates a kidnapping, he explained, "it is not content with catching the offenders who carried away the victim; they may catch and the court may convict twenty-five other persons who assisted by secreting the victim, negotiating ransom, or putting the ransom money into circulation." In contrast, "the prosecution of white collar criminals frequently stops with one offender." To further illustrate how a double standard skewed the data, he recounted the story of T. J. Pendergast, "the late boss of Kansas City," who was convicted in connection with failing to report as taxable income bribes he received from fire insurance companies; yet, Sutherland noted, "the insurance companies which paid the bribes have not been prosecuted." Pendergast, who on the eve of trial pleaded guilty for income tax evasion, was sentenced to fifteen months in Leavenworth.
The influence of money, Sutherland warned, shaped everything from legislation that defines crime to sentencing of criminals. The elite class had the power to define what was criminal and could more readily change laws that either disfavored them or interfered with their predatory business practices. Due to access to power, unlike low-level offenders, white collar criminals "have a loud voice in determining what goes into the statutes," as well as how existing law "is implemented and administered." They can lobby to make laws too weak to deter the relatively large and powerful. Sutherland cited Daniel Drew, a legendary stock manipulator, who once opined, "Law is like a cobweb; it's made for flies and the smaller kinds of insects, so to speak, but lets the big bumblebees break through."
His critique of sentencing disparities resonates today, eighty years after he spoke. "The crimes of the lower class are handled by policemen, prosecutors, and judges, with penal sanctions in the form of fines, imprisonment, and death." Yet he noted, "The crimes of the upper class result in no official action at all, or result in suits for damages in civil courts, or are handled by inspectors, and by administrative boards or commissions, with penal sanctions in the form of warnings, orders to cease and desist, occasional rescinding of a license, and in extreme cases with fines or prison sentences."
This was more than just an arcane debate about nomenclature and measurement, he concluded. How we describe crime impacts how we both pinpoint the causes and come up with solutions to stem it. Poverty did not cause criminality. But what did? He sought an alternative theory that might explain the crimes of both the upper and lower classes. The hypothesis he settled on was that crime is learned. Through relationships with others, future offenders learn motives, values, techniques, and rationalizations. He set it out starkly: "Those who become white collar criminals generally start their careers in good neighborhoods and good homes, graduate from colleges with some idealism, and, with little selection on their part, get into a particular business situation in which criminality is practically a folkway, and are inducted into that system of behavior." Similarly, the "lower class criminals generally start their careers in deteriorated neighborhoods and families, find delinquents at hand from whom they acquire their attitudes toward, and techniques of, crime."
In a pithy aside, Sutherland found an interesting distinction between the two classes. "The inventive geniuses for the lower class criminals are generally professional criminals, while the inventive geniuses for many kinds of white collar crime are generally lawyers." Reader, this lawyer agrees.
Stealing Candy from a Baby
The following morning, news of Sutherland's groundbreaking speech splashed across national and local newspapers. The New York Times carried the story at the top of page twelve, with the all-caps headline "hits criminality in white collars," followed by a series of subheads, including, "Dr. Sutherland Says the Cost of Duplicity in High Places Exceeds Burglary Losses." Reporters quoted Sutherland as saying that the day's white collar criminals "are more suave and deceptive" than the nineteenth-century robber barons. He also asserted "in many periods more important crime news can be found on the financial pages of newspapers than on the front pages." Likening their actions to "stealing candy from a baby," he said crime blossomed "where powerful business and professional men come in contact with persons who are weak." These offenders included financiers who betrayed the public's trust with "misrepresentation of asset values and duplicity in the manipulation of money." Nearby, the Philadelphia Inquirer featured Sutherland's findings above the fold on the Public Ledger page with its largest headline: "Poverty Belittled as Crime Factor: Sociologist Cites Frauds in Business." The lead paragraph dramatically described his "withering denouncement of 'white collar criminality'" and his "revolutionary approach to the previously accepted theories of criminal behavior."
As expected, his public challenge of powerful business leaders as criminals was not received well in that community. But Sutherland was just getting started.
Corporate Crime Focus
After his presidential address was published under a slightly different title in February 1940 in the American Sociological Review, Sutherland spent another decade engaged in further research to expand it into a book. The 1949 book, unlike the speech, went far beyond individual misconduct. It focused instead on corporate crime. Sutherland zeroed in on what he deemed to be criminal behavior by the seventy largest U.S. manufacturing, mining, and mercantile corporations. He suggested that the majority of them could be classified as habitual criminals. As one contemporary reviewer aptly noted, "The picture which emerges is not a pretty one." Bundled together on his list of infractions were those offenses that lawyers would consider actual criminal matters as well as civil cases. His publisher, Dryden Press, fearing a defamation case, insisted that the names of the corporations be removed from the manuscript before publication. Even his employer, Indiana University, pressured him to remove the corporate names. The pressure was so strong that Sutherland ultimately caved, excising the names of all of the corporations and excluding an entire twenty-page chapter titled "Three Case Histories." Many decades later, in 1983, his groundbreaking book was republished in full by Yale University Press as White Collar Crime: The Uncut Version.
Sadly, Sutherland would never know the tremendous impact he had. Months after publication, in October 1950, he slipped and fell while walking from home to campus. Whether he fell victim to a stroke or seizure is unclear. One hopes that, at the very least, he was privy to the many glowing law journal reviews of his book. One write-up said the book presented a "deadly exposŽ of a way of life which society complacently accepts" and merited "excited promotion rather than mere reviewing." Another offered a mixture of praise, skepticism, and solid advice. It described White Collar Crime as a "contribution of first-rate importance" and commended Sutherland for continuing his exploration of "that rich, but largely unexplored field-violation of law in the American business community." The author noted that Sutherland's "data on the prevalence of white collar crime shake the very foundations of our whole system of reformed and regulated capitalism." However, he also criticized him for failing to distinguish among petty regulatory missteps that a corporation might make and bad actions that victimize many. Reservations notwithstanding, the punchline remained: "Professor Sutherland's survey poses a critical problem for American democracy."
Table of Contents
Preface: Crime Scene ix
Chapter 1 Defining White Collar Crime 1
Chapter 2 Harm Beyond Measure 13
Chapter 3 Corporate Crime Waves and Crackdowns 27
Chapter 4 Victims in the Shadows 65
Chapter 5 Mutually Assured Immunity for the Upper Class 91
Chapter 6 Forgiveness for the Fortunate 119
Chapter 7 Whistleblowers and Journalists 137
Chapter 8 A Contagion of Public Corruption 157
Chapter 9 Suspicious Minds 193
Chapter 10 Tax and Punish 205
Chapter 11 The Six Fixes 217
Epilogue Crime After Trump 225