Corporations are people who don't go to jail when they commit crimes

Although corporations are presumed to be people when it comes to campaign contributions, per the US Supreme Court's Citizens United ruling, they are not the sort of people who go to prison when they break the law.

Por ejemplo, if you or I were found to have engaged in "illegal distribution of controlled substances," spurring a a US Attorney to publicly avow our actions were a "threat to public health and safety," one would certainly expect serious prison time. But, for CVS and HEB pharmacies, who allegedly sold drugs to an unlicensed doctor, the result was a stiff fine: "CVS Pharmacy, Inc. paid a civil penalty of $1,912,500 on Thursday, while H-E-B paid $262,500 in early August to resolve the alleged violations of the Comprehensive Drug Abuse Prevention and Control Act of 1970," reported the Houston Chronicle ("HEB, CVS, pay more than two million in drug penalties," Sept. 5).

This pattern became apparent after the 2008 financial scandals: Crimes by corporations result in civil settlements that would never be available to  an individual defendant in lieu of, say, a plea bargain.

(On the flip side, the justice system seems to offer little recourse when corporations are victims of major crimes, only minor ones. A shoplifter, they can arrest; the hacker who steals millions of credit card numbers from Target is virtually untouchable.)

To be clear, I'm not calling for HEB nor CVS to be prosecuted further, nor for any individual in the company to face prison time. The deal is done. Perhaps instead, though, the same civil settlement approach should be available to other "people" who are not, like corporations, legal fictions designed to distance owners from personal liability? What's good for the goose ...

RELATED: From The Consumerist (Sept. 12): "How corporations got the same rights as people but don't ever go to jail."

Dallas DA's mortgage litigation crumbles under its own weight

A huge proportion of those prosecuted in the criminal justice system are poor folks represented by underpaid, appointed counsel. That may explain why, when it comes to white-collar crime, Texas prosecutors generally find themselves out-gunned, lacking the expertise or political will to aggressively pursue cases. And when they try, it frequently doesn't end well. The Dallas News has a story about a white-collar criminal prosecution that backfired after Dallas DA Craig Watkins out-sourced the case to politically connected attorneys. The article by Kevin Krause in today's paper opened:

A settlement in a complicated lawsuit in which Dallas County District Attorney Craig Watkins retained high-powered outside lawyers in an attempt to recover tens of millions of taxpayer dollars has died because those lawyers and the county couldn’t agree on legal fees.

After county commissioners kept delaying a vote on the proposed settlement, mostly because of the fee dispute, U.S. District Judge Reed O’Connor threw out the bulk of the lawsuit earlier this month.

Now the attorneys — most of whom are allies of Watkins or the Democratic Party — and the county both are empty-handed. The only satisfied party is the suit’s defendant, Mortgage Electronic Registration System.

“We are very pleased with this development,” said Janis Smith, Merscorp’s vice president for corporate communications. “The scope of this case has been substantially narrowed.”

Merscorp is the parent company of MERS. ...

The suit alleges that MERS — which was founded by Fannie Mae, Freddie Mac and several large U.S. banks in 1995 — was a conduit for buying and selling mortgages by lenders. The suit said MERS avoided paying recording fees to the county when mortgages changed hands, as required by law.

The county was seeking to recoup years of lost revenue from those recording fees. Other counties across the nation also filed similar suits against the company. MERS has won many of those cases.

To be fair, if the feds had aggressively pursued white-collar offenses after the derivatives mortgage-related financial fiasco nearly brought down the US economy several years ago, local prosecutors wouldn't be stuck trying to go after these complicated cases piecemeal. But the episode suffers from bad optics - particularly the selection of politically connected attorneys to spearhead the case - and demonstrates why white-collar offenses tend to go un-prosecuted and un-punished while poor folks fill up the jails and prisons for much smaller-scale matters.

Similar litigation has been greenlighted in Nueces County. Too bad Dallas couldn't get its act together.

CORRECTION: An attorney friend emailed to say, "It isn't really 'derivatives' litigation.  That word indicates a securities law case.  MERS is about the mortgage industry creating a straw man non profit of sorts to 'hold' mortgages while the notes are traded behind the scenes.  The consumer/debtor has no idea -- and no way of confirming -- who really owns the debt they owe.  And counties get screwed out of filing fees.  Although the liens and notes are changing hands, the county records are not updated." She's entirely correct, I misstated that, should have known better, and regret the error.

White collar fraudsters steal thousands times more than Class C shoplifters

A pair of stories out of Dallas related to theft enforcement - in particular shoplifting and Medicare fraud - struck me as emblematic of the priorities of policing that frequently frustrate your correspondent. First, since I've sometimes criticized prosecutors at USDOJ's Texas districts for de-prioritizing white-collar offenses to focus on increasingly vast volumes of immigration litigation, I should note in a positive light a major prosecution effort aimed at stemming Medicare fraud. Jim Landers' story ("More Dallas area home health care prosecutions likely as over 800 agencies face fraud inquiries," Oct. 6, behind paywall) at the Dallas News opened:

Something’s rotten about home health care in Dallas.

So far this year, federal investigators have brought charges against several area doctors and nurses, alleging they billed Medicare for more than $475 million in fraudulent claims. The cases involve at least 800 home health care agencies in the Dallas-Fort Worth area that are accused of participating in the schemes.

The owners and operators of five of those agencies are facing fraud charges. An additional 78 have seen their Medicare reimbursements suspended while investigators comb their records. For the rest, federal prosecutors say their investigations continue.

“There are several people now — agents and prosecutors — working up these cases, people who are devoted full time to do these cases,” said a Justice Department official who spoke on condition of anonymity. He characterized the indictments to date as “just the tip. There’s still a lot more cases to be brought.”

These are vast numbers: 800 area businesses collectively defrauding Medicare of nearly half a billion dollars! Extraordinary! And the issue is not isolated in Big D.

In urban areas across the country, Medicare paid for an average of 14.4 care episodes for every 100 beneficiaries in 2010. In the Dallas-Fort Worth area, the rate was more than double that — 38 cases per 100 beneficiaries.

(The seven highest rates in the country were recorded in South Texas. Brooks County had 150.4 episodes of care for every 100 beneficiaries, according to an analysis this year by the Medicare Payments Advisory Commission.)

Texas has more claims than other states in part because it does not require home health care agencies to get a “certificate of need” before setting up a business, the commission noted. Many other states limit the number of home health care agencies by requiring them to spell out the need for their services.

Prosecution provides a stick, but there's an homage at the end of the story to the reality that a long-term solution must be structural and preventive, not relying just on cops, prosecutors and jails to prevent corporate crime. "The Partnership for Quality Home Health Care, a national organization representing more than 1,500 home health care companies, told Congress this summer that the new “aberrant payment prevention” software saved $853 million in 2010 and could save another $11 billion over the next decade."

In the end, while it's necessary to punish white collar criminals to provide some disincentive for what's alleged to be rampant cheating, there's also a responsibility for government to prevent cheating through its own systems, which is where, according to the News, the process fell down with Texas' failure to effectively regulate home health providers. This is a case where Texas' unwillingness to regulate business has allegedly facilitated outright criminality. Businesses may dislike regulation, but surely they also dislike competing in an industry full of fraudsters who are dealt with, though rarely, mainly via prosecution.

A second Morning News story by Tanya Eiserer and Steve Thompson ("Changes to Dallas police shoplifting policy spur drop in crime rates," Oct. 6) details changes in Dallas police record keeping for petty, Class C shoplifting thefts in a way that made reported theft artificially drop this year. The Chief dubiously claimed a major drop in petty theft was not "because of a new policy that makes it harder for store owners to report shoplifting cases under $50." Instead, "Police Chief David Brown last week disputed that finding, saying the low numbers of reported retail thefts are the result of good police work, not the change in reporting policy. He said his department’s new crackdown on “fences” — people who buy and sell stolen goods — drove shoplifting lower."

Whether that claim is justifiable (and it's probably not), the underlying policy IMO was sound. "The change in the response policy freed up officers for the [anti-fencing] task force, Brown said. The idea was to treat theft cases much like drug cases, focusing on big operations rather than individual small-time criminals."

A comic-store clerk complained of extra paperwork now required to report a theft, declaring, "Last time I checked, the police are there to protect me, not to have me do their paperwork.” OTOH, he's afforded the shopkeeper's privilege, so if he wants to exercise that privilege, perhaps it's not unreasonable to oblige him to fill out some forms. In any event, according to the News, as soon as the new paperwork was required there was a rapid dropoff in reported shoplifting:

An analysis of the year’s petty shoplifting reports suggests that store operators like Shorr have become less likely to report minor shoplifting incidents. The reports plummeted Jan. 5. That’s exactly the day the new reporting policy took effect.

Before that date, minor shoplifting offenses averaged about 10 a day. Immediately afterward, that average fell to fewer than three a day. The average has remained steady at that lower level since.

With police recording about seven fewer petty shoplifting offenses a day, the reductions have accumulated. By the end of August, petty shoplifting had fallen by 1,692 reports — 73 percent — compared with the same period the year before.

Let's extrapolate. If the department previously received an average of ten reports of Class C shoplifting per day and the number reduced to three because of the new policy, that would mean DPD formerly took 3,650 such reports per year and the paperwork requirement reduced it to somewhere in the neighborhood of  1,100 per year. So let's say the real number should be 3,650 and the average amount stolen (a generous estimate; I have no idea what the real number is) was $40 per incident, then the total amount stolen would collectively come to $146,000.

Now compare that $146,000 worth of societal cost to the $475 million in allegedly fraudulent claims by 800 Dallas area home-health companies, with more potential Texas targets so far un-prosecuted.

Certainly, shoplifting is the kind of public order offense that can't be allowed to run rampant, but businesses are responsible for their own security as it regards Class C theft, and as the Morning News story noted, the larger retailers devote considerable resources toward low-level "loss prevention." Just as Medicare is installing preventive mechanisms, some responsibility for theft prevention falls on businesses themselves.

At the same time, it often galls me to see so much attention paid to petty criminals like Class C shoplifters, who are more pathetic than dangerous, while corporate criminals - whether on Wall Street or at DFW-area home health agencies - are robbing the public blind, in this case allegedly stealing more than three-thousand times the amount annually attributable to Class C shoplifters in Dallas. Those undetected financial crimes don't show up in crime statistics, just like the Class Cs now missed in the records because Dallas shopkeepers don't fill out their paperwork. But as a taxpayer, I'm a lot more concerned about the white-collar offenses we don't hear about than I am Class C shoplifting thefts that never made it into the record.

Criminal corporations: Prof argues 'corporate criminal liability is a question of corporate power'

The US Supreme Court's Citizens United ruling, famously echoed by GOP presidential candidate Mitt Romney, held that corporations are people (and thus possess free speech rights). But that hasn't stopped some in academic and corporate circles from maintaining that corporations should be exempt from criminal law. This author, for example, in 2009 compared criminal punishment of corporations to punishing animals or inanimate objects (likening it to a biblical practice archaically referred to as "deodand"). Others argue criminal law should focus on the individuals engaged in misconduct instead of punishing a "legal fiction." But the Corporate Crime Reporter alerts us to a rebuttal to such views in a story which opens:

The question of corporate criminal liability is a question of corporate power.

That’s according to Charles R.P. Pouncy, a professor of law at Florida International School of Law in Miami. Pouncy is author of, most recently, Reevaluating Corporate Criminal Responsibility: It’s All About Corporate Power (Stetson Law Review, 2012).

Pouncy tackles head on the increasingly popular idea that we should eliminate corporate criminal liability.

“The notion that corporations, and derivatively, capital, should be exempt from punishment under the criminal law — which expresses societal standards and expectations — is inconsistent with the expectations of most members of the communities that corporations inhabit,” he writes.

“This challenge against using the criminal law to control corporate behavior is a component of a larger struggle . . .to determine which forces will control the shape of future society,” he writes. “It is a struggle about which institutions will structure the nature of the world we live in.”

“Will human societies be controlled by the institutions that have structured their existence for the last few thousand years —  kinship, community, religion/philosophy, and social provisioning?” Pouncy asks. “Or will economic institutions, specifically the institutions of the corporation and capital, dominate society and subordinate its human members to the interests of its artificial citizens and their advocates?”

“The question of the corporation’s and capital’s accountability to the criminal law is one of the frontlines in determining whether the . . . principles organizing human societies are designed to serve the interest of corporations or of people. Therefore, this question is central to whether human power will be supplanted by the power of artificial entities.”

I recall a humorous sign from one of the Occupy Wall Street rallies that declared, "I'll believe corporations are people when Texas executes one."

In truth, though corporations theoretically may be held criminally liable, in practice that itself a legal fiction. When companies are caught engaging in bribery or money laundering, for example, they're inevitably allowed to squeeze out from under criminal charges via civil penalties and financial settlements under "deferred plea agreements." Rarely if ever are the companies themselves or corporate officials who made such decisions held criminally responsible for such behavior. If corporations are people, though, why shouldn't they be subject to criminal sanctions?

Prof. Pouncy contends that, "money alone does not satisfy society’s need to condemn the behaviors it finds damaging to its interests," arguing that "the prospect of having to endure moral condemnation" under criminal law supplies greater deterrent. For my part, I think a) that the idea that corporations are people is BS and b) symbolic condemnation matters much less to corporations than financial liability. I'd rather see individual corporate decision makers held criminally responsible, with corporations punished through regulatory sanctions and civil liability. But in the wake of Citizens United, the personhood of corporations, however absurd, now has been enshrined as the law of the land. And if corporations are people, it follows they can be criminals.

Banks, businesses central to money laundering but mostly ignored by Texas law enforcement

After British banking giant HSBC was called on the carpet by Congress for alleged money laundering this summer, two American banks which received among the largest bailouts from the federal government back in 2008 - Bank of America and J.P. Morgan - are under investigation regarding similar allegations, reported the New York Times on Friday:

The surge in investigations, compliance experts say, is coming now because authorities were previously inundated with problems stemming from the 2008 financial turmoil. “These issues may have been put on hold during the financial crisis, and now regulators can go back to focus on money-laundering and other compliance problems,” said Alma M. Angotti, a director at Navigant, a consulting firm that advises banks on complying with anti-money-laundering rules. 

Until now, investigators have primarily focused on financial transactions at European banks, most recently Standard Chartered. The authorities accused several foreign banks of flouting American law by transferring billions of dollars on behalf of sanctioned nations. 

As the investigation shifts to American shores, the Justice Department and the Manhattan district attorney’s office are moving beyond those violations to focus on money-laundering, in which criminals around the globe try to hide illicit funds in United States bank accounts. If these new cases follow the pattern of previous ones, prosecutors could follow up on regulatory actions with their own complaints.

Readers may recall that another bailout recipient, Wells Fargo (through their now-defunct subsidiary Wachovia), was alleged along with Bank of America as having been involved in laundering money for Mexican drug cartels back in 2010. Another banking giant which received an enormous bailout in 2008, Citigroup, earlier this year was also cited for lax oversight in this area, reported the Times:

In April, the regulator issued a cease-and-desist order against Citigroup for gaps in its oversight of cash transactions. The order cited “internal control weaknesses including the incomplete identification of high-risk customers in multiple areas of the bank.” A person close to the bank attributed part of the problem to an accident when a computer was unplugged from anti-money-laundering systems.

Citi did not admit or deny wrongdoing, but said in April that it had already undertaken many of the reforms required.

So now the four US banks which received the largest federal bailouts - $25 billion each for Wells Fargo,  J.P. Morgan, and Citigroup, and $15 billion for Bank of America - have all been implicated in alleged money laundering activities.

Indeed, one of the reasons such investigations were likely "put on hold" during the 2008 banking crisis, as the Times put it, is that, according to the United Nations Office on Drugs and Crime, during that period laundered drug money was one of the few remaining sources of liquidity for global banks. Reported the UK Guardian in 2009, "Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were 'the only liquid investment capital' available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result."

Back in April, the Texas Senate Criminal Justice Committee held a hearing on money laundering, which Grits finally listened to online yesterday after reading these latest news stories. But if one were to judge from law enforcement testimony at that hearing, you'd never think banks were remotely involved in the practice. Instead, their focus was almost exclusively on bulk smuggling of cash, which DPS Col. Steve McCraw claimed is the number one technique of the six major cartels operating in Texas for repatriating funds to Mexico. However, even from testimony provided at that hearing, to this writer it didn't seem credible that that's the main method. After all, the cartels need to exchange bulk cash for Mexican pesos (usually), and for that it needs to be laundered.

While DPS focuses mainly on seizures by troopers, said McCraw, David Maxwell, deputy director of law enforcement at the Attorney General's office and a former Texas Ranger, told the committee their office has just 11 investigators who "concentrate on the financial end of it," but "that is miniscule compared to the overall scope of the problem," which he called "just amazing." Huge sums of money he said, are siphoned through front companies, citing one investigation alone where more than 100 corporations linked back to a cartel.

Maxwell said the main trigger for financial investigations are "SARs," or Suspicious Activity Reports. There were 70-90,000 SARs in Texas last year, he said, and out of those approximately 130 people were prosecuted statewide. In addition, he said, businesses must report on IRS form 8300 if they take in cash $10,000 or greater, but he admitted that nobody seriously investigated cash deposits below that threshold.

State Sen. Juan "Chuy" Hinojosa questioned Maxwell whether that omission left out a wide swath of money laundering activity: "I see businesses, for example, in the Valley that we know they are not making a profit but they take in a lot of cash and then they report it and pay their taxes or whatever." (Viewers of the hit TV show Breaking Bad will recognize this model from Walter White's car wash.) Maxwell said that unless deposits exceed $10,000, or someone reports the illicit activity of their own volition, those types of transactions are seldom prosecuted.

Indeed, all the suggestions offered for improving anti-money laundering enforcement at the Texas hearing in April focused on the lowest folks on the cartel totem pole - so-called "mules" carrying bulk cash, often for as little as a 1% fee. Justin Wood of the Harris County District Attorney's office said that most cases they prosecute involve small-time mules at airports or bus stations. Practically speaking, he said, when someone is detained with large sums of cash, they are questioned and hopefully they admit it. Otherwise, in many cases, without an admission, their "hands are tied." Often mules are chosen because they have no history of drug involvement. And even if drug dog alerts on the cash, he said, there's research that says there is drug residue on much of the money in your wallet. Law enforcement can still seize the money, he said, but often can't prosecute without an overt admission.

His solution: Reduce the level of mens rea - or criminal intent - that prosecutors are required to prove in bulk seizure cases. Wood wanted to change the "intent element" in such cases to include a "duty to inquire." State Sen. Glenn Hegar asked what good it would do to prosecute mules, who Wood admitted are typically extremely poor and very "low on the totem pole." Even if such individuals had a duty to inquire, said Hegar, they likely wouldn't be cognizant of it. "You're probably right," Wood replied.

Houston PD narcotics detective Martin Skeen granted that his department focused mainly on bulk cash instead of commercial money laundering, but considered it justified because "We not only fund our own initiatives, we actually make a profit." For every dollar spent on interdiction activities, he said, they seize $2-3. However, he admitted, the people they deal with are typically lowest link in the food chain, often smuggling $50K in cash for just $500, he said.

Over the years, I've come to view this focus by law enforcement on bulk cash smuggling as all but willfully ignoring the larger problem, which of necessity given the vast sums involved must implicate multinational banks and businesses. Impoverished mules, who as Sen. Whitmire noted can be "replaced overnight," make relatively easy targets compared to bankers with a cavalcade of attorneys at their beck and call. And as Skeen noted, focusing on such low hanging fruit generates "profit" whereas marshaling resources to go after well-heeled banks and businesses has a higher cost-benefit ratio for law enforcement from a funding perspective.

Also, just as with the banks during the financial crisis, focusing on money laundering at businesses would risk harming the state economy, whereas seizing bulk cash transfers has fewer domestic economic implications. If a cartel front company buys a crate of tomatoes in the Rio Grande Valley, for example (or really, any commodity), and resells them in Mexico, that generates income for Texas businesses, taxes for the government, etc.. I've often wondered if the failure to more aggressively pursue such activities doesn't stem mainly from a desire not to kill the goose laying golden eggs.

Odds and Ends: On the harmlessness of being convicted of a non-existent crime

Here are a few odds and ends that deserve Grits readers' attention:

Praising Pat Lykos
Newsweek has an article this week praising Pat Lykos' transformation of the Harris County District Attorney's office that would make Murray Newman pull his hair out if he had any. (Just kidding, Murray, and my sincere condolences on your friend's recent tragedy.)

Everybody wants a piece of asset forfeiture money
The Department of Public Safety has $140 million in seized drug money that the Legislature would like to tap to help solve its budget woes, but Mario Carillo at Reporting Texas has a podcast declaring that Congressman Mike McCaul wants the feds to require that money be spent on border security.

DNA testing access expanded
The Senate this week passed a bill by state Sen. Rodney Ellis expanding access to postconviction DNA testing, eliminating procedural hurdles that have in the past delayed proving innocence in several cases. Said Sen. Ellis in a press release, "SB 122 will ensure that if there is DNA evidence available to prove someone's innocence, it can and will be tested. ... No longer will the door to justice be shut just because of a procedural error."

Budget crunch has Dallas deputies eating what they kill
In Dallas, the county commissioners court has created a "strike team" to go after ticket scofflaws with a twist: If they don't collect enough money, the officers will lose their jobs, which are only funded as long as they pay for themselves, reports Kevin Krause at the Dallas News. I've heard of nonprofit fundraisers who're required to raise their own salary - who "eat what they kill," in the lingo - but applying that scheme to cops seems like a bad idea. As for the scofflaws, adds Krause, those who don't pay will be taken to jail, despite the fact that the county has only recently "gotten the jail population under control after years of crowding. Officials don't want to throw misdemeanor offenders in the jail, but [Commissioner John Wiley] Price said they will manage it." The county budget office even proposed forcing judges to increase fine amounts, but Krause reported that "Judges say they're sympathetic to the county's budget woes but that it's not their duty to save the county money. They say dispensing justice is their role and that you can't get blood from a turnip." UPDATE: A commenter rightly declares this policy may violate Sec. 720.002 of the state Transportation Code. Under that statute, "A violation of this section by an elected official is misconduct and a ground for removal from office."

Another counterproductive graffiti enhancement
After two decades of passing bills "enhancing" penalties for graffiti crimes, you'd think if higher criminal penalties were going to solve the problem it'd have done so by now. But the Texas House passed yet another graffiti "enhancement" bill this week, making it a state jail felony to apply graffiti to historic structures. (Thanks to past enhancements, it is already a state jail felony to do graffiti at schools, churches and community centers.) But like schools, churches and community centers, graff on historic structures is more likely to be a one-off, while the repeat offenders typically look for more out of the way targets that are more difficult to buff. Meanwhile, despite tens of thousands of graffiti crimes each year, fewer than 300 people annually are actually arrested and convicted for the offense. So boosting penalties for the handful of people actually caught is among the least effective tactics because it only ever applies to a handful of taggers. Because of this limited impact, the most effective graffiti policies focus more on non-criminal justice solutions, but the Legislature has pretty much been a one-trick pony on this subject.

Error in convicting Enron chief of non-existent crime deemed "harmless"
Tom Kirkendall and Ellen Podgor have excellent discussions of the implications of the latest Fifth Circuit  decision finding "harmless error" in the Jeffrey Skilling/Enron case regarding so-called "honest services fraud," with Tom decrying "the "utter vacuity" of the latest ruling. The Supreme Court declared the honest-service fraud statute invalid, but the Fifth Circuit said the prosecutors' error in relying on it was "harmless" because jurors could have convicted on other counts. Tom calls that "Poppycock," citing "the absurd amount of time that the prosecution spent during trial on Skilling's alleged honest services violations in regard to Photofete." Doug Berman says the decision makes Skilling's recent win at the Supreme Court "pyrrhic," but there's still a long way to go before this saga is complete: Next up: Re-sentencing at the District Court.

Geo Group corporate debt downgraded
For several years this blog has been following the growing debt burden of the Geo Group (formerly Wackenhut), which is one of the largest private prison operators. In their SEC filings for the last several years, GEO warned that its debt burden could "require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness." So I was interested to learn via NPR that in January the company's "credit rating was downgraded to B+." Quite candidly, though, the dynamics that caused the debt downgrade have been evident for some time; lowering the company's credit rating was long overdue.

What solutions exist for witness intimidation on both sides in criminal cases?

Catching up on my newspaper and blog reading this morning, I ran across two high-profile stories from outside of Texas on the subject of witness intimidation that deserve Grits readers attention:

By Criminals: From the Philadelphia Inquirer, there's a must-read series titled "Witnesses fear reprisal and cases crumble." According to this report, "Witness intimidation pervades the Philadelphia criminal courts, increasingly extracting a heavy toll in no-show witnesses, recanted testimony - and collapsed cases." A former prosecutor sums up the problem with this statement: "When people would ask me if I could guarantee their safety, I would say, 'Unfortunately, I cannot.'" (Just a taste of a massive series, btw, the whole thing is well worth a read.)

By Prosecutors: Meanwhile, via TalkLeft, I was fascinated to read a ruling (pdf) from U.S. District Court Judge Cormac J. Carmey dismissing a federal prosecution against William Ruehle, former CEO of Broadcom, finding that federal prosecutors had "intimidated and improperly influenced" three witnesses. In one particular instance, "The government met with [the witness] on 26 separate occasions and subjected her to grueling interrogation during which the government interjected its views of the evidene and, at least on one occasion, told her that she would not receive the benefits of cooperation unless she testified differently than she had initially in an earlier session." Jeralyn called Carmey's ruling the "strongest condemnation of prosecutorial abuse I've ever read."

Both types of witness intimidation are serious, endemic problems, though the brand being discussed in Philadelphia is much more frequently criticized. The Denver Post ran an also-excellent series on the topic a couple of years ago, finding that:

Only a handful of states have comprehensive witness protection programs and most do nothing to protect witnesses. Colorado's program has a $50,000 a year budget - cut from $100,000 this year by state lawmakers - which can be used to buy witnesses bus tickets or help them move to a new apartment.

But in the four years before [two local witnesses] were killed, the state spent an average of $29,895 a year protecting witnesses statewide, less than the amount Denver spends to plant flowers.

Most states including Texas and apparently Pennsylvania don't have comprehensive witness protection programs analogous to the feds. District Attorneys could conceivably spend asset forfeiture funds for that purpose, but I've never known one to do so. (For that matter, if I had my druthers, we'd be spending the Merida Initiative money in Mexico on witness protection instead of buying the Mexican Army helicopters.)

Regarding witness intimidation by prosecutors, that's arguably just as common and insidious a problem - one that's as difficult to solve as witness intimidation by crooks because prosecutors enjoy massive power and discretion combined with near-complete freedom from liability. In such a setting, with a mindset that one is fighting for the righteous cause of "justice," the line can be grey indeed between liberty and license.

In Florida this year, their legislature passed "Rachel's Law" which, among other protections, requires that law enforcement must "Provide a person who is requested to serve as a confidential informant with an opportunity to consult with legal counsel upon request before the person agrees to perform any activities as a confidential informant." That's a start.

But the witnesses being coerced in the Broadcom case were wealthy, educated people, presumably with high-dollar attorneys, and they still could not stand up to the overweening power prosecutors brought to bear to secure what appears to have been false testimony. Judge Carmey said she had "absolutely no confidence" that one witness' statements reflected her own memory as opposed to "what the government thought her recollection should be." (Jeralyn's right, you really must read the whole thing to get a sense of how disgusted the judge is with the US Attorneys' alleged misconduct.) Besides having strong judges willing to stand up to abuse, I don't know how you police such behavior.

Let me know in the comments: Which type of witness intimidation do you think is more common? Which is the greater danger? What solutions might exist for each type of witness intimidation besides traditional witness protection programs and strengthening the right to counsel?

Does rise in white-collar prosecutions stem from too-weak business regulation?

I've suggested before that white-collar crime prosecutions shouldn't be used as alternatives to industry regulation, but given how white-collar cases frequently play out in the real world, I can understand why that approach is politically and, to an extent, even practically justified.

Take the instance yesterday in which the state insurance regulator ruled that State Farm had overcharged its customers hundreds of millions of dollars over the last six years. Reports the Dallas News:

State Farm Insurance must repay its customers $310 million for charging them too much for homeowners coverage dating back to 2003, the state insurance commissioner ruled Monday.

The ruling by Insurance Commissioner Mike Geeslin, the latest in a years-long case, is for far less than the $1 billion that consumer advocates recommended, and one called it a "joke."...

Alex Winslow of Texas Watch, a leading consumer group on insurance issues, called Geeslin's ruling a "slap in the face," saying it cheats State Farm policyholders out of millions of dollars in excessive premiums.

"The commissioner has shirked his responsibility to Texas homeowners and proved that our current insurance market doesn't work," he said.

"Consumers had a right to expect a full and complete refund of all overcharges plus interest, and the commissioner chose to allow State Farm to pocket hundreds of millions of dollars rather than return that money to policyholders," he added.

A stronger regulatory system with teeth might have a) kept overcharges from happening in the first place or b) more completely compensated customers for the money State Farm charged them over the regulated rate. However, Texas' insurance commissioner is a political appointee and the big insurance companies in this state tend to get what they want, or most of it, from the political class - pretty much no matter which party is in power.

I know no more about this case than what's reported in the paper, but let's say it's true that State Farm overcharged its customers around $1 billion and now won't pay them back on the grounds that they'd go bankrupt. (The closing paragraph in the article says State Farm spent the money to pay back a loan to its parent company, so I don't see why that entity couldn't pay). Let's face it, if someone knowingly overcharges a customer then refuses to give the money back because they already spent it, that's tantamount to theft. And allegedly stealing a billion dollars is a big deal, even if it was stolen from thousands of ratepayers a few hundred dollars at a time.

To be clear, I don't think prosecuting insurance executives in rate disputes would benefit the ratepayers or, really, anyone at all. Historically American society hasn't dealt with that kind of corporate "theft" through the criminal justice system, which is designed to more effectively prosecute thefts by the poor - e.g., burglaries by druggies or the homeless guy for stealing copper wire from a construction site. Law enforcement isn't very effective at going after the guys who steal nine or ten-figure sums with a fountain pen instead of a gun, though in theory such offenses would merit life sentences in Texas (or 5-99) based on the amount of money stolen. Even when white-collar offenders are prosecuted and punished, rarely does that mean the crime victims get their money back.

The other option in such circumstances is civil litigation, but tort reform has made such large-scale class-action suits more difficult and less lucrative. Even when a suit can be pursued, attorneys regularly settle their cases for large fees but only symbolic compensation for the thousands of affected consumers - hardly a satisfying outcome.

In this case, reports the Dallas News, State Farm "was told to cut its rates 12 percent" in 2003. They "sued the state, and the case has been rolling around the courts since," but in the meantime they continued to charge customers the higher rates. So the company defied state regulators and knowingly continued to charge its customers more than state law allowed.

Regrettably, given a chance to order that they repay the full amount of the overcharge, Texas' one-man insurance regulatory body decided that State Farm needn't pay 70% of what they allegedly, improperly took. He had the chance to fix the problem on behalf of ratepayers, but instead created a situation where they apparently have no meaningful recourse through either civil or regulatory means to recoup 70% of what they were overcharged.

If ratepayers want justice, they clearly won't get it through the civil courts or state regulators - both have had their chance. So if they're not going to be fully compensated for what's taken from them, it's understandable why injured parties and the observing public would conclude that punishment in the criminal justice system is at least some justice if not the most preferable outcome, which would be recouping lost funds.

Such an environment of consumer/public frustration - where it appears government is incapable of fairly resolving middle-class disputes with corporate power - create a strong political motive for prosecutors to pursue white-collar crime cases, often over what used to be considered unfortunate, spectacular, but in the big capitalistic picture relatively routine, non-theft business losses.

There's a difference between a Bernie Madoff running an outright Ponzi scheme and a speculator who loses clients' money because the bubble they were hyping suddenly burst. (State Farm's case, to me, lies somewhere in the hazy middle on that spectrum.) And even Bernie Madoff should have been caught by regulators, it's just that the agencies in charge of oversight were lax, underfunded, incompetent and in some cases even corrupt.

In the wake of recent Wall Street debacles and bailouts, I'd harbored perhaps quixotic hopes that the coming months and years might find a more receptive environment for regulatory solutions regarding corporate misconduct, finding ways to resolve or (even better) prevent such imbroglios without the need for large-scale civil litigation, much less expensive, morally ambiguous white-collar criminal prosecutions aimed at satisfying an angry and vengeful public.

If state regulators and civil courts are too weak and disempowered to exact justice for consumers, it's only natural the public would turn to prosecutors for answers, since they wield enormous power - even if harshly punishing such "offenders" can't restore what's lost to victims. I'm just not sure who such an approach really benefits.

Might white collar cases be next venue for innocence claims?

Given the scope of subjects covered on this blog, I don't focus as often as perhaps I'd like on white-collar crime issues, but here are several recent posts on the topic from others that deserve Grits readers attention:

Doc Berman ponts to the abstract of an academic paper by White Collar Crime Prof blogger Ellen Podgor who suggests that "the next phase of wrongful convictions might move beyond street crimes into the white collar world" because the "trial penalty" for not cutting a deal is so great that "in order to minimize the possible consequences, innocence becomes an irrelevancy." I certainly agree that's a big cause of false convictions, and not just in the white-collar arena. So if it takes white-collar cases to put the issue on the map, so be it.

Some of the best recent writing I've seen on this topic has come from Tom Kirkendall at Houston's Clear Thinkers, who believes that "There is a huge difference between what Marc Dreier did and what Jeff Skilling did. It reflects poorly on us that our criminal justice system cannot distinguish between the two." His post, "The reeling prosecution in the Skilling case," is a must-read. In another post he points out that

it's not every day that a federal appellate court concludes that a newspaper's coverage of a particular event was a major factor in the creation of a presumption of community prejudice," but "that's precisely what the Fifth Circuit Court of Appeals did with regard to the Houston Chronicle's coverage of the demise of Enron generally and the prosecution of Jeff Skilling specifically (see pp. 41-45 of the Fifth Circuit decision).

This morning, reacting to the dismissal of charges against Enron Broadband Director Scott Yeager, Tom suggests Enron prosecutors grossly abused their prosecutorial authority:

The prosecutors who pursued these cases ruined careers and harmed families by abusing the state's overwhelming prosecutorial power. They remind me of Ayn Rand's observation about socialists who use state power to further their supposedly altruistic goals:

"[T]he truth about their souls is worse than the obscene excuse you have allowed them, the excuse that the end justifies the means and that the horrors they practice are means to nobler ends."

"The truth is that those horrors are their ends."

It's rather amazing to me that so many people in Washington refuse to regulate corporations but it's somehow fine to prosecute their leaders for bad business decisions. Tom's right, there's a difference between Ponzi schemers or bribe takers and aggressive businesspeople who played by the rules of the game at the time but ended up losing money. I couldn't cite chapter and verse, but my sense is that part of the reason this trend has developed is that tort reform has disempowered civil courts as a meaningful remedy for investors in these multi-billion dollar calamities, so punitive criminal charges are all that's left as a remedy to recoup what they can from the losses and assuage the public anger in the aftermath.

Houston's white-collar crime beat

Tom Kirkendall at Houston's Clear Thinkers has been a go-to source lately on white-collar crime coverage outta H-Town.

Discussing a Fifth Circuit opinion in Enron CEO Jeffrey Skilling's case, Big Tom notes that, "Inasmuch as there is now a clear split between Fifth Circuit decisions and other circuit appellate courts on the scope of honest services wire-fraud, the issue appears ripe for Supreme Court consideration. Indeed, Skilling's petition notes Supreme Court Justice Scalia's recent observation about the need for the high court to take up the issue."

He also describes alleged prosecutorial misconduct in the Skilling case that brings to mind the Ted Stevens prosecutors withholding evidence. Tom writes:

After Skilling's conviction, the Skilling defense team discovered Fastow interview notes that the Enron Task Force had failed to disclose to the Skilling team prior to trial. Among other things, those notes revealed that Fastow had told the Task Force lawyers that he didn't think he had told Skilling about the Global Galactic agreement. The Fifth Circuit characterized the Task Force's non-disclosure as "troubling" in inviting Skilling to file a motion for new trial with the District Court.

HCT also discusses how Sir Allen Stanford's alleged role as a drug informer may have influenced prosecutorial decisions in that case.

Finally, I can only shake my head and wonder with Tom over Galveston federal district Judge Sam Kent's fall from grace, "How did it come to this?"

Allen Stanford: DEA snitch?

Did the US government tolerate fraud, money laundering and white-collar crime by Houston billionaire Allen Stanford because he was a snitch for the DEA? Reports the Press Association today:

Stanford guaranteed himself against fraud investigations by working with the US DEA, turning over details of money-laundering from Latin American clients from Colombia, Mexico and Venezuela and Ecuador, the corporation claims.

"We were convinced that Stanford's bank attracted millions of narco-dollars, but it was very difficult to get the evidence to nail him," sources apparently told Panorama.

"The word is that Stanford has been a confidential informer for the DEA since 99."

This is exactly the kind of scenario criticized by Prof. Alexandra Natapoff, arguably the nation's leading academic expert on the uses and abuses of confidential informants, who maintains that snitch agreements can actually produce and tolerate crime instead of preventing it. As she wrote in 2006 in the San Francisco Chronicle ("California reconsiders snitching," Nov. 19, 2006):

Unlike the law-abiding citizen who calls 911 to report a crime or who testifies at trial, criminal informants face prosecution for their own crimes, and thus have deep incentives to lie. If a snitch can convince the police officer or the prosecutor that his information is useful, he may avoid arrest, avoid the filing of serious charges or obtain a reduced sentence.

Snitches may also receive cash, drugs, permission to buy drugs, forgiveness for prior crimes and lenience for new crimes, even those committed in other jurisdictions. In return, law enforcement agents obtain information and convenience: They avoid having to expend time and resources prosecuting the snitch.

These secret deals between the government and criminals can last for years, and they can be very costly to the public welfare.

In the worse cases, informants continue to commit new crimes, while government handlers may turn a blind eye as long as the informant is useful.

This makes snitching a kind of "get-out-of-jail-free" card.

That's apparently what may have happened in the Stanford case. In retrospect, though, the crimes the feds tolerated arguably dwarfed any offenders who Stanford's information helped finger.

Related Grits posts:

• Natapoff: Snitching can be "crime producing and corrupting"
  
• Snitch rules protect lying DEA agent
  
• Congress should restrict criminal informant use to prevent false convictions, police corruption
• Snitch whose crimes were tolerated by feds will be extradited to Mexico
  
• DEA snitch data lost
  

Company associated with chair of white-collar crime panel subject of fraud investigation

Man alive! You can't make up ironies like this one:

The chair of the White Collar Crime Subcommittee of the Texas House Criminal Jurisprudence Committee is affiliated with a company that's been accused of securities fraud by state and federal white-collar crime investigators, Texas Monthly's Nate Blakeslee reports. Nate poses the question thusly: "How does a man like Allen Fletcher, a retired police sergeant who spent years heading a white-collar-crimes unit at the Houston Police Department, find himself in business with a group of alleged con artists?" Ouch!

It's too early to speculate whether placing Fletcher in charge of white collar crime policy amounted to putting a fox in charge of the henhouse: But I'll bet if Chairman Gallego had known this backstory when he made the appointment he would have chosen someone else.

For his part, the freshman Republican "said he was a victim of deception in that case as well and denied any wrongdoing." A federal case against his business partner was later dropped but could be refiled. (Read the full story as my overview here does not do it justice.) For now, I'll take Fletcher at his word that he was involved in no wrongdoing until I see evidence to the contrary.

That said, Nate Blakeslee is the ace reporter who first broke the story about the Tulia drug stings that led to his excellent book-length investigation of the case. He later was first to report about alleged sexual abuse at the Texas Youth Commission that turned that agency on its ear. So when Nate raises a red flag, in my experience, it generally behooves a wise observer to pay attention.

On the Criminal Jurisprudence Committee, Fletcher has seemed like a nice guy with no particular axe to grind. He's at times more thoughtful than some others on the panel but, unsurprisingly for an ex-cop, can also exhibit a greater degree of tunnel vision than I might prefer. (I attribute that to being a freshman; people tend to grow into these jobs.) He's been a consistently conservative vote - pretty much what you'd expect from someone whose political patron is state Sen. Dan Patrick, who donated $68K in radio ads and direct mail services to Fletcher' campaign and whose chief of staff was Fletcher's consultant.

The first time I met Rep. Fletcher earlier this year, before committees had been appointed yet and not long after the legislative session had begun, the first thing he said to me upon learning I worked for the Innocence Project of Texas was that, as a former police officer, he knew that the hardest thing in the world was to undo a false conviction because once someone was wrongly accused, suspicion would forever continue to hang over them. So I want to give him the benefit of the doubt and not presume without evidence that Fletcher knew about his business partners' alleged misdeeds. (Though arrests were made three months before his primary election, Blakeslee reported, the "raid was not reported in the press, and Fletcher was not publicly linked to the investigation.")

However, Fletcher and his partners had a checkered history together and Blakeslee's article at a minimum raises questions about Fletcher's judgment, who he associates with and how he runs his businesses. And there are parts of Blakeslee's story - like an elderly cop friend who loaned Fletcher $50,000 and died without getting it back - that could be immensely damaging if run on a TV ad or via direct mail.

Which is the problem with this story coming out now - AFTER the fellow has been chairing a legislative subcommittee on white-collar crime for two months, for heaven's sake. This is the kind of story you wish the local press or an opponent's campaign had discovered during election season so it could be discussed when voters could do something about it instead of bringing it up at crunch time late in session.

With the number of newspapers and professional reporters in a free fall, increasingly it will fall to political campaigns and parties to vet opposing candidates running for public office because there's no longer an independent institutional player (i.e., a local newspaper) performing the function. Clearly Fletcher's incumbent opponent - Republican Corbin Van Arsdale - didn't invest enough money in opposition research (a business I was in myself for a dozen years and 68 campaigns). This appears to all be stuff they could have found through routine records searches at the Harris and Montgomery courthouses if somebody had bothered to run the traps at the time.

MORE: Rick Casey at the Houston Chronicle has Fletcher's reaction to the Texas Monthly story.

How will economic meltdown affect the justice system?

As the nation watched, aghast, first at Wall Street's economic meltdown and then Washington's ill conceived bailout, I've wondered what effects the financial mess might have on the criminal justice system. Here are some initial thoughts:

Possible prosecutions?
Clearly there may have been flat-out fraud involved in some of these financial institution failures. (I sat up and took notice when Wachovia went down since a subsidiary was accused last year of laundering money for a Mexican drug cartel.) A few angry folks have called for prosecutions of investment bank CEOs and their minions, but it seems to me the main problem is that de-regulation eliminated most of the laws they might be accused of violating, which is why we're in this mess in the first place.

Pressure to delay new jail construction
Since I've been tracking local votes on jail bond initiatives in Texas, including an important upcoming vote in Tyler on a new jail, it's worth mentioning the most immediate criminal justice dilemma created by the crisis - rising cost of commercial paper (debt) used to finance government construction. Some jurisdictions are already canceling debt issues approved by voters. In Houston, "the City Council [decided to] draw $100 million out of cash reserves to fund construction projects, rather than use commercial paper on which interest rates had spiked." According to a Harris County source, "the commercial paper rate was 1.74 percent a week on Sept. 11 and jumped to 5.25 percent a week later. The county also uses commerical paper."

This news makes new jail construction projects like Tyler's a lot more expensive than voters were previously told, and thus a lot less likely to pass, if I had to bet. What's more, past projects without fixed interest rates are likely to cost a lot more than officials or voters expected and could even be canceled as a result.

Rising crime? Maybe not
While the relationship between crime and economics is indistinct, to the extent economic distress worsens crime, crime might worsen, particularly property and addiction-related offenses. The US Conference of Mayors portrays this as a certainty (pdf), but for my part I'd not label that assessment a prediction so much as identifying a possibility. Some argue there's a strong relationship between the economy and property crimes, in particular, but that's not set in stone. Regular readers know that crime has declined in recent years despite a slowing economy. According to the Heritage Foundation:

there's little evidence to suggest that good economic times have much effect on crime. Crime rates rose every year between 1955 and 1972, even as the U.S. economy surged, with only a brief, mild recession in the early 1960s. By the time criminals took a breather in the early 1970s, crime rates had increased over 140 percent. Murder rates had risen about 70 percent, rapes more than doubled, and auto theft nearly tripled.

By the same token, a bad economy doesn't always bring more crime. Crime rates fell about one third between 1934 and 1938 while the nation was struggling to emerge from the Great Depression and weathering another severe economic downturn in 1937 and 1938. Surely, if the economic theory held, crime should have been soaring.

If crime declined during the Great Depression, there's little reason to think this economic downturn must automatically boost crime rates. I'd expect a handful of specific offenses to increase - particularly stuff like theft of copper and other metals or siphoning gasoline. But there's no inherent relationship between being poor and being a criminal.

Trouble paying the bills
Corrections and public safety spending makes up a much more substantial portion of local and state-level budgets than they do for the feds, which means declining revenues from property taxes and new housing starts will dramatically reduce the revenue to pay for prisons, jails and cops. Municipalities and counties will immediately feel the pinch, though Texas' state budget will be somewhat protected in the short-term from the fallout because of $100 per barrel oil. Even oil revenues will decline, though, if we enter a full-scale global recession. Plus, reduced consumer demand will reduce sales tax revenues, doing further damage to state and local budgets.

Nationally, states haven't been building many new prison units with private prisons accounting for most of the new growth recently. But those companies, too, rely on commercial paper to build new facilities, so expect either A) a reduced expansion rate for private prison capacity or B) increased costs for their customers.

Gas prices fuel budget woes
Though not directly related to the credit crunch, rising fuel costs remain a core dilemma for criminal justice agencies of all stripes: Police and Sheriffs must pay more for patrols while jails and prisons must pay more to transport prisoners and supplies. High fuel prices can also alter policing tactics. Lewisville PD told the Conference of Mayors that:

When the current fiscal year concludes, the police department budget for fuel is expected to be double the amount budgeted. The police department has implemented measures to conserve fuel such as limiting idling, doubling up officers at times, and requiring each officer during each shift to spend 15 minutes without the vehicle running each day.

I've been hoping the dilemma over gas prices might spur more Texas law enforcement agencies to utilize new authority to issue citations instead of arresting for low-level misdemeanors, saving departments gas money transporting penny ante offenders to and from jail and keeping officers out on the streets for greater periods. I'd expect more departments to revisit that option the longer gasoline prices remain at current levels.

What else can you think of? How else might a faltering economy and the credit market collapse affect the criminal justice system?

BLOGVERSATION: Anne Reed wonders if the economic downturn will make juries less diverse, while Scott Greenfield considers how economic distress might influence jurors decisionmaking, advising "If there is any possible way to avoid going to a trial now, do it."

Ex-Im Bank Scandal Looks Like Tip of Corruption Iceberg

The WFAA story about the Ex-Im Bank giving loans to Sinaloa and Juarez drug cartel associates threw me for a bit of a loop, and I thought I'd take a moment to explore the implications a little further. (Read this Grits post if you don't know what I'm talking about. Go ahead ... I'll wait.)

Until today, I hadn't thought much about the Ex-Im Bank since I was an economics major in college, but insofar as corruption of major international trade institutions goes, this is a really big deal!

Some of these loans went to companies that didn't even give a valid address: One business, WFAA reported, gave a Dallas address on "Highway 10." There's no Highway 10 of any kind in Dallas, though Interstate 10 runs from Houston through San Antonio and El Paso more than 250 miles south.

What could it mean? What will it mean? Who is in charge of the Ex-Im Bank and who oversees their activities? Who approved the loans in question? Certainly David Carter, Vice President of Credit Underwriting, has some questions to answer, as well as Business Credit VP Pamela Bowers. How did President Bush come to name these particular people to serve on the board - are they donors, friends, banking careerists?

Cui bono? Who benefits? For that matter, particularly for these phony front companies, who cashed the checks when the loan funds were released?

Let me say for starters that I'd hate for the Ex-Im Bank's overall mission to take a hit. If I had my druthers, US loans to Mexican business enterprises would be a key strategy to reduce immigration, which largely stems from a shortage of job opportunities in Mexico. But when you see stories of fabricated front companies receiving loans, it's hard to argue for more lending.

The Ex Im Bank gives loans that are supposed to create new markets for American exports. Here's a web page with overview information on the Ex-Im Bank's role in Mexico. What's needed, at a minimum, is an immediate Government Accountability Office (GAO) audit to determine the scope of the problem and whether the program is utterly corrupt or if only the medium-term loans were affected. That's where WFAA found most of the phony loans that it has documented so far, according to reports (it's also the type of loan for which Ms Bowers created a "fast track" program, according to the Ex-Im website, that probably also deserves a second look).

If steroid use in Major League Baseball deserves Congressional hearings, surely the allegations presented by WFAA deserve a similarly full and high profile investigation. Certainly it matters much more to the nation's security if, as WFAA's investigation strongly implies, US trade organs are being used to finance drug cartel operations in Mexico.

Does Congress or any federal law enforcement agency care, or is it just WFAA?

UPDATE: It's not just Mexico, apparently - here's news of a scam to secure phony loans to Fillipino companies for export goods that never existed. The company "acted as a purported exporter, falsified records given to US banks and diverted $2.1 million in loan proceeds guaranteed by the Ex-Im Bank," reported ABC News. Between this news and revelations that Ex-Im loans in Mexico went to known drug cartel figures, this agency needs a serious housecleaning.

Perhaps I'm being paranoid, but the mind reels at the possibilities of how deep this might go: If a bold thinker wanted the perfect front for massive-scale, global money laundering, you couldn't ask for a better vehicle than the Ex-Im Bank. At a minimum, I think I'll add the Ex-Im Bank to my Google News feeds for a while and see what else pops up.

Who are the big American drug bosses? How about the Ex-Im Bank?!

We've been wondering on this blog who are the big American drug bosses and American drug financiers, and Byron Harris at WFAA in Dallas yesterday offered up another clue: A first-rate piece of broadcast journalism ("Drugs tied to $243 million bogus loans," Dec. 27) analyzing records obtained under FOIA to show that:

small business loans sponsored by the Export-Import Bank of the United States were made to non-existing companies for equipment that wasn't even real.

Now, New 8 has discovered that some of the people who got the Ex-Im Bank loans may have drug connections. The $243 million worth of bad loans were originally made to help trade with Mexico.

The loans have been linked to the Juarez drug cartel, which is known for its brutal murders. The cartel killed one dozen people and buried them in a suburban backyard across the border fro El Paso.

Another loan was linked to the Sinaloa drug cartel, whose business is smuggling heroin into the United States.

The federally funded Ex-Im Bank apparently backed loans to people affiliated with both cartels and the Mexican drug trade.

Under the Freedom of Information Act, News 8 asked for all documentation related to defaulted small business loans made to Mexico from 2002 to 2005. Although there were nearly 200 bad loans, so far, information on only 34 cases has been turned over.

But the bank did give a list of the defaulted loans and the names and addresses of the people who got them in Mexico.

"They have drug connections, which is very disheartening to think that the U.S. government is lending money to documented traffickers in the drug trade that are tied into the cartels in Mexico," said Phil Jordan, the former head of the El Paso Intelligence Center for the DEA and Border Patrol in El Paso.

Jordan ran background checks of the borrowers with two federal sources and found borrowers from Juarez and Sinaloa with criminal ties to money laundering, organized crime or drugs in Mexico. Jordan said he was surprised to find that the Ex-Im Bank didn't do similar checks before guaranteeing the loans.

"To lend them millions of dollars and then to not be a fail safe system of checks and balances is just throwing money away," he said.

Between these revelations and the questions about US ownership of a drug plane downed earlier this year, not to mention the raft of official corruption, you have to seriously wonder whether at least some of the "drug bosses" on the American side might just reside quietly in the bowels of government?

UPDATE: Ex-Im Bank looks like tip of corruption iceberg.

VitaPro, Again

From Grits' perspective, the VitaPro corruption scandal was a case with a little bit of everything: Corruption at the highest levels of the Texas Department of Criminal Justice, bribery, and an allegedly mendacious informant. Indeed, it doesn't seem like that long ago that then-TDCJ Executive Director Andy Collins was accused of bribe-taking in a scandal that, for a time, shook Texas' prison system to its core but unfortunately did not result in lasting reform.

Now we'll get to re-live the sordid tale, says the Houston Chronicle ("New trial in VitaPro bribery case ordered," Aug. 28), since the Fifth Circuit upheld an order by a Houston district judge for a new trial. Reported the paper:

In 2001, a federal jury found that Barry paid two $10,000 bribes to Collins for pushing a no-bid contract with VitaPro to feed its product to Texas prisoners. At the time, Collins was executive director of the Texas Department of Criminal Justice. Barry owns VitaPro, the maker of a soy-based meat alternative.

The pair were convicted on bribery, conspiracy and money-laundering charges during a tumultuous trial that featured Patrick Graham, a government informant who was a key witness in the prosecution of former Louisiana Gov. Edwin Edwards and former Houston Mayor Fred Hofheinz on corruption charges.

In September 2005, Hughes threw out the guilty verdicts, finding that Graham lied. In its July decision, the 5th Circuit said: "The jury was presented with substantial evidence of Graham's poor character and was made aware of the contradictions in his testimony, but still the jury found that the government had proven Collins and Barry guilty beyond a reasonable doubt. ... The district court erred in substituting its own judgment for that of the jury to conclude that Graham's testimony should be disregarded."

I'd not begun Grits yet when VitaPro came down the first time around, but given the confluence of subjects I'm interested in, you can bet I'll be paying attention to the retrial.

Texan convicted of bribing Saddam to get oil for food contracts

Since I've been writing about and tracking the subject of corporate bribery recently, I should mention that a Texas oilman pled guilty in Manhattan last week to giving kickbacks to secure contracts with Saddam Hussein's government as part of the pre-war oil for food program in Iraq. Reported Reuters (Aug. 17):

[David] Chalmers, 53, pleaded guilty in Manhattan federal court to one count of conspiracy to commit wire fraud, just weeks before he was due to go on trial with Texas oil tycoon Oscar Wyatt.

Earlier on Friday, Ludmil Dionissiev, a Bulgarian oil trader based in Houston, pleaded guilty to smuggling. Prosecutors said Dionissiev, 61, worked with Chalmers to buy Iraqi oil for Chalmers' companies -- Bayoil USA Inc and Bayoil Supply and Trading Ltd.

The $67 billion oil-for-food program began in 1996 and ended in 2003 to ease the impact of sanctions imposed on Saddam Hussein's government after it invaded Kuwait in 1990.

The charges against Chalmers and his co-defendants stemmed from Iraq's requirement from 2000 to 2003 that recipients of oil should pay a secret surcharge, in violation of U.N. sanctions and U.S. law, to front companies and bank accounts controlled by the Iraqi government.

The secret payments were not made to the United Nations' monitored bank account from which humanitarian goods could be purchased for the Iraqi people, but in a secret deal with Baghdad outside of the program.

Chalmers, who was the sole shareholder of Bayoil, decided to pay illegal kickbacks, prosecutors said, while Dionissiev helped facilitate the export of Iraqi oil.

Both men face a maximum sentence of 20 years in prison, but under a plea deal Chalmers is likely to receive between three and four years when he is sentenced on November 19. Dionissiev is likely to receive up to six month under his plea agreement, his lawyer said.

Most of the recent bribery cases in the news have involved companies (both US and foreign firms) bribing soldiers to secure favorable procurement contracts. But this case shows that's how some US firms have been doing business in the Middle East since well before the 2003 invasion.

At least in this instance the company is being held accountable for bribery and not just the people they bribed. Maybe the difference was that Saddam Hussein's unpopular government was the beneficiary of Chalmers' largesse instead of soldiers in the US military.

White Collar Crime Prof: Naming Corporate Bribers May Be Unwise

Peter Henning at the White Collar Crime Prof blog reacts to Grits' recent reader survey on corporate bribery, declaring:

While it is certainly problematic to charge only one side of a corrupt transaction, it is not necessarily good to allege crimes in a public document when the person (or organization) has no means to fight the allegation. A conviction in the court of public opinion is tough to overcome.

I responded in the comments:

I don't understand why these companies aren't being charged. Where are the prosecutions of Corporations A-Z? Surely that's more than just "problematic." It's tantamount in my eyes to tolerating corruption.

And why shouldn't the court of public opinion reflect a company's alleged bribery of government officials? The soldiers' names are plastered all over every newspaper. If the US Attorney charges a soldier with receiving a bribe, by definition somebody must have bribed them. That person (or corporation) played an equal role in the transaction - without both, there would be no crime.

If there's enough evidence to charge the soldier, there should be enough evidence to hold bribe-giving companies accountable too, IMO, in both the courts of justice and of public opinion.

Since 92% of y'all agreed corporate bribe-givers should be named, I'm pretty sure I'm on safe ground with that assertion in this crowd!

For my part, I don't want the corporations named "in a public document when the person (or organization) has no means to fight the allegation." The professor and I agree on that. I want them named in indictments and in newspaper headlines, just like the soldiers they bribed.

RELATED:

• Results of Grits corporate bribery survey
• SA Army Major at center of biggest-ever alleged DoD bribery scandal

Results of Grits corporate bribery survey: 92% say don't conceal identity of corporate bribe givers

Downpresser man
You can't bribe no one
Them no want no money
Them run'f money
That money get funny

- Peter Tosh, Downpresser Man

Without further ado, it's time to reveal the results of Grits' corporate bribery survey, inspired by two recent cases where central Texas soldiers were accused of taking bribes as part of the Iraq war procurement process.

Of course, it's not just soldiers, jailers and border patrol agents who accept bribes, but all sorts of government officials. This survey, though, in large part reacting to recent events, focused on bribery cases involving Iraq war procurement. Let me know any additional thoughts you have on the subject in the comments.

Question One: Should federal prosecutors conceal the names in indictments of companies that allegedly bribed US servicemen in order to get government contracts?

92% of those responding to Grits' survey agree that federal prosecutors should NOT conceal names of companies alleged to have bribed soldiers or US officials. I regret now not asking those who said the information should be concealed WHY they think so. Though this is not a scientific survey, this was clearly a minority opinion. But it's also the US Department of Justice view. Just like in Communist China, US prosecutors are vigorously pursuing those who took bribes and apparently letting those who bribed them get away scot-free.

Question Two: How should corporations that engage in bribery be punished?

The most popular answer (61%) was to forbid those companies from receiving any future contracts, followed closely (60%) by large fines paid by the companies. Twenty nine percent supported prosecuting "CEOs, managers, and directly involved parties," while more people (41%) thought only directly involved individuals should be prosecuted. Perhaps Grits just has a particular audience, but I'm surprised more people didn't support imprisonment for bribery crimes - Grits readers seemed to prefer to hit companies in the pocket book.

Question Three: If a soldier accepts a bribe is that a worse crime than the corporation that bribed him, not as bad, or is it an equal offense?

Slightly more people (17%) considered the company more culpable than the soldier (14%). One reader offered the canny insight, Remember Eve in the garden? She sinned, but the guy offering the bribe was really, really evil." The vast majority of Grits readers (67%) thought both the briber and the bribee were equally culpable.

Question Four: Does privatizing certain military functions to contractors make the procurement system more susceptible to bribery?

More than half of Grits readers (51%) thought companies are less accountable than the government when it comes to bribery, though 45% said they didn't know, that there has been corruption among both government and business. Hardly anybody believed the government was inherently more corrupt.

Question Five: Assuming for a moment two recent Texas cases may be the tip of the iceberg, how common do you think corporate bribery has become in US military procurement in the Iraq war?

The response to this question surprised me more than any other. Y'all are more cynical than I am! A whopping 51% suggested that such bribery is "very common - that's how most companies get contracts." Another 34% said it was " Common but not ubiquitous: There are still lots of good companies out there." That's how I would have answered the question. Very few people believed bribery isn't an integral part of the military procurement system.

Question Six: What should happen to foreign contractors caught bribing US military officials?

Sixty percent of you believe when that happens the companies assets in the US should be seized in retaliation, and nearly as many think such companies should be denied DoD contracts in the future. Thirty-eight percent said involved parties should be extradited and prosecuted, while just 11 percent supported punitive sanctions against the company's home government.

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The most striking results to me in this survey are the extent to which respondents believe corporate bribery - actual, felonious bribery - is extremely common, that people did not want to let corporate bribe givers off the hook, and a relative consensus about appropriate punishment: Denial of future contracts, large fines, and seizure of assets.

Downpresser man, where you gonna run to? For now, it seems, the Downpresser man can still run to seek protection from federal prosecutors. They don't seem interested in prosecuting or even exposing corporate crooks, but only common soldiers who succumb to temptation. I wonder what it would take to alter that disgraceful exercise of prosecutorial discretion?

BLOGVERSATION: White Collar Crime Prof reacts to the survey, and I responded in the comments.

Jail guard at center of Burleson County bribery scandal

Here's yet another central Texas bribery scandal in the news - this time a Burleson county jailer instead of a soldier, but another corrupt official paid to protect us, nonetheless. When pay is so poor, especially for local jailers, I have to wonder, how do you ever stop that?

If you haven't taken Grits' bribery survey, please do so now - it's short and will just take a minute (use the back button to return when you're done.) I'll publish the results over the weekend, and be tracking official bribery scandals a bit more closely, I suspect, in the future.

I notice in Burleson County, the inmate who allegedly bribed the guard was also indicted, but I've still yet to see prosecutions involving the corporations who allegedly bribed the two soldiers in the two recent Texas cases. Indeed, they aren't even named in the soldiers' indictments. Do you detect a double standard, perhaps?