July/August 2002 - VOLUME 23 - NUMBER 7&8
E D I T O R I A L
Here is one of the most remarkable aspects of the still-unfolding financial scandals swirling around WorldCom, Xerox, Global Crossing, Enron, Arthur Andersen, Tyco and a growing number of other companies: The fraud occurred in the most heavily regulated and monitored area of corporate activity.
If an epidemic of corporate malfeasance could occur in the financial arena, how serious is the more general problem of corporate crime?
Consider the checks and balances in place that should have stemmed the wave of corporate wrongdoing which has reportedly angered even USA, Inc. CEO George Bush:
Other aspects of corporate activity are simply not subject to such robust scrutiny and control.
Given what is now the apparent blatant corporate disregard for the law, even in areas where executives are most closely watched, what should we expect is occurring elsewhere? What's happening with consumer rip-offs, sales of unsafe products, endangerment of workers, pollution of the environment?
Even with inadequate law enforcement, reporting requirements or organized countervailing institutions, we know enough to know that the epidemic of corporate crime, fraud and abuse is at least as severe outside of the financial arena as within.
To take just a few examples from recent months: In May, drug maker Schering-Plough signed a consent decree with the Food and Drug Administration, agreeing to pay a record $500 million in connection with charges that over a three-year period it produced about 125 different prescription and over-the-counter drugs in factories that failed to comply with good manufacturing practice. In April, the Justice Department announced that it collected more than $1.3 billion in 2001 in connection with enforcement actions related to health care fraud, and that last year 465 defendants were convicted for healthcare fraud crimes. In August, the U.S. Public Interest Research Group reported that nearly 30 percent of major industrial facilities were in significant noncompliance with their Clean Water Act permits for at least one quarter between January 1, 2000 and March 31, 2001.
This kind of revelation occurs regularly, but news accounts rarely combine them -- as they are now doing with the financial scandals -- to make clear the breadth and depth of the problem.
The Sarbanes accounting reform bill, passed by the Congress after the WorldCom disclosures made continued Republican obstruction politically untenable, contained some meaningful reforms, though much more needs to be done in the financial sphere, particularly to strengthen the rights of pension fund beneficiaries.
More important, though, is ensuring that the post-Enron reforms not be limited to addressing financial fraud. If they are, the biggest and most serious corporate criminal activity will be able to continue flourish.
What is needed is a fundamental redefinition of corporate rights and prerogatives. This issue of Multinational Monitor contains a range of such proposals.
But even small steps could significantly reduce the toll of corporate crime and violence. Here are three measures that should be adopted in the United States this year, before Congress recesses and momentum for corporate reform slows:
First, the Federal Bureau of Investigation should be required to compile an annual report on corporate crime, to accompany its current Crime in the United States report, which is unfortunately confined to street crime.
Second, the federal government should refuse to do business with companies that are serious and/or repeat law breakers, as well as deny other privileges (for example, granting broadcasting licenses) to corporate criminals. This would involve some new or strengthened laws and regulations, as well as more stringent enforcement of debarment, contractor responsibility and good character laws now on the books. States and local governments should adopt similar measures.
Third, whistleblowers and private citizens should be able to enforce laws regulating corporate conduct. One way to facilitate this enforcement approach would be to expand and creatively adapt the False Claims Act, which currently enables whistleblowers to initiate lawsuits against entities which have defrauded the government, and which reclaims for the government every year hundreds of millions of dollars stolen by unethical contractors.
"Cracking down on corporate crime" -- the mantra of the moment -- cannot be limited just to financial crime, already the most policed form of corporate wrongdoing.