The Multinational Monitor

JUNE 1990 - VOLUME 11 - NUMBER 6


Criminal Business

Ford, General Motors, Occidental Petroleum and Rockwell International are four "standard bearers" of corporate America. Contrary to their well-publicized and expensively maintained public images, however, these four companies are consistent lawbreakers. And until now the price they have paid for their misconduct has been negligible at best. Since 1984, the United States Sentencing Commission has worked to develop a uniform criminal code that addresses this issue.

Unfortunately, big business has launched a crusade to water down any conclusions the Commission reaches. So far the effort is paying off. After initially voicing support for tough sanctions, the Justice Department was reminded of the Bush administration's corporate ties. In an embarrassing reversal, the Justice Department withdrew a letter of support for the Commission's recommendations to impose harsh sanctions on criminal corporations. Business pressure ultimately brought about a postponement of any Commission recommendations.

Despite this delay corporate carnage and crime runs rampant. Whether it be Exxon polluting the Prince William Sound, the Phillips Petroleum Texas plant explosion which killed 23 workers or the tragedies of the Dalkon Shield and the Ford Pinto, the financial and human costs of corporate wrongdoing are staggering.

According to estimates by the National Institute for Occupational Safety and Health, each year 6,000 workers are killed and 6,000 severely injured in occupational accidents. Thirty percent of industrial accidents are caused by illegal safety violations. In addition, the Department of Labor has estimated that the cost of treating disease caused by toxic agents in the workplace is between $30 and $50 billion.

Add to this the approximately 28,000 deaths and 130,000 serious injuries caused by dangerous products and the scale of the problem becomes clear. Monopolistic practices, faulty goods and other financial violations reap a huge economic toll, costing consumers upwards of $231 billion annually, according to a 1979 Justice Department study. That corporations consistently engage in criminal activity is beyond debate. According to research done by sociologist Amitai Etzioni, 62 percent of all Fortune 500 firms were involved in one or more illegal acts between 1975 and 1984. A full 15 percent committed five or more violations. Under the present system, detection usually results in a nominal fine or a consent decree whereby the company simply pledges to cease its illegal activity. As the numbers show, the system is not working.

Despite the overwhelming empirical data, the criminal prosecution system fails to seriously address corporate crime. Corporate offenders too often are either overlooked, lightly fined or mildly sentenced. Such cursory punishment sends a message--crime does pay, or at least doesn't cost too much.

Prosecutors and judges often give corporate criminals a break. Lawbreaking CEOs and law enforcement officials are from a similar socio-economic niche. The latter mistakenly assume the stigma of a fine is punishment enough for these otherwise upstanding members of society.

A wholesale reappraisal of how to cope with corporate crime is needed. The Commission was right in attacking corporations where it counts--the bottom line.

Simple cash fines are not the only nor the most effective means of going about this, however. Equity fines, probation and community service could be more effective sanctions.

Equity fines require corporate criminals to issue stock equal in value to any fine imposed. They allow the criminal justice system to assign a monetary penalty greater than the cash holdings of the given violator. By diminishing the value of the company's stock, equity fines also make shareholders directly aware of violations, which makes management uneasy.

Probation and community service are complementary and can be used to rehabilitate corporate criminals. Probation is an umbrella term that encompasses such measures as the revocation of corporate charters and tax abatements and adverse publicity sanctions. For corporations convicted of a felony involving loss of life or serious injury, federal subsidies should be revoked for a specified period. These would include tax abatements, tax credits and federal purchasing of the company's product.

Adverse publicity could be included in the probation, with companies required to advertise conviction details. The power of negative publicity is profound--consider the millions of dollars corporations spend on image advertising.

Community service could entail the company putting its particular expertise to use in a socially beneficial manner. For example, a company that is the sole source of a certain product could be forced to provide it free of charge to the government. This is particularly relevant in defense-related industries, which often are sole suppliers as well as notorious lawbreakers.

Reining in corporate crime is going to require a break with the past; slap-on-the-wrist fines do not deter illegal behavior. The maiming and killing of innocent victims cannot be treated as the unfortunate, yet inevitable, result of corporate activity. New and effective sanctions are required to stop the corporate crime wave. Unless the legal system meaningfully redresses the abuses of corporate crime, corporations will continue to operate beyond the effective power of the law.

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