Corporate Crime and Punishment: Challenges and Solutions

HSBC's criminal activities highlight the challenge of holding corporations accountable; stricter penalties and oversight could be the solution.

### The Dilemma of Corporate Criminal Punishment
* 🏦  HSBC was charged for aiding criminal cartels and violating sanctions, but its fine was a **mere fraction of its profits**, raising questions about **holding corporations accountable for their crimes**.
* 🏛️  Corporate personhood allows companies to enjoy legal rights like individuals, but they are rarely subject to criminal prosecution, despite **committing severe offenses**.
* 💰  Authorities often opt for fines as punishment, as **revoking licenses or charters could have significant economic and social repercussions**.
* 🏥  Senator Elizabeth Warren proposed a law to hold investment executives **criminally liable for cost-cutting measures in healthcare facilities that lead to death**, targeting private equity funds known for **prioritizing profits over care**.
* 📈  The number of corporate fines has increased, but actual convictions that could shut down companies have declined due to the **"too big to jail" mindset**.
* 🏦  Arthur Andersen's case, where the firm was found guilty for its role in the Enron scandal and subsequently shut down, is considered the **last significant instance of punishing a corporation**.
* 💸  Companies often shift blame, have better legal representation, and benefit from a revolving door between corporations and authorities, making it **challenging to hold them accountable**.
* ⚖️  One proposed solution is to assign "parole officers" to oversee the decision-making of companies charged with illegal acts, acting as a **deterrent and facilitating governance reform**.

in 2012, the Hong Kong Shanghai Banking Corporation, best known simply as HSBC, was charged by authorities for aiding and abetting operations of some criminal cartels between the US and Mexico. The bank was found to have systematic failures in its anti-money laundering or AML controls, which in addition to helping the cartels, also assisted Iran and North Korea circumvent nuclear weapon sanctions. Corporate personhood is the legal notion that corporations have many of the same legal rights and responsibilities enjoyed by natural flesh and blood people. They can own property, sue and be sued, donate to political campaigns, and even have defended religious beliefs. But if a normal person was found laundering money for cartels and the North Korean nuclear program, they would be living it up here at ADX Florence, if they were lucky. HSBC, on the other hand, still operates across the world, and their punishment for these crimes would be like a normal person getting a fine for roughly 2 months of their wages. So if corporations are legally people, why can't they be

arrested. Are you arguing to let Airlines, for example, fail? Yeah, why? I mean, how does that make sense in the broader scheme of the econ? Another Boeing whistleblower has died. A second Boeing whistleblower now dead. What they're really telling you is they just won't fight for it. Well, Healthcare is a basic human right, and I will fight for basic human rights. Corporate greed loose in our healthcare system kills people. Attorney General Lanny Brewer, who was in charge of the HSBC case, resisted criminal prosecution because that could potentially cause the bank to lose its US Charter to operate as a bank in America. That would be a death blow to HSBC because an International Bank that can't move US Dollars would be about as competitive as a Home Depot that couldn't sell hammers. In a press release, he stated, Our goal here is not to bring HSBC down. It's not to cause a systematic effect on the economy. It's not for people to lose thousands of jobs. It's very.

unusual to have a criminal prosecutor directly 
say to the media that their intention is not to bring down the party that they are Prosecuting. The 
Wikipedia section for all of HSBC's controversies is longer than the Wikipedia page for the pope, 
but this is still just one company that speaks to a bigger problem of being too big to jail. 
If companies see fines as just the cost of doing business, what reasonable punishments are 
there for organizations that break the law, which doesn't just end up punishing innocent employees 
and the wider economy more than it does the people with actual aggression over how these companies 
act. Last week, Senator Elizabeth Warren proposed a new law that would hold investment executives 
criminally liable if their cost-cutting measures in healthcare facilities cause death. If you 
can't put the companies in prison, at least you can put the people who own them in there. 
So now we are getting somewhere, right? Wrong. The new proposal was specifically targeted at buyout 
private equity funds who have done some serious

damage to the healthcare industry, an industry that was barely holding it together as it was. We have already made two videos about how private Equity squeezes out profits from some extreme cost-cutting measures and why the healthcare industry has been one of their biggest targets so far. According to the Wall Street Journal's private Equity division, Warren first made the proposal in a visit to St. Elizabeth's Medical Center in Boston. The hospital wasn't named after her; it was presumably another Elizabeth. The hospital was part of the Steward Healthcare System, which filed for bankruptcy in April following financial struggles that allegedly started with its previous private Equity owner, Cerberus Capital Management, an investment firm that specializes in acquiring healthcare businesses. Like most leverage buyouts, the hospital group was loaded up with debt to increase leverage, and it had to pay significant management fees to the private Equity company for their ivy league business advice, which was clearly so good that it led

them to complete insolvency to pay for these fees, and cover this interest. Significant cost cutting was needed to be made so that the hospitals could still look profitable to future investors, and that meant worse care for patients. According to a study conducted on over 4.5 million hospital patients run by healthcare publication the JAMA Network, the rate of hospital-acquired conditions like fall injuries, infections, and pharmaceutical side effects were more than 25% higher in private equity-controlled hospitals, primarily because they had fewer staff to give patients adequate care. So, the proposal to hold these investors liable when the stripped-back care causes severe injury or death would be a great way to control this trend, but unfortunately, it would be next to impossible to properly legislate. People go to hospitals when they are sick, and differentiating between a death caused by natural causes, a death caused by malpractice, and a death caused by the systematic cost-cutting of healthcare facilities is extremely difficult, to say the least. Private equity buyout

funds are an easy punching bag to score some easy political points in an election year. People have become more aware of the industry, and the more they learn about it, the less they like it. But as much of these kinds of laws are overdue, especially in vital industries like healthcare, they would be almost impossible to legislate. The line between getting the people truly doing harm for undue personal enrichment and putting someone in prison for investing in a healthcare business is very blurry, and I can tell you from experience that private equity is very savvy when it comes to political lobbying. In the run-up to the last presidential election, Warren herself unveiled a similar plan, which is still available on her website, which would reform the private equity industry and level the playing field by forcing private equity firms to take responsibility for the outcomes of companies they take over. If it sounds familiar, it's because it's pretty much the exact same proposal, so you shouldn't be surprised if this proposal is quietly

forgotten about after the next election. It's 
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Manscaped, the cathartic solution to companies   that are willfully negligent, criminally culpable, 
or just piling greed at the expense of human life.   Would be to shut them down so they can no 
longer pose a danger to society. But even   though companies enjoy most of the benefits of 
being a legal person like you or I, they don't get   many of the drawbacks like being thrown in prison 
if they break the law. Authorities can technically   shut down most companies if they wanted to by 
revoking licenses or charters, but that rarely

happens anymore, and that's because the rules of 
the game have been written in such a way that it   would almost always do more harm than good. This 
all began in 2002 with the collapse of Enron, the   second largest case of corporate fraud in history, 
after only the recent collapse of FTX. The story   is not actually about Enron itself; it's about 
the company that signed off on their books: the   accounting firm Arthur Andersen. According to the 
company's last filings, they employed 28,000 people   and had an annual revenue of $9.3 billion. This 
made them competitive with KPMG, Deloitte, EY, and PwC.   In the early 2000s, these weren't the Big Four; they 
were known as the Big Five, but Arthur Andersen was   put on trial for its involvement in the fraud 
and found guilty for obstruction of justice for   shredding documents related to the audit of Enron. 
The firm surrendered its licenses and closed down.

but a later appeal to the Supreme Court overturned 
the ruling because the jury instructions failed to   convey the requisite consciousness of wrongdoing 
in plain English. The prosecutors pushed too   hard to get a conviction, that they broke some 
rules, which overturned the conviction. This was a   national embarrassment to the prosecutors who were 
responsible for destroying a billion-dollar company   and major employer that didn't technically break 
any laws. Nobody wanted to repeat these mistakes,   which has led to a culture where companies just 
get handed a fine and everybody quietly moves on,   pretending they made a difference. Duke University 
School of Law Professor Brando Garrett coined the   term too Big to Jail in his 2014 book of the 
same name, where he highlighted the case of   Arthur Anderson as the last time authorities 
were willing to actually punish companies in   a way that couldn't just be brushed off as the 
cost of doing business. Garrett noted that the   number of fines issued to corporations has been 
increasing at an exponential rate, but the number

of convictions that would actually shut down 
companies has declined over the same time because   prosecutors didn't want another Arthur Anderson 
situation. No lawmaker wants to be responsible   for shutting down a bank or hospital that provides 
jobs to thousands of people and essential services   to millions, so they hand down a fine and quietly 
move on with it. It's the politically safe option,   even though a look at the numbers will say it 
shouldn't be. Corporate crimes are often simply   more harmful than individual crimes. According to 
a study conducted by the Economic Policy Institute,   wage theft amongst just low-income workers was 
more than $50 billion a year, and this was back in   2014 before the widespread adoption of gig work. 
That is far more than the collective total of all   burglaries, robberies, and motor vehicle thefts in 
the same year combined, according to the National   Bureau of Economic Research. Investment firms have 
been responsible for 20,000 premature deaths over

the past 12 years. In just the age care industry alone, the problem that Garrett points out in his book is that even tough on crime prosecutors take a very light touch when going after corporations for four reasons. And the potential impact on jobs and services is just the first reason. The second is because laws are much harder to pin on an entity that can blame its actions on suppliers, Rogue employees, market conditions, past Executives, or just their good old-fashioned mandate to maximize value for their shareholders. Companies can also afford much better lawyers than the average criminal, which makes shifting blame and striking up agreements a lot easier. The third reason prosecutors don't go after criminal corporations as hard as regular criminals is because even though companies claim to be a legal person, they aren't really. The imagery of throwing handcuffs on a scary-looking person accused of a Grizzly crime is a lot easier to sell when it's an actual person. Finally, of course, there is a revolving door between corporations and

authorities. A regular Flesh and Blood criminal isn't going to be Hing out jobs to talented legal prosecutors, but big companies might be, so there is a logical incentive for both sides to play along with counting a fine as a reasonable punishment. So what is the solution then? Companies could always just be given bigger fines if they actually impact profit for shareholders. Then boards will put more pressure on management to avoid, you know, committing crimes. But it can be hard to size these fines correctly. Too much and it could just bankrupt the company, which authorities don't want to do. And if it's not enough, then it just becomes the cost of doing business all over again. In 2019, Facebook was fined $5 billion for privacy violations by the FDC, and after the announcement, the company's stock went up because investors saw it as a sign that nothing was really going to change with the business. Another book, also called Too Big to Jail, was written in 2022 by

investigative business journalist Chris Blackhurst.
As an aside, if you want to sign that this is a real problem, there are two different books talking about inadequate corporate punishment. Blackhurst's book chronicled the crimes of HSBC, but it highlighted just how apprehensive lawmakers were to put what was clearly a criminal organization out of business. But that may be a solution, officially at least. The reason we send people to prison is to keep them away from society while they're being reformed. That doesn't always happen, clearly, but that's the theory anyway. We can't put corporations in prison, fines don't work, and there isn't the political will to shut down employers. But we can give them parole officers, forcing companies charged with illegal acts to accept a representative onto their board of directors to oversee decision-making. Both help companies reform their governance and act as a real deterrence to decision-makers tossing up the cost-benefit.

trade-off of criminal activity. A man on the inside 
also makes it much harder to commit new crimes and   harder to cover up existing wrongdoings. While 
the company reforms itself too, there isn't a   right answer, but treating criminal penalties 
as just another expense line in the income   statement is the wrong answer. Now go sign up to my 
newsletter for free stories that won't ever make   it onto YouTube, and if you want to learn about 
a company that makes HSBC look like a Boy Scout,   go and watch my video on the corporate history 
of Samsung to keep on learning how money works.

How Fines Became "The Cost of Doing Business"

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How Money Works

HSBC's Criminal Activities and Corporate Accountability

HSBC was charged for aiding criminal cartels and violating sanctions, yet faced minimal punishment due to its status as a corporation.

The case raises questions about the legal accountability of corporations and the disparity in consequences between individuals and companies.

A proposed law by Senator Elizabeth Warren aims to hold investment executives accountable for harmful cost-cutting measures, highlighting the ongoing debate on corporate responsibility.

The Impact of Private Equity on the Healthcare Industry

Private equity firms have been profiting from cost-cutting measures in the healthcare industry, leading to a decrease in the quality of patient care.

The proposal to hold investors liable for the harm caused by reduced care faces challenges in legislation due to the difficulty of differentiating between natural causes, malpractice, and cost-cutting effects.

There is a growing awareness of the negative impact of private equity in healthcare, and while there are calls for reform, it remains challenging to regulate their involvement.

The Impact of Corporate Crime on Companies and Legal Punishments

Companies often escape severe legal punishments for their wrongdoing, leading to minimal consequences for negligence or greed.

The case of Arthur Andersen, one of the Big Five accounting firms, sets a precedent as it was found guilty of obstruction of justice in the Enron fraud and was ultimately shut down.

The current legal framework and rules make it difficult to hold companies accountable, allowing them to avoid significant repercussions for criminal behavior.

The Impact of Prosecution Strategies on Corporate Accountability

The Supreme Court overturned a ruling due to unclear jury instructions, leading to a culture of simply fining companies for wrongdoing.

The concept of "too Big to Jail" highlights the reluctance to punish corporations, despite increasing fines for corporate crimes.

Corporate crimes, such as wage theft, have been found to be more financially damaging than individual crimes, raising questions about the effectiveness of current prosecution strategies.

The Challenges of Prosecuting Corporate Crime

Prosecutors take a light approach to corporate crime due to its impact on jobs and the ability to shift blame.

Corporate entities' legal advantages and the revolving door between corporations and authorities further weaken prosecution efforts.

Bigger fines impacting shareholder profits could potentially deter corporate crime, but the challenge lies in determining the appropriate fine size.

The Impact of Corporate Punishment on Business Behavior

Chris Blackhurst proposes a solution to the inadequate punishment of criminal corporations, suggesting the appointment of parole officers to oversee their decision-making.

This approach aims to reform governance, act as a deterrent for illegal activities, and prevent cover-ups of wrongdoings.

Blackhurst emphasizes the need to treat criminal penalties as more than just a financial expense for companies.