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Punishing Corporate Crime--Stuntz

David’s post about Spitzer and his excesses prompts a thought: I wonder whether those excesses might be hard-wired into the enterprise of prosecuting corporate crime.

Think about it this way. Thieves who never quite manage to steal anything aren’t likely to get prosecuted; by contrast, burglars who break into lots of houses are much more likely to face punishment than burglars who break into one or two. More criminal success leads to higher odds of punishment.

Now think about corporate crooks.

The pattern is nearly the opposite, isn’t it? The corporate manager who uses various illegal means to get to the top and to keep his business riding high—i.e., to make and keep it profitable—isn’t the one facing high odds of criminal prosecution. Seems to me, the corporate bad guys (if in fact they ARE bad guys) who face prosecution are the failures: the ones whose companies have just lost a bundle, or gone belly up. See, e.g., Enron, or WorldCom. The more true that is, the more criminal liability serves not as a deterrent to successful corporate crime, but as a deterrent to corporate failure.

If I’m right about that—am I, David? Steve Bainbridge?—then using criminal liability as a tool for regulating business is bound to be an economic disaster. Successful economies are built on risk-taking and entrepreneurship. Limited liability and bankruptcy laws encourage risk-taking by removing some of the sting from business failure. Prosecutors like Eliot Spitzer when he was state AG do the opposite: they increase the cost of high-profile corporate failure. That amounts to a large tax on risk-taking, which is just about the worst form of business regulation imaginable.

Maybe there is something wrong in that chain of reasoning. If so, I’d love to hear what it is.


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Comments ( 2 )

I think we need to distinguish between corporate crime--that is, criminal liability for corporations--and white-collar crime--that is, liability for individual managers related to entrepreneurial activity. I've defended corporate criminal liability a bit here and here. But prosecutions of corporations, like corporate punitive damages in the Exxon v. Baker case, will tend to happen only when the corporation is still afloat--there were no United States v. Enron or United States v. Worldcom prosecutions, for instance. You might be right, though, that prosecutions of individual managers will discourage risk-taking.

FWIW, an interesting-looking study of the motives of white-collar criminals based on a bunch of interviews just came out on Westlaw. It's at 82 St. John's L. Rev. 401.