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The War on Business
by William L. Anderson
[Posted September 06, 2002]
With the recent guilty plea of former Enron executive Michael
Kopper, it seems that the floodgates are now officially open in the
government�s war against American business.Democrats are
demanding something just short of summary executions, while
Republicans and President George W. Bush are trying to outdo the
Democrats in their anti-business rhetoric, and the mainstream news
media outlets are playing the role of Joseph Goebbels in helping to
stir the whole pot of hysteria.
>From Ted Rall and the New York Timeson the left to Fox News, the
Washington Times, and Robert Novak on the right, people are being
told that U.S. business officers and owners are crooks, charlatans,
and threats to a free and decent society.Of course, the public is
responding predictably, as pollster after pollster reports that
Americans approve of arrests and more arrests of these alleged
miscreants.
Unfortunately, this set of affairs has nowhere to go but downward,
as the government�s assault on business is going to have
devastating effects, not only upon the individuals being arrested and
charged with near crimes against humanity but also upon the future
business environment in this country.However, many of the
accused probably are guilty of little more than misreading the market
or trying to keep their company�s stock prices high against
impossible odds (and protect themselves against a herd of class-
action lawyers looking to sue when those prices inevitably fall).
Furthermore, as Novak pointed out in a recent column, high-profile
arrests mean favorable publicity for U.S. prosecutors.According to
Novak, James Comey, Bush�s new U.S. attorney in New York City,
will try to follow in the footsteps of Rudy Guiliani, the former New
York U.S. attorney who parlayed his prosecutions of Michael Milken
and Leona Helmsley into the mayorship of that city, and now makes
speeches at 75 grand a pop.Writes Novak,
"Comey has not pleased Republican lawyers by insisting that
accused corporate executives who had surrendered
voluntarily be manacled and perform a well-photographed
perp walk.However, the spectacle was enjoyed by the
prosecutor�s boss: George W. Bush."
There is no doubt as to what Comey and his cohorts are attempting
to do.By making it nearly impossible for anyone accused of �fraud�
and other such crimes to receive a fair trial, or by piling on
indictments--some of which are for activities that actually are legal
according to U.S. law--dozens of executives will be forced to plead
guilty and go to prison, often for �crimes� they never committed.[i]
At this point, I need to pause to answer the questions that many
readers certainly will be asking: How can someone actually defend
fraud?[ii]Furthermore, if people commit fraud, should they not have
to go to jail for it?
Neither I nor any of my like-minded colleagues who write on these
pages endorse the commission of fraud on any scale in any
organization, be it business or government.However, before we
sharpen our guillotines to lop off the heads of the accused, perhaps
we should try to make a determination of how we define that
word.Fraud, one would think, goes to intent, and, in the case of
criminal law, means the presence of mens rea,or �a guilty mind.�In
other words, in order to call something fraud, one must have
intended to commit it in the first place.
For example, assume that I sell my old car to Joe.When I had it, the
car ran well and I had no reason to suspect it would do otherwise.A
day after Joe buys it, however, a belt breaks, or there is some other
malfunction that costs him a bundle to repair.The question arises as
to whether or not I have defrauded Joe.Had I known something was
about to blow and did not inform him at the time of purchase in
response to his questions, then I may be guilty of fraud.
But what if Joe comes to my house, asks me my selling price, then
pays it on the spot without asking questions?If he did not ask about
defects, am I obligated to tell him, anyway?(St. Thomas Aquinas
outlined a similar situation in which a merchant sells wheat to
starving villagers.Is he obligated to let them know more wheat is on
the way?Aquinas said no, although he added it would be more
virtuous of him to inform the peasants of the coming shipments.)It
is obvious that ,although it would have been nice of me to inform
Joe of the car�s troubles, I did not defraud him, since he had shown
no interest in asking about the defects.
In the case of corporate executives, the issue is a bit dicey, but it is
still possible to make sense of what might be fraud and what is
not.For example, if the matter involves the gray areas of
accounting, including the various categories in which one records
assets and liabilities, often it is difficult to ascertain whether or not
fraud has occurred, and one needs to apply the mens reastandard.
Unfortunately, the U.S. Supreme Court has slowly but surely worn
away the protections of mens rea,which has been a boon to
ambitious prosecutors.As Paul Craig Roberts has pointed out in his
book The Tyranny of Good Intentions,large numbers of Americans
each year go to prison for violations of laws or regulations of which
they either were ignorant or disobeyed without any iota of criminal
intent.
Yet, intent goes to the heart of the matter.Assume that I am driving
my car carefully down a city street (at the speed limit) when a child
suddenly and without warning jumps in front of me.I then hit the
child and he is killed.That boy is as dead as he would be had I
kidnapped and murdered him, yet in the former case, I killed him
without any criminal intent, while in the latter case I would have
committed a depraved act.
Any fair-minded person would object if a prosecutor charged me
with first-degree murder for the first illustration, yet that is precisely
what has been occurring in criminal justice in the United States, and
especially in the federal system.For example, a number of people
have gone to federal prison for violations of environmental law
despite the fact that (1) they did not harm the environment, (2) they
were acting in good faith, having received state permission, and (3)
they were unaware of violating federal statutes until after the fact.
This latest anti-business jihad being conducted by various federal
agencies is likely to follow the example of environmental
prosecutions, in that many people are going to be prosecuted for
what are alleged technical violations of financial regulations in
whicheither there are �gray area� issues or the violation occurred
without criminal intent.Both Congress and the White House,
however,are trying to outdo one another in the category of who can
demonize business executives most loudly, especially with critical
congressional elections coming this fall.
When one includes ambitious federal prosecutors in the mix, along
with a statist, lap-dog news media that operates as little more than a
conduit for illegal leaks from prosecutors, it is not difficult to see just
how poisonous the present atmosphere has become to any fair
application of justice.What supposedly passes for a civilized court
system in which one is �assumed innocent until proven guilty beyond
a reasonable doubt� has turned into something akin to mob rule.
Furthermore, one should also ask the question of whether or not
some of these cases actually belong in civil instead of criminal
court.Over the last several decades, Congress has slowly but surely
given over its lawmaking powers to judges and bureaucrats.On top
of that, lawmakers have been moving situations that once were
reserved for civil courts into the arena of criminal law.
Take the recent �insider trading� case with ImClone, for
example.Even if we assume that the company�s executives (and
Martha Stewart) sold their stock on the open market knowing that
the bad news regarding the Food and Drug Administration would
quickly depress the stock�s value, that ultimately is something that
should be decided in the civil arena.If the purchasers of those
particular shares of stock believe they have been defrauded, civil
law gives them ample opportunity to seek redress in the same way
that Joe could sue me if I were to defraud him in selling him my old
car.
Making such issues criminal matters is harmful in many ways.First,
it deflects the true direction of harm.Instead of real individuals
having been hurt, we have the state �claiming� harm to the
�community.�As Austrians economists such as Ludwig von Mises
and Murray Rothbard have long pointed out, however, �community�
is a fictitious entity.Only individuals can be hurt.By forcing the issue
into criminal court, resources that might have been used to give
redress to the victims of fraud are now being used by prosecutors
and defense attorneys, and if the individual charged is found guilty,
the government often seizes that person�s property, making it
impossible for the actual victims of fraud to be compensated at all.
Second, the expansion of criminal law becomes a tool of
tyranny.When more and more activities are criminalized, in the end
it means more ruined businesses, destroyed families, and increased
financial burdens upon taxpayers, as they must pay for the
expanding prison population. The United States already
incarcerates more people than any other nation on the face of the
earth (approximately two million, one-fourth of all the world�s
prisoners), and the majority of them are in jail for non-violent
offenses.
Because Congress and state legislatures have greatly increased the
number and scope of the coercive tools used by the prosecution to
gain convictions, we have also seen an increase in the number of
innocent people going to prison.[iii]Given the current public outcry
over the alleged business scandals, politically motivated prosecutors
are working overtime to bring cases against hapless executives,
many of whom at worst are guilty of technical violations of
regulations and at best were operating in good faith, given the
business conditions when they made their fateful decisions.And the
present political climate ensures that most of these executives,
guilty or not, do not stand a chance of receiving a fair trial.
No doubt, many �ordinary� people have applauded the recent �perp
walks� that federal prosecutors such as Comey have forced upon
arrested executives in attempts to further humiliate them.No doubt,
many �ordinary� people have been angered at some of the heavily
publicized alleged misdeeds of these executives, who supposedly
have looted their own companies for their own gain.No doubt, many
�ordinary� people have approved of �throwing the book� at those who
are being charged.
What these folks do not realize, however, is that if prosecutors can
roll wealthy and prominent people, illegally leak grand jury testimony
with no fear of being prosecuted themselves, and conduct
poisonous campaigns in the press that all but guarantee those
currently in the dock cannot receive a fair hearing, then there is no
limitation at all to state power.A government that can jail the rich
and well-known at will and confiscate all of their assets is a
government that can do the same thing to �ordinary� people--and at
a lower cost to government officials.If people really want a
prosecutorial state with no limitations, they will have their wish
granted--and lose whatever precious freedoms they may still
have.That is nothing less than a deadly bargain with the Prince of
Darkness himself.
William Anderson, an adjunct scholar of the Mises Institute, teaches
economics at Frostburg State University. Send himMAIL. See his
Mises.orgArticles Archive.
[i] For example, it is legal for businesses to use non-U.S. banks, but
prosecutors often will charge people with �money laundering� in an
attempt to increase the number charges in order to ensure an
increased likelihood of guilty pleas.
[ii] My recent defense of Martha Stewart brought a number of hostile
e-mails to my computer in which people accused me of defending
fraudulent behavior.
[iii] As Paul Craig Roberts has noted, many people plead guilty even
if they are innocent, since they lack the resources to fight the
modern prosecutor, who often do not care themselves whether or
not the accused is guilty or innocent.
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