GM settlement shows Justice isn’t serious about justice

Barely a week after the Justice Department announced it would pursue individual wrongdoers in corporate crimes, a policy mocked as just reheated cabbage in the headline of my last column, Justice served up some reheated cabbage.

Deputy Attorney General Sally Yates declared that the policy was real reform: “We mean it when we say, ‘You have got to cough up the individuals.’ ”

The next week Justice settled with General Motors over faulty ignition switches that killed more than 120 people who lost control of their vehicles, the airbags failing to deploy. GM will pay $900 million, recall 2.6 million cars and offer some money to survivors and families of the dead, most of which were unable to collect damages because of GM’s 2009 bankruptcy.

Before the first car with a faulty ignition switch was sold more than decade ago, GM knew that the ignition switches were prone to fail, court papers show.

Yet despite knowing there would be deadly consequences, GM neither changed the design nor warned motorists, a callous disregard for the lives not just of customers but also of everyone else on the road.

Were there individuals named in the GM settlement with Justice? No. Were criminal charges filed for this deadly and long-running conspiracy? No.

Preet Bharara, the U.S. attorney for Manhattan, reassured reporters that it “remains possible we will charge an individual” in the future. What are the chances of that? On a par with the sun rising in the West tomorrow.

Part of what makes the GM settlement so galling is the U.S. automaker got off far more lightly than the Japanese automaker Toyota, which lied to customers about its 2010 safety recall. Only five deaths were established in that case. Justice made Toyota pay $1.2 billion. It also filed a criminal charge against the company, but deferred prosecution.

Each needless death cost GM shareholders $7.5 million, while Toyota paid $240 million per death. How is it just that a Japanese company was forced to pay 32 times as much per death as an American company in a largely similar case about defective cars and failure to act properly?

And why no individual prosecutions at GM or Toyota?

Bharara hinted that criminal charges would be difficult to bring in the GM case. This rationale pervades the White House. President Barack Obama, who for years taught Constitutional law at the University of Chicago, made the same weak excuse, telling 60 Minutes in 2011 that “some of the most damaging behavior on Wall Street, in some cases some of the least ethical behavior on Wall Street, wasn’t illegal. That’s why we had to change the laws.”

Wrong. Fraud is always a crime. Filing false statements under oath, transferring money by wire and mailing documents signed under penalty of perjury constitutes fraud. 

In addition, in the mortgage frauds and related securities frauds that sank the economy seven years ago, there was a bonus that should have assured convictions galore: Many insiders wrote emails and memos to top management about wrongdoing. Those internally blowing the whistle included compliance officers, whose job was to identify corporate wrongdoing internally and tell top management so it would stop. Instead the compliance officers were shown the door. 

At this point I think it is not an exaggeration to say that the Obama administration runs a protection racket for its friends in Corporate America. That isn’t all of Corporate America, just its friends. GM is in, Toyota is out. Wall Street is in, small time mortgage brokers in places like Tampa are out.

White-collar crime prosecutions are at a 20-year low, data analyzed by TRAC, the Transactional Records Access Clearinghouse, at Syracuse University shows. This year less than 1 in 20 cases brought by the Justice Department fits a broad definition of white-collar crime, which includes frauds against banks as opposed to frauds by banks, data analyzed by TRAC shows.

Congress deserves much of the blame for the willfully blind eye to theft on a massive scale by men and women in corner offices. The problem is not, as President Obama claimed, a lack of statutes so much as a lack of money. Budget sequesters and the notions that society prospers when law enforcement is required to operate on shoestring budgets are deadly Congressional policies.

Not everyone gets off lightly under the Obama Administration.

On Monday a federal judge in Georgia sentenced Stewart Parnell to 28 years in prison for commercial food poisoning. Parnell was convicted of falsifying food safety documents and knowingly shipping peanut products infused with salmonella.  At least nine people died because his Peanut Corporation of America operated filthy factories where bird and rat droppings, a hole in a ceiling and other obviously dangerous conditions were allowed to persist just so Parnell could squeeze more profit from the business.

When testing showed deadly salmonella in peanut products, Parnell told workers to “clean ’em all up and ship them.” Salmonella cannot be cleaned up safely, which is why the law requires contaminated products to be dumped, not sold.

Is what Parnell did that much different from what GM and Toyota did?

Criminalizing safety issues encourages cover-ups, as my law and graduate business students learn in my course on regulatory law. This is why systems of self-policing and self-regulation are best. But they must also be backed up with frequent, unannounced and thorough audits and inspections. Calculating offenders like Parnell must know that if wrongdoing is discovered, prosecution is certain and conviction with a long prison sentence likely.

Those rules must apply evenly and rigorously not only to food-company executives and owners but also to GM, to Toyota, now to Volkswagen with its deceptive diesel engine scandal, and to the rest of Corporate America.

Congress has for years been cutting budgets for audits and inspections. From the Internal Revenue Service to the Securities and Exchange Commission to the Labor Department to the Food and Drug Administration, law enforcement and safety budgets are nowhere close to being adequate to do the job.

As U.S. Rep. Rosa DeLauro (D-Conn.) says, the Food and Drug Administration’s food safety operations are “starved of resources.”

The savings to taxpayers from underfunding law enforcement are miniscule compared to the unnecessary illness, deaths as well as economic losses. The FDA needs about $120 million more per year to properly enforce food safety, for example, but Congress has approved only about a fifth of that.

So if you get sick from contaminated food or injured because of a car that the makers knew was defective, comfort yourself with the knowledge that your misery helps finance tax cuts that primarily benefit the richest among us. And if you are dying try not to think about the fact that the people responsible for ending your life will not be prosecuted for murder and probably not even for fraud because Justice finds it so much easier to transfer the cost to shareholders.