Control fraud is when the CEO of a company uses the corporation as a weapon to commit fraud.
Bill Black is a lawyer and former federal bank regulator.
He’s the author of the corporate crime classic – The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry (University of Texas Press, 2005.)
Black says there are steps we can take as a society to control corporate crime – in particular financial crime.
In an interview with Corporate Crime Reporter last week, Black laid out his top ten.
Number ten: Hire 1,000 FBI agents.
Pass legislation (HR 3995) introduced by Congresswoman Marcy Kaptur that would fund the hiring of 1,000 FBI agents to investigate white collar crime.
Number nine: Appoint a chief criminologist at each of the financial regulatory agencies.
“Each agency needs someone who understands white collar crime,” Black said. “If you don’t understand fraud schemes, if you don’t understand how accounting is used to run these scams, you will always have a disaster in the making.”
Number eight: Fix executive compensation.
Black would tie executive bonuses to long term corporate performance.
Number seven: Target the top 100 corporate criminals.
“We need to do a top 100 priority list – the way it was done in the savings and loan crisis,” Black said. “The FBI, the Justice Department and the regulatory agencies got together and put together a list of top 100 companies to target. There was a recognition that these were control frauds. The top executives were using seemingly legitimate savings and loans as their weapons of fraud. And that is why any serious look will tell you the same thing about this most recent crisis as well. The criminal justice referral process has collapsed at the agencies.”
Number six: Regulate first.
“When you desupervise or deregulate an industry, in fact you are decriminalizing control fraud. The regulators are the ones who make the bulk of these cases. I’m not saying they can do it alone. In the current crisis, the FBI had no meaningful support from the regulators. You have regulators denying they were regulators and saying that there could be no fraud because the rating agencies were handing out high ratings. That kind of naivete is ideologically driven. You will not have effective prosecution with that kind of regulatory regime.”
Number five: Bust up the FBI partnership with the Mortgage Bankers Association.
“Now we have the FBI standing with what it calls its partners – the Mortgage Bankers Association,” Black said. “But the Mortgage Bankers Association – that’s the trade association of the perps. So, the FBI is partnering with the perps.”
“The result is – we have seen zero prosecutions of the specialty non-prime lenders that caused the crisis,” Black said. “The mortgage bankers are going to position themselves as the victims. This has been so successful that the FBI now has a mantra. They are saying there are two kinds of mortgage fraud. Fraud for profit and fraud for housing. And neither of them is control fraud. They have effectively said – control fraud is impossible. Even though it was the entire story behind the savings and loan crisis, the Enron wave, and the creation of the most recent housing bubble.”
Number four: Get rid of Ben Bernanke as chair of the Fed. Replace him with Nobel prize winner Joseph Stiglitz.
“Ben Bernanke should not have been reappointed as head of the Fed,” Black said. “He was the most senior regulator. And he was an utter failure. Under President Bush, he was President of the Council of Economic Advisors. So, he was a failure as a regulator. And he was a failure as an economist.”
Number three: Get rid of too big to fail.
There are about 20 banks that have assets of $100 billion or more. They are considered too big to fail. “You do three things,” Black says. “First, you stop them from growing. Second, you shrink them (to below $20 billion in assets.) You create the tax and regulatory incentives where they have to shrink below the level where they pose a systemic risk. And third, you regulate them much more intensively while they are in the process of moving from a systemically dangerous institution to a more leaner, smaller, more efficient, less dangerous institution.”
Number two: Create a consumer financial protection agency headed by Harvard Law School professor Elizabeth Warren.
“The sine qua non for success as a regulator is independence,” Black says. “So, it’s a very bad sign that Congress is moving away from an independent regulator.”
“As we speak, news is breaking that they are moving away from housing the regulator at the Treasury Department. Now they are talking about putting it at the Federal Reserve. The Fed is an independent regulator. Unfortunately, it’s an independent anti-regulator. I called putting it at the Treasury a sick joke. Putting it at the Fed is also a sick joke. They are both recipes for failure.”
Number one: Fire Treasury Secretary Timothy Geithner, Office of Thrift Supervision chief John Bowman, Fed chief regulator Patrick Parkinson, and Office of the Comptroller of the Currency Chief John Dugan.
“Tim Geithner was testifying before Congress a couple of years ago,” Black said. “And in response to a question from Ron Paul (R-Texas), Geithner said – ‘I have to stop you right there – I’ve never been a regulator.’ Well, that’s true. But you are not supposed to admit it.”
“Can you imagine. This is the President of the New York Fed, testifying about the greatest failure in banking in the history of the nation. And he is so completely out of it – the mindset of capture is so complete, that he says – I’ve never been a regulator. This is the ultimate capture. You don’t even think of yourself as a regulator.”
“Ben Bernanke in October 2009 appointed Patrick Parkinson as the top supervisor at the Fed,” Black said. “He’s the guy who, under Alan Greenspan, led the Fed charge against Brooksley Born when she wanted to regulate credit default swaps.”
“Patrick Parkinson, on behalf of the Fed, testified that credit default swaps should be left completely deregulated.”
“The reasons? If we regulate them, they will flee to the city of London. We should be so lucky, of course.”
“And two, fraud can’t happen in credit default swaps, because the participants are so sophisticated. This is the most astonishingly naive model of white collar crime by people who know nothing about white collar crime and don’t study it at all.”
“John Dugan’s sole priority and all of his passion as OCC director has been pre-empting state efforts to protect us from predatory lenders,” Black said.
“And John Bowman should be fired,” Black said. “The OTS got in bed with the industry most openly.”
*This article originally appeared on CommonDreams.org