Where are the financial crimes prosecutions?

By David Cay Johnston

The author is a Reuters columnist. The opinions expressed  are his own.

(Reuters) – A new report from London and President  Barack Obama’s statements to the “60 Minutes” programme show financial crimes spreading like wildfire and governments  failing to stop them.

Barack Obama

Tax evasion equals 18 percent of global tax collections, a  new report by British accountant Richard Murphy shows. His  report for the Tax Justice Network cleverly lined up a World  Bank Report on the size of shadow econo-mies with a Heritage  Founda-tion report on average tax burdens by country to reach that figure. http://link.reuters. com/cun55s
Murphy’s $3 trillion estimate, 5 percent of the global  economy, shows how a combination of weak rules on accounting  and disclosure combined with inadequate budgets to enforce tax  laws impose a terrible cost on honest taxpayers and the  beneficiaries of government service.

While the United States has one of the most effective tax  regimes, especially for on-the-books wage earners and  pensioners, and one of the smallest underground or shadow  economies, it has the largest amount of tax evasion measured in  dollars.

Murphy’s report covers 145 countries that generated $61.7  trillion of gross product, 98.2 percent of the world total. The  145 countries had only 61.7 percent of world population, a  reminder of how poor the more than 2.7 billion people in the  other 90 countries are.

Murphy estimates U.S. tax evasion at $337.3 billion, 10.7  percent of the global figure and close enough to the official  Internal Revenue Service tax gap estimates to be credible.

The United States has lower tax rates than eight of the  nine other top 10 tax evasion countries. Rampant evasion in  America raises doubts about the notion that high tax rates fuel  evasion.


Another sort of financial crime was discussed when  journalist Steve Kroft, interviewing Obama for CBS’s “60  Minutes,” cited a poll showing that 42 percent of Americans  believe Obama’s policies favor Wall Street. Kroft said he  suspects that is because “there’s not been any prosecutions,  criminal prosecutions, of people on Wall Street.”

Obama deftly avoided the issue. “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 exactly  why we had to change the laws.”

Shame on Kroft for not following up with the obvious  question: “Where are the prosecutions of those who did commit  crimes, Mr. President?”

There is no need for new laws to rein in fraud, the  evidence of which is pervasive, reported in detail by our  savviest journalists, thoroughly documented in academic reports  and in all manner of official government reviews.

Obama then ever so subtly shifted gears, telling Kroft “and  that’s why we put in place the toughest financial reform  package since FDR and the Great Depression. And that law is not  yet fully implemented…”

Obama’s words neatly conflated two separate issues.

One is atrocious business judgment that should have wiped  out the wealth of those who invested in the speculative  derivatives casinos. That might have restored Wall Street as a  home to investment houses that marshaled capital for productive  investments.
The other issue is fraud.
Juries often fail to grasp arcane regulations. A crime so  complex that it takes a prosecutor a day for her opening  argument invites reasonable doubt. But fraud is something  juries do get. Show a jury falsified records and bald-faced  lies in disclosure documents, then toss in testimony from  insiders who pointed out the wrongdoing only to be told to shut  up — or who got fired — and convictions follow.


We know this because during the savings and loan crisis two  decades ago juries convicted in more than three thousand cases,  including more than a thousand major felony cases committed by  senior insiders.

The man most responsible for those convictions was Bill  Black, a federal banking regulatory lawyer at the time who now  teaches about white-collar crime as a professor at the  University of Missouri-Kansas City law school.

So has Obama or his Justice Department sought Black’s  advice? “No,” Black told me.

Instead Obama leans on Treasury Secretary Timothy Geithner,  who was worse than a sightless sheriff when he presided over  the Federal Reserve in New York. Geithner not only failed to  stop the looting, he actually shut down investigators who were  onto the frauds because he said he worried that the  institutions he was supposed to regulate were too fragile to  withstand scrutiny.

The worst part of this is that the statements of the  leading Republicans in the 2012 election campaign who seek to  succeed Obama, a Democrat, make clear they have no interest in  putting Wall Street criminals behind bars either.

Financial theft is a growth industry because of government  failures that I attribute to excessive reliance on the  financier class for advice, campaign donations and absurdly  well-paid jobs for officials between their government jobs.

Will the next journalist who interviews President Obama  please press the issue: where are the banking fraud  prosecutions, Mr. President? And don’t let up until the  president picks up the phone and tells Attorney General Eric  Holder he wants 1,000 or more major felony indictments in the  next nine months.

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