Can Financial Crimes be Punished?
Throughout the course of the “Great Recession,” there have been numerous calls for more transparency and accountability for financial institutions. The question that has arisen in the past, and must be seriously considered, is how to make financial crimes less enticing to potential white-collar criminals. Whether through more severe punishments or stricter regulations, the country must understand that there is no clear solution in the short-term. Recent calls for stricter punishments of white-collar crimes may not result in less financial crimes. Throughout history, financial crimes have been punished with severity, at times including capital punishment. The Code of Hammurabi, utilized 3700 years ago, called for anyone who violated a financial contract “shall be put to death as a thief” whereas in Medieval Catalonia, a failed banker was required to live on bread and water until they paid back their depositors. Despite this, financial crimes of varying degrees still occurred.
In today’s financial world, it is increasingly difficult to prosecute financial crimes. The issue that routinely arises is whether or not the suspect’s conduct was illegal as opposed to simply greedy. Federal prosecutors have consistently explained that they need to prove intent in order to convict financial crimes. In order to facilitate a more consistent prosecution rate of financial criminals, it is essential that federal attorneys utilize creative thinking in reference to the web of federal statutes that can be brought against financial institutions that violate regulations in their quest for more money.In order to better identify illegal activity, it is essential that the country enact legislation in line with the Sarbanes-Oxley Act (SOX) to clearly outline what is considered illegal. Thanks to the Sarbanes-Oxley Act, board executives must sign-off on their balance sheets and SOX allows for increased independent auditors. Unfortunately, however, the tough language of SOX has continued to fall into the foggy area of proving the executives knowingly created false documents. The few key cases that have been brought forward from SOX have typically ended in mistrials, acquittals or short prison stints.
Therefore, it should be argued that legislation alone is not enough to eliminate corporate fraud. In addition to legislation that allows for prosecution, it is essential that a three-pronged approach is implemented. There must be a top-down “no fraud” approach, employee education and a way for employees and customers to identify and report financial fraud. Arguably, the most difficult of these solutions is for the company executives to drive a top-down culture shift that makes fraudulent activity unacceptable. While this may not drive change from the very top, it may provide the fodder many employees need to recognize illegal activity. This lends directly to the next point, as employees and customers are educated on how to prevent fraudulent activity, they will have a better understanding of not only what may be occurring but will also provide the employees with the knowledge to counter executive’s no intent defense. Finally, as more people understand the symptoms of fraud and are provided with an outlet to report it, change can be pursued from within the company.
Certainly the simple solutions outlined above will not prevent all corporate fraud but perhaps it may provide the incentive to bypass financial crimes that many of the executives did not have from legislation previously; it may remind them that there are many more educated eyes watching them. While financial crimes have been a part of currency exchange over the span of human existence, driving change and prosecutions are an option, but regulations must be tied to education and engagement for financial crimes to be regularly prosecuted with consistent conviction rates.