Two years after President George W. Bush established by executive order the Corporate Fraud Task Force to, as he put it, “use the full weight of the law to expose and root out corruption,” the Federal Bureau of Investigation is launching fewer white-collar inquiries than before Sept. 11, 2001.
A new Government Accountability Office report examining the effects of the FBI’s shift to counter-terrorism finds it began 32% fewer new white-collar investigations in fiscal 2003 than in fiscal 2001. (The report does not count new whistleblower cases in its analysis.)
That’s a surprise considering this drop follows so closely high-profile scandals at Adelphia Communications, HealthSouth, Global Crossings, Tyco International, Worldcom and Enron. Not to mention, heightened scrutiny of the corporate suite following the criminal case against Martha Stewart Living Omnimedia’s namesake founder or the spate of pricey civil settlements for wrongful trading practices at several Wall Street power firms, such as Citigroup and Goldman Sachs.
A big factor in the decline of FBI white-collar matters is the significant shift in its resources to national security priorities. That’s a big deal since the FBI has traditionally referred the greatest number of white-collar crime matters to U.S. attorneys of any federal agency (more than the Internal Revenue Service, for example).
The complexity of some of the recent high-profile white-collar cases has also eaten up a lot of manpower, further reducing the number of cases that can be tackled, explains Tim Coleman, senior counsel to the deputy attorney general at the Justice Department. Coleman helped lead the investigation of Adelphia Communications.
The decline may be good news for corporate criminals, but it’s bad news for the vast majority of law-abiding companies. Without a strong regime of criminal enforcement, calls for more stringent corporate governance regulation–and overregulation–get louder.
The GAO report found that while FBI white-collar referrals plummeted, referrals by all other agencies increased 15% in the two-year period. The Department of Health and Human Services, the Social Security Administration, the U.S. Postal Service, the U.S. Secret Service and the Internal Revenue Service collectively referred 6,726 white-collar cases last year.
“The corporate scandals and the need for an adequate response ultimately concern the continued broad acceptability of the capitalist system,” worries Irwin M. Stelzer, director of economic studies at the free-market friendly Hudson Institute.
Those that are supposed to enforce the laws are feeling anxious, too. One U.S. attorney interviewed by the GAO explained that the higher investigation thresholds for white-collar crime at the FBI make it easier for common counterfeit check fraudsters to do their mischief. “The white-collar crime expertise of the FBI is gone,” the U.S. attorney complained.
The Justice Department’s Coleman says he would rather “focus on quality, not quantity,” adding that he is unaware of any specific trend of FBI white-collar agents transferring to other units such as cyber-crime.