May 31, 2006
Bill Bratton on "De Facto and De Jure Criminality"
Posted by Gordon Smith

Bill Bratton is traveling in Spain, and we had some difficulty getting him registered. Nevertheless, he has checked in with this insightful post on "De Facto and De Jure Criminality":

The thing to remember about Enron is that no scandal followed from the firm’s collapse and bankruptcy.  During the autumn of 2001 people watched the cards implode open-mouthed, trying to figure out the economic substance underneath the accounting restatements (and not succeeding).  The December bankruptcy registered as the biggest ever, but nobody was talking about criminal investigations.  Enron became a criminal matter only when shredding stories appeared in the newspapers in January 2002.  Shredding being something a federal prosecutor can get his or her hands around, a civil disgrace became a criminal scandal overnight.  That shredding had nothing to do with the company’s collapse and the losses suffered by its investors and employees, mattered not at all.

Of course, accounting treatments, financial reports, and the operation of the business all did take central places in the wider theater of scandal.  Indeed the scandal’s substantive script took its basic shape within a couple of weeks of the criminal transformation, when the Powers Report appeared.  The substance was scandalous and we appropriately treated it as criminal.  But it was criminality de facto, not de jure.  De jure criminality was defined by the indictments in the two main criminal actions, one against Andersen and the other against Lay and Skilling.  These were the lawyerly creations of prosecutors sifting fact and law in search of high probability convictions.  And so was the entire Andersen firm destroyed for shredding while the Sarbanes-Oxley Congress simultaneously asked for a report about the problem of concentration in the accounting industry!  I can’t think of a time when I saw two branches of the federal government working at such obvious cross-purposes, at least on a business law subject matter.  In contrast, the Skilling and Lay prosecutions at least had ties to the substance of the scandal.  But even here the script followed from the requirements of a successful fraud prosecution, intersecting the real scandal only incidentally.  Indeed, facts tied to the heart of the scandal – Enron’s the shameless gaming of the system’s formal attributes to create illusions of value – came up mostly from the Lay-Skilling defense team.

So why didn’t de jure criminality follow the facts of the case?   Because corporate decisionmaking processes diffuse responsibility, making culpability hard to attach in the inherited legal context of fraud.  The legal context could of course be changed.  Blue collar crime provides the templates.  But making the change would discourage risk taking by capitalists.  And so no changes will be made, and finance capitalism will retain its uneasy de facto connection with substantive criminality.

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