Tackling white collar crime in the US
October 10, 2015
FIFA's leadership has been decimated since the US Justice Department charged world soccer with racketeering and money laundering last May. Sepp Blatter, FIFA's long-time president, and two of his deputies have been banned from the organization for 90 days. Powerful sponsors such Coca Cola, McDonald's and Visa are calling on Blatter to step down immediately.
Volkswagen is next in the firing line. Last month, the Environmental Protection Agency revealed that the automaker had been cheating on US emissions tests. Volkswagen's stock value has plummeted and its chief executive, Martin Winterkorn, has resigned. The Justice Department is now investigating and criminal charges could be brought against Germany's largest company.
Both FIFA and Volkswagen are based in Europe. Yet US regulators and investigators have been at the forefront in pursuing these white collar criminal cases. According to William Black, a former bank regulator, the US simply has more tools at its disposal than Switzerland, Germany or the EU.
"The United States, despite this record of catastrophic failure in responding to the white collar epidemics that drove the financial crisis, still has vastly better laws for regulating and prosecuting, and still has vastly greater willingness to take on powerful folks than is true in many places," Black told DW.
More resources in US
Prior to the 9/11 terrorist attacks, the US Federal Bureau of Investigation (FBI) had 2,500 agents covering white collar crime, according to Black. After the attacks, one-fifth of those agents were reassigned to focus on national security cases.
As consequence, each of the approximately 1,000 industries in the United States had just two FBI agents covering it. With so few cops on the beat, virtually no bankers were held accountable in the aftermath of the 2008 financial crisis.
"As few FBI agents as we have for example in our white collar section, they are probably greater than all of the European resources combined," said Black, a professor of economics and law at the University of Missouri-Kansas City.
German and Swiss authorities in particular have a long track record of being weak on white collar crime, according to Black. He pointed to the Siemens corruption scandal and the manipulation of benchmark interest rates by Deutsche Bank.
Foreign corrupt practices
Siemens had established a fund of up to $50 million (44 million euros) to bribe foreign officials. Up until 1999, companies in Germany could deduct foreign bribes from their taxes as a business expense. The United States banned such practices in 1977 with the Foreign Corrupt Practices Act.
"US prosecutors see their priority as dealing with institutional corruption whether it's in a political system, or it's in a larger corporation," John Coffee, an expert on corporate governance and white collar crime at Columbia Law School, told DW.
"This is what they've been doing for years with the Foreign Corrupt Practices Act, where they have pretty much led the world, but much of the world which is now beginning to follow," Coffee said.
In 2008, Siemens paid $1.6 billion in fines to US and German authorities.
Deutsche Bank, another German powerhouse, colluded to manipulate benchmark interest rates. The financial institution paid $2.5 billion to US and British regulators, while the European Union imposed a 725 million euro fine for manipulating benchmark rates. And Berlin?
"Germany still hasn't really done much of anything to Deutsche Bank, though probably it will get around to doing something," Black said.
Conflicting political interests
In the case of Volkswagen, German authorities face powerful special interests. The automaker employs 271,000 people in Germany, and the state of Lower Saxony has a 20 percent stake in the company.
"In Volkswagen, you can see reasons why prosecutors in Germany might be cautious, slow, hesitant in going after the number one industrial giant in Germany," Coffee said. "You don't want to suddenly halt the local business community, you don't want to cause sudden unemployment."
In the case of FIFA, allegations of corruption go back years. Yet Switzerland, where world soccer is headquartered, didn't act until the US Justice Department made its move in May.
"Switzerland always viewed FIFA as an asset and has never had significant capacity for investigating elite white collar crimes and historically has been a massive tax haven," Black said.
The United States faced similar issues in the aftermath of the 2008 financial crisis. According to Black, then US Treasury Secretary Timothy Geithner feared that aggressive prosecutions would topple large financial institutions and reignite the crisis.
Change of tone in the US
Popular outcry from the public and the press over the lack of personal accountability has forced the Justice Department to switch track. Prosecutors are now more aggressively trying to find the individuals responsible for white collar crimes as opposed to just settling with the companies.
FIFA was perhaps the clearest example of that yet. The Justice Department has sought the extradition of seven FIFA officials to New York. But world soccer is an easy target in the US, where there's little interest in the sport and FIFA doesn't have much political pull.
"It's true that the Justice Department is more willing to go after foreign firms," Black said. "There's no question about it."