How to Actually Prosecute the Financial Crimes of the Very Rich
I quit the DOJ because I no longer wanted to participate in a system this permissive.
It was tax season 1999. I was a federal economic-crimes prosecutor in Miami, and this was the time of year my colleagues and I brought cases to deter would-be tax cheats. My target was a tax-return preparer operating out of Liberty City’s “Pork & Beans” projects, made famous in the movie Moonlight. This tax preparer had been manufacturing false W-2s and Social Security numbers so that her clients would receive an earned-income tax credit to which they weren’t entitled—amounting to more than $100,000 in bogus refunds. She eventually pleaded guilty and spent nearly three years in prison, which at the time I considered a broadly just result. She had committed a real crime against the United States.
That crime was not even one-100th as harmful as what Robert Smith, the billionaire private-equity investor, did. His tax fraud, which he admitted to, was massive—possibly the largest in history—and took place over at least a decade and a half. He went to elaborate lengths to hide more than $200 million from the IRS, which meant that he avoided at least $43 million in taxes.
Unlike the Pork & Beans case, though, Smith faced no prosecution and served no time. He hired expensive lawyers who successfully negotiated a “non-prosecution agreement,” in which Smith paid some taxes and a fine—though leaving the bulk of his billions intact—and did not have to bear the stigma of a criminal conviction.
I spent 27 years fighting white-collar crime and corruption at the Department of Justice, first in the Tax Division, then in the Miami U.S. Attorney’s Office, and finally in the Criminal Division. I have witnessed firsthand precisely how unjust the American criminal-justice system can be. Practically everyone knows, on some level, that the rich get better treatment than the poor. But I saw it so clearly: The wealthy live in a different legal reality entirely, one in which blatant financial fraud routinely goes unpunished. For the poor, even the merest transgression can lead to ruined lives. This problem has always existed, but it has gotten worse—far worse—in recent years. I eventually quit the DOJ because I no longer wanted to participate in this system.
In the mid-1980s, when I worked for the Tax Division, the DOJ was prosecuting almost 8,000 white-collar criminals annually. While in Miami in the ’90s, I witnessed the DOJ’s focused commitment to rooting out high-level savings-and-loan criminals. In the early 2000s, with the formation of the Corporate Fraud Task Force, no one doubted the DOJ’s centralized effort to hold corporate executives accountable for fraud. Then it all seemed to abruptly stop. Last year saw federal criminal white-collar prosecutions drop to their lowest level ever, to about 3,500 prosecutions nationwide. Have the wealthy simply forsworn criminality? Not likely.
What I observed was a sustained erosion of coordinated focus, effective leadership, and political will. This led to a marked deterioration of the department’s ability to competently attack elite financial fraud. Congress, too, deserves some blame. For example, as recently chronicled by ProPublica, the operational demise of IRS enforcement capabilities is rooted in the failure to budget for the hiring of a sufficient number of special agents to investigate and address the depth and breadth of elite-level tax fraud. President Joe Biden’s recently proposed $80 billion IRS spending boost would be a good start, but money alone won’t solve the problem.
This decline in enforcement capacity permits corrupt autocrats and complicit bankers to launder trillions through U.S. banks. One report by the then-chair of the Wolfsberg Group, a consortium of international banks evaluating financial-crime risk, estimates that $5.8 trillion worth of financial crime was perpetrated in 2018. BuzzFeed News recently reported that from 1999 to 2017, more than 200,000 suspicious financial transactions totaling $2 trillion, some traceable to corrupt foreign oligarchs, were processed through U.S. banks. Virtually no regulatory or law-enforcement action was taken.
Pundits, professors, and politicians have claimed that these prosecutorial failures could be the result of either insufficient laws or the fact that the pernicious behavior under scrutiny simply doesn’t constitute a crime. I know such claims are perversions of the truth. It’s about the competence, commitment, and courage of our leaders.
Indeed, isolated examples emanating from the department’s Fraud Section, involving the use of data to ferret out fraud, give DOJ leaders a model they can look to when righting the ship. The 15 Health Care Fraud Strike Forces around the country have convicted hundreds of doctors and health-care executives and saved taxpayers billions by tracking Medicare billing data. Similarly, through concentrated focus on the Commodity Futures Trading Commission’s expertise and unique access to data, the DOJ was able to efficiently attack elite financial fraud conducted on the metals-trading desks at some of the world’s largest financial institutions. This proves that, with the right focus and leadership, developing centralized methodologies to tackle unaddressed elite financial fraud is possible.
Newly confirmed Attorney General Merrick Garland can lead the DOJ to do better. Garland should consider appointing a white-collar-crime czar to head a sustained national effort to address elite fraud. Given the depth and duration of the problem, a Manhattan Project–type group of the best minds convened to critically evaluate elite financial crime seems in order.
Restoring integrity, fairness, and confidence in the Department of Justice and within the American system of justice is vital to maintaining a thriving democracy. Garland’s experience and reputation for fairness and excellence give cause for hope.