Big Bankers and the U.S. Government: A Coalition Circumventing Accountability on Wall Street

It is interesting that the U.S. Department of Justice did not pursue the fraudulent bankers on Wall Street not only during the Bush presidency, but also the following presidency, that of Barak Obama.  Not coincidentally, Goldman Sachs was the single biggest campaign contributor to Obama’s 2008 candidacy for president. It would seem that Wall Street had both political parties in a net by the time of the financial crisis in September, 2008. A sector of the economy being able to control both major parties is bad for not only industrial policy (i.e., favoritism), but also democracy. In short, a government should have enough strength to constrain a business sector, rather than being subject to it. The latter condition implies continued vulnerability should greed again get ahead of itself on Wall Street. By nature, greed, if allowed to go on running on its own steam, accumulates more and more momentum. 

The New York Times reported in 2011, “legal experts point to numerous questionable activities where criminal probes might have borne fruit and possibly still could. Investigators, they argue, could look more deeply at the failure of executives to fully disclose the scope of the risks on their books during the mortgage mania, or the amounts of questionable loans they bundled into securities sold to investors that soured. Prosecutors also could pursue evidence that executives knowingly awarded bonuses to themselves and colleagues based on overly optimistic valuations of mortgage assets — in effect, creating illusory profits that were wiped out by subsequent losses on the same assets. And they might also investigate whether executives cashed in shares based on inside information, or misled regulators and their own boards about looming problems. Merrill Lynch, for example, understated its risky mortgage holdings by hundreds of billions of dollars. And public comments made by Angelo R. Mozilo, the chief executive of Countrywide Financial, praising his mortgage company’s practices were at odds with derisive statements  he made privately in e-mails as he sold shares; the stock subsequently fell sharply as the company’s losses became known. Executives at Lehman Brothers assured investors in the summer of 2008 that the company’s financial position was sound, even though they appeared to have counted as assets certain holdings pledged by Lehman to other companies, according to a person briefed on that case. At Bear Sterns, the first major Wall Street player to collapse, a private litigant says evidence shows that the firm’s executives may have pocketed revenues that should have gone to investors to offset losses when complex mortgage securities soured.”[1]  David Skeel, a law instructor at the University of Pennsylvania, remarked, “It’s consistent with what many people were worried about during the crisis, that different rules would be applied to different players. It goes to the whole perception that Wall Street was taken care of, and Main Street was not.”[2]

Elliot Spitzer, the Attorney General of New York, was preparing to go after some big bankers until he stopped when a lawyer at the U.S. Department of Justice (DOJ) told him to back off because the department would be moving against the bankers. However, it did no such thing; the DOJ would not in fact "move" against the bankers. So it is suspicious; the lie may have been fabricated in Washington, D.C. to protect the bankers. If so, elected representatives including the president who had received sizable campaign contributions from the bankers themselves or their banks would be prime suspects. To suggest that an elected official would not protect a major contributor is like asking water to go up hill.  The subterfuge used by the DOJ at the time was that if the department went after the bankers, the banks themselves, which were too big to fail without taking the financial sector and even the economy with them, would become too unstable.
Incredibly, not only did the bankers not get punished; the banks got bailouts, which the bankers could use to pay themselves bonuses! This included bonuses at Goldman Sachs for selling "crap" (i.e., the subprime-mortgage-based bonds) to even good clients and of course lying about how solid the bonds actually were. 

Bank regulators, who can be "captured" by regulatees not only due to reliance on information from them, but also political pressure from the regulatees' political protectors in Congress and the White House, may have played a role too. According to The New York Times, bank regulators referred 1,837 cases to the Justice Department in 1995. In 2007-2010, an average of only 72 a year was referred for criminal prosecution.  “The Office of Thrift Supervision was in a particularly good position to help guide possible prosecutions.” From the summer of 2007 to the end of 2008, O.T.S.-overseen banks with $355 billion in assets failed. The thrift supervisor, however, did not refer a single case to the Justice Department between 2000 and 2010. The Office of the Comptroller of the Currency, a unit of the Treasury Department, referred only three in that decade.[3]

The relationship between the head of Thrift Supervision and the CEO of Countrywide is particularly revealing.  In March 2007, Countrywide was regulated exclusively by the regulatory agency. That agency was overseen at the time by John M. Reich, a former banker and Senate staff member appointed in 2005 by President George W. Bush. Reich was on all for deregulation. Robert Gnaizda, a former general counsel at the Greenlining Institute, a nonprofit consumer organization in Oakland, Calif., said he had spoken often with Reich about Countrywide’s reckless lending. Gnaizda says that when he suggested to Reich how he could build a case against Mozilo, the CEO of Countrywide, Reich “was uninterested. He told me he was a good friend of Mozilo’s.”[4] Reich subsequently refuted that the two were friends. “I met with Mr. Mozilo only a few times," Reich insisted, "always in a business environment, and any insinuation of a personal friendship is simply false.”[5] Even a few business meetings can be sufficient and the same ideology can be sufficient, however, to bend the ear of a regulator. Besides, Reich had reason after the financial crisis to deny any friendship with a man largely discredited due to the mortgage-producing antics at Countrywide. Mozilo’s flush fingers may have stretched as far as the chairman of the Financial Crisis Inquiry Commission, Phil Angelides. The New York Times reported in 2011 that he had told two deputies that Mozilo and Countrywide were off limits, though Angelides subsequently denied having made the statement. Instead, he pointed instead to the Republican opposition to hearings on Countrywide in Congress.

I suspect that whether of the deregulation crowd or Democratic, both parties, being of part and parcel of the establishment, had by the financial crisis of 2008 become too close to the vested interests on Wall Street to effectively regulate its banks and bankers, and thus to be in a position to investigate cases of regulatory failure. In other words, when the necessary relationship between financiers and regulators breaks down, accountability does as well. Without the regulators and DOJ being able to constrain excessive greed by holding the people in the financial sector accountable, continued vulnerability to the financial system collapsing as it almost did in September, 2008 can be expected even if it is ignored.  

See Essays on the Financial Crisis: Systemic Greed and Arrogant Stupidity, available at Amazon.

1. Gretchen Morgenson and Louise Story, “In Financial Crisis, No Prosecutions of Top Figures,” The New York Times, April 14, 2011.

2. Ibid.

3. Ibid.

4. Ibid.

5. Ibid.

U.S. Attorney General Barr's Decision on the Mueller Investigation of President Trump: On the Invisible Personal and Institutional Conflicts of Interest

On March 24, 2019, U.S. Attorney General William Barr sent to Congress his summary of Robert Mueller's report on whether President Donald Trump's 2016 campaign had colluded with the Russian government and whether the president had obstructed justice. According to Barr, Mueller had found no evidence of collusion. As for obstruction, Barr wrote that Mueller "did not draw a conclusion one way or the other as to whether the examined conduct constituted obstruction."[1] On this point, Mueller himself had written that 'while this report does not conclude that the president committed a crime, [the report] also does not exonerate him."[2] Mueller had laid out evidence and arguments on both sides of the question of obstruction, and Barr determined that the "evidence fell short of proving [that the president] illegally obstructed the Russia inquiry."[3] The New York Times went on to call this "an extra-ordinary outcome."[4] 
Barr did not detail his reasoning in deciding the matter of obstruction. According to the New York Times, he "appeared to be focusing on the question of whether investigators could prove that [President Trump] had 'corrupt intent' in instances where the available evidence about his motivations was ambiguous."[5] But in focusing on a lack of evidence that the Trump campaign reached any agreement with the Russian government on sabotaging the election, legal experts said," Barr "left out other reasons the president may have had for wanting to stymie a wide ranging investigation: It could uncover other crimes and embarrassing facts."[6] In other words, Barr's parameters may have been too narrow. 
The way Barr framed the contours for his decision might not have been an accident, given his personal conflict of interest. More important than this, I submit, is the continuing institutional conflict of interest facing the Justice Department in investigating its boss, the chief executive. After Congress had received Barr's summary, U.S. Sen. Lindsey Graham pointed on Fox News to former Attorney General Jeff Session's personal conflict of interest (Sessions had been part of Trump's campaign that was being accused of collusion with the Russians). Unfortunately, the senator mentioned neither Barr's personal conflict of interest or the broader institutional one facing the Justice Department. Such denial may have been partisan in nature, but I contend that institutional conflicts of interest tend to get a pass in American society. In the case of the Mueller investigation, Americans as a people put the conflicts of interest aside in looking forward to the conclusions from within the Department of Justice. This point, I submit, ought to be viewed as extraordinary. I turn now to the conflicts of interest.
According to The New York Times, when Barr "stepped in to make the determination," he brought "the specter of politics back into the case."[7] I submit that any Attorney General would, and I submit should trigger partisan suspicions in making a determination on a matter in which the chief executive (i.e., the president) is being investigated. 
As for the personal conflict of interest, even though Barr "had taken over the Justice Department [just a month earlier] pledging to defend its independence," he "ended up clearing a president who [had installed] him in the post."[8] This is significant not just because President Trump had been emphasizing loyalty (and dismissing the disloyal) from his subordinates in the executive branch; any pledge of independence represented a personal conflict of interest for Barr and an institutional conflict of interest for the Justice Department, as neither were legally independent of the chief executive, the boss. 
In fact, President Trump's choice of Barr was likely tied to the Mueller investigation. Barr had written a memo as a private citizen to Justice Department officials in June, 2018 insisting that special council Mueller's obstruction inquiry was "fatally misconceived." [9] A president's use of executive powers are beyond the reach of criminal law, regardless of the motive.[10] Such uses include firing a subordinate and directing the Justice Department to close a case. It is just human nature to be motivated to direct the department to close a case against the person himself. Even so, Barr argued that "Trump asking then-FBI Director James Comey to let go of the investigation into former national security advisor Michael Flynn and later firing Comey [were] within [the president's] powers as head of the executive branch." and thus not subject to being investigated, according to Trump's Attorney General before he was nominated.[11]
That Barr's memo would have gone unnoticed in the Trump administration and especially in President Trump's subsequent decision to nominate Barr for Attorney General is too incredulous to be taken seriously. In appointing Barr, the president was essentially securing his rightful control of the branch under him. This point alone gives us an indication of the gravity of the institutional (and constitutional) conflict of interest in the Justice Department investigating its boss, the president--the chief executive, which includes chief law enforcer. 
It stands to reason that none of the departments under the chief enforcer can enforce the law on the chief. I contend that President Trump was exploiting this conflict of interest to give the public the appearance of a credible investigation having been done with the president coming out clean. This appearance, if taken seriously, ignores the underlying conflict of interest that should be recognized as blatant. 
The Justice Department cannot investigate its boss, the president, without risking the extortion of the institutional (and perhaps personal) conflict of interest. That is, the executive branch investigating its boss constitutes a conflict of interest that essentially eliminates that branch as being able to perform such an investigation, at least in terms of credibility. Unfortunately, the American people ignored or dismissed the conflict of interest by relying so much on Mueller's report and Barr's subsequent determination. 

To be sure, Congressional oversight exists when another party controls the U.S. House or Senate (or both), but this renders the judgment subject to political forces, or at least as being viewed as partisan. Facing the conflict of interest within the Justice Department and the political oversight of the U.S. House, Mueller may have chosen the latter anyway, laying out whatever evidence he had for and against obstruction. He doubtlessly knew of Barr's memo, which likely reflected the attitude at the top of the department towards the investigation of any obstruction of justice. 
In general, the American people have risked a corrupting government structure in being so naive about institutional conflicts of interest within the U.S. Government. Simply put, corruptible conflicts should be deconstructed. For example, an alternative to department in the executive branch should be created or chosen when the chief executive is the subject of the investigation. Congressional oversight could be used if another party than the president's controls at least one chamber. An alternative would need to be created should Congress lack the political will to launch an oversight investigation. That this has not been done says something unfortunate about how Americans view even constitutional conflicts of interest.   

See Institutional Conflicts of Interest, available at Amazon.

1. Eli Watkins, "Barr Authored Memo Last Year Ruling Out Obstruction of Justice," CNN.com, March 24, 22019.
2.Mark Mazzetti and Carol Benner, "Mueller Finds No Trump-Russia Conspiracy but Stops Short of Exonerating President on Obstruction," The New York Times, March 24, 2019.
3. Charlie Savage, Mark Mazzetti, and Katie Benner, "Barr's Move Ignites a Debate: Is He Impartial?" The New York Times, March 26, 2019.
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.
8. Ibid.
9.Watkins, "Barr Authored Memo."
10.Savage, Mazzetti, and Benner, "Barr's Move Ignites a Debate."
11.Watkins, "Barr Authored Memo."

The U.S. Goes after Executives at Volkswagen: A Deterrent?

Oliver Schmidt, a Volkswagen executive who had been head of the company’s environmental and engineering center in Michigan, pleaded guilty on August 4, 2017 to two federal charges in the United States: conspiracy to defraud the federal government and violating the Clean Air Act. He “admitted conspiring with other Volkswagen employees to mislead and defraud the United States in 2015 by failing to disclose that thousands of diesel cars were rigged to evade detection of excess emissions levels. He also admitted filing fraudulent emissions reports to regulators.”[1] He faced possible fines and time in prison. James Liang, another of the company’s executives who had been charged, had already pleaded guilty to charges of conspiracy and violating the Clean Air Act. The other executives charged were in the E.U. state of Germany, which does not extradite its residents. Given the power of the auto industry in that state, such accountability applied to executives for the same fraud in the E.U. may have been too difficult to achieve. Nevertheless, for the sake of business ethics alone, prosecuting executives personally rather than just companies is in general important as a deterrent.

Prior to Schmidt’s admission of guilt, Volkswagen had agreed to pay $4.3 billion in civil and criminal penalties, which in turn were part of $22 billion in settlements and fines in connection with “the cheating scandal and the sale of vehicles that emit harmful levels of pollution.”[2] Yet with revenues of $228.5 billion in 2016, the question of whether 10% of one year’s revenues for a company that had nearly $431 billion in assets at the end of that year could reasonably be expected to act as a deterrent.[3] I submit that prison time for executives is the way to get not only their attention, but that of the company itself, including its current and future management personnel. As wealthy as executives typically are, not even fining them would be of a sufficient deterrent; their quality of life must be significantly thwarted for a significant amount of time for the message to get through. Given the massive lapses in holding Wall Street executives accountable for their role in producing and/or selling sub-prime mortgage-based bonds and the high probability that resumed excessive risk-taking held secret even from clients and stockholders could trigger yet another financial crisis, the U.S. Justice Department was on a prudent path in going after the executives at Volkswagen rather than only the legal person (i.e., the company itself). Yet a pattern of prosecuting executives, even of financial institutions based in the U.S., would be necessary for the deterrent to work going forward.

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[1] Bill Vlasic, “Volkswagen Executive Pleads Guilty in Diesel Emissions Case,” The New York Times, August 4, 2017.

[2] Ibid.

[3] Volkswagen’s 2016 financial statements. 

Apple’s iPhone and the FBI: Recalibrating the Right-to-Privacy

On February 29, 2016, a federal judge rejected the FBI’s request to unlock the work-issued iPhone 5c of Syed Rizwan Farook, who with his wife killed 14 people at a 2015 holiday gathering of county workers. The FBI and DEA cited the All Writs Act, a law passed in 1789 that authorizes federal courts to “issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.”[1] The U.S. Justice Department was demanding that “Apple create software to bypass security features on the phone.”[2] In other words, Apple was to “write code that overrides the device’s auto-delete security function.”[3] In response, Apple’s lawyers argued that the statute does not give the court the right to “conscript and commandeer” the company into defeating its own encryption, thus making its customers’ “most confidential and personal information vulnerable to hackers, identity thieves, hostile foreign agents and unwarranted government surveillance.”[4] Tim Cook, Apple’s CEO at the time, said the FBI “was asking his company to create a ’back door’ that could be used to unlock other phones, exposing customer data. Agreeing to the FBI's demand would set a dangerous precedent that could lead to other calls for Apple's help to obtain private information, Cook said.”[5] Only weeks later, the FBI abruptly dropped the case because the bureau had found an outside company with technology that could serve as a master key. The FBI could use the “key” to unlock any iPhone. This left customers fearful that their data was now less than private even though Apple had promoted the iPhone product as not having a “back door” In the end, “(t)he iPhone fight exposed a rift between the FBI and Silicon Valley technology companies over encryption, and sparked a debate about the right balance between privacy and national security.”[6] I suspect that although a trade-off, or tension between the right of privacy and the national-security interest of the United States existed at the time, electronic privacy would become harder and harder to protect as a result of the FBI’s tactics.  

No doubt focused entirely on national security, the U.S. government cannot be expected to protect an individual right to privacy when it is in the way. The FBI “sometimes loses sight of what is important to corporations . . .  and privacy is incredibly important," Jack Bennett, a key figure in the FBI’s iPhone hack, said after the fact.[7] Even so, he was unapologetic about the FBI being able to access the phone. “We were trying to get on one phone because we had 14 murdered people."[8] As it turned out, investigators did not find anything of significant value on the phone.[9] Even so, the damage was done as far as privacy is concerned.

Even though Bennett “disputed that the FBI was asking Apple for a tool that could access other iPhones, calling it a ‘one-shot deal,’”[10] the bureau could be expected to extend the one-shot deal the next time phone data might serve a useful purpose in preventing or prosecuting a terrorist-attack or even a lesser crime. "What's comfortable for a private corporation that will still provide an investigator the ability to stop or prevent a terrorist attack, a missing child or a national security incident?" Bennett asked.[11] The list could easily be extended; hence, some legal limitation on the FBI’s access would be necessary lest the bureau resort to clandestine data-swooping on a massive scale not limited to particular crimes and people related to them in some way.

Apple’s iPhone was supposed to be hack-proof; the company promoted the product as not having a “back door.” Even so, this turned out not to be so. It may be, therefore, that there’s no such thing as a completely secure system. Privacy may simply be an illusion marketed by the company and valued by the customers. Customers of any smart phone could feel vulnerable, moreover, as a result of the FBI successfully getting into the iPhone.[12]

Furthermore, a court can put a gag rule on a tech company, such that customers may be oblivious to any personal data being extracted. This only exacerbates the insecurity to be felt by customers regarding the privacy of their information. Microsoft had sued the Justice Department over the gag-order practice in April, 2016, “arguing that law enforcement was relying on these orders too often. Specifically, the software giant said the gag orders violate the Fourth Amendment right of its customers to know if the government searches or seizes their property and also the company’s First Amendment right to speak to its customers.”[13] Yet the gag orders could continue. To be sure, a company’s First Amendment right seems a bit of a stretch here.

Lastly, the FBI could be expected to continue to go wherever private data useful in uncovering a crime exists. For example, Open Whisper Systems, a maker of a widely used encryption app called Signal, received a subpoena in the first half of 2016 “for subscriber information, including web browsing histories, telephone numbers, methods of payment, internet providers, and data stored in the tracking “cookies” of the web browsers associated with two phone numbers that came up in a federal grand jury investigation in Virginia.[14]  Interestingly, “one of Signal’s biggest draws is that it does not collect most of that information.”[15] Civil liberties lawyers argued nevertheless that “the Justice Department request fell well outside the bounds of what is typically covered by a subpoena, including basic subscriber information.”[16] Particularly upsetting, the subpoena arrived with a court order that said Open Whisper Systems was not allowed to tell anyone about the information request for one year. Technology companies contend that court-imposed gag orders are being used too often by law enforcement and that they violate the Bill of Rights. The companies also complain that law enforcement officials are casting a wide net over online communications — often too wide — in their investigations. Justice Department officials, for their part, argue that these gag orders are necessary to protect developing cases and to avoid tipping off potential targets. The officials say that they are simply following leads where they take them.”[17]

In conclusion, even wealthy companies like Apple are no match for the FBI and the courts in protecting customer privacy. Just as companies pursue profits often single-mindedly, the FBI can be expected to attempt to uncover any lead. Furthermore, the electronic means of storing personal information may simply be too susceptible—too easily accessed by a government (and hackers)—for privacy to be at all realistic. Smartphone technology, as well as social media such as Facebook pages, is causing us all to come to terms with a recalibrated acceptance of privacy-risk and even loss. It is asking too much, I submit, for a company to be tasked with defending an increasingly antiquated expectation of privacy. As a result, we might expect people to recalibrate what personal information we are willing to put on a phone (or social-media page). The Apple case can be interpreted as one of the triggers of the societal recalibration, rather than settling the matter.

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1. Jim Stavridis and Dave Weinstein, “Apple vs. FBI Is Not About Privacy vs. Security—It’s About How to Achieve Both,” The World Post, March 8, 2016.

2. The Associated Press, “New FBI Head in San Francisco Was Key Figure in iPhone Hack,” The New York Times, October 5, 2016.

3. Jim Stavridis and Dave Weinstein, “Apple vs. FBI Is Not About Privacy vs. Security—It’s About How to Achieve Both,” The World Post, March 8, 2016.

4. Jim Stavridis and Dave Weinstein, “Apple vs. FBI Is Not About Privacy vs. Security—It’s About How to Achieve Both,” The World Post, March 8, 2016.

5. The Associated Press, “New FBI Head in San Francisco Was Key Figure in iPhone Hack,” The New York Times, October 5, 2016.

6. The Associated Press, “New FBI Head in San Francisco Was Key Figure in iPhone Hack,” The New York Times, October 5, 2016.

7. The Associated Press, “New FBI Head in San Francisco Was Key Figure in iPhone Hack,” The New York Times, October 5, 2016.

8. The Associated Press, “New FBI Head in San Francisco Was Key Figure in iPhone Hack,” The New York Times, October 5, 2016.

9. The Associated Press, “New FBI Head in San Francisco Was Key Figure in iPhone Hack,” The New York Times, October 5, 2016.

10. The Associated Press, “New FBI Head in San Francisco Was Key Figure in iPhone Hack,” The New York Times, October 5, 2016.

11. The Associated Press, “New FBI Head in San Francisco Was Key Figure in iPhone Hack,” The New York Times, October 5, 2016.

12. Arjun Kharpal, “Apple vs FBI: All You Need to Know,” CNBC.com, March 29, 2016.

13. Nicole Perlroth and Katie Benner, “Subpoenas and Gag Orders Show Government Overreach, Tech Companies Argue,” The New York Times, October 4, 2016.

14. Nicole Perlroth and Katie Benner, “Subpoenas and Gag Orders Show Government Overreach, Tech Companies Argue,” The New York Times, October 4, 2016.

15. Nicole Perlroth and Katie Benner, “Subpoenas and Gag Orders Show Government Overreach, Tech Companies Argue,” The New York Times, October 4, 2016.

16. Nicole Perlroth and Katie Benner, “Subpoenas and Gag Orders Show Government Overreach, Tech Companies Argue,” The New York Times, October 4, 2016.

17. Nicole Perlroth and Katie Benner, “Subpoenas and Gag Orders Show Government Overreach, Tech Companies Argue,” The New York Times, October 4, 2016.

What Fabricating Dumb Lies Says about a Corrupt Public Official and Corruption Itself

You would think that a prime minister of a country would not cover an accusation of corruption with ludicrous lies. For one thing, the lies easily made transparent by fact-checking journalists would reflect back on the statement of innocence itself. Just being accused in public should prompt carefully thought-out lies because the failure to sustain the lies would naturally cause people to conclude that the corruption charge is valid. The connector here is bad character, plus the assumption that it is easy to obviate charges of corruption. This assumption itself may indicate that the office-holder believes that corruption is widespread—and from this belief can come the assumption that it is easy to get away with taking money benefitting the office-holder and spouse. The conduct of Malayia’s prime minister Razak Najib and his wife Mansor Rosmah between 2008 and 2015 bear out my thesis.

 During the seven years, Mansor racked up $6 million in credit-card debt on purchases of clothing, shoes and jewelry. At the time, she had no income other than her husband’s $100,000 a year as prime-minister pay.[1]  After all this became public knowledge, she “said she saved that money since she was small,” but that is impossible, an organizer of an anticorruption protest said.[2] Mansor is the only child of school-teachers and she had not had a regular-paying job in years. Even so, Mansor wrote in her autobiography that she had a habit of saving, and that she bought jewelry and dresses with her own money. The prime-minister’s office commented in 2015 that Mansor’s spending is commensurate with Razak’s inheritance from his father, a former prime minister. Nevermind that Razak’s four brothers subsequently “denied that their father had left a big estate.”[3] So the prime minister was lying about his inheritance and his wife was claiming that she had saved $6 million of her own money.

The allegations are very serious, hence not easily brushed off, at least ideally. They include the claims that 1) the prime minister received hundreds of millions of dollars between 2009 and 2015 from 1Malaysia Development, a state investment fund that he had set up, 2) large amounts of which wound up in the prime minister’s personal account via intermediaries, and 3) at least $1 million of his wife’s spending were paid for by her husband using credit cards that drew on 1MDB funds.[4] The prime minister’s attorney general counter-claimed that the money from 1MDB was a legal political donation from Saudi Arabia, and the prime minister had returned most of the money.[5] So the prime minister had not returned at least $1 million, and his wife had not used her own savings to pay for all her purchases as she claimed.

Taking a step back, it looks like the couple encapsulated themselves in a web of faulty lies, which in itself is audacious considering what the couple were up against. Why would the two think that such terrible lies would proffer the sort of defense that would put the corruption allegations to rest? Wouldn’t the two be especially careful in crafting a defense, given the money involved in the alleged corruption? They must have thought that simply making statements would be sufficient, and this in turn is based on the assumption that it is easy to get away with corruption. This is an indictment not only on the corruption itself, but on the couple’s character and their perception of corruption itself—as being easy to get away with either because the enforcers are not doing a good job or corruption is so widespread that chances are slim that even most of it will face prosecution. Just because modern society has progressed in some ways, such as in technology and medicine, does not mean that we have progressed against corruption. Perhaps we do not allocate enough money to enforcement, or corruption has been getting worse.

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1. Tom Wright, First Lady Draws Scrutiny in 1MDB Affair, The Wall Street Journal, September 12, 2016.

2. Ibid.

3. Ibid.

4. Ibid.

5. Ibid.

Hillary Clinton's Extreme Recklessness with National Security: A Rigged Justice Department or Failing Short of Gross Negligence?

In July, 2016, the FBI came to the conclusion that while Hillary Clinton was serving as U.S. Secretary of State, she risked classified information by using private computer servers for email and other purposes. The FBI’s director explicitly stated that she had been extremely reckless. In legal terms, that means gross negligence. At the time, a 99-year-old statute whereby gross negligence is sufficient for a fine or imprisonment of up to ten years was still on the books. Whether or not the person knew the actions were wrong is not relevant to the statute, and thus the enforcement.  So it was perplexing to a significant number of Americans—including prosecutors and other lawyers—that the FBI director did not recommend prosecution. Crucially, extremely reckless is the same as gross negligence in legal terms.

The FBI director pointed out that the statute had not been used as a basis for prosecution, and therefore it was not fitting to apply the statute in 2016. Does this reasoning mean that just because nobody has been prosecuted for lynching black Americans since, say, 1916, a person who lynches a black man in 2016 should not be prosecuted? I have simply increased the seriousness of the crime, but is being extremely reckless with national security not also a serious crime?  Is the American legal system prepared to say that any statute not used in a prosecution is therefore unenforceable?  Only statutes already utilized could be used to prosecute people. No legal basis exists for such a view, and yet the FBI director got away with it.

That Hillary Clinton’s husband, former President Bill Clinton, boarded the Attorney General’s jet on the tarmac at Phoenix’s airport to have a discussion with Loretta Lynch presumably about grandchildren just a week before the FBI director’s announcement opens the door to the possibility that the president who had appointed Lynch to a lower office made a deal so his wife—who was running for president at the time—would not be prosecuted. The FBI’s extremely reckless logic adds more support to that possibility. In short, where there’s smoke, there’s usually fire.

At the very least, the appearance of corruption is noxious and thus unacceptable. CPA firms look not only at material conflicts of interest, but also the appearance thereof as being problematic. Such conflicts are rather obvious and they are avoidable. Perhaps Bill and Hillary Clinton were desperate to make a deal—appearance or not—because they knew she had been reckless in going against the State Department’s policy; even freshmen congressmen know not to put classified material on private email servers. Hillary engaged in such traffic even when she was on hostile soil, such as China and Russia.

What amazes me from this case is just how easy it was for the FBI recommend no prosecution—given the extremely bad rationale rationally speaking—and how easy had been for Bill Clinton and Loretta Lynch to get away with the 30-minute discussion on her plane “on the grandchildren.” That the American people take all this at face value quivers my faith in American representative democracy. Put another way, if the players could get away with corruption and, at the very least, incompetence in such a blatant case, other players could get the message that the American system of justice is no match for corrupt deals made by powerful people. Are the people really so naïve, or are we simply apathetic? Either way, the message from this case is not good regarding accountability. 


Note: This essay is not meant to convey an opinion on the 2016 U.S. Presidential election, and more specifically on Hillary Clinton as a candidate. Rather, the question is whether an inter-institutional conflict of interest exists between the White House and the U.S. Department of Justice (i.e., whether that department is immune from political pressure).

On the Nature of Entrenched Power: FIFA’s President Ensconced in Corruption

In May 2015, U.S. Attorney General Loretta Lynch was “shocking FIFA like an earthquake,” according to the European newspaper, Das Bild.[1] She was leading “an American-led takedown of corruption in FIFA,” the Federation Internationale de Football Association, which oversees the sport of football, or soccer as it is known in the U.S., globally.[2] With great power comes resounding responsibility, even if the sound is ignored. When the head of an organization goes after the corruption-fighters rather than admitting to error at the very least in having presided over allegedly corrupt officials near the top—and in fact repeatedly dismisses calls to resign and not stand for re-election (but then is implicated and resigns just days after he was astonishingly reelected!)—the question becomes one of the intractability of squalid power, as if it were defying gravity—at least that of the ethical variety. 

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.