Corporate Crime at the Tip of the Iceberg

Dave Whyte, University of Leeds

The huge corporate scandals in the US, Enron, Worldcom and a growing list of household names have rocked the world’s biggest and most powerful economy, and resulted in the loss of the life savings and pensions of tens of thousands. Many of them were public sector workers who had little idea of where their savings were held, and thousands of others were employees who had themselves been persuaded by their corrupt bosses that the company they worked for was a sound investment. In the aftermath, George Bush promised that “corporate crime will no longer pay.”

But Enron, Worldcom and now AOL are only the tip of the iceberg. Corporate crime has economic and social costs which tower over the crimes that the police spend their time investigating. Although corporate crime is very rarely counted properly, even the limited evidence we have clearly demonstrates that crimes which involve fraud and theft from consumers dwarf the total cost of known robberies and burglaries. We also know that many more times as many people are killed at work as a result of safety laws being broken by companies - a criminal offence – than those who are murdered in the street or in their homes (in the UK we know that at least 10,000 – 15,000 people per year are killed at work compared with 800 – 900 murders).

Although it is not exactly public knowledge, most people reading this will have been affected by, or will know someone who has been affected by, the big financial crimes which plagued this country in the 1980s and 1990s. Indeed, the list of large scale financial scandals is continuing, with Equitable Life, the dot.com boom and blind trusts amongst the most prominent of those we know about. A whole series of major consumer thefts have been encouraged by the financial deregulation policies, similar to those favoured by Bush (both jnr and snr), introduced by the Tories in the 1980s. Perhaps the largest, the pensions fraud, has so far, according to government estimates, involved at least a million and a half compensation cases. The damage caused by this crime was compounded by the government’s review which allowed the companies to organise and pay out the compensation for victims themselves. Of course, most of them didn’t – and in just one year (1997/98) the regulator, the Personal Investment Authority, was forced to fine 150 firms a total of almost £5m for failing to compensate their customers. Countless hundreds of thousands remain uncompensated, many left without their life savings, and nobody - not one single company or company director - has been taken to court for this mass fraud.

The Consumers’ Association estimates that a second major scam - the endowment mortgage fraud - might have involved anything up to 6 million cases. According to so-called ‘super-regulator’ the Financial Services Agency (FSA) in 30% of cases of endowment mortgage (for much of the 1980s and 1990s, the most widely sold type of mortgage) customers were wrongly advised (a criminal offence under the 1986 Financial Services Act), leading to many losing their homes. Meanwhile, the high street building societies pocketed untold millions in commission payments: in 1989 alone, more than £400 million. The real scandal was that the government opened up new markets in private pensions and allowed the industry to ‘self-regulate’. It was a hands-off policy that the current government has scandalously followed.