THE BLOG

America Should Send More People to Prison

02/01/2015 10:48 pm ET | Updated Apr 03, 2015
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You know the statistic. We incarcerate a higher proportion of the population than any other country does. Russia and South Africa rank respectively second and third.

Hundreds of thousands of young, now aging, men, are doing hard time for possession of small amounts of drugs. More and more people find themselves in jail because they got caught with bench warrants for their arrest for exorbitant fines they could not afford to pay. More than a century after debtors prisons were abolished, thousands are again behind bars because of debts.

But one category of felon is free on the street. I refer, of course, to corporate criminals.

Consider the case of a checkout clerk at Walmart who puts her hands in the till and walks off with a couple of hundred bucks of the company's money. That clerk could expect to face prosecution and jail.

Now consider her boss, who cheats her of hundreds of dollars of pay by failing to accurately record the time she clocked in, or the overtime she worked. Maybe, just maybe, after the worker risks her job to complain, she might get back wages. In rare cases, the company might even pay a fine.

Every year, workers are cheated out of tens of billions of dollars of pay -- more than larceny, robbery and burglary combined. Until the incomparable Kim Bobo gave the practice its rightful name, wage theft, most people didn't equate cheating workers of their rightful pay with simple thievery.

Even so, no boss ever goes to jail. But tell me, what's the difference between a clerk putting her hands in the till and the boss putting his hands on her paycheck?

Belatedly, the Labor Department is cracking down on these abuses, but with investigations and fines. Nothing would stop the practice as quickly as a few bosses being led away in handcuffs.

Another common form of wage theft is categorizing permanent workers as contractors or temps, and failing to pay them benefits, workers comp premiums, or employer Social Security and Medicare contributions. This can cost a worker thousands of dollars a year.

What's the difference between stealing from the company and stealing from the worker? (A lot, apparently. Employee thefts are prosecuted as criminal violations. Thefts by the boss are civil affairs.)

This widespread abuse is known by the bloodless name, "Misclassification." Occasionally the Labor Department wins a case, and workers are reclassified. Sometimes, even back payments and fines are forthcoming.

But an executive risks little by trying this gambit. The other day, speaking at a labor conference, Labor Secretary Tom Perez declared that the abuse should be called by its rightful name -- not misclassification, but payroll fraud.

Don't people go to prison for committing fraud?

Well, apparently you have to commit fraud on the scale of a Bernard Madoff. The multiple frauds that produced the financial collapse, and cost ordinary people trillions of dollars in lost savings, lost homes and lost jobs, did not result in a single banking executive going to prison.

In many cases, the frauds were deliberate and flagrant -- knowingly disguising high-risk speculations as blue-chip investments; creating hazardous securities and passing them off as sound in order to bet against them; bankers deliberately betting against the bank's own customers after duping them. The Justice Department has settled all of these cases for fines.

There have been a few criminal prosecutions, but against banks, not against bankers. Except in a handful of cases, even the fines are paid by the bank's shareholders, not by individual executives.

In the 1930s, bankers actually went to prison for fraudulent actions. The president of the New York Stock Exchange was led away in handcuffs. As recently as the savings and loan frauds of the 1980s and 1990s, financial executives did prison time. But Madoff (who was not part of the sub-prime scam but rather a one-off Ponzi scheme operator) is mighty lonely there in his cell, with no other Wall Street guys to commiserate.

The New York Times' Gretchen Morgenson has an instructive piece called "Two Judges Who Get it about Banks." Her story tells of two families victimized by deliberate and outright fraud on the part of Wells Fargo, which faked documents in order to foreclose illegally on properties. There have been thousands, if not millions of such cases.

One Missouri couple in Morgenson's story was awarded over $3 million in damages by Judge R. Brent Elliot, in addition to getting their house back. And in White Plains, New York, Judge Robert D. Drain found that Wells had forged documents in a foreclosure case involving a $170,000 property.

What's makes these stories newsworthy is that they are the exception. A judge actually awarded damages (assuming they are not overturned on appeal). Usually, if the homeowner has the tenacity to persist, the only remedy is that she gets to keep the house.

In the global settlement between banks and state attorneys general to resolve millions of cases of foreclosure fraud, banks agreed to contribute money to foreclosure victims. But nobody was found guilty of criminal misconduct and of course nobody went to prison.

If David and Crystal Holm, the homeowners in the Missouri case, had gone into a branch of a Wells Fargo bank and stolen $142,000 (the value of their house), they would face hard prison time. When their money is stolen, neither the banks nor the law fool around. But when it's the bank that steals the money, bankers face a slap on the wrist.

Some bank executive signed off on these policies of deliberate falsification of documents. Fraud is committed by people, not by institutions. Until people are held personally and criminally accountable, banker fraud, like payroll fraud, will continue.

It's hard to improve on the words of Woody Guthrie's, "Ballad of Pretty Boy Floyd":

As through this world I've wandered,
I've seen lots of funny men
Some will rob you with a six-gun
And some with a fountain pen

As through this world you travel
Yes, as though this world you roam
You won't never see an outlaw
Drive a family from their home

Robert Kuttner is co-editor of The American Prospect and a visiting professor at Brandeis University's Heller School. His latest book is Debtors' Prison: The Politics of Austerity Versus Possibility.

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