Frank Vogl: Money Launderers and Corporate Bribers Must Be Brought to Justice

The punishment needs to fit the crime, but are some giant multinational corporations now so large that they no longer can be punished effectively?

Our free enterprise system depends upon all competitors playing by the rules and when one seeks special advantage by paying bribes, then the system is subverted. When that one is a giant company, for example, Wal-Mart, the world's largest retailer, then the victims are manifold, starting with its direct business competitors.

The consequences of corruption perpetrated by vast enterprises can impact our security, when for example a giant bank like HSBC assists Mexican drug cartels to launder their cash, undermine our democracy, and distort markets. But how can such criminality be countered when the criminal corporation is too big to be punished?

The U.S. Department of Justice is now investigating alleged large-scale bribe-paying to public officials in Mexico by Wal-Mart. According to extensive reporting by the New York Times, the corporation's alleged bribes went into the pockets of large numbers of public officials to circumvent restrictions that would have prevented it from building new stores quickly and, in many cases, from building them at all in choice locations. In some cases it has been alleged that major environmental damage has been caused.

Recently HSBC, one of the world's largest financial services firms, agreed to a settlement of a record $1.9 billion with the U.S. Justice Department for assisting Mexican drug cartels to launder billions of dollars of cash into the U.S. banking system. Had the U.S. authorities taken HSBC to court on criminal charges and won, then it is quite possible that the bank would have had to close a host of its operations and this may have prompted dramatic consequences in financial markets. The risks of such systemic difficulties convinced the U.S. Justice Department to reach a negotiated settlement with HSBC.

Similar risks resulted in swift settlements with New York state and federal authorities recently in cases where the settlements exceeded $700 million as Standard Chartered Bank of the U.K. was accused of assisting the government of Iran to launder cash into the U.S. banking system in violation of U.S. anti-terrorism sanctions on Iran.

CEOs are rarely held accountable

Large as the fines have been, they are small compared to the overall profits of the companies involved and they are booked as a one-time charge against profits, which thus are really a cost to the shareholders. The chairmen and CEOs of HSBC and Standard Chartered were not named in the cases against their firms, a similar situation may well be seen in the Wal-Mart case. Indeed hardly any top executives of similar rank of major U.S. corporations have ever faced trial or particularly stiff sanctions as a result of foreign bribe-payments by their firms, or actions to further money laundering or massive tax evasion by their clients.

It may sound cynical, yet at some major firms it seems likely that high level executives have calculated that the profits they can make from winning overseas business through paying bribes are greater than the risks to their balance sheets. While a rising number of firms run training courses for their employees in anti-corruption compliance and make these employees aware of U.S. laws against foreign bribery, the very high-profile cases involving such corporate leaders as Wal-Mart and HSBC suggest that such programs alone are insufficient.

Decisions to bribe a foreign government official, or to serve as the banker to a Mexican drug cartel, are taken by individuals. When the deals are very large indeed, then it seems inescapable that those individuals include the top corporate executives. I believe they should be held personally liable for the crimes that are pursued by their corporations. It is time that they were explicitly named in U.S. Justice Department cases, that they are portrayed publicly as the rogues that they really are, and that if guilt is proven, then they should be fined and imprisoned.

Fundamentally, the compliance training programs only work when corporations are seen to walk the ethics talk, when the leaders of the corporation act in line with the corporate credo and when there is a tone of integrity at the very helm. Boards of directors have few greater oversight responsibilities than to ensure that this tone at the top is real. They need to punish the CEOs and senior executives who allow large-scale overseas corporate bribery to be pursued.

In sum, no corporation should be seen as too big to be punished effectively. The solution has to focus on the individual culpability of top executives of those firms that undermine free enterprise, endanger our security by aiding their criminal clients, and diminish democracy by subverting foreign government officials. They should be held to account by their employers for letting down their shareholders and customers, and they should also be brought to justice.