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August 18, 2011

The continuing quest to criminalize business judgment

handcuffs-fraud-300x200Yes, our Congress is back at it:

Since the Supreme Court limited the definition of “honest services” fraud in last year's landmark Skilling v. U.S., the Obama Administration has been looking for a way to restore essentially unlimited prosecutorial discretion to bring white-collar cases.

Last fall Assistant Attorney General Lanny Breuer told a Senate committee that Congress should act to “remedy” the Court's decision. Three bills moving through the House and Senate would try to do so, expanding the reach of prosecutors to go after unpopular politicians or businesses whom they can't pin with a real crime.

In Skilling, the Supreme Court ruled that the honest services statute was “unconstitutionally vague” and restricted its application to clear cases of bribery or kickbacks. The new legal template of Senate bills sponsored by Judiciary Chairman Patrick Leahy, the liberal Democrat, and Illinois Republican Mark Kirk would end run that change, transforming many state or local ethics violations into federal felonies any time there is an allegation of undisclosed “self-dealing.” .  .  .

Where to begin?

For starters, as Bill Anderson points out, why on earth do our political leaders think we need even more people in prison?

Moreover, as Larry Ribstein has been saying for years, granting the government this type of unfettered power to criminalize merely questionable business transactions has proven to lead to even worse prosecutorial abuse that is rarely sanctioned.

How is justice served by turning such prosecutions into a lottery? Is public confidence in the federal criminal justice system really promoted by unfavorable comparisons to Russia’s?

And let’s not forget the incalculable human toll of such prosecutions.

The truth is that this type of amorphous criminalization of business judgment is fundamentally bad regulatory policy. Such prosecutions obscure the true nature of business risk and fuel the myth that investment loss results primarily from criminal misconduct. Besides, allowing wide discretion to prosecute business judgment deters businesspeople from taking the business risks that lead to valuable innovation, wealth creation and - most importantly these days - desperately needed jobs for communities.

So, in the face of such compelling reasons to forego such criminalization, why do our political leaders and prosecutors insist on more?

Ayn Rand’s observation about socialists who use state power to further their supposedly altruistic goals seems particularly apt:

“[T]he truth about their souls is worse than the obscene excuse you have allowed them, the excuse that the end justifies the means and that the horrors they practice are means to nobler ends.”

“The truth is that those horrors are their ends.”

Posted by Tom at August 18, 2011 12:01 AM |

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