CORPORATE ABUSE enjoyed a brief period of popularity following the Enron scandal. For awhile, it was on the list of top domestic issues, reaching an apex with the passage of the Sarbanes-Oxley Act of 2002. Now, as people are talking about black presidents, woman presidents and Republicans that support gay marriage, it seems the issue of corporate abuses died with its icon, Kenneth Lay. While Britney Spears' bald head may be an important issue for the media to cover, we shouldn't altogether forget corporate abuse as a crucial domestic issue.
The 2002 Sarbanes-Oxley Act reformed securities law, requiring businesses to create comprehensive internal controls overseen by a federal board. It also required executives to sign off on financial statements, holding them personally responsible for any "book cooking" that took place. Finally, the Act increased fines for transgressors. According to John Coffee, a professor of securities law at Columbia University, fines and settlements that were just a few million dollars in the 1990s are now regularly coming in at over $100 million. As Prof. Coffee told MSNBC, "The imbalance between the incentive to cheat and the cost for cheating was so great that you got away with scandals."
Unfortunately, tougher securities laws have not led to less corporate fraud, which typically manifests itself in security law violations. According to the Association of Certified Fraud Examiners, U.S. losses from fraud clocked in at $400 billion in 1996, $600 billion in 2002, and $638 billion in 2005. MSNBC, citing a recent Global Economic Crime Study, reported that worldwide losses from fraud rose 50 percent from 2003. Specifically, it reported that since 2003 cases of corruption and bribery rose 71 percent, money laundering up 133 percent and financial misrepresentation up 140 percent.
With all of this loss due to fraud in the private sector, one wonders why the government is often pegged as inefficient while the private sector is crowned with a halo. Comparatively, 15.8 percent of fraud cases are committed by the government with a median loss of $37,500, compared to the 41.8 percent committed by the private sector with a median loss of $123,000. This is not to reverse the relationship and put a halo over the government; rather, while the issue of government waste appears every election, we rarely hear about corporate abuses. Together, all of this fraud has, since 2002, cost the U.S. economy more than $600 billion annually
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