|
 |
FBI
Confronting
Corporate Crime
James B. Comey, Director
Federal Bureau of Investigation
May 19, 2014
Remarks prepared for delivery to the New York City Bar 3rd Annual White
Collar Crime Institute.
Good afternoon. It’s great to be here with so many old friends and
colleagues.
New York, of course, was my home for many years, and I miss it. The
bagels, mostly. Can’t get a good bagel in D.C.
The Times held a poetry contest a few weeks back and asked folks to
submit haikus about the city.
Each haiku had to touch on a trait familiar to the city, such as
strangers, solitude, commuting, and, believe it or not, kindness.
My favorite was this:
No man’s an island
Not on the morning F Train
Why, hello armpit.
I’m no poet, but I came up with my own:
Thought I was good but
Preet made the cover of Time
What is up with that?
For reasons you know all too well, 13 years ago, counterterrorism
became the FBI’s top priority. But at the same time, and just when I
became U.S. Attorney here, we were confronted with an explosion of
corporate wrongdoing, from Enron to HealthSouth to WorldCom. We needed
to prioritize our resources to fight both crime and terrorism.
Returning now, after almost a decade, I can offer something of a
progress report.
Unfortunately, the terrorist threat still looms large. Al Qaeda-central
is not the dominant force it once was, but remains bent on death and
destruction and our drawdown in Afghanistan offers them an opportunity
to rebuild.
And as core al Qaeda has been diminished, its progeny have flourished
and become the top threat—al Qaeda in the Arabian Peninsula, al Qaeda
in the Islamic Maghreb, al Shabaab, and the Islamic State of Iraq and
the Levant, among others. These offshoots are virulent and thriving in
the poorly governed or ungoverned spaces in the Middle East and Africa.
I wake up every day thinking about them.
I am especially concerned about the opportunity that Syria now offers
for those and affiliated groups to attract thousands of fighters and
train them. They are coming to Syria in droves from all over the
world—including here—but it is the “going” that worries me most. That
is, there will be a jihadi diaspora out of Syria at some point, just as
there was out of the Afghan war against the Russians in the 1980s. You
can draw a line between that terrorist diaspora and 9/11. The Syria
outflow, which will be much larger and harder to track, cannot be
allowed to follow a similar line to a future tragedy. The FBI and all
other parts of our government work on it every day, all day.
And of course, we face homegrown terrorists. These individuals are
self-radicalizing, inspired and equipped by the poisonous al Qaeda
material on the Internet. They are willing to act alone, which makes
them difficult to identify and stop.
So that’s terrorism today.
With regard to criminal threats, those of you who are defense counsel
can attest to the fact that business is—fortunately or unfortunately,
depending on your perspective—pretty good on your end. Corporate fraud,
securities fraud, health care fraud, and mortgage fraud—the list is
long.
We in the FBI are determined to do everything we can to prevent a
terrorist attack while at the same time safeguarding our economy, our
financial systems, and public confidence in the private sector. The
American people expect us to do both. They pay us to do both. And I
believe that with the resources Congress has given us—which will allow
me to hire 2,000 people this year—we should be able to do both.
In recent years, we have changed both our mindset and the way we do
business. I inherited from Bob Mueller a national security and law
enforcement organization that uses intelligence to prevent and respond
to both crime and terrorism. You may have heard our description of the
FBI as “threat-based and intelligence-driven.” Let me say a word about
what that means.
“Intelligence” is simply “information relevant to decision-making.”
Becoming better at gathering useful information for ourselves, for
policy makers, and for our partners in law enforcement and the
intelligence community is one of our top priorities, not only from a
national security perspective but also from the criminal side of the
house.
At bottom, being threat-based and intelligence-driven is about becoming
more thoughtful about what we work and how we do that work. There was a
time when the FBI was criticized—with some justification—for working
the inbox; our work was driven by the sources we had and the complaints
that happened to come to our door. We too often worked what was
directly in front of us, which might be a very different thing from the
highest priority problems. That made it harder to see and address new
and emerging threats.
Today, we are constantly involved in a process of trying to understand
the threats we face in each of our offices here and abroad—what’s out
there, what do we see, what might we be missing—both as to criminal and
national security. Which of the threats we see should be at the top of
our list, given the impact and our capabilities? Which should be lower
priorities? And how should that be different in different cities and
parts of the country?
We gather intelligence to help us understand and rank those threats,
and we try especially to stare hard at what we don’t know—the
intelligence “gaps”—so we can try to go fill those gaps and get smarter
about the threats we are addressing and those we may need to address.
We do this for national security and criminal threats. We do it at the
national level and in each field office, then we compare the national
and local views and bang them together to reconcile them and come up
with a threat prioritization ranking for each of our 56 field offices.
In short, we try to look out beyond our inbox to assess what the
dangers are, what’s being done about them, and, given that and our
resources, what we should spend time on.
So what are some of the things in the white-collar crime arena that we
are seeing and deciding to spend time on?
With mortgage fraud, we’re seeing foreclosure rescue companies preying
on distressed homeowners and criminals who target senior citizens with
the lure of reverse mortgages.
We see money laundering becoming more complex as our country has gotten
better at tracking it. Criminals are buying anonymous pre-paid credit
cards. They’re transferring money via virtual currency, in countries
with no regulation. And they’re using smaller institutions to inject
money into the banking system to avoid the controls of larger entities.
And as the demand for health benefits goes up, so do the losses from
health care fraud. We’re talking billions of dollars, every year.
Health care fraud runs the gamut, from one-person schemes to criminal
enterprises and corporate-level frauds.
In the securities markets, we are targeting micro-cap market
manipulation, insider trading, investment fraud, and accounting fraud.
To find and stop these criminals, we need every tool we’ve got.
We need intelligence, not only to spot emerging trends but to dissect
these schemes and to stop them before they do more damage.
We need the technology to collect, analyze, and share high volumes of
electronic evidence, rapidly and efficiently. We need high-level
forensic accounting and analysis. And we need to be able to move at a
moment’s notice, with “rapid response” teams.
And, of course, we need the same “bread and butter” investigative
techniques we’ve used for decades—conducting surveillance and
interviews, running court-ordered wiretaps and undercover operations,
and cultivating sources.
Today, we have more than 1,300 agents working roughly 10,700
white-collar crime cases. The number of corporate fraud cases we
investigate has increased by roughly 65 percent since 2008.
The agents and analysts who work these cases do some of the most
complicated, hardest, and ultimately significant work we do for the
American public. I’m not going to brag about our work—that’s what the
U.S. Attorneys are supposed to do—but I hope you know many of our cases.
And as I also hope you know, our work is a team effort, as it has long
been in the white-collar area. We’re working closely with our partners
in the SEC, the Financial Crimes Enforcement Network, and in the United
States Attorneys Offices, among others. And I have no favorite U.S.
Attorney’s offices.
We have agents and analysts embedded with the SEC and the Commodity
Futures Trading Commission. Together, we can identify trends quickly
and open criminal investigations when necessary.
Our white-collar work gets a lot of attention—some positive, some not
so much. Questions we hear again and again: How come we haven’t seen
more high-level financial execs brought to justice? Is the government
being aggressive enough?
My first reaction on hearing that is to notice how little things
change. I can remember 12 years ago, when I was U.S. Attorney, people
asking me the same questions, demanding to know why more “corporate
pirates” weren’t locked up. All over the country I would be asked, “Why
aren’t Bernie Ebbers and Ken Lay in jail?”
Well, I have two reactions to today’s same set of questions. And the
reactions haven’t changed:
First, I would argue that there have been some very strong cases, with
significant results.
Second, I would invite folks to try to understand our work better. What
you will find—and even some folks who did this work years ago may have
forgotten—is that these cases are very difficult to make. And I think
that’s the way it should be.
You don’t want to live in a country where I can go lock people up
because they “musta” done something wrong or because they “had to know”
what was going on. Or because folks think they know both what and who
“caused the financial crisis.”
You want to live in a country where, before we can take someone’s
liberty and destroy their lives with criminal charges, we are held to
the highest standard—a “beyond a reasonable doubt to a jury of 12 who
must agree unanimously” standard. Public outcry or scathing newspaper
columns don’t help us meet that burden—only facts do.
The challenge is that in corporate fraud cases, we have to examine the
contents of someone’s mind. My obligation as a prosecutor was to prove
not that people engaged in a financial transaction that went south…not
that they contributed to some enormous meltdown…but that when they did
the things they did, they knew they were engaged in conduct that was
criminal in nature.
Unlike a drug case—which is about connecting people to a transaction—in
nearly every white-collar case, it is clear who was involved in the
transactions; the question is, “What were they thinking?”
Stupidity is not a crime. Risky behavior isn’t a crime, no matter how
many innocent people got hurt by that stupidity, greed, or
recklessness. In this country, we put people in jail when we prove they
knew they were doing something criminally wrong. That’s hard, but it’s
right.
To be fair, I should add that our work is assisted, enormously, by what
I have long thought was the 20th century’s greatest gift to law
enforcement—e-mail. It is an eternal medium through which people offer
amazing perspectives on their mental state.
And today’s investigators and prosecutors have texting, which is even
better at offering a window into the brain, including of the seemingly
brainless. I didn’t really have that tool so much 12 years ago.
* * *
Of course, hard as it is, we have to investigate these cases
aggressively for a number of reasons. In many cases we find serious,
knowing, wrongdoing for which people must be held accountable and
punished severely.
That’s about individual accountability, but it is also important
because general deterrence works in the white-collar context. Very few
people commit accounting fraud or health care fraud or insider trading
inflamed by passion or high on crack. People tend to reflect before
they commit these crimes, and in that reflection is an opportunity to
change behavior through fear of arrest and prosecution.
And beyond personal accountability and general deterrence, there is a
third interest that drives us—public faith in the justice system.
Despite what our mothers may have told us, in the justice system we
should care what other people think of us. Public confidence is a key
pillar of our criminal justice system. We must worry when we hear
cynicism about the fairness of that system, and corrosive notions like
“the rich and powerful can act with impunity.”
That doesn’t mean we bring cases we shouldn’t. But it means we must do
the hard work to bring the right cases and make sure folks hear about
them.
There has also been much talk lately about the concept of “too big to
jail.” This both frustrates me and confuses me a bit.
Much of that talk is rooted in what seems a popular misconception—that
corporations are something other than a legal construct; that
corporations can commit crimes, be handcuffed, and go jail. I have two
thoughts about that.
First, only individual humans actually commit criminal acts. Companies
may be responsible for those acts in a legal sense, but no company in
my experience ever committed a crime without individual humans who work
there first committing a crime. Our focus as investigators should be to
find the bad people, assemble a case against them, and then help the
prosecutors make assessments about the organization in which they work.
Second—and I would have thought this was so obvious that it didn’t need
to be said—a corporation can’t go to jail. A corporation is a concept,
a legal construct, not something that can be put in an orange jumpsuit.
I think people know this, but when I read about whether certain
companies are “too big to jail,” I wonder. You can’t jail a legal
concept. You can’t take a company’s liberty.
But that doesn’t mean you can’t prosecute that legal construct—that
corporation—because it has assets that can be taken through prosecution
and sometimes prosecution can change behavior in important ways.
Holding institutions accountable can lead to structural and operational
change, to a change in priorities or policy.
No individual or company is immune from prosecution merely because of
size, or influence on the economy. No individual or company is above
the law.
And if I can just add a footnote: Anybody who thinks FBI agents shy
away from going after either people or companies because they are too
prominent or two large, doesn’t know the FBI.
Among those who understand that all prosecutors can take from a company
is money, a common refrain is this: Even a multi-billion-dollar fine
doesn’t make these executives sweat. Where is the deterrent effect in
big fines and deferred prosecution agreements?
I have some personal perspective that may be useful here. I spent the
eight years before this job in the private sector and I know for a fact
that even what people deride as “mere” civil settlements or deferred
prosecutions have an enormous impact on private entities, and there is
a powerful deterrent effect.
Because the board, the shareholders, and the employees are nearly
always people who care deeply about this behavior and the fines and the
publicity and are mortified by all of it and passionately wish to avoid
a repeat of the experience. In ways that are sometimes difficult to see
from outside, there is a powerful deterrent impact even from “mere
deferred prosecution agreements.”
But as I said, there are times when both individuals and the entities
in which they work need to be prosecuted. And as the Department of
Justice always has, in criminal cases of all kinds, it will consider
the collateral consequences of a prosecution. I have done it in my
career in deciding how to treat two defendant parents with children—how
do we hold the parents accountable and minimize the damage to innocent
kids? That’s what a just system does.
And in the white-collar context, surely all the folks fired up about
the need to “jail” more corporations haven’t forgotten the impact on
tens of thousands of innocent people from the collapse of Arthur
Andersen after its prosecution. That doesn’t mean we don’t do it; it
means that we do it thoughtfully and with an eye toward achieving
justice broadly.
Criminal prosecutions, deferred prosecutions, non-prosecution
agreements, and civil enforcement actions—these are all tools in our
toolbox. And we must be able to use all of them where appropriate, and
where it makes sense.
But we also shouldn’t kid ourselves. We have to use our tools and bring
these cases because bad people need to be held accountable, and those
considering turning bad need to be frightened, and the public needs to
be reassured that our system is fair to all.
But, just as we can’t arrest our way to a healthy urban neighborhood,
we can’t deter our way to healthy corporate and market culture.
Our job in law enforcement is to create the incentives and the space
for the leaders in private enterprise to grow healthy cultures. People
talk like they understand that. Executives spend a lot of time talking
about corporate culture. Companies have codes of conduct, with words
like “integrity” and “values,” and “doing the right thing, even if it’s
not the easy thing.”
The best definition of culture that I have heard is “the way things are
really done around here no matter what they tell you in training.” I
think that’s right.
I have lived in Richmond, Virginia and New York. I have driven in both
places. I have explained to my children that the same driving laws and
the same driver training apply in both places. But you would never know
that from driving in both places.
In Richmond, people sit quietly at green lights waiting for the elderly
driver to notice the light has changed. And if they don’t notice the
first green light, they surely will notice the next one. We’ll wait.
New York is different. I had to teach my wife that if she is looking to
change lanes on the highway and sees an opening, the last thing she
should do is use her blinker. It is a sign of weakness. In fact, she
shouldn’t even turn her head because they will see that. Check the
mirror with furtive eyes, then make your move.
The driving laws are the same. The driving training is the same.
Culture is the way things are done no matter what they tell you in
training.
Which is why thinking you can train your way to a healthy culture is
foolish. A laminated card with your corporate values on it is
absolutely necessary, but not nearly sufficient.
And what makes it harder is that, not only can’t you train culture, you
can’t even see it. It’s like air—all around you and essential, but
largely invisible. The good news is that you can smell it, you can feel
it. Without even looking at road signs or license plates, you can tell
when you are driving in Richmond or New York.
When you step into a stinky corporate culture, you can smell it the
moment you walk in the door. And a recent survey confirms that there is
plenty to smell in the financial sector.
Of 250 financial industry insiders from dozens of companies—traders,
investment bankers, portfolio managers, hedge fund professionals,
analysts, and advisers alike—23 percent said they had “observed or had
firsthand knowledge of wrongdoing in the workplace.”
Twenty-four percent said they would engage in insider trading to make
$10 million if they could get away with it.
Fifteen percent said they doubted that their leadership would turn to
the authorities upon learning of a crime by a top performer.
Now, there are good people out there doing good work—more good people
than not. And ethical concerns are hardly limited to the financial
sector or even corporate America.
But, as hard as it is, we need to find a way to create cultures in
which people are comfortable with the idea of saying, “That doesn’t
seem right.”
Getting folks to raise red flags is tough. There’s a natural tendency
to look the other way, to “go along to get along,” as the saying goes.
We all have responsibilities and expectations, bills to pay, kids to
raise.
One of the great weaknesses of the human condition is our tendency to
surrender individual moral authority to the group. And if the boss is
perceived, in any way, as uninterested in such things, the surrender is
accelerated. The hands stay down.
So how do you foster a culture of honesty and openness? It has to start
with an appreciation of what healthy culture is and that you can’t
explicitly train your way to it. Instead, it is about a board picking
good, ethical leaders, who, in turn, insist upon picking good ethical
underlings. It is about the board and those ethical leaders shaping the
culture by their actions, which must include removing compromised
leaders and recognizing and celebrating ethical conduct to shape the
culture.
It is about those responsible asking not just about the results but
“How are we obtaining these results?” “Are we doing the right things in
the right way?” It is about those leaders asking outsiders to take a
sniff and tell them how the place smells.
Corporate fraud investigations emphasize the need for those outside
noses—independent board members, auditors, monitors, and outside
counsel. We do that because those outsiders can help drive cultural
change by picking good people and holding them accountable. And by
celebrating people who raise their hand and call out bad behavior. By
calling out stinkiness.
Many of you are defense counsel. It’s your responsibility to advocate
on behalf of your clients. I get that. I have done that. But it is also
your job to steer your clients in the right direction, before we ever
enter the picture, by helping them shape a healthy culture.
You can help create strong compliance practices. You can encourage
self-reporting and transparency. You can advise boards on the vital
importance of understanding culture. You have the power to guide
corporate leaders on the right course. You can help create a culture of
integrity, honesty, and fair dealing.
* * *
We at the FBI are going to keep doing this work because we simply must.
We will try to think well about how crimes and criminals are changing
and adapt our approach quickly.
We will work with the U.S. Attorneys to bring the right cases in the
right way, to send messages of both personal and general deterrence and
to reassure the public that the system is fair.
And we hope through that work we create the conditions—the space—for
good people to create and foster healthy cultures that carry your
institutions in a direction where our paths never need cross.
|
|
|
|
