Terrorism, Economic Crisis, and State-Corporate Crime

Immediately after the terrorist attacks of 9/11 a common expression was that “everything is different now.” In fundamental ways, many things are different in relation to counterterrorism strategies and the enforcement and administration of criminal justice both at home and abroad. For example, the local police are now engaged in the “war on terror” in addition to fighting crime, and the FBI—originally devoted to domestic law enforcement—has international field offices today in places like Afghanistan, Indonesia, and Uzbekistan. Indeed, large portions of the criminal justice system, the military, and the intelligence and security institutions have been reorganized, largely through the Department of Homeland Security, to fight a war on terror that has neither a time frame nor a reliable means of measuring the extent of success or failure in this war.

More importantly, what has fallen below the radar are the connections between these changing legal-crime fighting operations and their effects on the missing war on white-collar and state-corporate crime. It is these “omissions” in controlling many financial practices from Wall Street to Main Street that may be linked to this country’s current economic crisis. In the midst of an imminent worldwide recession, or even worse, a global depression occurring, this economic crisis of tsunami proportions may incur 5 to 10 years of price deflation without state intervention. Many people especially from such emerging economies like China and India are calling for a new world economic order or global restructuring of the Bretton Woods agreement that established the World Bank, the International Monetary Fund, and the rules for global trade post WWII to the present.

Whether such a fundamental change in international economic relations happens now or in the future, the primary response by the USA to 9/11 and to the larger war on terrorism had been the passage of the Homeland Security Act of 2002. This law created the Department of Homeland Security (DHS), which represented the largest and most dramatic transformation of the U.S. government since 1947, when President Truman combined the various branches of the military into the Department of Defense. On an even grander scale, President Bush ambitiously combined 22 previously separate agencies into the new DHS.

According to the legislation, the DHS was created for seven purposes. The one that I am addressing here is the one that is most often ignored by public and private conversations alike. I am referring specifically to the legal charge that the DHS will “ensure that the overall economic security of the United States is not diminished by efforts, activities, and programs aimed at securing the homeland.”

Although the DHS in its short history has certainly had its share of failures, the most egregious being its mishandling of the recovery in New Orleans in the wake of Hurricane Katrina, I would argue that Homeland Security’s most serious failure to date has been not to replace those agents lost to the war on terrorism and to re-arm its divisions in the fight against the crimes of the economically and politically powerful. These omissions-- in light of the reorganization of the FBI from a domestic law enforcement agency to an international antiterrorist security agency-- by DHS along with the Bush Administration’s refusal to adjust its focus and to adapt its regulatory agents in the areas of white collar and corporate crime control, reveals how this “non-priority” has proven to be an Achilles heal for the de-regulation and/or non-enforcement of financial transactions directly related to the current economic crisis.

For example, following the September 11^th attacks the FBI shifted more than 1800 agents, or nearly one-third of all agents from law enforcement to terrorism and intelligence duties. So depleted were the ranks of the investigators in the areas of white collar and corporate crimes that many executives in the private sector were complaining that they had been having difficulty attracting the Bureau’s intervention into even those cases that potentially involved frauds in the hundreds of millions of dollars. Moreover, since late 2003 and early 2004, the FBI had been requesting additional resources to the tune of one billion dollars as well as 800 more agents so that they could go after the perpetrators of mortgage fraud and other economic crimes that they viewed at the time as posing a looming threat to the financial markets.

While the agency did receive 50 million or 5% of their request for the “war on white collar crime,” the current number of investigators for these crimes is down 625 agents, or 36 percent from 2001. Finally, after trying to acquire the necessary resources and person power for more than four years, the FBI has recently launched more than 1500 criminal investigations into this nation’s mortgage-related business practices, including those financial and institutional transactions of such corporate giants as Fannie Mae, Freddie Mac, the American International Group, and Lehman Brothers.

Unfortunately, the “stolen” money has already evaporated in cyberspace as evidenced by the downward spiraling stock and real estate markets. Before there is another economic crisis of global proportions, perhaps the United States will learn, once and for all, the powerful lessons of the adverse effects of anti-regulation policies and non-enforcement of upper world white collar and corporate crime on the wider society and world as a whole. Historically, that was not the case with either the Savings and Loans’ scandals of the late 1980s or the corporate frauds perpetrated early in the 21^st century by those CEOs in charge of Enron, Health South, Adelphia, Worldcom, Global Crossing, Xerox, and Waste Management to name the most conspicuous offenders. And, when the U.S. Congress has acted to reform the situation by passing legislation such as Sarbanes-Oxley in an attempt to control and regulate “corporate fraud gone wild,” it was only a matter of time before those legal efforts were stripped of their enforcement teeth by lobbyists working on behalf of anti-regulation.

Even Alan Greenspan has finally come to the realization that “free enterprise” without regulation is no way to run the economy. In fact, I would argue that it is criminal to run an economy that way, for which it is now costing the American taxpayers almost a trillion dollars as part of a plan to rescue the nation’s financial system from a Wall Street orchestrated, federally encouraged, multibillion-dollar pyramid scheme consisting of low-grade mortgages wrapped into flimsy securities insured by obscure derivatives that have been described by some economists as “radioactive waste in paper form.”

GB, November 1, 2008