Funding government by court settlements

State governments in the USA get increasing amounts of revenue from court settlements from corporations accused of wrongdoing.  As The Economist reported, these settlements amount to big money.

So far this year, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs and other banks have coughed up close to $50 billion for supposedly misleading investors in mortgage-backed bonds.  BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran.  Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations.

Structured-SettlementsAnd that is just the financial institutions.  Add BP’s $13 billion settlement over the Deepwater Horizon oil spill, Toyota’s $1.2 billion settlement over alleged faults in some cars, and many more.  [snip]

Rhode Island’s bureaucrats have been on a spending spree courtesy of a $500 million payout by Google, while New York’s governor and attorney-general have squabbled over a $613 million settlement from JPMorgan.  [snip]

Andrew Cuomo, the governor of New York, who is up for re-election, reportedly intervened to increase the state coffers’ share of BNP’s settlement by $1 billion, threatening to wield his powers to withdraw the French bank’s license to operate on Wall Street.  Why a state government should get any share at all of a French firm’s fine for defying the federal government’s foreign policy is not clear.

There are two ways of looking at this.  One is that federal prosecutors and state governments are shaking down corporations for minor offenses, much as local police and courts in communities such as Ferguson, Missouri, shake down residents for minor traffic offenses.  The other is that corporate officers are buying their way out of individual criminal liability at stockholders’ expense.

I think the second alternative is the more common, while The Economist writer apparently disagrees.  Whichever is the case, as state government becomes more dependent on corporate settlements for revenue, the more demand there will be for windfalls from future settlements.   If shakedowns aren’t common now, they will become so.  There is no good alternative to paying normal expenses of government through taxes.

The Economist’s writer is right to say that the big problem with these settlements is that they are made in secret.  Nobody knows the evidence against the corporations, and nobody knows what, if anything, they admitted to doing.

Senators Elizabeth Warren and Tom Coburn have proposed a bill that would require the terms of the settlement to be made public, and for the prosecutors and regulators to write explanations of why the cases did not go to trial.   That would be a good start.

LINK

Corporate settlements in the United States: The criminalization of American business from the Economist.

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One Response to “Funding government by court settlements”

  1. tiffany267 Says:

    I strongly share your concern about these sorts of settlements. I think it’s indicative of the cronyist (in my opinion fascist) system of American politics – government helps megacorporations to gain unfair advantages in exchange for revenue and collaboration in war agendas (unlike socialist regimes which simply try to replace private enterprise with government programs at the expense of everyone).

    I was appalled, but not surprised, by the results of the BP disaster as they unfolded. Property-owners and local merchants, in a proper free market economy, should have anticipated enormous compensation for losses as a result of BP’s negligence. Instead, they received pocket change while the feds secured funds for their agendas. This result was by design, just like the other examples in your blog post.

    Replacing this system of fraud with one exclusively of theft is not a moral response, though. I do not agree that taxation is an option – the very few functions of a legitimate government could be operated on a volunteer basis – and would have to be, for that government to be legitimate at all.

    In love of liberty.
    tiffany267

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