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Thursday, May 6, 2010

Corporate Death Penalty

The BP oil spill caused some people to write about the corporate death penalty. This is almost never invoked.

If executives at a corporation commit egregious abuses, one rare punishment is to revoke the corporation's license. Its assets must then be sold. The sale proceeds are paid to the victims or back to shareholders.

The corporate death penalty is almost never invoked against a large corporation. The only example I can remember is Arthur Anderson. As a result of their criminal prosecution for accounting fraud at Enron, Arthur Anderson was barred from performing audits. This forced Arthur Anderson to shut down, even though their conviction was ultimately overturned on appeal. However, most Arthur Anderson partners merely moved to a competing firm, taking their clients with them.

Ironically, the corporate death penalty is sometimes invoked against small business owners and individuals. If you own a bar, State thugs may revoke your liquor license. That makes your bar worthless, even to sell, because the new owner would have to apply for a new liquor license, which takes years. When you sell a bar, you can usually simultaneously sell the liquor license. Liquor licenses are usually revoked for political reasons rather than legimate reasons.

Another example is for careers where you need a State license. For example, if a lawyer explains jury nullification over the objections of the judge, then the lawyer might lose his law license. This is a type of "corporate death penalty" against that lawyer's career.

Most commonly, corporations die only when they go bankrupt. Even then, most large corporations qualify for a bailout. Executives at a struggling business like Palm can usually negotiate a buyout by a larger corporation. Only severe accounting fraud is punished. Only severe rapid losses result in bankruptcy.

If an individual commits a crime, he goes to jail. For corporate crime, the executives usually have plausible deniability. Each executive made a reasonable decision from his point of view, but the overall result is evil. One "benefit" of a corporation is to allow evil, without anyone being responsible.

One solution is to punish executives is with fines and punitive damages. However, insiders successfully lobbied for "tort reform", limiting their liability. There was a $75M cap on damages for an oil spill. Vaccine manufacturers are absolutely immune from liability. There are caps on medical malpractice damages. In almost every industry, insiders lobbied for laws restricting damages. This encourages dishonest and negligent behavior.

To justify being protected from consequences, insiders developed a corrupt legal theory. Damages in a lawsuit should never be so large that the corporation is bankrupted. This justifies punitive damage caps. This is silly. If a penalty were so large that the corporation is bankrupted then the plaintiffs should become the new shareholders.

The corporate death penalty is one way to limit abuses by insiders. Unfortunately, it is almost never invoked. Insiders use a corrupt legal system to provide the illusion of justice, while they're protected from negative consequences when they're dishonest or negligent.


Anonymous said...

The useless Labour government in the UK brought out a corporate manslaughter law. You might think this is a good thing. However it practice, it turned out to be useless.

A company that I can't remember the name of, killed some of its workers by putting them on a rail track in the middle of the night and a train ran them over.

So the company was prosecuted under the new law.

However the company used a much smaller subsidiary company to employ the men that they killed.

So the much smaller company had to pay the fine and the fine was proportional to the smaller company's assets.

So these bozo clowns that killed their workers by incompetence effectively got off with a slap on the wrist, by the trick of employing workers using a much smaller subsidiary company.

The mafia ought to take lessons for these guys. When the police come knocking on the wise guys' doors, the goons can honestly say

"We didn't commit these crimes. A company located in the Cayman Islands did so. We are nothing to do with it, honest, governor."

Scott said...

"The mafia ought to take lessons for these guys. "

The mafia IS these guys. Crime families have invested their illegal proceeds in stock in solid companies. They have sent their children to Harvard and Yale and Princeton, and those children have become the executives at these corporations. It is now legal to participate in organized crime, by using corporate law as your cover for evildoing. Just look at how many opiate drugs are being traded on the streets. Each one of those patented pills provided profit for a pharmaceutical concern who makes sure than they and pill mills can never be charged with a crime.

Anonymous said...

FSK, how about some commentary on the UK elections.

Only 60% of the population voted. The Conservative Party got 36% of the vote, whereas Labour got 29%.

So only 22% of the population voted Conservative and 17% Labour.

I'm surprised anyone at all voted Labour, after their 13 years of misrule. Anyone living in the UK knows what the Blair and Brown governments have done i.e.

1) Decreased civil liberties - close circuit cameras everywhere, innocent people put on the DNA database

2) Increased bureaucracy. A greatly increased tax code.

3) The abolition of the 10% tax rate for low-earners

4) Brown sold half our gold at an all time low.

5) Illegal wars in Iraq and Afghanistan

6) An increase in pointless legislation such as making it a criminal offense to weigh a herring in a non-proscribed manner. A grandmother was prosecuted in a sting operation for selling a goldfish to an especially tall 15 year old hired by the local council. People are prosecuted for disposing of cardboard boxes when the bins are full. People are prosecuted for having too much rubbish in their bins!

7) An increase in the public sector with loads of government non-jobs.

8) Brown and Balls raided the corporate pension schemes by taxing their dividends. Old people are now poor and have to work longer. One-quarter of all council tax goes to pay public sector pensions rather than for services as the councils has similar schmes to that of companies.

The list goes on.

Only people on government benefits or in government non-jobs would have voted for Labour.

13 years ago the country couldn't wait to see the backs of the Conservative Party after they introduced the Poll Tax (this caused riots), got a reputation for taking envelopes stuffed full of cash as bribes to ask questions in parliament and they sold off all our industry to replace it will a service and financial industry which has gotten us into the mess we are today.

Property prices are greatly inflated in the South-East of England. Soon all flats and houses will be over the inheritance tax limit and the tax rate of that is 40%.

So people were forced to vote Conservative as they were the only party to promise to raise the inheritance tax limit.

What a threat? Vote Conservative or have your house taken away!!!

FSK said...

All elections are fixed and defective. The UK is no exception.

The UK election system has some pros and cons relative to the US system.

The UK favors small parties more, because you only need 5% of the vote to gain seats in Parliament.

The UK has elections at irregular times, rather than the long campaign cycle in the USA.

In the UK, a politician *HAS* to be a member of a major party, because it's based on how many votes the party gets.

The correct answer is "Elections or no elections, all taxation is theft. No amount of voting justifies taxation, even if only a small minority object."

Anonymous said...

FSK, you are brilliant but you are mistaken about the UK system.

The UK Independence Party (UKIP) got 3 - 5% of the vote, but 0 Parliament seats.

The UK election system favours large parties. A lot of votes on small parties as wasted.

At the moment the Liberal-Democrats are trying to force the Conservative party to offer up proper Proportional Representation in return for supporting them into government.

At the moment all 3 parties have lost and neither of them can rule on their own.

Anonymous said...

I read today that part of a Conservative-LiberalDemocrat deal may be the inheritance tax is not cut.

With the excessive price of property today and the eye-watering 40% level of inheritance tax, it means people will be chucked out of their homes to pay tax bills they don't have the money for.

Living under a roof is a basic human right, but sicko politicians don't seem to get this.

If your family have saved all their life to be able to afford somewhere to live, a clown politician should not be able to steal your house when a family member dies.

Only politicians and bankers can afford property nowadays in South-East England. They don't seem to get that ordinary working people don't make the stable, large salaries they get.

Only by looting and pillaging can lawyers, bankers and politicians afford property. Nobody else can. And if they have it the past, it will be stolen if someone in your family dies.

If your family have managed to buy property in the past, the politicians will steal it from you.

House prices in the UK are not fair. They are vastly inflated.

If a clown banker with looted money buys a house near you for a big wodge of cash, it puts the price of your house up.

Estate agents just value property by the price of nearby property that had sold recently.

This is not a true valuation.

Anonymous said...


1) Your family works hard in normal jobs, makes sacrifices, doesn't buy nice things, doesn't go on vacation to save up the money for an apartment or house

2) With looted money a banker buys a house near yours with money spun out of leverage, taxpayer bail-outs and derivatives.

3) This pushes up property prices

4) In turn you have to pay more council tax and insurance.

5) When a family member dies you are stuck with a 40% inheritance tax bill

6) Your house or apartment has to be sold to pay the tax bill

7) You end up on the street homeless

8) War criminals from Eastern Europe come to the UK. Hate preachers come to the UK. They don't have a home, no job. So your home that your family have worked for all their lives go to Eastern European war criminals. They get given lots of benefits. Tens of thousands of pounds a year which they use to buy big flat-screen televisions and video games.

Don't believe me? Just read UK newspapers and you will find out just how many houses and welfare cheques the Labour government gives out to immigrants, Eastern European war criminals and drunkards that don't want to work.

If you work and buy property, the Labour and Liberal Democrat parties will steal it from you via inheritance tax. Property prices are inflated via bankers and estate agents.

Property prices bear no relation to real value.

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