Expenditures underwriting corporate compliance in the United States are nearing municipal policing costs.

That’s the finding of Wharton School Professor William Laufer in a paper titled A Very Special Regulatory Milestone. 

“My interest in comparing the headcount of municipal police across the United States with compliance, audit, risk, and legal employment, along with other estimates of costs, was to consider what it means to leave corporate crime control to what are essentially private cops,” Laufer told Corporate Crime Reporter in an interview last month. “It is shocking just how costly and elaborate the private policing of corporations is today. And it is that much more shocking that what drives this spending has little to do with putting in place effective corporate crime deterrence measures.  One can only hope that the faint calls for evidence-based research to support compliance expenditures will grow loud.”

“I have written that we are approaching a convergence in compliance standards, measures, and technology that holds some promise. There are now testable models, measures, data analytics, domestic and international standards, all supported by committed compliance professionals, relevant compliance scholarship, and large firm resources dedicated to promote good governance, organizational integrity, and compliance.”  

“Perhaps this convergence will also prompt the public sector to make comparable investments. The time is long overdue for the much heralded public private partnership in corporate crime control.”

“The trajectory of compliance expenditures over the past several decades may be traced to a good corporate citizenship movement in the mid-1990s where the government proposed a public-private sector partnership to combat corporate crime,” Laufer writes. “This ‘partnership’ was never really about a fair sharing of the enforcement responsibilities. The government hoped to overcome the near insurmountable challenge of getting evidence of corporate wrongdoing, while shifting as much of the burden and costs of policing to the regulated. Companies continue to justify making compliance expenditures in reasonably defensive ways to levels that are now unprecedented.”

It’s all part of what Laufer calls “the compliance game” – a regulatory status quo where both corporate and government players are, at times, equally captured.

“The result is that all stakeholders placate each other with compliance expenditures that may be incidental to ensuring compliance,” Laufer writes. “Over the years I have noted that this game is marked by disincentives for firms to take the measurement of compliance seriously, and a regulatory lethargy to resort to anything remotely resembling compliance science.” 

“This game is unusually profitable for many stakeholders, including a sophisticated legion of compliance, regulatory, and legal risk professionals. Unfortunately, the game results in costs, including the diminished legitimacy of formal social controls that are designed to regulate firms, particularly for corporations of scale and power.” 

“Ultimately, the most significant cost is one of justice undone, or undistributed corporate criminal justice. To disrupt this long-standing conundrum, we must leverage the growing convergence in methods, standards, and laws – and ask for a greater investment in regulatory systems and solutions from the public sector.”

Can you point to any studies or evidence showing these costly and elaborate compliance programs are effective in deterring corporate crime? Or not?

“What I can point to is the work of Professor Sally Simpson and her colleagues in their Campbell Collaboration review of any evidence of corporate crime deterrence,” Laufer said.  “There is not much evidence of corporate deterrence out there.”

Isn’t the failure of corporate criminal law in the United States about the failure to build a populist movement against concentrated corporate power?

“My sense is that you and I would agree about the best explanations for the failures of corporate criminal justice, more generally. Two of the most powerful may be politics and corporate power.  I would add, complementary to corporate power, is the overall failure of the state.”  

“Regulators and prosecutors have not kept pace with private sector investment in compliance and governance – investment in their own self-regulation. There are many significant consequences for the state’s failure to be a full partner in corporate crime control, from obvious moral hazards with paper compliance programs, an inability of the state to evaluate compliance effectiveness, a tendency of some corporations to exaggerate if not launder GRC and ESG accomplishments, and a technology gap between regulators and the regulated that makes necessary oversight that much more likely.”  

“So, unbridled corporate power is very important – but so too is a regulatory state that can demand more of the regulated than additional compliance expenditures.”

“It is not only that corporate power must be reined in and that the state has missed the boat.”  

“Progressive political stakeholders are also to blame. Pairing calls for curbs on corporate power with demonic imagery of corporates is no substitute for impactful legislation with a chance of passage in Congress. Senator Bernie Sanders’ quip ‘Let’s be clear, the business model of Wall Street is fraud’ is not true and, moreover, does little good. It is not a mistake or concession to recognize or even highlight the good that comes from a well-governed, responsible, and sustainable private sector.” 

“After all, encouraging good governance and effective compliance is a condition precedent to better self-regulation and collective action strategies, progressive, libertarian, or otherwise.  Neither deification nor demonization are helpful. At the same time, the burden is also on those promoting “progressive” legislation to do more than offer a mixed bag of old legislation that has never met with political favor, or bills that call for the end of an industry and other draconian results.”

“Let me be the first to say that there is nothing new in my remarks. In fact, if we read our exchange to the well-attended audience at the 1990 Edwin Sutherland Conference on White Collar Crime, many would have connected with it, whether they agreed or not with our musings. But I doubt that anyone would have said that we made good use of three decades of evidence-based research to know more or better. This is both sad and telling.  You say that it is all about politics and corporate power.  Sure, but is this insight new? Is anything that we are discussing today new?”

“The idea that the general part of corporate criminal law remains a normative and conceptual muddle is far from new. The reporters of the Model Penal Code in the early 1960s wrestled in desperation with this muddle.” 

“It was Gerhard O. W. Mueller who so eloquently challenged the strictures of vicarious fault in this model legislation. Who, today, reads Mueller?” 

“The idea of big corporations as vulnerable to wrongdoing and yet exempt from regulatory scrutiny is nothing new.”  

“Ask anyone familiar with Marshall Clinard and Richard Quinney’s landmark survey of the deviance of the largest corporations in the United States, first published in 1979.” 

“Ask Ralph Nader to summarize his career-long fight against corporate violence and power. His insights about corporate power years ago are as current and important as ever.” 

“Listen to Joe Murphy speak about his notion of interactive corporate compliance, long before compliance was a commodified product – years before leading consultancies, accountancies, and law firms joined a cottage industry of ethics providers.” 

“Read Jack Coffee’s work on the disappearing distinction between criminal law and tort law in regulating corporations, and wonder with others whether corporate criminal law is necessary in the first place.” 

“Ask John Braithwaite if there is anything ground breaking in regulatory theory that he has not already touched – in depth.” 

“And consider the creative work of Brent Fisse on corporate accountability and criminal law before there was a name for such a thing.”

“There are generations of corporate crime scholars who are largely forgotten, along with their insights about politics and corporate power.”  

“This is not a cry for life back in the day with Christopher Stone, Gilbert Geis, and so many other founders and architects of this field, now gone.” 

“Rather, it is an aspiration that corporate criminal law scholars and corporate criminologists bring research to policy makers necessary to ensure that, thirty years from now, no one will be asking the same questions as if they were new, novel, and so surprisingly important.”

[For the complete q/a format Interview with William Laufer, 35 Corporate Crime Reporter 28(12), Monday July 12, 2021, print edition only.]