Should we extend the 3 strikes law to corporations?

[Oerdin]

California State Senator Gloria Romero, a Democrat from Los Angeles, is proposing that the state's contraversial 3-strikes law should be extended to corporations and not just the individuals currently covered. If Mrs. Romero's bill becomes law then companies which are convicted of of three "serious illegal acts" will be barred from conducting business in the state of California.

Personally, I think this law would be completely unworkable but it is a sign of fresh thinking in dealing with corporate malfesence.

From the BBC:

Last Updated: Tuesday, 13 May, 2003, 07:08 GMT 08:08 UK

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California's corporate crime crackdown

By Maggie Shiels
BBC News Online reporter



The Enron scandal sent shock waves through the US
California could adopt some of the toughest corporate crime laws in the world as legislators debate extending the state's "three strikes and you're out" law to crooked companies.

California's existing "three strikes" legislation provides for jail sentences of between 25 years and life for people with two prior violent or serious crimes who are then convicted of a third, regardless of how trivial that offence is.

Under draft laws currently making their way through the state legislature, companies convicted of three felonies within a ten year period would be banned from doing business in California.

The bill, AB335, is being championed by Senator Gloria Romero, a Democrat from Los Angeles, who believes if "three strikes" is good enough for individuals, it's good enough for the Enrons and the Arthur Andersens of this world.

"We are sending a message that California will not tolerate corporate bad behaviour," said Ms Romero.

Taking responsibility

"During the last couple of years, we have seen the integrity and stability of our financial markets and the economy buffeted by revelations of corporate malfeasance, deception and outright fraud.

Enron no longer really exists as a company and WorldCom has certainly suffered for their ills - so that proves that the market takes care of the bad actors

Dominic Di Mare, California Chamber of Commerce
"Under my proposal these egregious acts will not be dismissed and corporate accountability will mean something in California.," she added.

The main sponsor of this legislation is the Foundation for Taxpayer and Consumer Rights, along with a plethora of organisations ranging from the California Labour Federation to the Congress of California Seniors and from the Alliance for Democracy to green lobby group the Sierra Club.

Ms Romero said millions of shareholders and pension funds were having to absorb billion dollar losses due to the deceptive business practices of a host of companies, including Arthur Andersen, WorldCom, Halliburton, Global Crossing, Dynegy, QWest and AOL Time Warner.

On the third strike

As an example of how the legislation would work today, the Senator's office said each conviction for fraud against the likes of Arthur Andersen in courts outside of California would count as a strike against the company.

This legislation says don't trust business and it's wrong to indict all business for the actions of a few

Dominic Di Mare
For the three strikes rule to kick in, the company would have to then be convicted of a felony in a Californian court.

So far that hasn't happened.

In fact, supporters of the bill say they know of only one corporation, Teledyne, that has been convicted of three felonies in a 10 year period, although several others have committed two felonies in that time span.

Opposition

Opposition to the bill is building slowly, led by the California Chamber of Commerce, which represents over 15,000 businesses.

The Chamber's Dominic Di Mare said: "There are plenty of laws on the books currently to provide protection for the people of California.

"Enron no longer really exists as a company and WorldCom has certainly suffered for their ills - so that proves that the market takes care of the bad actors."

Defence manufacturer Lockheed Martin, which employs 125,000 worldwide and has offices in California, is also against the proposed scheme.

Company spokesman Jeff Adams told BBC News Online:

"Lockheed Martin views the proposed three strikes legislation as being anti-business. (It) sends the wrong message to the California business community and to other businesses contemplating a move to California."

The Chamber's Dominic Di Mare agreed: "This legislation says don't trust business and it's wrong to indict all business for the actions of a few.

"Now is not the time to drive companies away," he said.

Ready to go

The bill has recently been approved by the California Senate Judiciary Committee and is expected to be voted on by the Appropriations Committee in the next couple of weeks.

From there it will go to the full Senate and then to the Assembly.

Any changes will be sent back to the Senate before the bill lands on Governor Gray Davis¹s desk for his signature.

[Az]

This sounds good, but there is a problem:

what about the ownership tree? will the corps' parent corp, or subsidiaries be allowed to do bussiness there? if so, the point is void.

[Japher]

That is a silly idea, so many problems with it that would end up hurting California in the long wrong... They just might get it passed

It is good to see them taking a better look a corporate malpractice though

[Arrian]

Interesting idea, but the parent/subsidiary/successor-in-interest issues are major problems.

-Arrian

[Az]

I said it first, Arrian.

[Arrian]

Yeah, but I added "successor-in-interest" so there.

Slow today, isn't it?

-Arrian

[Sava]

I don't like the three strikes law, I think it should be removed. But if it is going to stay, it should apply to business. Three felonies and a mandatory 25-life... no more slaps on the wrist for corporate corruption. ... Lockheed Martin cracks me up... It's only anti-business if your business is corrupt. Maybe they have a guilty conscience.

I wouldn't mind seeing Ken Lay and company in a "federal-pound-me-in-the-ass-prison" instead of on the golf course.

[Ming]

If the violation is serious enough, why wait for three strikes... Nail them to the wall after the first one

[Az]

"it is wrong to indict all corporations"

what?! nobody is indicting all of you.

God, corporate scum sure have some balls.

[Sava]

Originally posted by Azazel
God, corporate scum sure have some balls.

because they know they don't have to face justice

[Az]

Ming

But there are many crimes that are not Enron-sized, but not "stepping on the grass" either. Just like the 3strike law for people. If it's something big, the guy will be nailed from the first time.

[Ming]

Originally posted by Azazel
But there are many crimes that are not Enron-sized, but not "stepping on the grass" either. Just like the 3strike law for people. If it's something big, the guy will be nailed from the first time.

If it's three "stepping on the grass" crimes... then the law sucks just as bad as the law for people. The penality should fit the crime... and this law is just crap

[MichaeltheGreat]

The other question is how do you define "successor in interest" - new management of the same company would get screwed, while the individual principals from the original company are free to move elsewhere.

It's also impossible to regulate situations where the malfeasor company simply removes physical offices from the state, but sells it's products in interstate commerce (Federal issue).

Another hole is in companies that sell products which are themselves components of other products. There's no regulatory power which could affect secondary product use and importation within the state, etc.

Typical California legislature - ignore the simple solution (higher penalties for existing violations) in favor of complex, unworkable solutions which get more publicity.

*******
Sava - it's "anti-business" to the extent that if you've ever dealt with the state of California or public agencies, all they have to do is accuse you of something. Same thing with consumer allegations, which you might settle (regardless of validity) because it's cheaper to settle than to litigate in a class action in a Federal District Court for the next decade or so. Especially if you're small (think small minority-owned contractor, if that makes your liberal heart bleed more ), you can't afford to play ball with public agencies if they decide to stick the bat up your ass.

In the mid 90's, a small company I was working for took a million and a half plus dollar bath on a 10.9 million dollar project (the intended profit margin was less than 1.5 mil, not to mention legal fees). The public agency simply decided not to pay it's final two months bills and ten percent retention on a construction project. No reason, other than "we don't feel comfortable with the billings" even though the billings were all in an amount that was previously authorized.

File a tort claims act, get ignored, go to mandatory arbitration, public agency simply declines to comply with discovery requests, go to the arbitrator, the public agency simply ignores the arbitrator, go to court to force the public agency to not ignore the arbitrator (meanwhile, half a year has gone by and eight people lost their jobs because the company can't afford this screwing).

Then, six months after they don't pay their bills, big discovery - "you guys committed fraud, because you billed a consultant and a couple of individual independent contractors as "employees" and not as "subcontractors." We want to audit everything, we're a poor public agency that's being defrauded.

Nope, we didn't bill them as "employees" we don't make that distinction. We bill individuals by job classification off our rate sheets that are part of your contract, and we bill companies as subcontractors at cost plus ten percent, also part of your contract.

"We think all these people should be billed at exact cost plus ten percent, not per your rate sheet." "Oh, BTW, we want to audit hotel charges, meals, phone, everything else you billed." "This phone charge for 50 cents from this hotel - was that a business call or a personal call? Do you have a log for that?" (I swear, I'm not making this **** up. And it wasn't from an accountant, it was from an ex-Okie farmer's wife who was the ****ing hick water district's excuse for a bookkeeper.) "Oh, tips on meals, we don't allow that." (Too bad, honey, the IRS does as "ordinary and customary" expense.) "Well, we don't. If you want to give someone a tip at a restaurant, that's your business but (insert mantra here: we're a public agency)."

So the company finally said **** it, after wasting inordinate time for over a year and getting nowhere. Now add the ability of the state itself or public agencies to throw in bogus charges of criminal wrongdoing, with this type of law, and businesses would be doubly screwed. Same thing with consumer cases and I'll bet this legislation is the California Trial Lawyer's Association's biggest wet dream in a couple of decades.

What's needed is more stringent enforcement of existing law, and bigger penalties on conviction, not new mechanisms to jack people around because they're in business.

Insurance companies, investors, etc., all assign risk to those possibilities, so without you actually doing anything, the cost of insurances, and the risk evaluations of investors, will go up regardless. It's just one more hurdle, on top of the worst business tax structure in any of the 50 states.

[Sava]

That may be the case MtG. But in America, if you steal 50 bucks, you go to jail. But if you steal 100 million dollars, you play golf with the president.

[MichaeltheGreat]

Your point?

Prosecute the guys who steal 100 million, don't **** all the little guys trying to keep their employees going and maybe make a buck or two of profit (God and Governor Davis forbid!) while they're at it, in a misguided slap at the big guys.

[Sava]

I'm confused... I thought this thread was all about prosecuting the evil-doers.

[Arrian]

I think the main problem is lack of enforcement of existing laws. That is often the case.

-Arrian

[Sava]

If this law gets more evil-doers prosecuted, then I'm for it.

As I said before though, I'm against the 3 strikes law. But if applies to everyone else, it should apply to corporate scumbags.

[Arrian]

That's the problem, though, Sava. Who are the scumbags? The individual people doing the evil, if you will. Well, what if they do their evil thing - twice - and then leave the company (with a nice golden parachute). The new management is up to 2 strikes from the get-go.

Corporate succession gets really, really complicated. Trust me, I know. I work for an insurance company, handling long-tail environmental claims (stuff that goes back decades). Our original policyholder is often not the entity that comes to us claiming coverage. It's often the company that bought the company that bought the company that changed its name twice after having bought most of our old policyholder, which was merged into the new entity and thus no longer exists.

Can a law like this deal with that?

-Arrian

[Sava]

Then I have misunderstood the proposed law.

[Arrian]

Under draft laws currently making their way through the state legislature, companies convicted of three felonies within a ten year period would be banned from doing business in California.

*snip*

On the third strike

As an example of how the legislation would work today, the Senator's office said each conviction for fraud against the likes of Arthur Andersen in courts outside of California would count as a strike against the company.

*snip*

-Arrian

[Oerdin]

There is also the issue of what to do with the company assits of firms who get banned. Does the firm just hold a fire sale or perhaphes they open a "new" company with a slightly different name and then just continue business as usual.