The collapse of Enron alone is estimated to have cost the public billions of
dollars. Yet Enron was the tip of the iceberg in last year's rapid succession of
corporate earnings "re-statements" and admissions that books had been cooked to
boost the bottom line. The cost of these discoveries -- $170 billion in direct
losses from the top eight controversies, according to Business Week --
was (and continues to be) borne directly by employees, investors and retirees,
as well as by the whole of the failing economy.
SB 335 (ROMERO) -- THE CORPORATE THREE STRIKES ACT
"[Fines are just] an operating cost for these companies: They pay the fine,
which becomes just a cost of doing business."
-- Missouri Secretary of State, Matt Blunt, Business Week, December 16,
2002
The recent spate of corporate scandals is but the latest chapter in a long and
costly history of corporate crime.
SB 335 will deny corporate repeat offenders the right to do business in
California. The Corporate Three Strikes Act arms California with the nation's
strongest tool to deter egregious violations of law, including consumer,
environmental, anti-trust, labor and financial safeguards.
·
Corporations are required to report
all criminal convictions to the Secretary of State, who will maintain this
information on a publicly accessible website for ten years.
FINES ARE NOT ENOUGH
Current state and federal sanctions do not adequately deter corporations from
breaking the law.
This week, the SEC announced a $1.4 billion settlement with the nation's top ten
investment & securities firms. Yet the settlement amount, massive on the
surface, was negligible to these multi-billion dollar conglomerates. As Harvard
law professor, Lucian Bebchuk, noted in the New York Times when the
settlement was reached, Citigroup made $4 billion from underwriting fees alone
in 2000 and 2001 -- an amount 10 times the $400 million it owes under the
settlement. "Drop in the bucket" punishments give corporations no incentive to
change bad behavior.
CORPORATE CRIME SHOULDN'T PAY
Rarely are fines even as substantive as those assessed against the investment
firms. But no matter the price, a justice system which relies on fines as the
ultimate punishment for corporations often leaves breaking the law as a
profitable option. An infamous example is the case of the Ford Pinto. Ford
deemed the replacement of the Pinto's faulty gas tank prohibitively costly
because a recall would have cost $137 million. The company decided it was
cheaper to pay the medical and court costs associated with an average 180 deaths
a year than to replace the defect that caused them.
Though some corporations repeatedly violate the law, even when caught they pay
relatively insignificant amounts in fines or settlements. Even worse, businesses
can frequently "write off" fines, legal fees, and other expenses attributable to
criminal actions as "business expenses." The majority of the amounts paid by
Citibank and the top investment firms in 2002 are expected to be tax-deductible.
In this way companies force the public -- first as consumers and then as
taxpayers -- to pay twice for corporate misconduct. This practice does nothing
to protect the public from future corporate crime and undermines a healthy
economy.
CURRENT LAW
Statutes in all 50 states give the Attorney General the power to ask a court to
revoke a corporate charter. California law provides for corporate dissolution on
several grounds, including if the corporation "has seriously offended against
any provision of the statutes regulating corporations" or when it "has
fraudulently abused or usurped corporate privileges or powers."
Though this power is rarely invoked, it has been exercised. In 1976, the
California Attorney General brought a charter revocation action against a
private water company for delivering contaminated water to its customers. The
action forced the corporation to sell itself to the public water district. More
recently, in 1998, New York's Attorney General used their charter revocation
statute to help put out of business the Council for Tobacco Research, an
industry front group accused of intentionally undermining research about tobacco
and health.
The Corporate Three Strikes Act declares the intention of the people of
California to require the Attorney General to exercise this power in the case of
corporate repeat offenders.
The Foundation for Taxpayer and Consumer Rights
“Fact Sheet”
http://www.consumerwatchdog.org/corporate/fs/fs003284.php3
Study: Online Crime Costs Rising
By David McGuire, Washington Post May 25 2004 10:43AM
Online criminals are attacking corporate and government networks
more frequently, costing businesses an estimated $666 million in 2003, according
to a survey of computer security executives released today.
The survey was conducted by CSO [Chief Security Officer] magazine in cooperation
with the U.S. Secret Service and the CERT cybersecurity center at Carnegie
Mellon University in Pittsburgh.
It showed that more than 40 percent of 500 executives polled said hackers have
become the greatest cybersecurity threat to business and government networks,
compared to 28 percent who feared internal threats such as disgruntled or
recently fired employees. More than 40 percent of the respondents said the
number of computer crime incidents increased from 2002 to 2003, compared to 6
percent who said it dropped.
The rise in the number of executives who fears hackers marks a shift in
corporate attitudes toward security, said CSO publisher Robert Bragdon.
"Historically businesses have always focused on the internal threats being the
biggest dangers to their organization," he said.
Despite the shift to watching for external threats, 36 percent of the
respondents said that they monitor employees' Web use and other activities to
prevent internal sabotage and leaks.
Computer systems falling prey to ever more sophisticated attacks are
increasingly essential to the daily operations of businesses and government
agencies, said Harris Miller, president of the Information Technology
Association of America.
ITAA has long warned that many companies have not devoted enough time and money
to cybersecurity. Miller said he hopes studies like this will convince
executives of the dangers of shortchanging their electronic defenses.
"A lot of CEOs and a lot of CFOs say 'what is the return on investment for all
these investments in cybersecurity?' Studies like this show that CEOs and CFOs
unwilling to make those investments are paying a dangerous game of Russian
roulette," Miller said.
Nevertheless, nearly 100 percent of executives surveyed said they used firewall
software in their corporate networks, and more than 80 percent used encryption
and similar technology to protect their electronic transactions.
The survey's results come out a week after the Business Roundtable -- a group
whose membership represents some of the nation's largest companies -- blasted
the software industry for developing products that are vulnerable to hackers and
other security threats, leaving the corporations to pay the costs after
suffering attacks.
"Most of the significant cyber-incidents that have harmed American business and
consumers over the past several years have had at their root cause defective and
readily exploitable software code," the group said in a statement on how
cybersecurity policy should be developed.
A 37-member taskforce comprising business and software industry executives as
well as cybersecurity experts, reported to the Department of Homeland Security
in April that most corporations fail to take cybersecurity seriously at the top
levels of management.
The report did not recommend that the government make cybersecurity a
requirement for the private sector, but said that auditing firms should include
cybersecurity readiness as part of the criterion for determining whether
companies have adequate internal and financial safety controls.
The Bush administration's national cyberspace strategy recommends that companies
take stronger steps to insure their electronic security but does not require it.
The CSO survey was conducted between April 15 and April 26. The authors sent
e-mail solicitations to the magazine's subscribers and members of the Electronic
Crimes Task Forces, run by the Secret Service.
Washington Post,
Taken From “Security Focus” - http://www.securityfocus.com/news/8767