Laws to thwart Madoff may only encourage his ilk


Bernie Madoff

We like to think of justice as blind and revenge as a sentiment for the weak-minded and morally-challenged. But it turns out that justice is often stumbling around in the dark to no good purpose, while revenge is an eye-opening tool that promotes a more harmonious society. And this is at the heart of the story of Bernie Madoff and his moral black hole.

After the Enron debacle, Congress went to war on white-collar crime, passing two laws to make it less attractive. But a recent note in the Harvard Law Review argues that the legislation has boomeranged, and that white-collar crime is alive and well, in part because judges have too much discretion in meting out justice: They can be mercurially merciful and viciously vengeful. Bernie and other cheats were not fearful of the consequences of their actions. Natural gamblers, they were willing to play the odds on not getting caught and, if caught, getting off with a slap.

That’s also  why the story ‘Bernie Madoff Awaits Sentencing’ was so suspenseful: Anybody who could fog a mirror knew Madoff deserved to suffer and that prison is the civilized proxy for suffering. But would Judge Denny Chin be merciful? Could Bernie’s high-priced lawyers make the justice dance to their client’s tune? The tension between what we “know” to be right and what could actually happen provided a bubbling pot of emotion and anticipation.

Now the Enron legislative babies known as the Sarbanes-Oxley Act and the White-Collar Crime Penalty Enhancement Act of 2002 (WCCPA) have made it possible for judges to hand out severe sentences to white-collar criminals,  more severe than federal sentencing guidelines allow. The result? According to the Harvard Law Review note, many white collar criminals are playing the system like a fiddle.  Randomness rules. Some get off light and others not. Bernie got 150 years. Sholam  Weiss, who made $450 million disappear in an insurance fraud, got 845 years in prison. Dennis Kozlowski, the Tyco exec who also stole nine-figure sums (including cash for a $6,000 shower curtain), got 8 1/3 to 25 years. Don’t even look for any rhyme or reason.

Sophisticated criminals have taken note, praying on the naive with the full understanding that if caught, the penalty might not be so bad. In fact, the Harvard Law Review states that the most sophisticated plan their escape route with their lawyers by using the system to trap less sophisticated collaborators — allowing the “most” guilty to suffer the least. The author explains:

Unfortunately, both the Act and the WCCPA have proven overly rushed and insufficiently prescient to deal with the changing face of business crimes in America.6 This Note argues that a major reason for this result is that judges have reacted to the harsher WCCPA sentences by increasingly departing from the Federal Sentencing Guidelines. For this reason, WCCPA-enhanced sentences have become at least as disparate and unreliable as white collar sentences were in the past. Instead of deterring crime, the WCCPA has made criminal punishment less of a fear for those who would commit fraud. In order to remedy the damage caused by the last seven years of unpredictable sentences, either Congress or the United States Sentencing Commission must take steps to stabilize and rationalize the white collar sentencing system.

In other words, not only is a system of uneven sentencing unfair it encourages more bad behavior and thwarts our taste for revenge.

Revenge is an important sentiment to feed, according to behavioral economist Dan Ariely in an update to his bestseller, Predictably Irrational. Revenge, which may seem like a base motive, can be very effective in deterring uncivilized behavior. Ariely postulates:

Imagine that you and I are living 2,000 years ago in an ancient desert land and I have a mango that you want. You might say to yourself: “Dan Ariely is a perfectly rational person. It took him 20 minutes to find this mango. If I steal it and hide so that Dan will need more time to find me than go and get a new mango, he will do the correct cost-benefit analysis and set off on his way to find a new mango.” But what if you know that I am not rational, and that instead I’m a dark-souled, vengeful type who would chase you to the end of the world, take back not only my mango but also all of your bananas? Would you still go ahead and steal my mango? My guess is that you would not. In a bizarre way, revenge can be an enforcement mechanism, supporting social cooperation and order.”

And revenge is truly sweet. Ariely reports that studies show that revenge excites the striatum, ” a part of the brain associated with the way we experience reward.”

Many of of us who watched the drama unfold in the courtroom today may have felt a slight rush when Madoff was shown that vengeance belonged to the people — even to those of us who were never sent a penny his way. But as a society we were all hurt by someone who played the system like a fiddle; there were no innocent bystanders in this story. But for revenge to be complete it must also be effective. It is time to take a good hard look at the laws that were hastily slapped together after the Enron scandal and to plug its holes.

Image via Flickr

6 thoughts on “Laws to thwart Madoff may only encourage his ilk

  1. If we “plug up the holes,” new ones soon appear. It seems to me that taking away wealth is a greater motivator, and mandatory prison time is the other, whether or not we get the number of years smoothed out to one size fits all.

    • You’re right — nothing is perfect. But the post-Enron laws made white-collar crime a bit like playing roulette at a casino when it comes to punishment. The penalties are too uneven. It’s really hard to get it right, but worth trying.

  2. You say “revenge”, I say “deterrence”. Crooks bias towards short term benefits, so long-term costs must be perceived as severe- and continued gains further reduces the crook’s perception of risks, even while greed increases. It’s a self-enforcing cycle until they finally get caught.

  3. Dan Ariely’s “irrational” revenge sounds like rational long-term behavior. Perhaps it isn’t worth chasing you down for one mango, but if I don’t you’ll steal more. So, exacting punishment is rational — justice.

    The current system you describe is more like revenge than justice (not that I am sorry to see Bernie go to jail for life). I also don’t understand how lengthening some (but not all) sentences has encouraged more white-collar crime. Did some judges decrease sentences relative to the guidelines? If not, why would the law have encouraged crime?

    • Jonathan,
      I think the inconsistency in punishment seems to have fed into some people’s willingness to engage in crime. Presumably no one wants to get caught but if they do, they may believe that because of the inconsistent sentencing system they won’t really pay much of a price.

      When I think of revenge, I think of an action taken to hurt. That may deter as well, but it’s not the primary goal. I don’t think our justice system should be set up on the basis of “getting even” but on deterrence and, presumably, rehabilitation. Of course, the only sentence that seems consistently to deter crime is the death penalty. Hardly a moral way to approach deterrence.

      Vickie commented that if we plug one hole, another will appear. Sadly, that’s likely true. But I think it’s worth deliberating over.

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