The Myth of White Collar Leniency

I saw this article going viral a few days ago:

The Manafort case is a reminder that we invest too little in catching white-collar criminals

He writes:

The extent to which Manafort’s prison sentence seems light compared to the harsh justice the United States routinely hands down to drug offenders and violent criminals was immediately striking to progressives.

What exactly is a ‘drug offender’? Notice how he does not define what this means, because the distinction is important between someone who consumes drugs, versus someone who sells or distributes them (the criminal penalties are vastly harsher for the latter):

Those convicted on drug possession charges face a wide gamut of penalties at sentencing, varying from state to state. Penalties for simple possession range from a fine of less than $100 and/or a few days in jail to thousands of dollars and several years in state prison for the same offense. Simple drug possession sentences tend to be the lightest, while intent to distribute drugs, or the cultivation/manufacturing of drugs carry much heavier penalties. Prosecutors sometimes offer plea deals to defendants who may be able to help them with a higher-priority investigation, perhaps leading to the arrest of an organized crime leader.

He continues

Research by Mark Bennett, Justin Levinson, and Koichi Hioki shows that the leniency Manafort received is fairly typical for white-collar defendants. Judges routinely depart from sentencing guidelines in these cases, almost always to impose a sentence that is lower than what is recommended by the guidelines.

This is especially true for white-collar cases that involve larger amounts of money. Bigger frauds do attract longer sentences, but in practice, judges raise the punishment level by less than the guidelines recommend.

That is because the guidelines for white collar crimes can be very punitive, way more than even for assault or murder when taking into account the following factors:

1. White collar crime almost always involves multiple counts and charges, each which can add decades to one’s sentence and be stacked. It’s not uncommon for a defendant to get multiple counts of, say, wire fraud and money laundering (because the ill-gotten gains have to be moved or processed in some way). Added together, assuming each count is 10-20 years and there are many of them, this can easily amount to a life sentence, which is even worse than 2nd degree murder (or even 1st degree murder, because parole may still be a possibly after 25 years). It’s not like you can murder someone many times like how you can commit wire fraud many times, although that would make for an interesting thought experiment for a philosophy class I suppose.

This is why counts and changes are often lumped together by the judge or a plea deal to run concurrently instead of consecutively, so instead of a defendant being sentenced for the theoretical maximum of hundred+ years, would only serve time for a single charge. But this can still be a long sentence:

I wrote about the case of Christian Allmendinger a few years ago. Allmendinger, went to trial on fraud charges associated with life insurance settlement. He was found guilty but had been offered a plea deal that would have likely put him in prison for 10 years. His FSG at sentencing would have yielded a prison term of over 125 years, something U.S. District Judge Robert E. Payne saw as too harsh. Judge Payne settled on a lesser sentence of 45 years.

45 years instead of 125 years? What a great deal!

2. No parole. White collar crimes are almost always federal crimes, unlike drug possession or violent crimes, which means that the defendant MUST serve at least 85% of his time, no exceptions (unless pardoned or commuted, which is very rare). Time is served at a federal prison, which has fewer amenities compared to a state prison.

Because of these factors, some white collar defendants have gotten effectively life sentences, some examples being Bernie Madoff, Sholam Weiss (sentenced to 845 years but pardoned by Trump), Allen Stanford, and Ross Ulbricht.

Amazingly, Stanford’s 110-year sentence was 50% less than the ‘guidelines’ recommendation of 230 years.

3. Very high conviction rates (>98%) at the federal level. By the time the suspect is arrested, the case is so airtight that a conviction and long sentence are all but assured. This forces defendants, particularly for white collar crimes, to agree to plea deals, which may also be onerous but not as ‘bad’ as being locked away forever.

Over time, the scale of the frauds that actually make it to court has gotten bigger, so there is a growing wedge between the recommended sentences and the ones that actually get imposed — even though sentence length has grown over time.

That is the point. The guidelines stipulate longer sentences, hence sentences have gotten longer even when judges depart from said guidelines.

Another common argument/narrative is that crimes in which the victims are wealthy (such as the victims of Madoff’s fraud) are punished more harshly or with more certainty compared to crimes in which the defendants are not rich. This too is probably false. For example, Billy McFarland was sentenced 6 years to federal prison for the Fyre Festival scam, in which the victims could hardly be considered wealthy. In 2003, a man was arrested for defrauding thousands of customers on Ebay for failing to deliver laptops, just a few months after the fraud began. Same as before, it’s not as if the defendants were wealthy or the amount of money lost from each victim involved was substantial (the average loss was around $1,000).

It took 8 years for Madoff to finally be arrested, but only after he turned himself in, after the SEC in 2000 was alerted by whistleblower by Harry Markopolos of possible fraud. All of Madoff’s victims were wealthy…so much for the notion that the government protects the rich. The Theranos fraud ran for 15 years too before anyone was prosecuted, again, costing rich investors a lot of money.

And as a very recent example, on Mar 25, 2022, two Americans were charged by the IRS-CI for perpetrating an NFT scam. A few things are notable about this case. First, is how quickly the feds acted. The scam began in January 2022 and the investigation took just 3 months, which is lightning-fast compared to how long federal fraud investigations typically take, which is years. Second, like above, the total amount of money stolen was small, just $1 million (we’re not talking about ‘Wolf of Wall Street’ sized sums here), and the average amount defrauded per victim was also very small, just in the thousands, not hundreds of millions like Madoff or Theranos.

Thus it would seem as if complicated fraud cases in which the victims are wealthy and the amounts stolen are huge, tend to go on much longer until anyone is arrested, compared to smaller cons. Hence it would seem justice is more likely to be meted out when the victims are not wealthy, especially if there are many of them.

Some federal crimes such as tax evasion (maximum prison sentence is five years, versus 20 for wire fraud), insider trading, or contempt of court (such as ignoring a subpoena), in which the ‘victim’ is the federal government (does not get any wealthier or more powerful than that), tend to have much less severe penalties compared to federal crimes which affect private individuals (such as investment fraud).

Overall, when people complain about judges departing from sentencing guidelines or being ‘soft’ on white collar crime, what is often overlooked is that the guidelines can be very punitive for white collar crimes, way worse than violent crimes. And second, people do serve long sentences. 7,12,20 + years is becoming routine, and again, no parole. No one is getting off easy. Politicians derive support from conveying being tough on all crime, not just ‘street crime’, which is how Eliot Spitzer for example built his political career after in the early 90s bring down the Gambino crime family.