On this episode Mark Blyth talks with Cornelia Woll, a professor of international political economy at the Hertie School Berlin and author of the recent book “Corporate Crime and Punishment: The Politics of Negotiated Justice in Global Markets.” They discuss how economic law enforcement and geopolitics have become increasingly intertwined, and how this has complicated efforts to make sure corporations behave in a just (and legal) manner.

Learn more about and purchase “Corporate Crime and Punishment: The Politics of Negotiated Justice in Global Markets”

MARK BLYTH: From the Rhodes Center for International Economics and Finance at Brown University, this is The Rhodes Center Podcast. I'm the Director of the Center and your host, Mark Blyth. In the studio today, I have with me Cornelia Woll. She is a Professor of International Political Economy at the Hertie School in Berlin. Cornelia, thanks for coming on the pod.

CORNELIA WOLL: Thank you for having me.

MARK BLYTH: So Cornelia just gave the fifth annual Ethics of Capitalism lecture here at Brown, and it's based around her Twenty Twenty-Three book, Corporate Crime and Punishment-- The Politics of Negotiated Justice in Global Markets.

But it is also much more than that, in the sense that capitalism and ethics are, at best, uneasy bedfellows. Cornelia, when you started off your lecture today, you really took that on as a theme that these are not exactly the same thing. They don't sit together too well. Start with capitalism. How do you think about that? How do you think about ethics? And do these things fit together?

CORNELIA WOLL: Yes, it was a task to talk about two huge topics at the same time. So I deal with capitalism as market liberalism, if you will. So you have, basically, free markets. You have prices that float. You have decentralized private ownership.

And I was trying to think through, however you call that, whether you call it economic liberalism, if you're optimistic about it or capitalism if you're pessimistic about it. What does that change in the way we think about right or wrong? Because ethics really is just the system. We have to determine morality, what is right, and what is wrong.

And there are different ways of connecting the two. And over time and over centuries, it's been a huge discussion. What are the moral foundations of capitalism? Is capitalism a force for civilizing society by deconcentrating power and not allowing political leadership to use economic power to dominate their societies.

That's the belief of a lot of the economic liberals, from Smith to Hayek, who say we need markets in order to civilize society and it creates better outcomes. Or do you think about capitalism as a force of destruction which creates all sorts of dynamics, wealth accumulation, inequalities, commodification that will really destroy human society? From Marx to Polyani to others, many have written about this.

And that topic was too large for me to address. So I chose to focus on one smaller aspect, which comes out of a lot of economic sociology and political economy work as well. And that is, what type of justice is produced through global markets?

So what I focus on is the globalized market societies. We know now the fact that companies can cross boundaries more quickly than political and legal systems will. What does that do to our notion of justice and to how we judge right or wrong?

And in my book, I study that in the area of corporate criminality. So how do you go after corporate misconduct. And I find that global markets change notions of justice and change how we judge right or wrong, and particularly in corporate criminality. And that's the story I wanted to tell.

MARK BLYTH: So you're telling me then that globalization, as well as doing all the other things that are attributed to it, actually shape our conceptions of justice?

CORNELIA WOLL: Yes. I'm telling you, globalization changes how the law is being done. So markets change how we judge criminality and corporate criminality in particular in ways that are very idiosyncratic, can be different in different countries.

But they all have a feature that I tried to highlight, and that is that they are negotiated legal solutions or negotiation instruments. And that means that you move away from something that is based on trials in court and to something that is more in economic activity settlements and punishments which are settled, fines.

And that is a very different way of judging what is right and wrong. And it's going across countries through this movement where you start with one country-- in my story, it's the United States, using these tools and others, copying them because they're more effective.

MARK BLYTH: All right. So let's go back to a world that's pre-globalized. Right. Let's go back to the world of capital controls and limited finance, et cetera, the '50s and '60s into the '70s. Was there ever a time in which there was active corporate prosecution, even if it was done on a national basis? Or has there always been a kind of structural power advantage to big firms?

CORNELIA WOLL: So let me start by saying firms do have structural power all throughout history to a certain degree. But there was a time where corporate criminality was judged, for example, let me start with the United States, in ways where you could actually bring management to court and convict them of crimes.

I was talking through the Enron scandal. We can think of the savings and loans crisis. You can have management of these financial institutions or big corporations that are being held accountable for something that went wrong in the United States, in other countries as well.

What I find is that the big change came after the globalizing '80s and '90s came in the Two Thousands, because in the Two Thousands, in the United States, there was more and more frustration with the capacity of prosecutors to actually bring corporate criminality to account effectively.

And so more of an attempt to go towards settlement out of court, solutions to some of these prosecutions, non-trial or abbreviated trial solutions. And that changed how much you would see individual prison sentences. And it changes how some of these corporate cases are being prosecuted, in particular for the biggest companies.

MARK BLYTH: All right, so let's unpack that because I want to know what changed. Let's go back to the savings and loans. In Texas alone, they prosecuted, I think, somewhere in the region of about 500 individuals, lots of people went to jail.

These were mom and pop frauds in the sense that these are mom and pop financial institutions. So they weren't that complex. But there was a lot of them, it was at scale. The government went after it. It was a successful set of other prosecutions.

Enron was a fantastically phantasmagorical, complex organization, and yet they managed to basically get down what was happening and bring down the company and bring down the people. So what happened at 10 years later, they said, we can't do this anymore.

CORNELIA WOLL: That's precisely my question. And I would say that legal scholars and corporate criminal scholars are probably better equipped to say what the frustrations were. What I gather from reading their scholarship is that it became harder and harder to make sure that the investigation inside the corporations would actually deliver results that would bring you to management responsibility, and therefore, to get basically the CEOs to account for the misconduct within the corporation.

There were more and more cases where you would get a bad apple in middle management, or somebody being held accountable for whatever action there was. And prosecutors very frustrated that if there is massive amounts of bribery, that they would only always get to the middle level.

And this had to do with attorney-client privileges, had to do with investigation cooperation. I cannot tell you exactly what it was, but the frustration was just, at one point, cumulative and the recognition within the Department of Justice was we need different approaches in order to get into these very complex organizations.

It worked in the Enron case. It didn't work in a lot of other cases. And that was the source of, I think, soul searching for the Department of Justice, how to do this more effectively within different procedures being proposed.

MARK BLYTH: I wonder, and your book doesn't go into this, but I just want your opinion on it, is there actually a really hard problem at the heart of this, which is the following: the entire purpose of a modern corporate form is to shield people from liability.

And when you do that, it encourages them, within certain boundaries, to take more risk with capital, which then leads to a greater payoff to society because they don't end up in a debtor's prison if there are 5 quid in debt.

But on the other hand, there is such a thing as criminal behavior. And if you use a corporation as a criminal enterprise, then it's a RICO offense and you should basically be in jail. These two things don't fit together too well, do they? Because on the one hand, you want to protect the officers of the corporation so that they can do the thing that the structure enables. But then you say that, but what that's enabling is bad, and now you don't have any protection.

CORNELIA WOLL: That's exactly right. And I will add a second problem to it that also doesn't fit very well together. When you are investigating a potential crime, one of the main maxims is people are innocent until proven guilty.

So you have a procedure in place to actually investigate and the end result could be guilty or not guilty. But markets are information mechanisms where information goes very quickly, and information about a criminal investigation can lead to results in the marketplace that can be devastating for a company.

So you can have, and this happened in the case of Arthur Andersen, you can have employees leave the company because they're nervous. You have investors who withdraw their money, et cetera, et cetera.

So the mere fact that a company is under investigation can basically ruin it financially and economically and be a death sentence in the market, whereas the criminal case is actually not over. And Arthur Andersen and other cases show that you can be completely found not guilty of all the criminal activities and dead as an economic entity.

MARK BLYTH: Yeah, the damage is done.

CORNELIA WOLL: The damage is done. And I also think prosecutors and the Department of Justice didn't want to be responsible for killing somebody who was presumably still innocent.

MARK BLYTH: And that actually gets to an interesting point. We can come back to about market concentration and firm size, that these become critically important firms, almost national champions. So I'm thinking about the Swiss banking sector and the importance to the Swiss economy, or for example, what's at stake with AI firms and tech firms for the United States. These become not just too big to jail, but too big to fail or kill.

CORNELIA WOLL: Absolutely. And that's the structural power of companies. They are responsible for an enormous amount of GDP-related growth. They are driving, a lot of times, the economy of all of these countries. Employment is very important.

So do you, as a prosecutor, want to take the responsibility for ruining potential development employment for an entire region in a case that if you lose, you might have done damage and it's not even in the pursuit of justice? So this is really a pickle that the prosecutors were struggling with.

MARK BLYTH: So they do have more than just, let's say, what they called? The chickenshit club?

CORNELIA WOLL: Yes.

MARK BLYTH: Right. They were too afraid to go after them. There were actually reasons for thinking that these prosecutions, the damage would be worse than actually getting the conviction, or even if you didn't get it, then there's a problem. And we're causing all of collateral damage, right?

So then the US moves into a different gear. Describe for the listeners what the difference is between a court settlement and a negotiated settlement. And what's really going on in this little box of legality?

CORNELIA WOLL: So in a deferred prosecution settlement or non-prosecution, you settlement have a prosecutor sit down basically with the party and trying to work through what the misconduct in question is, what information they have, how much of a negotiating hand the company has, the prosecutor has.

And they eventually agree on something that will be on a docket. So there's an actual legal document, but it's an out of court settlement where they agree on some fine that has to be appropriate, but that allows them to say we have closed the case, you're not guilty.

So that means for corporations, for example, they can continue to bid in public tenders or all sorts of other things that would have been difficult otherwise. The press possibly only finds out about it at the very end. Mostly they know, but there is not as much of a day-to-day news on this because there are negotiations that are held separately.

And the legal fine that is being settled is usually of a very impressive amount, but also something that these companies can budget for. So now we see that the legal defense funding companies is growing exponentially because that they know that need to settle a certain amount of cases, but that's the better way of getting out of legal difficulties than actually going to trial.

MARK BLYTH: So we've shifted from a world where by Ken-Skilling gets nailed, or a whole bunch of people that run mom and pop financial institutions and basically were overvaluing their assets getting nailed, to a world in which these things are too big to fail.

They're either you don't want to jail them or they're too big to jail. And there are pretty good reasons for doing that from the prosecutorial side as well. Are these companies getting away with it? I mean, we're telling a very functional, rational story about, well, you think about it. It's very complex. This is what has to happen, you know what are you going to do, whatever.

But at the end of the day, this man to be justice. And this seems to be a complete evacuation of justice. What sticks in people's minds, if not their throat, is you often read this in the press. You know that company X agrees to pay $4 billion fine while admitting no wrong. Well, why would you be paying up 4 billion if you haven't done anything wrong? Is there some kind of legal thinking behind this? Or is this just how it ended up?

CORNELIA WOLL: So that's a very good question. And that's a normative question that we really have to grapple with. I would just simply say I have advice for how to do this better. I can explain why we've gone down this road.

And I think there are certain risks inherent in all negotiated settlements. And you can minimize these risks. You can minimize these risks if you have relatively bureaucratic standards for fines. So if there is an economic damage that you can estimate, the fine has to correspond to that damage to some degree.

So having guidelines on the fines, having also the obligation to actually register one of these settlements in courts, that happens in some cases, not in others. There's also, in some countries, limitations on when you can negotiate.

Canada, for example, does not allow any negotiation to take place if there's been bodily harm. So as soon as people are killed or are harmed, you have to go through the traditional route. I think these are all very sensible guidelines to give because negotiations are very human situations where some companies are more powerful.

And it's not the small, privately held companies that will go down this road a lot. It's the large, complex organizations that were already a bit mistrustful of generally that have the stronger hand in these deals. And so as much as that can be guided by rules that say how significant the punishment should be, if the damage is significant, the better.

MARK BLYTH: But your own explanation in the book, which we'll now turn to, suggests something, if not something more nefarious, more political, which is the following. And this is actually something that Meg Rithmere was here a couple of weeks ago and said about China, that we really need to start thinking about firms as extensions of the state.

That they do things that are important on a global level. That the activities of American tech firms isn't just about freedom of expression for Europeans who are denied freedom. It's about locking in a tech stock. It's about surveillance. It's about power.

So when you have these big firms that are geopolitically important, you don't want to go around prosecuting them much, do you? In fact, you want to protect them. And what we see and what you show in the book is that the American state actively goes after foreigners much more than their own firms.

And that this has become, despite local laws, international prosecution. So explain those two things? How did this thing become global prosecution, number one centered on the US? And why this is kind of foreign policy by other means?

CORNELIA WOLL: Two big questions. Let me try to take both of them, and I'm probably going to stop sometime and you have to get back. So the first question you ask in the legal literature is called extraterritorial prosecution.

So what the United States have been able to do, because they have considerable market power and infrastructures that give them possible jurisdiction, is to use their domestic laws, laws made for the US to go after companies abroad because they had some basis for using the prescriptive jurisdiction they had and imposing it through negotiations.

And they were able to prosecute companies, I don't know, a French Bank active in Switzerland on activities of deals with a country under sanction. I think it was Iran in the case for BNP Paribas and to prosecute them.

So that extraterritorial reach means you can have everybody abide by your domestic law, for one. But it also means you can do so strategically. So you can go after certain companies, possibly more actively when they're foreign, because you look good like you're a prosecutor or actually takes on big capital, just not your own, where it's possibly embarrassing.

And maybe also just going after companies that you need to follow domestic rules in order to have more influence. So that brings us to foreign policy. Sanctions violations is a very typical example that everybody will understand.

You need, for foreign policy, the government needs private actors to execute the interests of the country abroad. If you want to sanction a country like Russia, what it means is you need to get your companies to move out of that country and to no longer do business with entities from that country.

And how will you make sure that they actually abide by your rules? Now, you can say companies are an extension of the government. I will say many of them are not happy to and will like to do their own activities and actually not listen to the government giving them instructions.

So you need to stick. You need to stick to put them back into their place. And that is corporate criminal prosecutions. You need to be able to threaten anybody, if you don't go by what we tell you, this is what we'll do.

And let's go to data, for example. Yes, the US government has a huge interest in having big platform companies provide data and manage the data of the world in a company that is held in the US and that they can possibly get to. But the data companies will say, no, no, no, no, we're not giving you access to our data because if they publicly stated yes, you can, they'd lose all of their customers.

So there is a struggle back and forth between the company saying we're separate from the government, but of course, the government having more influence and reach over them if they are from their own nationality than if they're a foreign company.

And that game is part and parcel of the global economy. Your companies are an extension of your sphere of influence. You struggle with them to keep them in line. You also struggle with foreign companies to execute your interests in just the same way. And that works effectively with companies from allied countries, not so much with the ones you're completely at war with. And that's the game of the global geoeconomic statecraft that we're currently in.

MARK BLYTH: And that's one of the most interesting thing that pops up in the book, that this is really applied on your allies. Not that we have any of these days. Everything's transactional. But nonetheless, when we used to have allies, it was nonetheless coercion against allies to make them basically toe the line in certain ways.

But, let me just again, for the listener, pull this back a little bit. So let's say I'm a Swiss Bank or I'm a French military manufacturer or Dussault or whatever. And I've been bribing people in West Africa in euros to buy my stuff. What's that got to do with the US?

CORNELIA WOLL: Well, the US then would have to find a nexus in order to claim jurisdiction. So if you've been bribing in euros, the question is, was there a competitor in that market, possibly a US company, who didn't get that market and who could claim that it has an effect, it has a domestic effect?

And then you use anti-trust or something else. If you want to go after bribery, you'd have to say how exactly you claim that nexus. But I'll just be very quick and say you'll always find a nexus. If there isn't one, they've been very effective at inventing them.

So if you're going against US interests, even in a foreign market, in a foreign currency with the foreign email account, something will happen so that it's established. My favorite one is FIFA. FIFA is also a very big and well-known case of corruption, but you couldn't go after it with the Foreign Corrupt Practices Act, because corruption in that act is defined as the bribing of a public official.

So what the US prosecutors found was racketeering and organized crime to go after FIFA. So there is a lot of creativity on establishing a nexus to make it simple. If I was a general counsel or an advisor to some CEO, I would just say if they want to get you, they'll get you. So make sure you're covered.

MARK BLYTH: Make sure you're covered. On the FIFA case, if I remember correctly, please correct me if I'm wrong. The way they're able to do this is not just because some of the money that's sloshing around is bribery, and this organization washes up in the US banking system.

But there was actually, I'm pretty sure it was, and I'm saying this under the caveat that I may be misremembering this. I think it was Jack Warner from the Caribbean Federation who had a couple of sons that was basically driving around Florida dropping off $9,999 in individual accounts, because that wouldn't trigger the system because it's calibrated to $10,000, which, of course, sends massive screaming signals through the money laundering circuits.

And that's what gave them, in part, jurisdiction for doing that. So you do have this long arm of American power. It's used against allies to keep them in line in this way. And we see there's a good example of this with Dieselgate. Talk us through Dieselgate.

CORNELIA WOLL: So Dieselgate, the emissions manipulation scandal of basically the German automobile industry, was something that had been going on for quite some time. The German government or legal institutions weren't very good at pointing out.

And then the Environmental Protection Agency said something's going on here in the US started prosecuting what became a huge emissions scandal. For me, what is interesting about this is first, the very clear ineptness of the Germans to-- I'm trying to translate a German saying--

MARK BLYTH: To dance lightly around this.

CORNELIA WOLL: Well, to clean up their own mess. And why did this have to be brought to everybody?

MARK BLYTH: Because it wasn't seen as a mess. It was actually seen as this is what corpse do, right?

CORNELIA WOLL: But I think you still have a lot of people in Germany say you shouldn't manipulate emissions of these cars. But it did require an outside body to shine light on this. And then everybody was embarrassed and say, what did our own institutions do? And why did this happen for so long?

And of course, the legal proceedings out of this are just massive and very many different countries with class action cases and a lot of companies also involved. What I find interesting is the international dimension to this and the change it potentially triggered not so much in the Dieselgate case, but in other cases in the country that was ashamed of having slept at the wheel.

And that said, we need to be more effective at going after corporate crime ourselves. And that actually changed legal institution. France, for example, created an entire court, Parquet Financier, in order to go after corporate criminality because they didn't want to have fingers pointed at them saying you are in bed with big corporates and you're letting all of this happen.

So they wanted to be able to prosecute themselves and possibly prosecute across borders as well. And that's what we see in a lot of countries, not Germany, but a lot of countries. And that's the institutional change I'm referring to.

MARK BLYTH: So what happens is, as you describe it, is there are different legal regimes, a.k.a. different ways of viewing the problem. So is this really bribery? I don't know. Not in our country, et cetera, et cetera. Along comes the Americans busting the whole thing up and say, no, this is bribery.

And in a sense, these other countries have to change their own legal systems to accommodate that, to go after their own, quote unquote, "criminals that they didn't think were criminals," with the upside that they might get some of the fines.

CORNELIA WOLL: Absolutely. So there are two things. Sometimes there is a question of whether a crime is a crime. So the Swiss banking case is, I think, the most telling, what was a crime in the US? Tax evasion wasn't a crime in Switzerland. Switzerland, tax evasion was a civil offense, not a criminal offense.

Tax fraud was a criminal offense, but also going against banking secrecy was a criminal offense. So what does a bank like UBS do? Does it commit a criminal offense by giving away the names of their clients in Switzerland? Or does it commit a criminal offense in the US by helping tax evasion? Which is a criminal offense there.

And you just pick and choose between two bad. So you can have a mismatch of norms. You can also have an agreement on norms and prosecution in one case and not in the other. I think the emissions case, Dieselgate is one of those. I don't think the Germans would excuse what happened, but they just had possibly the economic interests of the companies in mind by saying, maybe we'll look the other way.

And the interesting thing to me is, what you change is sometimes thinking about the crime itself, Switzerland, sometimes just in how you prosecute it and whether you prosecute it. And negotiation has been a more effective way of actually getting at these cases than the court cases that a lot of countries also didn't want to get embroiled in. So that's why we see this rise of negotiation solutions across the allies of the US that are now part of this.

MARK BLYTH: So no one's going to jail, but there's a bit more daylight. We know what they're up to and they promise never to do it again. And it turns out they actually do it again, right?

CORNELIA WOLL: Yes. So in the US, this is a US analysis done by an NGO, ProPublica. They have looked at deferred prosecution settlements, which in their name indicate if you commit the same crime again, then you will be prosecuted and brought to a court.

And actually something like 60 or a little over 60% of the cases where the crime was committed again didn't result in prosecution. So that shouldn't happen. That's normatively very problematic. So what we need is possibly settlements, but settlements that have consequences if we see the same crime again. And we're currently not there yet. So there's a lot of criticism of the actual effect of these solutions.

MARK BLYTH: At the beginning of your talk, you had an Adam Smith slide, and it's the bifurcated Smith, the Wealth of Nations. It's not for the benevolence of the butcher or the baker that we get our daily crust, et cetera, self-interest, so on and so forth, the invisible hand.

And then there's the theory of moral sentiments, which is we do it all because of the recognition of mutuality, that ultimately what we care about is being well-respected by each other. We have empathy and sympathy. And we see someone in pain, we feel this. He gets this from Hume, et cetera, et cetera. And that's the ethical basis.

So the impartial spectator in the theory of moral sentiments would look at corporate criminals and go, oh, Lord, that's a bit dodgy. You know it's a bit dodgy. You shouldn't be doing this. So there's an implication that in capitalism itself, there's a set of ethics which we all know what they are, and we really shouldn't be doing it.

Your book suggests something very, very different, that there is an ethic of ethics, of capitalism, and it is decided by international legal regimes. And it is pushed around by corporates and it is pushed around by governments. And whatever emerges as the right thing to do really has as much to do, if not more to do with those questions of power than it does to do with any questions of philosophical prudence. Would you agree with that?

CORNELIA WOLL: Yes. So I would definitely also say what is considered right or wrong in the global economy has a lot to do with power, and that is problematic. And it would be problematic for Adam Smith. So let me get back to Adam Smith.

I think Adam Smith has this idea that what holds society together is how we relate to one another and the sympathy we have for one another, and also sense of justice. Action has to be just. And I think Smith would look at these very concentrated forms of power that are able to impose certain right or wrongs in ways that is possibly not shared by everybody and he would feel uncomfortable.

And he said if justice is taken out of the system, human society would crumble into pieces. That's a strong statement. So I do think Adam Smith, as a thinker of economic liberalism, does support the deconcentrated power. So private ownership and power not in the hand of just one big political entity of his time or of our time, but it really has to be not concentrated.

And we're currently in a development in our market societies where the accumulation of capital has led to very concentrated forms of economic power, platform companies, superstar firms, whatever you want to say that take up a big part of the market. And that is not in line with economic liberalism basics, which is a more spread and equal and accessible philosophy. So I think Adam Smith wouldn't be happy.

MARK BLYTH: I think we would both agree that Adam wouldn't be happy with that one. And it begs a question about a wider topic, which is whether left to its own devices, capitalism is naturally a concentration machine.

Does it end up with not just winner takes all, but one winner takes all? And we do seem to be running a giant experiment on that at the moment of which perhaps corporate justice is one of the main casualties.

CORNELIA WOLL: I would agree with that. I think the concentration dynamic is inherent in capitalism and is something that needs to be checked, either politically or legally or morally by social actors. And a lot of that is happening, and a lot of it is failing because the concentration of economic power is in the political interest.

And we see, back to the idea that companies are an extension of the government, there's a lot of benefit for the US government to have very concentrated, powerful corporate actors and other countries are waking up to this too. And so the benefits of economic power concentration outweigh the benefits of deconcentrated economic power.

MARK BLYTH: But at the same time, we're now in a moment, particularly with the AI companies, where they tell the government what policies should be so that they can get what they want.

CORNELIA WOLL: I agree.

MARK BLYTH: That's not very just either, is it?

CORNELIA WOLL: That's problematic.

MARK BLYTH: Let's leave it there. Thank you very much, Cornelia.

CORNELIA WOLL: Thank you so much.

[MUSIC PLAYING]

This episode was produced by Dan Richards and Juliana Merullo. I'm Mark Blyth. If you enjoyed this episode of The Rhodes Center Podcast, leave us a rating on Apple, Spotify, or wherever you listen to podcasts. It really helps others find us. And if you haven't subscribed to the show, please do that too. We'll be back soon with another episode of The Rhodes Center Podcast. Thanks for listening.