The Criminalization of Business
Letter to the Editor

Under the radar, the Obama administration has exhibited a disturbing tendency to criminalize business. Recently the administration announced that it was opening a criminal investigation into the activities of Goldman Sachs in selling securities backed by subprime mortgage loans. Now comes word that the Food and Drug Administration is considering imposing criminal penalties against Johnson & Johnson's McNeil Consumer Healthcare unit for a "pattern of non-compliance" with rules governing the manufacture of pharmaceutical products. This criminalization of business represents a dramatic expansion of government power that is unwarranted.

In the case of McNeil, the FDA's action is prompted by a series of recalls of contaminated over-the-counter children's medicines. While this is a potentially serious matter, FDA official Joshua Sharfstein recently acknowledged in congressional testimony that "the risk for any child in the United States was remote" and that "[s]o far, FDA has no cases with evidence that a product quality issue contributed to a significant adverse health outcome." Moreover, Mr. Sharfstein's testimony makes clear that the FDA was long aware of potential problems at McNeil's facilities. As he acknowledged, "Before 2009, FDA investigators identified several problems with cGMP compliance at facilities run by McNeil."

Nonetheless, only now has the FDA suggested that criminal penalties are warranted. Moreover, recent comments by FDA officials indicate that this latest action may be part of a wider program to make its regulatory program more "visible" by, among other things, "strengthening…criminal enforcement of FDA's laws."

Government often uses the threat of criminal sanctions merely to harass corporations or for publicity purposes.

The history of the government's use of criminal laws to sanction corporate behavior is not a happy one. Government often uses the threat of criminal sanctions merely to harass corporations or for publicity purposes. For example, in the 1990s, the Department of Justice opened a criminal probe into the conduct of the tobacco industry with much fanfare. However, no one was ever prosecuted for any criminal violations. Rather, the criminal investigation appeared to be merely a means of harassing an industry that was unpopular.

In the few cases in which the government has pursued criminal prosecutions, the consequences have been profoundly negative. For example, the government's pursuit of criminal charges against accounting firm Arthur Andersen led to the breakup of the company and the loss of thousands of jobs. As a result, the lives of numerous individuals who had nothing to do with any alleged wrongdoing were turned upside down. These consequences were particularly troubling given that the Supreme Court ultimately overturned the company's criminal conviction, finding that the jury instructions given at trial suffered from a series of flaws.

This history demonstrates that government should exercise extreme caution before exercising its power to initiate criminal proceedings. This is particularly true in the current climate, where business is already struggling with economic uncertainty and new regulatory burdens imposed by the Obama administration. Adding another concern for business is the last thing we need right now.

Douglas Smith is an adjunct scholar at AEI.

Photo Credit: iStockphoto/Frances Twitty

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