Saturday, April 16, 2011

China Spies, Japan Cries, Mid Easterners Die, Latinos Becoming American Lead Minority…No Lies.

China Spies, Japan Cries, Mid Easterners Die, Latinos Becoming American Lead Minority…No Lies.

China Accused Of Stealing 'Terabytes' Of U.S. Data

Wikileaks Cables Reveal America's Worst Fears.

U.S. State Department cables obtained by WikiLeaks has revealed that U.S. investigators fear that China has stolen  'terabytes' of sensitive data from the U.S. Government.

In a cable obtained by Reuters, U.S. investigators expressed fears about the theft of usernames and passwords for State Department computers to designs for multi-billion dollar weapons systems.

The cable revealed how the U.S. have traced systems breaches -- colorfully code-named "Byzantine Hades" by U.S. investigators -- to the Chinese military. An April 2009 cable even pinpoints the attacks to a specific unit of China's People's Liberation Army.

"The attacks coming out of China are not only continuing, they are accelerating," said Alan Paller, director of research at information-security training group SANS Institute in Washington, DC.

Privately, U.S. officials have long suspected that the Chinese government and in particular the military was behind the cyber-attacks. What was never disclosed publicly, until now, was evidence.

U.S. efforts to halt Byzantine Hades hacks are ongoing, according to four sources familiar with investigations. In the April 2009 cable, officials in the State Department's Cyber Threat Analysis Division noted that several Chinese-registered Web sites were "involved in Byzantine Hades intrusion activity in 2006."

The sites were registered in the city of Chengdu, the capital of Sichuan Province in central China, according to the cable. 

A person named Chen Xingpeng set up the sites using the "precise" postal code in Chengdu used by the People's Liberation Army Chengdu Province First Technical Reconnaissance Bureau (TRB), an electronic espionage unit of the Chinese military. "Much of the intrusion activity traced to Chengdu is similar in tactics, techniques and procedures to (Byzantine Hades) activity attributed to other" electronic spying units of the People's Liberation Army, the cable says.

Reconnaissance bureaus are part of the People's Liberation Army's Third Department, which oversees China's electronic eavesdropping, according to an October 2009 report by the U.S.-China Economic and Security Commission, a panel created by Congress to monitor potential national security issues related to U.S- China relations. Staffed with linguists and technicians, the Third Department monitors communications systems in China and abroad. At least six Technical Reconnaissance Bureaus, including the Chengdu unit, "are likely focused on defense or exploitation of foreign networks," the commission report states.

The precise relationship with the Chinese Army of suspected hacker Chen Xingpeng could not be immediately determined. A spokesman for the Chinese embassy in Washington did not respond to multiple requests for comment. The U.S. State Department declined to comment.

But the leaked cables and other U.S. government reports underscore how Chinese and other state-sponsored and private hackers have overwhelmed U.S. government computer networks. In the last five years, cyber-intrusions reported to the U.S. Computer Emergency Response Team, a unit of the Department of Homeland Security, have increased more than 650 percent, from 5,503 incidents in fiscal 2006 to 41,776 four years later, according to a March 16 report by the Government Accountability Office.


The official figures don't account for intrusions into commercial computer networks, which are part of an expanding cyber-espionage campaign attributed to China, according to current and former U.S. national security officials and computer-security experts.

In the last two years, dozens of U.S. companies in the technology, oil and gas and financial sectors have disclosed that their computer systems have been infiltrated

In January 2010, Internet search giant Google announced it was the target of a sophisticated cyber-attack using malicious code dubbed "Aurora," which compromised the Gmail accounts of human rights activists and succeeded in accessing Google source code repositories.

The company, and subsequent public reports, blamed the attack on the Chinese government.

The Google attack "was certainly an escalation of Chinese network operations against the U.S.," said Joel Brenner, former counterintelligence chief for the Office of the Director of National Intelligence. "Thousands" of U.S. companies were targeted in the Aurora attacks, Brenner says -- far more than the estimated 34 companies publicly identified as targets so far -- a scale which Brenner says demonstrates China's "heavy-handed use of state espionage against economic targets."

Many firms whose business revolves around intellectual property -- tech firms, defense group companies, even Formula One teams -- complain that their systems are now under constant attack to extract proprietary information. Several have told Reuters they believe the attacks come from China.

Some security officials say firms doing business directly with Chinese state-linked companies -- or which enter fields in which they compete directly -- find themselves suffering a wall of hacking attempts almost immediately.

The full scope of commercial computer intrusions is unknown. 

A study released by computer-security firm McAfee and government consulting company SAIC on March 28 shows that more than half of some 1,000 companies in the United States, Britain and other countries decided not to investigate a computer-security breach because of the cost. One in 10 companies will only report a security breach when legally obliged to do so, according to the study.

"Simply put, corporations cannot afford negative publicity (about computer security breaches)," says Tom Kellermann, vice president of security awareness at Core Security Technologies and a contributor to the study.

Read on for a detailed breakdown of the phishing attacks used...


What is known is the extent to which Chinese hackers use "spear-phishing" as their preferred tactic to get inside otherwise forbidden networks. Compromised email accounts are the easiest way to launch spear-phish because the hackers can send the messages to entire contact lists.

The tactic is so prevalent, and so successful, that "we have given up on the idea we can keep our networks pristine," said Stewart Baker, a former senior cyber-security official at the U.S. Department of Homeland Security and National Security Agency. It's safer, government and private experts say, to assume the worst -- that any network is vulnerable.

Two former national security officials involved in cyber-investigations told Reuters that Chinese intelligence and military units, and affiliated private hacker groups, actively engage in "target development" for spear-phish attacks by combing the Internet for details about U.S. government and commercial employees' job descriptions, networks of associates, and even the way they sign their emails -- such as U.S. military personnel's use of "V/R," which stands for "Very Respectfully" or "Virtual Regards."

The spear-phish are "the dominant attack vector. They work. They're getting better. It's just hard to stop," says Gregory J. Rattray, a partner at cyber-security consulting firm Delta Risk and a former director for cyber-security on the National Security Council.

Spear-phish are used in most Byzantine Hades intrusions, according to a review of State Department cables by Reuters. But Byzantine Hades is itself categorized into at least three specific parts known as "Byzantine Anchor," "Byzantine Candor," and "Byzantine Foothold." A source close to the matter says the sub-codenames refer to intrusions which use common tactics and malicious code to extract data.

A State Department cable made public by WikiLeaks last December highlights the severity of the spear-phish problem. "Since 2002, (U.S. government) organizations have been targeted with social-engineering online attacks" which succeeded in "gaining access to hundreds of (U.S. government) and cleared defense contractor systems," the cable said. The emails were aimed at the U.S. Army, the Departments of Defense, State and Energy, other government entities and commercial companies.

Once inside the computer networks, the hackers install keystroke-logging software and "command-and-control" programs which allow them to direct the malicious code to seek out sensitive information. The cable says that at least some of the attacks in 2008 originated from a Shanghai-based hacker group linked to the People's Liberation Army's Third Department, which oversees intelligence-gathering from electronic communications.

Between April and October 2008, hackers successfully stole "50 megabytes of email messages and attached documents, as well as a complete list of usernames and passwords from an unspecified (U.S. government) agency," the cable says.

Investigators say Byzantine Hades intrusions are part of a particularly virulent form of cyber-espionage known as an "advanced persistent threat." The malicious code embedded in attachments to spear-phish emails is often "polymorphic" -- it changes form every time it runs -- and burrows deep into computer networks to avoid discovery. Hackers also conduct "quality-assurance" tests in advance of launching attacks to minimise the number of anti-virus programs which can detect it, experts say.

As a result, cyber-security analysts say advanced persistent threats are often only identified after they penetrate computer networks and begin to send stolen data to the computer responsible for managing the attack. "You have to look for the 'phone home,'" says Roger Nebel, managing director for cyber-security at Defense Group Inc., a consulting firm in Washington, DC.

It was evidence of malicious code phoning home to a control server -- a computer that supervises the actions of code inside other computers -- that provided confirmation to U.S. cyber-sleuths that Chinese hackers were behind Byzantine Hades attacks, according to the April 2009 State Department cable.
As a case study, the cable cites a 10-month investigation by a group of computer experts at the University of Toronto which focused in part on cyber-intrusions aimed at Tibetan groups, including the office of the exiled Dalai Lama in Dharamsala, India.

Referencing the Canadian research, the cable notes that infected computers in the Dalai Lama's office communicated with control servers previously used to attack Tibetan targets during the 2008 Olympics in Beijing. Two Web sites linked to the attack also communicated with the control server.


The same sites had also been involved in Byzantine Hades attacks on U.S. government computers in 2006, according to "sensitive reports" cited in the cable -- likely a euphemistic reference to secret intelligence reporting.

The computer-snooping code that the intrusion unleashed was known as the Gh0stNet Remote Access Tool (RAT). It "can capture keystrokes, take screen shots, install and change files, as well as record sound with a connected microphone and video with a connected webcam," according to the cable.
Gh0st RAT succeeded in invading at least one State Department computer. It "has been identified in incidents -- believed to be the work of (Byzantine Hades) actors -- affecting a locally employed staff member at the U.S. Embassy in Tokyo, Japan," according to the cable.

Evidence that data was being sucked out of a target network by malicious code also appears to have led cyber-security investigators to a specific hacker, affiliated with the Chinese government, who was conducting cyber-espionage in the United States. A March, 2009 cable identifies him as Yinan Peng. The cable says that Peng was believed to be the leader of a band of Chinese hackers who call themselves "Javaphile."
Peng did not respond to three emails seeking comment.

The details of alleged Chinese military-backed intrusions of U.S. government computers are discussed in a half dozen State Department cables recounting intense global concern about China's aggressive use of cyber-espionage.

In a private meeting of U.S., German, French, British and Dutch officials held at Ramstein Air Base in September 2008, German officials said such computer attacks targeted every corner of the German market, including "the military, the economy, science and technology, commercial interests, and research and development," and increase "before major negotiations involving German and Chinese interests," according to a cable from that year.

French officials said at the meeting that they "believed Chinese actors had gained access to the computers of several high-level French officials, activating microphones and Web cameras for the purpose of eavesdropping," the cable said.


The leaked State Department cables have surfaced as Reuters has learned that the U.S. is engaged in quiet, proxy-led talks with China over cyber issues.

Chronic computer breaches have become a major source of tension in U.S. relations with China, which intensified after the major Google hack was disclosed in January 2010, according to U.S. officials involved in the talks. Even before the Google hack, Chinese officials had recognised the problem as well.

In mid-2009, representatives of the China Institute for Contemporary International Relations, a nominally-independent research group affiliated with China's Ministry of State Security, contacted James A. Lewis, a former U.S. diplomat now with the Center for Strategic and International Studies.

Lewis said that in his first meeting with his Chinese counterparts, a representative of the China Institutes asked: "Why does the Western press always blame China (for cyber-attacks)?" Lewis claims to have replied: "Because it's true."
There was no response to request for comment on the talks from the Chinese embassy in Washington.

Preliminary meetings at CSIS have blossomed into three formal meetings in Washington and Beijing over the last 14 months. According to two participants, the talks continue to be marked by "a lot of suspicion." Attendees have focused on establishing a common understanding of cyber-related military, law enforcement and trade issues. Cyber-espionage isn't being discussed directly, according to one participant, because "the Chinese go rigid" when the subject is raised.
One reason: for China, digital espionage is wrapped into larger concerns about how to keep China's economy, the world's second largest, growing. "They've identified innovation as crucial to future economic growth -- but they're not sure they can do it," says Lewis. "The easiest way to innovate is to plagiarise" by stealing U.S. intellectual property, he adds.

There have been a few breakthroughs. U.S. and Chinese government officials from law enforcement, intelligence, military and diplomatic agencies have attended in the wings of each discussion. "The goal has been to get both sides on the same page," says Lewis. "We're building the groundwork for official discussions."

A former senior national security official who has also attended the talks says, "Our reports go straight to the top policymakers" in the Obama administration.

Chinese participants have sought to allay U.S. concerns about a Chinese cyber-attack on the U.S. financial system. With China owning more than $1.1 trillion in U.S. government debt, Lewis says China's representatives acknowledged destabilisation of U.S. markets would, in effect, be an attack on China's economy, itself.

Despite the talks, suspected Chinese cyber-espionage has hardly tapered off. Documents reviewed by Reuters show that CSIS itself recently was the target of a spear-phish containing malicious code with a suspected link to China.

On March 1, an email sent from an address on an unofficial U.S. Armed Forces family welfare network called AFGIMail was sent to Andrew Schwartz, chief spokesman for CSIS. Attached to the message was an Excel spreadsheet labeled "Titan Global Invitation List."

An analysis conducted for Reuters by a cyber-security expert who asked not to be identified shows the email may have been sent from a compromised AFGIMail email server. The Excel spreadsheet, if opened, installs malicious code which searches for documents on the victim's computer. The code then communicates to a Web-site hosting company in Orange County, California that has additional sites in China.

(Reporting by Brian Grow in Atlanta and Mark Hosenball in Washington; additional reporting by Peter Apps in London; editing by Jim Impoco and Claudia Parsons).

What's up with the little kids in Nazi shirts at the Knob Creek Gun Range Machine Gun Shoot? READ MORE

The Knob Creek Gun Range in West Point, Kentucky advertises its World Famous, twice-a-year Machine Gun Shoot as "Family Friendly" entertainment. The slogan: "Nothing brings families together like blowing stuff apart...safely."

I won't deny the red-blooded-American joy of firing automatic weapons at exploding targets. 
Still I Have To Ask: What's Up With The Little Kids In Nazi Shirts?
I was on site at the Knob Creek Machine Gun Shoot fewer than 20 minutes last Saturday before I passed a shaved-head lad with with a Totenkopf death head on his chest. (The Totenkopf was the symbol of the Nazi SS division that ran death camps like Auschwitz during the Holocaust.)
The shirt looked brand new. I took that to mean the kid or whoever gave it to him bought it from one of the dozen or so permitted vendors who openly sold white supremacist merchandise. This included a wide selection of t-shirts and flags bearing symbols popular with racist skinheads and neo-Nazis. (And no, I'm not counting Confederate battle flags.) Also for sale were the race war fantasy novelsHunter and The Turner Diaries by William Pierce, founder of the National Alliance, a notorious hate group. A Friends of the NRA fundraising booth was located within sight of a stall of swastika flags….David Holthouse / Media Matters for America

... into the "War on Terror" fold as part of his strategy to get out from under sanctions, - I am referring to Colonel Muammar Gaddafi, 42-year strongman of Libya - shares even more things in common with Bush, Cheney and Rumsfeld than we thought. ...
See all stories on this topic »

Their Country May Be Shattered, But Their Spirit Is Unbroken

David Mcneill Reveals How The Stoicism Of His Neighbours In Japan Has Moved Him To Tears

A couple of aftershocks intense enough to kill at least four people and send shoppers screaming into the Tokyo's streets, an alarming new warning about radiation, and a government update putting Japan's nuclear crisis at the same level as history's worst nuclear disaster. Even by the nerve-wracking standards of the last 32 days, it has been a bad start to the week in the world's most densely populated metropolis.

The one-month anniversary of the tragedy on 11 March was an opportunity to take stock of its awful toll so far: nearly 28,000 people dead or missing, 150,000 still homeless, towns and villages washed into the sea, 500 square kilometers of coastline destroyed, land and sea poisoned by caesium, iodine and plutonium. Yet when historians come to record what is likely to be seen as one of the century's greatest disasters, will they find time to note that baseball season started this week?

Somewhere during the season opener between the Rakuten Golden Eagles and the defending champions, the Chiba Lotte Marines, the stadium stands were rocked by yet another strong earthquake, seemingly right under its foundations in Chiba prefecture, next door to Tokyo. About 22,500 fans, some holding signs saying "Stay strong Japan" exchanged brief worried looks, then carried on cheering as the shaking subsided.

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It is the detail of lives carrying on amid the catastrophe of the past month that is missed in the foreign news reports – and what it says about the national character. Japanese people cry like the rest of us, mourn their dead at mass funerals, fret about the potentially deadly toxic brew seeping out of the Fukushima nuclear plant into their water and food, and jump at the latest aftershock. They flinch at the horrific news, seemingly from the pages of a science fiction novel, of police in radiation suits searching for hundreds of abandoned bodies inside the toxic 20km exclusion zone around the nuclear plant. Then they dust themselves off and carry on.

Life has undoubtedly been transformed in ways unimaginable on 10 March. Shops and restaurants in many parts of this once exuberant city are often dark and half-empty. Some of the world's largest corporations and research institutions are debating how to deal with a looming summer of power cuts. The national mantra of "jishuku", or self-restraint, has imposed a sort of unofficial curfew on overt displays of enjoyment. New aftershocks are greeted on the trains by the mass beep-beep of mobile phones loaded with new quake-warning software.

There are noticeably fewer Western faces - last month the government revealed that 100,000 foreigners fled in the week after the disaster began. "I've been in Japan for 19 years and feel a lot of loyalty so it's very hard for me to make the decision, but we're worried about the food chain, drinking water, fish, vegetables, even rain," says Tony Black, an American who has quit his job teaching English. "We had a baby three months ago and we're concerned about safety issues."

But life goes on for most others. I tried to illustrate this point with an anecdote from the middle of the crisis last month, when I parted with my pregnant partner who left for Osaka to escape the radiation fears. Exhausted and emotional after leaving her to the train, I decamped to a coffee shop in the station where the four perfectly turned-out waitresses serenaded my entry with a singsong "irrashaimase!" (welcome) and fussed over my order with typically attentive service. "Take your time," said a beaming young woman as she passed me my coffee. At which point I started crying.

I wrote something later that day, pondering this admirable and mysterious ability of many Japanese to function normally as the scenery collapses around them. How black-suited salary men stayed at their posts, housewives calmly queued for water and petrol, and waitresses still acted as though the most important thing in the world was my 280-yen order.

Some say that these people are just falling back on routine because they don't know any better. "Robots," said one of my friends disparagingly after I told him how a video store clerk kept calling me during the week to remind me to return an overdue DVD. But I don't agree. Those waitresses are human beings with families who worry about radiation, too. I like to think they stay focused because to not do so is to let down others, and that invites chaos.

I've traveled north three times to visit refugee centers in Tohoku and have often been moved by what I saw. In Rikuzen-Takata, the muddy deluge of 11 March has torn the town from its roots, leaving a gaping wound of smashed cars, pulverized wooden houses and twisted metal girders. Car navigation systems still direct visitors to the post office and the local government building, which are no longer there. But in the makeshift refugee centre, you could clearly see why this community will bounce back.

Local people in a school gym had organized themselves into temporary neighborhoods tagged with signs identifying the now destroyed blocks to which they belonged – an infinitely more resilient structure than the flimsy wooden houses washed into the sea. Food, water and baths were carefully and seamlessly rationed. Housewives, teachers and firemen stepped into leadership roles. Older children told younger children what to do during aftershocks. There were no fights about who got what.

Outside the town, a hot springs resort had been converted into another temporary shelter, housing old people and families. Every day, hundreds of people were bussed in for a bath, a vital psychological boost. Everyone got 30 minutes, roughly once a fortnight. Anyone who knows the importance of baths in this country will appreciate how much endurance it takes for people to restrict themselves to that meagre ration. Yet nobody, not even the people who ran the resort, broke the rule. "If I did that, it would get around and the system would break down," one worker told me.

Above all, what will stay with me after these communities are rebuilt, the Fukushima plant is encased in its concrete coffin and the iodine, caesium and plutonium has stopped seeping from its bowels, is the way Japanese people carried themselves during this crisis. I'm thinking now of the smiles I saw around Iwate, of the many old people and children in the prefecture who shoved food into my hands and told ME to keep going. I think these qualities are social, not genetic, built up over generations, and possibly stronger in the northeast where life has traditionally been harsher. But whatever the reason, it works. And I'm staying.

For the first time ever, the Hispanic population has outnumbered African-Americans in most metropolitan areas. Now in 191 metro areas out of 366 the Hispanics have become the largest minority group.

At the same time, in certain metropolitan areas, white Americans no longer constitute the majority, with  the number of cities where they are in the minority, rising from 32 in 2000 to 46 in 2010. These cities include such megalopolis areas as New York and San Diego.

During the same period, the African American population has grown only by 11 percent, to 37.7 million or one in eight Americans.

Another rapidly soaring ethnic group comprises Asians whose number has grown in all but five metropolitan areas.

Definitely, these gains by the Hispanics and the Asians are due mostly to increased immigration rather than greater birthrates. What they bear directly on is the future of the whole electoral system in the US.

It should be remembered that the number of seats a state has in the House of Representatives depends directly on that state’s share in the overall population. Accordingly, several states have lost one or two seats, while several others have gained them.

Moreover, this number determines the number of voters in the Electoral College who are directly vote for the President of the USA (the number of electors from each state is equal to the number of representatives plus two, where the latter figure reflects the number of senators).

Among the biggest losers according to the 2010 Census is the battleground state of Ohio, which cannot be decisively ruled as either Democrat or Republican (in the American electoral vocabulary, it is described as a “swing” state). The voting in this “upper-middle sized” state has always had a very important effect on the national elections, sometimes even determining the outcome. This time it has lost two seats in Congress and, respectively, two spots in the Electoral College which will be filled by other states.

Now that the presidential campaign of 2012 has already started, and the first African American president Barack Obama has declared his intention to run for a second term, the results of the census seem to be fraught with huge repercussions.

One of the battles started when the first census data was announced. The increase or the decline in the number of representatives, and so, voters in the Electoral College, implies a redistricting of the constituencies. Usually, the Republicans tend to align constituencies along  ethnic lines, so that white Americans dominate in most districts, leaving a few others to minorities where the  Democrat dominance is indisputable. Democrats, on the contrary, try to disperse minorities among several constituencies in order to increase their vote.

Now for example, in Ohio, where the Republicans control the legislature, the only seat in the House presently occupied by a black representative. May be lost similar battles are going on in the states of Missouri, Virginia and Louisiana.

The members of the congressional Black Caucus (which grew by two representatives last November and now comprises 43 members) have already acknowledged that their number might fall in November 2012.

As most political analysts hold, the electoral agenda will change not just in terms of redistricting the constituencies.
William H. Frey, a demographer at the Brookings Institution, who analyzed the census data said, “From now on, local, state, and national politicians will need to pay attention to Hispanics rather than treating blacks as the major minority.”

It  is probably too early to speculate on  how this data will influence the prospects for Barack Obama’s re-election. But the recent move by Arizona legislators in approving a state law that requires every presidential candidate to present a birth certificate or another document showing that he or she was born in the US in order to be included into the state’s ballot, shows that Obama’s foes are ready to fight him on every front (as they allege, he was born outside the US).

It definitely will have little direct impact on the outcome (Arizona in any case is a solid Republican state), but it shows that the road for reelection will not be smooth and covered with rose petals.

New Grand Jury Investigation On Torture, Or DoJ Smokescreen?


News certainly travels fast, sometimes. While it took the U.S. government two years to reply to a request by a Spanish judge regarding whether or not the U.S. has instigated any investigations or proceedings against six high-level Bush administration figures named in a complaint by the Association for the Dignity of Spanish Prisoners (see PDF), and it took another three weeks to get the response distributed to the parties involved, and yet another three weeks to have the news of this response released to the world at large, it took less than 24 hours to learn that the entire case was dismissed by the Spanish judge on Wednesday.

In effect, Judge Eloy Velasco sent the case back to the U.S. at the request of the Department of Justice, who argued in their March 1, 2011 letter to the judge that the U.S. is plenty interested in investigating and prosecuting torture and other war crimes. Besides the cases of CIA contractors David Passaro and Don Ayala (Marcy Wheeler discusses the Passaro case here), assorted Defense Department prosecutions of “bad apple” abusers, and the lingering Durham investigation, the U.S. representation cannot dredge up any significant criminal investigations — except one (if it is one).

The letter rogatory to the Spanish court refers to “pending federal investigations by the United States Attorneys’ Office for the Eastern District of Virginia” on “various allegations of abuse of detainees.” (p. 3-4 of letter) In addition the letter refers to “pending status and legal restrictions on the disclosure of investigative information, including rules of grand jury secrecy”. Since there has been no previous reports on current grand jury proceedings in the Eastern District on detainee abuse that I know of, is this a reference to the former cases since sent from the Eastern District by Attorney General Holder in 2009 for review by special prosecutor John Durham? Or is this something new? Have some of the cases under preliminary review by Mr. Durham now reached full investigation status?

DoJ Keeps Mum on Virginia “Pending” Investigation

In response to such questions, Dean Boyd, spokesman for the National Security Division at the Department of Justice replied to me today, “There is nothing further I can provide to you on this matter beyond what is in the document.”

Since the U.S. representation to the Spanish court was meant to convince the judge that the U.S. was serious about seeking investigations and prosecutions regarding torture, it is important to know whether a new stage in the otherwise dilatory investigations by the Obama administration, who famously has announced it would rather look forward and not backwards when it comes to investigating torture, has been hereby announced, or whether this was a con job by DoJ, describing the Eastern District grand jury as somehow still in play, when in reality, its actions on detainee abuse are non-existent, waiting for some determination of the review by Durham and his office.

Durham’s review has also been going on for over a year and a half now. But it was last June when, according to an article at Main Justice, Attorney General Holder said in remarks at the University of the District of Columbia Law School, that Durham was near the end of his preliminary review, and ”close to the end of the time that he needs and will be making some recommendations to me.” Did those recommendations include a referral back to the Eastern District for investigation and prosecution of those cases? According to the article, “several Justice officials cautioned that although Durham is nearing completion, it may take weeks or months to absorb his findings and decide what steps, if any, to pursue next.”

In a rebuttal letter to the U.S. response, the Center for Constitutional Rights (CCR), which has been championing the Spanish prosecution, appears to believe the entire episode as written up in the recent March 1 letter is a smokescreen for a whole lot of nothing. CCR wrote, “The U.S. Submission tries to hide behind the secrecy aspects of the grand jury proceedings to suggest that this investigation is a robust investigation into detainee abuse. It is notable, however, that the United States government has not spoken of any investigation in Virginia when discussing US investigations into US torture…” (PDF).

It must be galling to those looking to the Spanish court, and the hard workers at CCR especially, to see Judge Velasco so quickly take U.S. guarantees of sincerity as good coin. The U.S. had told the court, “The United States will continue to address allegations of abuse by its personnel, at home and abroad, and therefore believes it is appropriate for the Spanish courts to refer complaints related to such matters to the United States for appropriate review and action.”

CCR responded, noting the Obama administration policy of impunity for torture among mid-level and high-ranking government figures:

Through its actions and inactions, the U.S. clearly has demonstrated its unwillingness to exercise its jurisdiction to investigate and prosecute the named defendants for serious violations of international law. To refer this investigation from Spain to the United States would be to knowingly transfer this case to be closed.

Those following the torture scandal will find high irony in the U.S. claims that the DoJ Office of Public Responsiblity (OPR) and Senate Armed Services Committee (SASC) investigations, into DoJ Office of Legal Counsel malfeasance on the torture memos and on the origins and spread of the DoD torture program, respectively, are somehow indicative of U.S. good faith on investigations. The OPR report found government attorneys John Yoo and Jay Bybee to be guilty of “professional misconduct,” only to have DoJ Associate Deputy Attorney General David Margolis downgrade the OPR decision. The SASC investigation found the torture at Abu Ghraib, Guantanamo and elsewhere to be the responsibility not of “bad apples” in the military, but of high officials who promoted a program of torture and detention abuse.

It seems unlikely that the Durham investigation is actually going to bear any fruit, or that a grand jury investigation on detainee abuse is actually underway in Virginia. Sooner or later, we will know the truth. But whatever it is, the actions and policy of the Obama administration won’t fundamentally change, as high officials, such as those identified in the Spanish case — David Addington, Jay S. Bybee, Douglas Feith, Alberto R. Gonzales, William J. Haynes, and John Yoo — are not in any danger of prosecution. The U.S. has made that clear numerous times, and most lately in the response to the Spanish judge.

Update, Thursday morning, 7:25 PDT,: Center for Constitutional Rights released a statement today regarding Velasco’s dismissal of “this politically charged case,” noting that the U.S. made it clear in it’s statement that “the Department of Justice has concluded that it is not appropriate to bring criminal cases with respect to any other executive branch officials, including those named in the complaint, who acted in reliance on [Office of Legal Counsel] memoranda during the course of their involvement with the policies and procedures for detention and interrogation.”

“This decision is a cowardly political act by a judge afraid to pursue justice under his country’s own laws. He is hiding behind the fig leaf of the U.S.’s scant seven-page response, but the submission made clear the U.S. has no intention of investigating these crimes or holding higher-level officials accountable for torture. As we saw from the WikiLeaks cables, the U.S. has been pressuring Spain to drop the case and interfering with the independence of judges. A second U.S. torture case remains open in Spain after a higher court ruled it should continue on February 25. Judge Velasco asked for opposing views but then issued his decision without even looking at our detailed submission refuting the U.S. claims. We will fight this decision and continue to demand accountability for torture.”

Spain is pursuing a case against former top U.S. officials who authorized the use of torture, including David Addington, Jay Bybee, Douglas Feith, William Haynes, John Yoo, and Alberto Gonzales. U.S. activist groups have been encouragingSpain in this endeavor. 

The U.S. Department of Justice, Criminal Division, Office of International Affairs, has sent a 7-page letter to the Spanish court (PDF) in response to Judge Eloy Velasco Nunez's request for information. The letter does not provide any information but asks the Spanish court to submit all of its information to the United States "for further review and investigation, as appropriate." Remember, we are talking about the possible prosecution of people who openly confess to having written and signed documents that in many cases are now public, documents that clearly authorized torture (not to mention [and nobody is mentioning] aggressive war, lawless imprisonment, warrantless spying, etc), torture that is well documented as having occurred. This is not a case requiring any investigation, but rather simply a reversal in the DOJ's position on what is appropriate -- or in the White House's position, since the DOJ openly takes all its orders from the President. 

In the next paragraph, the DOJ's letter announces that there is no basis for a prosecution of any of the men named -- which sort of gives away the game of guessing which "investigations" might be deemed "appropriate." 

The letter then argues that bad apples (a couple of private contractors) have been prosecuted or investigated, that the CIA gets to keep its self-investigations secret, and that Congress, too, has concluded that all is well. Of course, this all misses the point. Prosecuting a couple of lowly torturers does not excuse the criminal actions of top officials authorizing torture. International law does not include a waiver for agencies that claim the right to secrecy. Congressional committees have reached very different conclusions from what the DOJ suggests. In fact, the DOJ's letter doesn't actually assert that the Senate Armed Services Committee reached any particular conclusions, just that it issued a report. The report is actually damning. The DOJ letter is signed by Mary Ellen Warlow, Director, and Kenneth Harris, Associate Director, Europe. 

The Center for Constitutional Rights has produced a 17-page response to the U.S. letter: (PDF), and submitted it to the Spanish Court. Some highlights:

"The U.S. Submission does nothing to alter the conclusion that the criminal case against the so-called “Bush Six” is properly before the Spanish court: it demonstrates that no competent jurisdiction is investigating or prosecuting the allegations in the complaint. The listed initiatives undertaken by the US government in various fora, while indicating some small measure of concern with the “mistreatment” or “abuse” of detainees and the legal advice provided in relation to the treatment of detainees, are ultimately unresponsive and inapplicable to the allegations raised in the complaint pending in Spain. 

There has been, and will be, no criminal investigation or prosecution into either the treatment of the named victims or the actions of the named defendants. There have not been and are not now any criminal investigations into the actions of senior Bush administration officials who participated in the creation or implementation of a detention and interrogation policy under which the plaintiffs and other individuals detained at Guantánamo, in Iraq, Afghanistan and in secret detention sites, were subjected to torture, cruel, inhuman and degrading treatment and other serious violations of international law."

"The US submission is misleading – and disingenuous – in its depiction of the significance of the OPR process: the U.S. Submission claims that there “exists no basis for criminal prosecution of John] Yoo or [Jay] Bybee” based on the revised findings of an Assistant Deputy Attorney General, David Margolis, who, after a review that lasted a matter of months and drew heavily on the responses to the July 2009 OPR report submitted by Bybee and Yoo, determined that neither man had committed professional misconduct. The findings of the OPR process – whether of misconduct or not – have no bearing on whether a basis exists for criminal prosecution. The OPR is a purely disciplinary process and is not in any way connected to criminal investigations or prosecutions. 

As discussed in more detail below, the US submission also acknowledges that the Department of Justice has made a policy decision not to prosecute anyone who relied on the torture memos – including, apparently, the authors of those memos. The U.S. Submission acknowledges and confirms that “the Department of Justice has concluded that it is not appropriate to bring criminal cases with respect to any other executive branch officials, including those named in the complaint, who acts in reliance on these [the Yoo and Bybee] and related OLC memoranda during the course of their involvement with the policies and procedures for detention and interrogation.” 12 Such a policy decision demonstrates that the U.S. is unwilling, not unable, to investigate these crimes for which there is a sufficient factual basis and indeed, an obligation to investigate under, inter alia, the Convention Against Torture. Spain must not, and cannot, defer to a policy decision not to prosecute, and must not transfer a case to the United States that it has been told unequivocally will not be prosecuted."..... 

"Margolis is absolutely clear that the result of his rejecting the OPR‟s finding of professional misconduct, and replacing it with a finding that Yoo and Bybee exercised “poor judgment” is only that their cases will not be referred by the DOJ to the state bar disciplinary authorities;33 there is no suggestion, let alone possibility, that the result of Margolis‟s analysis could be what the US submission suggests, namely that there is no basis for criminal prosecution. The U.S. Submission is simply incorrect in stating that Margolis concluded that no “legal norms” were violated by Yoo or Bybee; Margolis did not examine criminal law precedents for holding lawyers criminally liable. The issue of criminal prosecution was wholly outside the mandate of the Margolis review, just as it was outside the OPR investigation."
"The U.S. Submission cites the prosecution of two civilian contractors as evidence that the U.S. Department of Justice can and will address the myriad accounts of torture and other serious violations committed against hundreds, if not thousands of individuals, held in U.S. detention centers across the globe. The fact that the only prosecutions that the Department of Justice can point to are of non-government employees is revealing of the fact that the Department of Justice has, over the last nine years, decided to look the other way by not opening criminal investigations into the actions of US officials. Additionally, the investigation and prosecution of two civilian contractors for crimes committed in Afghanistan – both cases involving the death of a detainee – has essentially no bearing on whether the named defendants – 6 former high-level government employees, will be prosecuted for torture and other serious violations of international law.39 

The U.S. submission appears to be under the mistaken impression that all it must do to satisfy the Spanish court that it should defer jurisdiction over this case is to demonstrate that the legal system in the U.S. could – theoretically – allow for prosecutions of the defendants. No doubt the U.S. legal system provides the jurisdiction for the prosecution of these individuals, whether under inter alia the Torture Statute (18 USC § 2340A) or the War Crimes Statute (18 USC § 2441)."
"President Barack Obama has embraced a policy of impunity, when he says that we must “look forward, not back.” One recent example demonstrates the culture of impunity that exists in the United States: former president George W. Bush confessed in his memoirs that he authorized the waterboarding – an act of torture – of individuals held in U.S. secret detention sites.52 Bush made this admission because he felt immune from prosecution; the lack of response by the Department of Justice to this admission, despite having formally and publicly acknowledged on various occasions, including before the United Nations, that waterboarding is an act of torture as a matter of law, demonstrates that Bush – like the defendants in this case – is right to feel safe from prosecution in the United States. There have been no prosecutions of mid or high level officials in the nine years since the first allegations of torture and other serious abuses surfaced. 

The U.S. Department of Justice has actively blocked all forms of redress for victims of the U.S. torture program in the United States courts. To date, no victim of post-9/11 policies has been allowed to have his day in court. Indeed, to date, no victim has even received an apology from the Executive Branch. The Department of Justice has opposed every case brought by a former detainee or rendition-to-torture victim that has been brought against a former U.S. official in U.S. courts. In so doing, the U.S. has sought to ensure that there will be no accountability for torture.53 The immunity that the Obama Administration seeks for U.S. officials – as the Bush Administration did before it – creates a culture of impunity that leaves open the possibility that such egregious conduct occur again."

The Y Article: The Pentagon's Secret Plan to Slash its Own Budget.

by John Norris

WASHINGTON - On Friday, April 8, as members of the U.S. Congress engaged in a last-minute game of chicken over the federal budget, the Pentagon quietly issued a report that received little initial attention: "A National Strategic Narrative." The report was issued under the pseudonym of "Mr. Y," a takeoff on George Kennan's 1946 "Long Telegram" from Moscow (published under the name "X" the following year in Foreign Affairs) that helped set containment as the cornerstone of U.S. strategy for dealing with the Soviet Union.

The piece was written by two senior members of the Joint Chiefs of Staff in a "personal" capacity, but it is clear that it would not have seen the light of day without a measure of official approval. Its findings are revelatory, and they deserve to be read and appreciated not only by every lawmaker in Congress, but by every American citizen.

US Secretary of Defense Robert Gates in this file photo. Article Y is most striking not because of what it says, but who says it. The report was "penned by senior military thinkers, not the Sierra Club. The simple fact is that any clear-eyed analysis pretty quickly comes to the same conclusion: The United States has established an incentive system that just doesn't make any sense."The narrative argues that the United States is fundamentally getting it wrong when it comes to setting its priorities, particularly with regard to the budget and how Americans as a nation use their resources more broadly. The report says Americans are overreacting to Islamic extremism, underinvesting in their youth, and failing to embrace the sense of competition and opportunity that made America a world power. The United States has been increasingly consumed by seeing the world through the lens of threat, while failing to understand that influence, competitiveness, and innovation are the key to advancing American interests in the modern world.

Courageously, the authors make the case that America continues to rely far too heavily on its military as the primary tool for how it engages the world. Instead of simply pumping more and more dollars into defense, the narrative argues:

By investing energy, talent, and dollars now in the education and training of young Americans -- the scientists, statesmen, industrialists, farmers, inventors, educators, clergy, artists, service members, and parents, of tomorrow -- we are truly investing in our ability to successfully compete in, and influence, the strategic environment of the future. Our first investment priority, then, is intellectual capital and a sustainable infrastructure of education, health and social services to provide for the continuing development and growth of America's youth.

Yet, it is investments in America's long-term human resources that have come under the fiercest attack in the current budget environment. As the United States tries to compete with China, India, and the European Union, does it make sense to have almost doubled the Pentagon budget in the last decade while slashing education budgets across the country?

The report places considerable emphasis on the importance of achieving a more sustainable approach to security, energy, agriculture, and the environment. Again, it is important to stress that this narrative was penned by senior military thinkers, not the Sierra Club. The simple fact is that any clear-eyed analysis pretty quickly comes to the same conclusion: The United States has established an incentive system that just doesn't make any sense. It continues to pour tens of billions of dollars into agricultural and oil subsidies every single year even as these subsidies make the gravity of the environmental, health, and land-use problems the country faces in the future ever graver. As the report argues, America cannot truly practice the use of "smart power" until it practices "smart growth" at home. While some may be quick to argue that the Pentagon should not be considering issues like smart growth and investments in America's youth, this goes to another key point from the authors: America won't get its approach to policy right if it leaves foreign policy and domestic policy in tidy little silos that ignore the interconnection between the two.

The paper argues persuasively that the tendency of Americans to broadly label the rest of the world has been hugely counterproductive. The authors point out that the tendency over the last decade by some Americans to view all Muslims as terrorists has made it more difficult to marginalize genuine extremism, while alienating vast swaths of the global Muslim community.In a world where credibility is so central to America's national interest and reach around the globe, the overheated domestic debate about the war on terror has never served it very well.

Lastly, the narrative makes a clarion call for America to look forward, not back, in today's interconnected world:

And yet with globalization, we seem to have developed a strange apprehension about the efficacy of our ability to apply the innovation and hard work necessary to successfully compete in a complex security and economic environment. Further, we have misunderstood interdependence as a weakness rather than recognizing it as a strength. The key to sustaining our competitive edge, at home or on the world stage, is credibility -- and credibility is a difficult capital to foster. It cannot be won through intimidation and threat, it cannot be sustained through protectionism or exclusion. Credibility requires engagement, strength, and reliability -- imaginatively applied through the national tools of development, diplomacy, and defense.

The budget deal over the weekend lopped $8 billion off of funding for the State Department and the U.S. Agency for International Development. Defense spending was left untouched. Congress doesn't seem to have gotten the wake-up call.

If You Want To End Injustice In The US, Put The Pentagon Out Of Business

It’s a seemingly impossible task and, even if it is seriously attempted, it is a task that will require the commitment of many more than are currently engaged. Those who join in the endeavor will find themselves up against some of the most powerful and ruthless human, governmental and corporate entities in the history of the planet. It is a task that cannot be accomplished by merely going after the primary target. Indeed, the task can only be completed once those involved understand the complicity of the entire nation. This includes our own individual complicity.

The Pentagon pretends that civilians control it. This is malarkey. The Pentagon controls the civilian government. Solely by the amount of money it commands, the Pentagon controls Congress. Its tentacles reach into almost every sector of the economy. From napkins used by GIs in the deserts of Iraq to cruise missiles exploding in the Libyan sky; from the manufacturers of predator drone parts to the Climate Initiative Lockheed and city officials are trying to impose on the people of the city of Burlington, Vermont, the industry of war is what drives the US economy. There is a reason why Washington spends more on “defense” (read “war” and its associated evils) than the rest of the world’s capitals combined. 

That reason, to put it succinctly, is that the US economy exists to make war.1

Even when there is no war, the combined efforts of the Pentagon advertising machine and the politicians earning their war lobby dollars has enough of the US public convinced that tax dollars should be spent preparing for the next war. This perception plays not only on the fear of a belligerent Other, but also on the everyday citizen’s understanding of how politics works. Those among the populace who oppose war and its accompanying economy are left without an effective voice precisely because politicians understand that the way to reelection goes through the Pentagon.

Recently, a couple protests against the wars in Central Asia and North Africa were held in the United States. The attendance at both was sparse. Much of this can be attributed to the fact that George Bush is no longer running the wars. Instead, it is the Democrat’s turn to lead the charge up the latest version of San Juan Hill. Or, to put it differently, this time Barack Obama and his party are heading towards the shores of Tripoli. Given the misconception during the Bush years that Barack Obama and the Democratic Party were against the war in Iraq, the fact that the US continues to fight there and in a few other nations (most obviously Afghanistan and Libya) means that many liberals who were against the wars when Bush ran them are now, at best, neutral about them. Another less acknowledged reason for the lack of participation in the antiwar protests can be summed up with the words disgust and despair. Disgust that the supposed antiwar candidate is as much of a warmonger (and a liar about it to boot) and despair that there is truly nothing that anybody can do about it. It is this latter fact which needs to be addressed, yet isn’t.

If we are to be honest with ourselves, the United States is further down the road to permanent war and domestic fascism than it has ever been. The fact that war on three fronts is being openly waged while countless other fronts experience covert operations is an established fact. Also established is that torture and other violations of the Geneva conventions occur regularly under US command. 

Furthermore, the legal ability to hold people without charges until they die is now standard operating procedure in some cases. Meanwhile, the looting of the national treasury by the Pentagon, its associated industries and the banks that finance it all continues with no real obstruction. Most recently, this has appeared under the guise of deficit reduction. Sideshows around issues like the defunding of public television and radio are created by raging liberals while the wars these broadcasters shill for rack up bills in the tens of millions every day. Liberal bloggers and television personalities attack morons like Glenn Beck while they urge those participating in the biggest labor uprising in decades to take their anger back to Anytown, Wisconsin and get people to vote Democratic. Unfortunately, too many people will do exactly that and be surprised when the Democrats they elected strip them of the next group of rights in the monopoly capitalists’ rifle sight.

If there is a genuinely radical left in this nation, it is time for its members to exit those conferences in New York City, San Francisco, Chicago and assorted universities always being held and start organizing. No matter what the mainstream media and the social media moguls want you to believe, protests like those that occurred in Egypt and Tunisia do not occur in a vacuum. They were the result of years of organizing at a very grassroots level. The people and organizations involved suffered many defeats before they achieved the level of victory they are currently trying to maintain. Change does not come easily. It does not begin with compromise, but with clear, basic and implementable demands. In the case of the United States, the demand that the Pentagon no longer control the economy, the politicians and the life of the nation’s residents can not be any more clear or basic. The challenge now is to figure out how to implement it.

Walker And Prosser Crushed Regulations On Koch Industry’s Phosphorus Pollution In Wisconsin

Shortly after helping to elect Gov. Scott Walker (R-WI), Koch Industries opened a new lobbying office in Madison near the state capitol. However, little has been disclosed about the Koch lobbying agenda in Madison. The New York Times reported that Koch political operativesprivately pressured Walker to crush public employee unions. But Walker’s major payback to Koch relates to environmental deregulation.
ThinkProgress has learned that the Walker administration, along with state Supreme Court judge David Prosser, has quietly worked to allow Koch’s many Georgia Pacific paper plants to pollute Wisconsin by pouring thousands of pounds of phosphorus into the water.

Koch’s Georgia Pacific plants are well known for releasing large amounts of phosphorus into Wisconsin’s waterways. A report by the state government showed that Georgia Pacific is responsible for about 9% of total phosphorus pollution in the Lower Fox River near Green Bay.

In 2005, the Wisconsin Department of Natural Resources’ (DNR) issued a permit to Koch’s Georgia Pacific company to nearly double its phosphorus pollution in the Fox River. A group of Wisconsin citizens challenged the permit the following year, claiming the DNR’s permit violated the Clean Water Act. In 2010, the Wisconsin Third District Court of Appeals ruled that the public has a right to challenge the permit, and that the DNR did not appropriately hold public hearings. Around the same time, the Wisconsin Natural Resources Board adopted “sweeping regulations” to control phosphorus pollution to slow down “runaway algae growth.”
To fight the challenge to the permit, as well as new regulations on phosphorus, Koch’s close allies in the Walker administration and the Wisconsin Supreme Court went into action:

 Rewriting Environmental Regulations For Koch:

Last year, the Wisconsin Natural Resources Board called for Strict numeric limits on phosphorus pollution. 

The regulations, which were supposed to be implemented in January, were delayed by Walker’s administration. Hidden inside his infamous budget bill passed in March, Walker then inserted a provision to revise and reduce the phosphorus limits proposed by the Natural Resources Board. Walker’s budget bill was rushed through the legislative process without public hearings.

 Ruling In Favor Of Koch And Other Polluters: In March, the Wisconsin Supreme Court, with Justice David Prosser voting with the majority,overturned the lower court decision allowing a public challenge to the permit giving Koch’s Georgia Pacific plants more leeway in dumping phosphorus into waterways.

 Delaying Environmental Regulations For Koch: Earlier this month, the Walker administration announced a two year delay of all phosphorus regulations passed last year. Not only has Walker’s administration called for reduced phosphorus dumping rules, they now have made it clear that no rules will be implemented until 2013.

During this three month period of Koch-enriching policy and legal action, the Koch political largesse has flowed to both Walker and Prosser. The Koch political machine spent hundreds of thousands of dollars in ads supporting Walker during the budget showdown, organized pro-Walker Tea Party rallies, and mobilized a pro-Walker bus tour. During his recent reelection campaign, Prosser too was boosted by two Koch-linked groups, Citizens for a Strong America and Wisconsin Manufacturers & Commerce, which ran about $1 million in advertising. A top Georgia Pacific executive overseeing plants responsible for dumping phosphorus in the Fox River sits on the board of the pro-Posser group, Wisconsin Manufacturers & CommeTCE.

"Let's Hang Some Bankers"

Max Keiser On "Ten O'clock Live" - Channel 4 - UK

Why Aren't The Honest Bankers Demanding Prosecutions Of Their Dishonest Rivals?

This is the second column in a series responding to Stephen Moore's central assaults on regulation and the prosecution of the elite white-collar criminals who cause our recurrent, intensifying financial crises. Last week's column addressed his claim in a recent Wall Street Journal column that all government employees, including the regulatory cops on the beat, are “takers” destroying America.

This column addresses Moore's even more vehement criticism of efforts to prosecute elite white-collar criminals in an earlier column decrying the Sarbanes-Oxley Act's criminal provisions: “White-Collar Witch Hunt: Why do Republicans so easily accept Neobolshevism as a cost of doing business?” [American Spectator September 2005] This column illustrates one of the reasons why elite criminals are able to loot “their” banks with impunity – they have a lobby of exceptionally influential shills. Moore, for example, is the Wall Street Journal's senior economics writer. Somehow, prominent conservatives have become “bleeding hearts” for the most wealthy, powerful, arrogant, and destructive white-collar criminals in the world. Criminology research has demonstrated the importance of “neutralization.”

Criminals don't like to think of themselves as criminals and their actions as criminal. They have to override their societal inhibitions on criminality to commit their crimes. When prominent individuals like Moore call their actions lawful and demonize the regulatory cops on the beat and the prosecutors it becomes more likely that CEOs will successfully neutralize their inhibitions and commit fraud. People like Moore have never studied white-collar crime, have no knowledge of white-collar criminology, do not understand control fraud, and do not understand sophisticated financial fraud mechanisms.

They show no awareness of the economics literature on accounting control fraud, particularly George Akerlof & Paul Romer's famous 1993 article – “Looting: the Economic Underworld of Bankruptcy for Profit.” People like Moore not only spur neutralization, they actively campaign to minimize the destructiveness of elite white-collar crime and to deny the regulators and the prosecutors the resources to prosecute the criminals.

My favorite in this genre was authored by Professor John S. Baker, Jr. and published by Heritage on October 4, 2004.

Baker concludes his article with this passage:

The origin of the "white-collar crime" concept derives from a socialist, anti-business viewpoint that defines the term by the class of those it stigmatizes. In coining the phrase, Sutherland initiated a political movement within the legal system. This meddling in the law perverts the justice system into a mere tool for achieving narrow political ends. As the movement expands today, those who champion it would be wise to recall its origins. For those origins reflect contemporary misuses made of criminal law--the criminalization of productive social and economic conduct, not because of its wrongful nature but, ultimately, because of fidelity to a long-discredited class-based view of society.

We “stigmatize” criminals precisely to increase the difficulty potential criminals face in neutralizing restraints against engaging in crime.

Stigmatization is an important restraint reducing crime. Indeed, it is likely that stigmatization can be most effective in reducing crime in the context of elite white-collar criminals because such individuals have more valuable reputations that can be harmed by stigma. A violent street criminal may find a reputation for violence useful.

Sutherland's research demonstrated that elite white-collar criminals were often able to violate the law with impunity. The corporation they controlled might pay a fine, but the CEO was typically not sanctioned when the corporation violated the law – even when the violations were repeated and egregious. Class proved, empirically, to be a powerful predictor of criminal prosecutions, convictions, and sentencing.

Sutherland correctly sought to stigmatize elite white-collar criminals and to get policy-makers, academics, and the criminal justice system to view their crimes as important. Sutherland's partial success in doing so is what enrages people like Moore and Baker. By the way, in order to publish his famous book on white-collar crime, Professor Sutherland was forced to delete his tables setting forth the violations of law by many of America's top corporations – even though it was all public record information.

The censorship had the ironic effect of demonstrating the accuracy of Sutherland's observation that class mattered when it came to how we framed and responded to fraud by elite criminals. What aspect of holding fraudulent CEOs criminally responsible for their crimes is “socialist”, “anti-business”, or “neo-Bolshevism”? Baker claims that “class” has long been discredited as an important variable.

Baker is not a social scientist and he is flat out wrong about class. There are literally thousands of empirical studies demonstrating the explanatory power of class in a host of settings. Baker is also flat out wrong empirically in claiming that white-collar prosecutions target “productive social and economic conduct.” White-collar prosecutions of elites are overwhelmingly based on fraud.

Fraud is one of the most destructive of all social and economic conduct. Consider six forms of economic injury caused by accounting control fraud.

Eroding Trust

The essence of fraud is convincing the victim to trust the perpetrator – and then betraying that trust. The result is that fraud, particularly by elites, is the most destructive acid for eroding trust. Research in economics, political science, psychology, and sociology concurs on the enormous value that trust provides in each of these settings. We have all attended conferences that provided the participants with bottled water. If we knew that one bottle in a hundred were contaminated how many of us would drink our bottle? This dynamic explains why hundreds of markets collapsed during the events leading to the Great Recession – bankers no longer trusted other bankers' representations as to asset quality. Accounting control fraud can cause systemic risk by eroding trust.


When bubbles hyper-inflate they can cause catastrophic economic damage and systemic risk. Accounting control fraud can hyper-inflate bubbles. The first two ingredients in the recipe for lenders engaged in accounting control fraud (extreme growth though lending to uncreditworthy borrowers) have the effect of right-shifting the demand curve.

Because particular assets are superior devices for accounting fraud and because accounting frauds will tend to cluster in industries in which entry is easier and regulation and supervision are weak, accounting frauds tend to cluster in particular industries and regions. Accounting control frauds drove the Southwest bubble in commercial real estate during the S&L debacle and the U.S. residential real estate bubble in the current crisis. Hyper-inflated bubbles cause catastrophic losses to lenders and (late) owners, trigger severe recessions, and misallocate credit and assets (causing real economic losses).

Misallocation of credit and human talent

Even when accounting control fraud does not lead to a hyper-inflated bubble, it misallocates credit and human and non-human capital. Accounting control fraud substantially inflates individual asset values. Individuals with strong science and mathematics skills – critical shortages in our real economy – are wasted in making models designed to inflate asset values by fraudulently ignoring or minimizing risk. Accounting control fraud commonly produces reverse Pareto optimality – the borrower and the lender on a liar's loan made in 2006 and 2007 typically suffered losses while the unfaithful agents become wealthy by betraying their principals and customers. (It is important to recall that it was the lenders and their agents who normally prompted by false statements in liar's loans.) Fraud makes markets profoundly inefficient.

Gresham's dynamics

“Private market discipline” becomes perverse under accounting control fraud. Capital is allocated in abundance, at progressively lower spreads (despite massively increased risk), to fraudulent firms and professionals. In this form of Gresham's dynamic, bad ethics drives good ethics out of the marketplace. Note that once, for example, a significant number of appraisers are suborned by the fraudulent lenders to inflate appraised value it is more likely that such appraisers will go on to commit other frauds during their career. If cheaters prosper, then honest businesses are placed at a crippling competitive disadvantage. Effective regulation and prosecution is essential to make it possible for honest firms to compete.

“Echo” fraud epidemics

Fraud begets fraud. Or to put it in criminology terminology – accounting control fraud is criminogenic. Fraudulent lenders created perverse incentives that produced endemic fraud (often by generating Gresham's dynamics) in other fields. Fraudulent lenders making liar's loans, for example, created overwhelming financial incentives they knew would lead their loan officers and loan brokers to engage in pervasive fraud. Indeed, fraudulent lenders embraced liar's loans because they facilitated endemic fraud by eviscerating underwriting.

Accounting control fraud also leads to the spontaneous generation of criminal profit opportunities, causing opportunistic fraud. Liar's loans, for example, generated a host of fraudulent entrepreneurs offering illicit opportunities to use someone else's credit score to secure a loan. (Austrian school economists should recognize this dynamic.)

Undesired frauds arising from control fraud

Lenders engaged in accounting control fraud must suborn or render ineffective their underwriting and internal and external controls. They also select, praise, enrich, and promote the most unethical officers. The real “tone at the top” of a control fraud is pro-fraud – often overlaid with a cynical propaganda campaign extolling the Dear Leader' astonishing virtues. The result is that the firm environment is criminogenic. Some officers may loot the firm through private schemes, e.g., embezzlement at Charles Keating's Lincoln Savings and self-dealing at Enron.

White-collar crime prosecutions are overwhelmingly taken against frauds. There is nothing economically productive about fraud. When Heritage and the Wall Street Journal feature odes to elite frauds they are fertilizing the seeds of the destruction of capitalism and its replacement by crony capitalism.

Moore's article has the same tone and themes as Baker's complaints against prosecuting elite white-collar criminals.

“[T]he anti-capitalist left … [is] using the criminal law for the endgame purpose of striking down the productive class in American that they so envy and despise….”
Moore decries the passage of “Sarbanes-Oxley and other such laws criminalizing economic behavior….” He claims that prosecuting CEOs leading control frauds will harm shareholders – which he plainly sees as prohibiting criminal liability for corporate officers. Moore's complaints about SOX are confusing because Sarbanes-Oxley does not criminalize honest “economic behavior.”

 “Economic behavior” is not privileged.

It can be honest or dishonest.

 Only honest economic behavior is potentially productive. Even honest economic behavior may prove unproductive or cause severe negative externalities.

Dishonest economic behavior can benefit shareholders. A firm that gains a competitive advantage over its market rivals through fraud will be more profitable and should have a higher share price.

 That increased profit and share price is bad for the world.

 It creates a Gresham's dynamic and misallocates capital.

It may also maim and kill if the competitive advantage arises from selling harmful products to consumers or firms.

Moore eventually explains that what disturbs him most about white-collar prosecutions is that the CEO of a publicly traded company can be prosecuted for accounting fraud.

SEC rules require that registrants comply with GAAP, so material accounting fraud constitutes securities fraud (a felony). Criminologists have long pointed out that accounting is the “weapon of choice” for financial firms.

Moore objects to prosecuting the most destructive property crimes committed by elite white-collar criminals.

Accounting control fraud drove the second phase of the S&L debacle. The first phase was interest rate risk and ultimately led to roughly $25 billion in losses. The Enron-era frauds prosecuted by the federal government were accounting control frauds.

 The current crisis was driven by the accounting control frauds – the largest nonprime lenders, Fannie, and Freddie. The officers that were prosecuted during the S&L debacle and the Enron-era frauds were not members of the “productive class.” No one destroyed more wealth, for purposes of personal greed, than these fraudulent elites.

Their crimes and the harm they caused, however, pale in comparison to the accounting control frauds that drove the current crisis. That makes it all the more astonishing that not a single fraudulent senior officer at the major nonprime lenders, Fannie, or Freddie has been convicted. The shills for elite white-collar criminals have swept the field. The administration they constantly deride as socialist has continued the Bush administration's policy of de facto decriminalization of accounting control fraud.

Moore and Baker have, once more, proven Sutherland correct – we treat elite white-collar criminals in a way that bears no relationship to street criminals. We now bail them out after they loot and cause “their” banks to fail and change the accounting rules at their demand to hide their losses. We even invite them repeatedly to the White House to advise us on what policies we should follow.

The anti-regulators got their wish – they took the regulatory cops off the beat.

The banking regulatory agencies ceased making criminal referrals, the SEC ceased bringing even their wimpy consent actions against the massive accounting control frauds, and the Justice Department ceased prosecuting the accounting control frauds during the run up to the crisis.

The results were multiple echo epidemics of fraud, a hyper-inflated bubble, and the Great Recession. If Baker and Moore think these fraudulent CEOs constitute the “productive class” – then capitalism was killed by the producers.

The financial frauds, however, were not productive. They were weapons of mass financial destruction. Their fraudulent CEOs were motivated by the most banal of motivations that every major religion warns against – unlimited greed, ego, and a radical lack of empathy for their victims. The most pathetic figures in the crisis, however, are not the CEOs but their shills. Why aren't the honest bankers leading the charge to prosecute their fraudulent rivals?

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