Flipping markets to virtue with qui tam and restorative justice

Description
Contemporary economies are characterised by a regulatory capitalism in which both markets
and regulation extend their sway. Freer markets with more rules nurture markets in
vice that game regulation. Tax avoidance and evasion are used to illustrate these dynamics.
Yet freer markets with more rules also engender markets in compliance services that can
be virtuous and more dominant (more demanded) than markets in vice. As a result of that
dominance, firms and individuals often comply at levels that seem economically irrational
virtue. To hold corporations to compliance through markets in virtue requires regulation
with toughened enforcement capabilities for drawing out insider information about looming
problems. Qui tam is suggested as one option. This option can be complemented with a
more deliberative approach, restorative justice. One reason to consider this package of
hybrid private–public enforcement that knows no jurisdictional boundaries is that when
fraud is globalised, firms organise their affairs so that fraud is off-shore from all state regulators
with an interest in exercising jurisdiction against it.

Flipping markets to virtue with qui tam and restorative justice
John Braithwaite
RegNet, Fellows Rd., Australian National University, Canberra 0200, Australia
a b s t r a c t
Contemporary economies are characterised by a regulatory capitalism in which both mar-
kets and regulation extend their sway. Freer markets with more rules nurture markets in
vice that game regulation. Tax avoidance and evasion are used to illustrate these dynamics.
Yet freer markets with more rules also engender markets in compliance services that can
be virtuous and more dominant (more demanded) than markets in vice. As a result of that
dominance, ?rms and individuals often comply at levels that seem economically irrational
virtue. To hold corporations to compliance through markets in virtue requires regulation
with toughened enforcement capabilities for drawing out insider information about loom-
ing problems. Qui tam is suggested as one option. This option can be complemented with a
more deliberative approach, restorative justice. One reason to consider this package of
hybrid private–public enforcement that knows no jurisdictional boundaries is that when
fraud is globalised, ?rms organise their affairs so that fraud is off-shore from all state reg-
ulators with an interest in exercising jurisdiction against it.
Ó 2012 Published by Elsevier Ltd.
Introduction
In this paper, I seek to draw some lessons from the
mixed empirical experience of success and failure of tax
administrations in ?ipping markets in vice to markets in
virtue. I construe them as lessons of more general rele-
vance to a contemporary capitalism in which:
(a) Many different kinds of markets in vice cyclically
rise and fall (in insider trading, monopolisation,
fraud against the government, securities fraud, envi-
ronmental crime, bribery).
(b) There is a demand-side and a supply-side to under-
standing those undulations.
(c) The market in vice works by siphoning a share of the
bene?ts of cheating on the upswing, setting up cli-
ents to shoulder the costs of the downswing.
The plan of this essay is ?rst to use tax compliance to
consider the heightened tug of war between markets in
virtue and markets in vice under conditions of regulatory
capitalism. When markets enhance the ef?cient produc-
tion of outcomes which are good according to some ethical
theory, these are de?ned as markets in virtue. When mar-
kets enhance the ef?cient production of outcomes which
are bad according to that ethical theory, these are de?ned
as markets in vice. Then the paper considers qui tam, an
approach that harnesses whistle blowers by paying them
a percentage of penalties imposed, as one promising tool
for pushing the worst players of markets in vice to become
the best players of markets in virtue. We consider how
restorative justice might ?ip economies away from catas-
trophe and ?nally how qui tam might enable rather than
disable restorative justice. The potential for qui tam to cre-
ate a space for restorative justice illustrates the idea that a
whole web of in?uences is required to enable tax adminis-
trators, like other business regulators, to ?ip markets in
vice to markets in virtue.
As discussed in Michael Power’s contribution to this
special issue, under conditions of regulatory capitalism
the ‘legalisation of management’ and the ‘managerializa-
tion of law’ need not be seen as contradictory trends. In-
stead they can be seen as mutually constituting in a
world where markets penetrate the state under the man-
dates of the New Public Management (Klijn, 2012) and
0361-3682/$ - see front matter Ó 2012 Published by Elsevier Ltd.http://dx.doi.org/10.1016/j.aos.2012.07.002
E-mail address: [email protected]
Accounting, Organizations and Society 38 (2013) 458–468
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state meta-regulation, regulated self-regulation, infuses
markets (Parker, 2004). This essay provides an example
of how both phenomena can occur simultaneously. Qui
tam involves a partial privatisation of markets for public
enforcement; restorative justice stimulates conversations
to catalyse the managerial imagination of the ?rm to craft
preventive and reparative management remedies in the
shadow of law enforcement.
Regulating tax avoidance and corporate crime with
markets in virtue
Tax cheating is often economically rational behaviour.
For most of the common forms of tax non-compliance,
odds of detection are way below 50%, while the expected
punishment following detection is less than double the
tax avoided. Yet the evidence from most developed econo-
mies is that most taxpayers comply with most tax laws
most of the time (Braithwaite, 2003a). Why are they so
irrational? One reason is that professional tax advice is
more a market in virtue than a market in vice.
In Markets in Vice, Markets in Virtue, Braithwaite (2005)
argued that the market in virtue is mainly demand-driven
in Australia. Sakurai and Braithwaite’s (2003) data show
that individual Australian taxpayers overwhelmingly pre-
fer an ‘honest, low fuss’ tax adviser over a gameplayer
who aggressively pursues loopholes. That is the kind of
tax adviser they mostly want and that is what they mostly
get. This demand for an ‘honest, low fuss’ adviser consti-
tutes a market for tax advice that is to this extent a market
in virtue.
When someone cautions a taxpayer, it is rarely a tax
of?cial. Usually it is a tax adviser who the taxpayer em-
ployed to do so. This is to say, when our adviser frowns,
most of us respond with ‘oh dear, then we’d better not
do that’. This reality that demand in the tax advice market
is predominantly for tax compliance virtue is a great re-
source for tax authorities. If the authority is concerned that
tax morality is becoming loose, for example on employee
work expenses, a good way to tighten it can be to get the
message out to tax advisors that the authority has this con-
cern and is therefore planning to target the issue. Then tax
advisers will do a lot of tapping people on the shoulder to
check the legitimacy of their work expenses. A tap on the
shoulder is all most taxpayers need to improve their com-
pliance. Those who do not retain a tax advisor might still
be cautioned by family members or workmates who do.
When a tax authority announces an intent to attack a par-
ticular corporate tax shelter after it becomes widely
abused, even if tax advisers who put clients into that shel-
ter choose not to upset their client with this bad news,
other advisers will read about the announcement, and
can do the work of putting senior management on notice
that they have a problem. In other words, the market in
virtue is mostly robust enough to ?ll the gaps that the mar-
ket in vice can create.
While our empirical research at the Centre for Tax Sys-
tem Integrity concluded that the market in virtue is the
dominant advice market in Australia, there is also a vibrant
market in vice (Braithwaite, 2003b, 2005). It has a cyclical
quality. It can expand very quickly. The art of tax adminis-
tration is keeping the lid on these cycles. Empirically, we
found that markets in vice are predominantly supply dri-
ven, then herd driven. Let me explain what that means.
The market niche for truly aggressive tax advice is a pre-
carious one. In normal times, an adviser who puts an
aggressive new shelter into the market comes up against
the wall of conservatism generated by the market in virtue.
Yet enticing just a few clients to use the shelter can get the
aggressive advisor on a roll quickly if they have promo-
tional ?air. This is the sense in which the market is supply
driven at ?rst. Chances are those few clients will get away
with it if the shelter is half-credible and supported by let-
ters of comfort from respected tax lawyers. When addi-
tional clients see the combined reality of the letters of
comfort and that previous clients have made a killing with-
out the tax authority laying a hand on them, momentum in
shelter sign-ups grows. It has become more demand-dri-
ven. The (false) marketing pitch in effect can then become
‘everyone is getting away with this except patsies like you’.
Even when a stampede into shelters occurs, most taxpay-
ers cling to the market in virtuous advice and most advis-
ors say no when questioned about joining the stampede.
Professionals in the dominant market then scream to the
tax authority and to their political masters because they
are losing business to the market in vice. Then the tax
authority garners the extra resources and the political will
to crack down on the shelters. This takes long enough to
mobilise for the market in vice to accumulate stupendous
wealth before shelters are shut down. At the end of the
crackdown, shelter promoters are discredited, shunned
by taxpayers who stampede back into the market in virtu-
ous advice. Even so, participating in the cyclical niche mar-
ket in vice can have been a good business choice for the
shelter promoter. Some of their clients may lose their for-
tunes after the shelter bubble bursts. The promoters, so
long as they stay out of jail, which is usually not dif?cult,
just lose their future income stream. Their business model
is to make their fortune while the bubble is expanding,
then retire or move onto something else when it bursts.
There is a more general problem of the risks markets in
vice pose to contemporary capitalism. Rogue traders in
derivatives and other products can aggressively trade other
peoples’ money in pursuit of bonuses that will be paid for
large gains. When large losses occur, it is their clients or
their shareholders who suffer. While the traders are dis-
credited as traders, they have siphoned fortunes from their
?rms through their bonuses while the bubble rose. The bo-
nuses might stop when it bursts, but if they have been
aggressive enough on the upswing, their nest egg is so
huge that they are well set up.
There is some generality to this phenomenon because
part of the nature of contemporary capitalism is that it
has freer markets and more rules that can be gamed
(Vogel, 1996) – it is a world of ‘regulatory capitalism’
(Levi-Faur, 2005, 2006; Levi-Faur, Jordana, & Giladi,
2005). Regulatory capitalism is not just about more vibrant
markets combined with expanding state regulation. It is
also about regulation by private actors such as stock
exchanges, ratings agencies, accounting ?rms, compliance
professionals. Not all the effects of more vigorous
J. Braithwaite / Accounting, Organizations and Society 38 (2013) 458–468 459
competition have been good, however. Stronger markets
have delivered more ef?cient production of many things,
including many things that are often viewed as bad for
people (such as gambling services, internet pornography
and marketing fatty and sweet foods). One of those bad
things that are more ef?ciently marketed today is tax
avoidance and evasion services. Old professional bound-
aries among law ?rms, accounting ?rms and investment
advisors have been breached as all these commercial actors
have found that there is a lucrative market in the vice of
tax cheating. So they encroach on one anothers’ traditional
professional arenas in aggressively pursuing it.
Different people will have different views on what is
good and bad, but the analytic point is that stronger mar-
kets will increase the ef?ciency of the production of bads
as well as goods (however de?ned). Put another way, this
essay is not interested in joining debates over what is good
and what is bad, what is rational and what is irrational,
what is fraud and what is legal, what is black, white and
grey. It is interested in the idea that whatever one’s con-
ception of vice and virtue, there will be markets that pro-
duce the vice and markets that produce the virtue. At
least this is true under conditions of regulatory capitalism
where both goods and bads are produced with competitive
ef?ciency and in circumstances where more regulatory
judgments are being made about what is good and what
is bad (because the number of rules grows under regula-
tory capitalism). Because all of us have some conception
of what should be thought of as vices, which includes fraud
for most of us, we become concerned when markets be-
come more vibrant in the production of those vices.
So far we have been considering the supply side story of
the more ef?cient production of bads in a competitive
economy. Braithwaite (2005) shows that there is an impor-
tant demand side as well. Managers come under competi-
tive pressure when their company is paying a legally
appropriate amount of tax to apply ‘‘aggressive manage-
ment techniques’’ to that liability (Kleinbard, 1999). The
market can demand managers who reject the view that
paying tax is normative; it rewards managers who con-
strue a tax liability as a problem that aggressive manage-
ment should eliminate. Hence, a paradox of a more
effectively liberal economy is that it forces us to make
more judgments about vices we wish the state to regulate.
Because a perfectly competitive market economy ef?-
ciently produces more vice, indeed innovates into vices
yet to be invented, it creates a greater demand from citi-
zens for state regulation. This is a core dynamic of why
we have entered the phase of regulatory capitalism, where
competitive markets do more of society’s rowing, but
states do more steering. Private regulators such as ratings
agencies and professions also do more steering as a private
response to the public demand for more regulation.
The problem of competition driving the more ef?cient
production of bads as well as goods is a general one. My
work program on this phenomenon is of general import
for the social sciences, but was given birth in the study of
taxation. The plan is to move onto other phenomena, start-
ing with a book on pharmaceuticals soon to be completed
with Graham Dukes and James Moloney. The pharmaceuti-
cal industry more than a century ago conducted the R&D
on heroin and cocaine as legal drugs. In the twentieth cen-
tury these drugs become intensively regulated. Yet the di-
lemma continues of an industry that today produces goods
that conquer disease and bads that deliver a culture of a lit-
tle pill for every ill, and an epidemic of legal abuse of psy-
chotropic drugs. To the extent that competitive markets
succeed in delivering the more ef?cient satisfaction of
freely chosen preferences, they will more ef?ciently pro-
duce bads as well as goods – however bad and good are de-
?ned. Those who believe cocaine is good for people may
think that certain legal drugs are bad for them, and vice
versa. Whichever drug each considers good will be more
ef?ciently produced and marketed in a competitive econ-
omy, but so will the drugs each considers bad. Each will
see a market in virtue and a market in vice, even though
they have contrary views on which are the goods and the
bads. When heightened national drug enforcement bans
a drug of addiction, new ones are synthesised that are
not covered by drug law, and drug value chains are organ-
ised with a transnational coherence that can defeat the na-
tional coherence of regulators.
Consider a further application to derivatives (Braithwa-
ite, 2008, chap. 2). Derivatives can do good in allowing ?rms
to manage volatility in exchange rates or commodity prices.
Yet another way derivatives are used in contemporary cap-
italism is for ?nancial engineering around regulatory risks.
Derivatives allow managers to avoid the need to manage
risks by shifting risks instead. The ?nancial crisis of 2008 ap-
pears to be based on thousands of US mortgage brokers and
banks conspiring in fraudulent misrepresentations on loan
applications. They were not too worried that their bank
was lending to people who were bad risks because they
sliced and diced the loans and sold the slices to hundreds
of other banks as derivatives. The historically new market
in ?nancial engineering made it cheaper for US banks to
securitize and spread risks than to manage them. Of course
there were many other causes of the Global Financial Crisis.
It is not the purpose of this article to pronounce on which
were the most important.
So please step back from how much you disagree or
agree with my speci?c analysis of the risk shifting society
and the Global Financial Crisis. Return to the analytic point.
If you accept that markets since the 1970s have become
more internationally competitive, more vibrant and inno-
vative, including in the ?nancial sector; if you accept that
in some contexts derivatives are goods and in other con-
texts bads, even though you and I might disagree on where
to draw that line; then, it is analytic that those more vi-
brant markets will increase the risk to the world system
of the more ef?cient production of bads, just as it will in-
crease the bene?ts to the system of the more ef?cient engi-
neering of good derivatives. This is to say that regulatory
capitalism engenders new kinds of risks because it drives
the more ef?cient production of newly invented kinds of
bads, whatever good it does at the same time.
Of course you will not reach this conclusion if you think
it untrue that the ?nance sector has been swept by more
vibrant competition that has driven innovation in ?nancial
engineering. You will not reach this conclusion if you think
all derivatives are always goods. But if you think they are
sometimes bads then you must share these worries about
460 J. Braithwaite / Accounting, Organizations and Society 38 (2013) 458–468
new ?nancial products engineering their way around old
laws and then being widely marketed, thereby stimulating
potential to cause new crises.
State regulators or private ratings agencies have trouble
keeping ahead of the ?nancial engineering rocket scientists
of derivatives and tax shelters. This is because if a state reg-
ulator is smarter than the rocket scientists, the market for
?nancial engineering pays her an extraordinarily high price
to defect frombeing a regulator. This happens quite often in
the market for tax shelters. Yet tax experience shows that
this basis for pessimism can be countered when the most
strongly demanded markets become markets in virtuous
tax advice (that eschew evasion and aggressively gaming
the spirit of the law). There is no inevitability about this
accomplishment. It requires deft practice of the art of tax
administration. In the next section we consider how deft-
ness can be accomplished. Flipping to markets in virtuous
tax advice was achieved in Australia in the 1990s and
2000s (Braithwaite, 2005) and tax administration has some
instructive lessons to teach across all the dilemmas of reg-
ulatory capitalism. Another reason for this is that tax law
and tax accounting practice is more technically complex
and sophisticated than most professional work. One does
not hear references to rocket scientists of criminal law, con-
stitutional or land law. The very sophistication of the mar-
kets in vice and the markets in virtue that can be discerned
in tax practice makes the dilemmas posed by these markets
more visible to the policy analyst than in most ?elds.
Flipping markets in vice to markets in virtue
Braithwaite (2005) discussed a variety of strategies for
?ipping markets in vice to tax virtue. These included pro-
moter penalties, targeting the clients of A lists of aggres-
sive advisers (to shift demand to the advice market in
virtue), more sophisticated shelter disclosure regimes and
corporate certi?cation of continuous improvement in tax
integrity. That work argues that a web of mutually rein-
forcing strategies are needed to hold most taxpayers into
a dominant market in virtue. In this paper, we will develop
more fully just one of the neglected strategies on that list –
restorative justice. And we develop one strategy not devel-
oped on the 2005 list – qui tam suits. These turn out to be
instructive examples because of policy synergies enabled
by their very different features. ‘What works?’ in the Cen-
tre for Tax System Integrity evaluations is suites of strate-
gies integrated within a regulatory architecture that allows
them to be mutually reinforcing most of the time. It is not
about the overwhelming importance of any one or two
strategies. The strategies selected in this paper are selected
because there is a need to make concrete the abstract idea
of webs of strategies that together can ?ip markets from
vice to virtue, and because of a belief that the contribution
these two strategies have made, and might make, has been
neglected in fraud scholarship.
Qui tam
Corporate crime enforcement has a low success rate be-
cause of its poor record of getting insider testimony from
large corporations that are breaking the law (Bucy,
2002a, 2002b). The information asymmetry problem in
corporate crime enforcement is profound. Insiders under-
stand that if they stick together, investigations will blow
over without anyone going to jail, given the dif?culty of
proving complex commercial offences. They also under-
stand that if on the other hand they start talking to prose-
cutors, they often are subjected to smear campaigns by the
?rm that can run to accusing them of the very crimes on
which they blow the whistle. It follows that one of the
most strategic ways to undermine markets in vice is to im-
prove at getting inside information into the hands of the
law. That is the challenge that qui tam has begun to meet.
Qui tam is a shortened form of Qui tam pro domino rege,
quam pro se ipso in hoc parte sequitur, which means ‘He
who brings an action for the King as well as for himself’.
Qui tam had a long history in British and US law, but was
characterised by much abuse until put on a more princi-
pled footing with 1986 amendments to the False Claims
Act in the US. These allowed whistleblowers in cases of
fraud against the government to take their evidence of
fraud to the Justice Department. If Justice found their evi-
dence new and meritorious, it could take over the whistle-
blower’s False Claims suit. When successful, a hefty
percentage of the recoveries from the lawbreaker as a re-
sult of the suit are paid to the whistleblower. The False
Claims Act has been extremely successful in drawing out
whistleblowers with evidence that has led to massive pen-
alties, particularly against pharmaceutical companies
(Phillips, 2009) and for fraud against government health
programs more broadly. This has been a remarkable
enforcement turn around, with most Big Pharma ?rms in
recent years suffering penalties of hundreds of millions of
dollars fromFalse Claims Act suits that often led onto crim-
inal prosecutions. The other area where the False Claims
Act has had a transformative enforcement impact is de-
fence contracting fraud. For the types of fraud that are tar-
geted by the False Claims Act in the US, private and public
enforcement capability has been considerably enhanced.
Criminal cases often followin the wake of a False Claims
Act civil case. In most recent years civil recoveries in False
Claims Act cases in the US have exceeded $2 billion
(excluding criminal penalties). When the Justice Depart-
ment decides not to take over a False Claims Act case, it
is much harder for a whistleblower to win, but if they do
this attracts a higher percentage of the penalties the gov-
ernment collects. This means that whistleblowers are
pushed to think twice about an unmeritorious case when
Justice turns it down. And Justice is pushed to think twice
about how foolish it will look if it declines to join a merito-
rious whistleblower suit. This is the key to the genius of the
1986 False Claims Act amendments that have led to it
becoming a central tool in the fraud enforcement armoury
in the US. Private and public prosecutors of fraud learn
from each other; the strengths and reach of each covers
weaknesses and limitations of the other. There was great
insight in the ‘dual plaintiff design’ of the 1986 False
Claims amendments (Bucy, 2002a).
Bounties for turning in tax cheats to the Internal Reve-
nue Service (IRS) have a very different history. US Congres-
sional debates have tended to view with contempt
J. Braithwaite / Accounting, Organizations and Society 38 (2013) 458–468 461
attempts to reward ‘rats’ for reporting tax cheats. So the
application of the False Claims Act to tax fraud was explic-
itly excluded by the 1986 amendments. There had been
bounty provisions in US tax law for more than a century
before this (Ventry, 2008a, p. 360). This law gave the IRS
considerable discretion to pay bounties to whistleblowers.
They were, however, extraordinarily weak provisions in
comparison to the False Claims Act (Ventry, 2008a).
Consequently, there has not been the boom in bounty
payouts associated with successful IRS litigation that there
has been with False Claims Act frauds. There has been a
considerable increase in whistleblowing to the IRS since
2006 reforms that established a Whistleblower Of?ce
within the agency and uncapped whistleblower payouts
to at least 15% of recoveries in large cases.
1
During 2008,
1246 whistleblower allegations came into the of?ce alleging
more than $2 million in unpaid tax, with 64 of them claim-
ing the information was worth more than $100 million, a
couple of them more than a billion, one of $4.4 billion (Finet,
2007a, 2007b, 2008; Hilzenrath, 2010). The Treasury Inspec-
tor-General (2006, pp. 1–5) concluded that tax return exam-
inations triggered by private informants were almost twice
as ef?cient in dollars recovered per hour of tax examination
compared to examinations occasioned by standard IRS tar-
geting. As of May 2010, no reward had been paid by the
new Whistleblower Of?ce (Hilzenrath, 2010).
Dennis Ventry (2008a, 2008b) seems justi?ed in argu-
ing that while there has been some signi?cant progress
in eliciting insider information as a result of the 2006 re-
forms, they do not go as far as qui tam under the False
Claims Act. And the reforms are therefore not likely to have
the success that the False Claims Act has had with other
areas of fraud against government. Importantly, Ventry
(2008a) shows that legitimate concerns about privacy, con-
?icts with professional duties to protect con?dential infor-
mation, vexatious or frivolous claims, whistleblowers
tainted with illegality and whistleblower victimisation
can be satisfactorily addressed in ways similar to the
means that have been used for addressing them with other
types of frauds (see also Bucy, 2002a, 2002b, 2004a,
2004b). Likewise, earlier advocates of qui tam in tax
enforcement such as Joshua Rosenberg (1996) and Brent
Fisse (Fisse & Braithwaite, 1983, pp. 251–254, 283) and
the architect of the False Claims Act reforms of 1986 and
the Whistleblower Of?ce reforms of 2006, Republican Sen-
ator Charles Grassley, pushed what increasingly appears to
be a strategic reformfor ?ipping markets in vice to markets
in virtue.
2
It is time to reinterrogate the earlier literature on
private bounties for corporate crime more generally (Crum-
plar, 1975; Fisse & Braithwaite, 1983, pp. 251–254, 283;
Sims, 2002, p. 736) that advocated widening the application
of qui tam not only to tax, but to occupational health and
safety, all forms of corporate crime in the pharmaceutical
industry, environmental crime and corporations and securi-
ties offences (Bucy, 2002a; see also Braithwaite, 2008, pp.
68–85).
Like Ventry (2008a) in relation to tax, Pamela Bucy has
worked through the implementation problems with qui
tam across many of these areas, developing detailed policy
adjustments that might respond to potential problems. Gi-
ven the success of the False Claims Act in the US, it is sur-
prising that other nations have not attempted their own
experiments with qui tam. We are only beginning to learn
what might be the most productive forms of hybridity be-
tween public and private enforcement in business regual-
tion. That learning will require us to attend to failed
experiments such as US tax penalty bounties to whistle-
blowers between 1869 and 2006,
3
and successful ones such
as the 1986 amendments to the False Claims Act. In that pro-
ject, no issue requires more attention than how to secure
productive synergy with other potential contributors to a
web of in?uences to ?ip markets in vice back to markets
in virtue. In the next section we pay particular attention to
the risk of qui tam crowding out productive forms of restor-
ative justice unless it is well designed.
Restorative justice
Restorative justice is a forward-looking alternative to
punitive justice (which looks back to decide the right pun-
ishment for past behaviour). Instead of holding offenders
responsible for crimes of the past (passive responsibility),
it seeks to persuade them to take responsibility for putting
things right into the future (active responsibility) (Bovens,
1998). It seeks to restore victims, offenders and communi-
ties. Stakeholders in an alleged injustice sit in a circle to
discuss the harm that has been done and arrive at an
understanding of its nature, take responsibility for it, and
then agree on a set of reforms to prevent recurrence, as
well as to repair past harm. Restorative justice is about
earned redemption. For corporations, that usually means
seizing the opportunity to become an industry leader and
educator in compliance professionalism (Parker, 2004).
When investors in illicit tax schemes face bankruptcy,
divorce, depression, even suicide, as the Centre for Tax Sys-
tem Integrity found happened in the Australian tax shelter
boom of the late 1990s, the public interests at stake are
1
Rewards can be lower than15% if it is determined that the information
was partially already in the public arena or if the whistleblower was not
blameless in relation to the tax conduct.
2
See also Hood (1986) for an early contribution on privatised tax
enforcement.
3
Among the reasons for that failure were: (1) IRS of?cials were reluctant
to pay out under its bounty program, paying on only 6.6% of claims
between 1989 and 1998 (Ventry, 2008a, p. 364; see also Treasury Inspector
General 2006); (2) When the IRS did pay out, it exercised its discretion to
pay low proportions oftheir recoveries(2% between 1989 and 1998 (Ventry,
2008a, p. 364), 7 per cent in 2004 and 2005 (Novack and Barrett, 2009)) in
comparison to upto 35% in False Claims Act practice; (3) Where there was a
payout, on average it was received 7.5 years after lodging the claim (Ventry,
2008a, p. 363); (4) Whistleblowers have lost 19 out of 19 court cases
contesting IRS decisions to refuse to pay a bounty for information provided,
or arguing for a higher level of bounty (Ventry, 2008a, p. 365); (5) Until
1989, bounty payouts were capped by law at $50,000 and until 2006 at $2
million. In comparison, False Claims Act payouts are not capped and
sometimes exceed $100 million; (6) The IRS did almost nothing to publicise
its bounty program and to encourage whistleblowers to use it until its 2006
reforms; (7) Whereas whistleblowers and the specialist law ?rms that
support them can run their own civil suit under the False Claims Act if the
Justice Department declines to take over their case, when the IRS decides
not to pursue a bounty case the whistleblower is left high and dry.
462 J. Braithwaite / Accounting, Organizations and Society 38 (2013) 458–468
wider than the integrity of the tax system (Murphy, 2003a,
2003b, 2004). Rituals of healing are needed after such ter-
rible life events. There is now a lot of experience in helping
people move on with their lives from restorative justice
practice and evidence that doing so builds perceptions of
procedural fairness and commitment to comply in future
(Braithwaite, 2002). Here the tax enforcement community
needs also to take note of the wider literature on therapeu-
tic jurisprudence, on the imperative to design legal institu-
tions that do less damage to the health of people caught up
in it (e.g., Wexler, 1990; Wexler & Winick, 1991a; Wexler &
Winick, 1991b, 2000).
Another kind of case where the social damage at risk
justi?es investment in restorative justice is with the Arthur
Andersens of aggressive tax planning. Braithwaite (2005)
argued that heavy promoter penalties would have been
needed to motivate a ?rm like Arthur Andersen that had
been in trouble with tax authorities in the 1990s to sit in
the restorative circle out of fear of those penalties, or fear
of suspension of their licence for tax practice. The seem-
ingly implausible idea proposed by Braithwaite (2005)
was that the collapse of Enron and Worldcom, ?rms au-
dited by Arthur Andersen, might have been prevented by
the Australian Tax Of?ce (ATO). How?
When Arthur Andersen partners came to senior ATO
of?cials in the 1990s and apologised for the conduct of a
‘rogue partner’ who had allowed serious tax misconduct
to occur, that was the time to sit in the circle with all part-
ners of the ?rm to discuss the culture of compliance and
business integrity within Arthur Andersen. It would have
been revealed that the ‘rogue partner’ was not a rogue
partner at all but manifested what had become the core
culture of Arthur Andersen (cf Gendron & Spira, 2010; Tof-
?er & Reingold, 2003; Unerman & O’Dwyer, 2004). The ‘ro-
gue partner’ would have defended themselves by
explaining this was what they were trained and expected
to do. Some of their friends within the ?rm might have
supported them in this. Perhaps more importantly, some
retired old hand who had mentored the ‘rogue partner’
could be brought into the restorative circle by that partner
as a supporter. He or she might argue in the process of sup-
porting the rogue partner that the compliance culture at
Arthur Andersen’s had changed for the worse. The idea is
that this might have triggered a thorough internal investi-
gation into the compliance culture of Arthur Andersen con-
ducted by outside counsel.
McCloy’s (1976) report into the pattern of foreign brib-
ery indulged by executives of the Gulf Oil Corporation in
the 1970s gave great impetus to policy thinking about
self-investigation reports by outside counsel (Coffee,
1981, pp. 429–434; Fisse & Braithwaite, 1983; Gruner,
1988). Some Australian experiments with restorative jus-
tice in competition and consumer protection law enforce-
ment two decades ago did show some McCloy-style
promise (Fisse & Braithwaite, 1993; Parker, 2004). Yet as
in the US with Corporate Integrity Agreements (Ford &
Hess, 2009, 2011), so in Australia with the spread of
Enforceable Undertakings settled with companies in anti-
trust, consumer and environmental protection, securities
fraud and occupational health and safety, restorative jus-
tice has lost its edge and innovation. It has become either
forgotten or routinized in Australian business regulation,
templated by compliance practitioners who take clients
in trouble with a regulator through hoops to be jumped
in an enforceable undertakings process.
Part of the problem has been an absence of third parties
in the process. Environmental groups have been little in-
volved in the meetings where enforceable undertakings
for environmental offences have been agreed. With tax,
there is no natural NGO to sit in a circle with a tax practi-
tioner that has been behaving badly. There is no NGO that
might demand a global McCloy-style investigation into the
integrity and law-abidingness of a ?rm of tax advisors. One
solution is to have a restorative justice unit within a tax
authority. Its public justice ethos might be energised by
the global social movement for restorative justice, engaged
with tax justice civil society networks. That social move-
ment would be the outside third party to push the tax
authority to move onto the bigger social justice problem
they had a chance to ?x in the 1990s with Arthur Andersen.
The idea is that anyone within the tax authority confront-
ing any non-compliance problem could ask the restorative
justice unit for assistance in setting up a restorative justice
conference to transform a corporate culture and/or to help
to heal those hurt by a tax enforcement process.
We cannot be excessively ambitious about the pros-
pects of restorative justice reform in the here and now
for a problem like tax compliance. Rather, the priority is
for those of us who see the promise of restorative justice
for a more decent society with more decent business regu-
lation, to concentrate their efforts on building the global
social movement for restorative justice. In turn that social
movement is perhaps best to concentrate on restorative
justice programs in schools to respond to problems like
bullying, so that all children might be given the opportu-
nity to learn to be democratic, to learn how to activate
their consciences about justice in a restorative circle. Per-
haps it is only when such children become senior tax of?-
cials that tax authorities will be ready for the kind of
restorative justice circle that might have saved Arthur
Andersen and its tens of thousands of employees from
themselves, and saved the companies that suffered from
its auditing failures. Still, we hope and expect that here
and there some business regulators continue to experi-
ment with restorative justice, that new generations of
McCloys will rise. And we will learn from their innovation
in ?nding better paths to counter crises of capitalism.
Ethical cosmopolitanism
Scholars have a role in opening the imaginations of so-
cial movement activists to options for struggle to secure
more ethical business in conditions of regulatory capital-
ism. Consider the opportunities for ethical conversation
that scholars and social movement actors might lead by
contemplating BCCI (Arnold & Sikka, 2001). In 1988 Florida
prosecutors in Tampa indicted a company called BCCI
(Bank of Commerce and Credit International), which had
become the 7th largest bank in the world by assets, for a
nest of major ?nancial crimes. BCCI was set up so it was
effectively off-shore in every country where it operated.
J. Braithwaite / Accounting, Organizations and Society 38 (2013) 458–468 463
After years of investigation and a 6-month trial, some BCCI
of?cers were convicted and the company pleaded guilty to
limited money laundering offences. Fisse and Braithwaite
(1993, pp. 222–227) lamented that the prosecutor did
not demand a McCloy-style report. There was good reason
to do so as there was more than probable cause for believ-
ing that BCCI had become the banker of choice for the
world’s major criminals. It was known by the CIA Director
and many others in the 1980s as the ‘Bank of Crooks and
Criminals International’. It laundered money for Manuel
Noriega (former Panamanian dictator, now in a US prison
for drug offences), Saddam Hussein, Liberian dictator Sam-
uel Doe, Bangladesh coup leader Husain Muhammad Er-
shad, the Medellin Cartel and other drug traders, Abu
Nidal and other terrorist groups, and laundered money
for illegal arms trading and covert nuclear programs. Many
believe that the head of Saudi Arabian intelligence, Kamal
Adham, who secured a cosy plea agreement in 1992 (after
his retirement) with the New York District Attorney for his
criminal activities with the bank, pulled the strings. The
CIA used the bank to fund the mujahidin in the Afghan
war against the Soviet Union, laundering proceeds from
their opium trading. Oliver North had BCCI accounts that
were used for gun smuggling in the Iran-Contra scandal.
BCCI was ?nally forced to close by bank regulators
from ?ve countries in July 1991, without signi?cant im-
pact on the US economy, but endangering the British
?nancial system and parts of the Arab world, affecting a
million depositors worldwide, pushing countless small
businesses into bankruptcy. The Fisse and Braithwaite
(1993) argument was that a McCloy-style report ordered
as part of the settlement of the Florida criminal case
would have easily revealed a pattern of criminal money
laundering that should have been stopped before more
harm was done. Prudential regulators in the UK and
Abu Dhabi might then have stepped in before 1990 to
bring the bank onshore, manage reorganisation into
non-criminal management before it collapsed and des-
tablilized the international ?nancial system. New York
District Attorney Morgenthau revealed why it would have
been easy to get insiders to spill the beans: ‘A lot of them
were angry. They were told they were sharehold-
ers. . . Then they found out they weren’t’ (Adams & Frantz,
1992, p. 298). Prosecutors in other countries such as Eng-
land, Kenya, Brazil, Colombia, Sudan and Mauritius had
opportunities to put such disaffected of?cers in a restor-
ative justice circle, to be cosmopolitian prosecutors of
BCCI ?nancial crimes they had detected by demanding a
holistic McCloy-style investigation. So did other US pros-
ecutors spurn that opportunity, including one in Philadel-
phia in 1987 who investigated BCCI for illegal ?nancing of
US nuclear materials transfer to the Pakistan Atomic En-
ergy Commission (Fisse & Braithwaite, 1993, p. 225). It
was no surprise that the writings of obscure foreign
scholars raised not a ripple of interest from good citizens
of Florida and elsewhere who had enough to worry about
without calling their prosecutors to account for missing
an opportunity to prevent misfortune for small businesses
on the other side of the world. Perhaps it is unrealistic to
expect ethical cosmopolitanism of the sort McCloy
showed with Gulf Oil to rise again.
Today, it is possible to reveal the mirror image of the
plea to US citizens to demand ethical cosmopolitanism of
corporations and prosecutors alike. On 21 August 2009
Australia suffered an off-shore blowout from a drilling
platform in the Timor Sea that could not be capped for
74 days. The diagnosis was that the defective concrete base
of the oil well installed by the Houston-headquartered
Halliburton Co caused the spill (Bradshaw, 2010; Gold &
Casselman, 2010). This revelation was not international-
ised at the time. The Australian regulator could have in-
sisted, as part of its enforcement response, that
Halliburton retain engineering consultants to investigate
whether off-shore wells it had cemented worldwide posed
like risks elsewhere on the world’s oceans. The historical
record shows that the Australian regulator did not do so
and the next year a British Petroleum deep-sea drilling
base cemented by Halliburton also failed many months
after the Timor Sea disaster, causing a like environmental
catastrophe in the Gulf of Mexico. The Deepwater Horizon
spill beat the Timor Sea record, taking 86 days to cap. Gi-
ven that Halliburton dominates the world’s well cementing
business with one other company, the Timor Sea tragedy
might have drawn attention to ‘‘a 2007 study by three
U.S. Minerals Management Service of?cials [that] found
that cementing was a factor in 18 of 39 well blowouts in
the Gulf of Mexico over a 14-year period.’’ (Gold & Cassel-
man, 2010).
The globalisation of fraud, environmental catastrophe,
?nancial crisis, tax shelters and many of the most recalci-
trant vices of regulatory capitalism requires a conversation
about the imperative of cosmopolitanism in law enforce-
ment consciousness. It was within the power of Australian
environmental enforcers to investigate and publicise a glo-
bal risk in a way that might have prevented the Deepwater
Horizon disaster and saved the lives of those who perished
on that platform. It is a measure of the poverty of our glo-
bal conversation about how to make business ethics work
in contemporary conditions that citizens of the Gulf of
Mexico are not protesting angrily about Australia’s failure
to adopt a more cosmopolitan ethic in its contribution to
regulating the risks of capitalism.
As with qui tam, so with restorative justice, we should
see ourselves as in an era of stimulating a richer conversa-
tion, and era of experimentation, not one where we have
all or any of the answers. We will make mistakes, are mak-
ing mistakes, in our restorative justice and qui tam exper-
iments, and learning from them. All this essay seeks to
achieve is to open minds to the potential for restorative
justice and qui tam working in tandem as part of a web
of controls to achieve a more decent capitalism where we
might be more successful in ?ipping markets in vice to
markets in virtue.
With ‘mom and pop’ tax scheme investors who are
about to lose their homes, qui tam and draconian promoter
penalties might hang over the head of their promoter, their
tax adviser. Then the promoter and the adviser will come
to the restorative justice conference and more readily
agree to pay a share of the investor’s penalty tax as an
alternative to qui tam enforcement in the courts, promoter
penalties or being struck off as a tax agent. A fair criticism
of restorative justice backed by qui tam is that while it
464 J. Braithwaite / Accounting, Organizations and Society 38 (2013) 458–468
might tackle professional fraudsters of the scale of BCCI, it
will not stop ?y by nighters from ?ying at night. At least,
however, if fraud relies heavily on professional advisors
who do not take ?ight, a relevant target for ?ipping mar-
kets in vice remains in place.
Braithwaite (2008, chap. 7) argues that restorative jus-
tice is of rather general relevance because our deepest dis-
putes over injustice consistently tend to have disturbing
relational meanings to disputants. Yet offenders may not
commit to a restorative justice process voluntarily. That
is why more effective and innovative approaches to puni-
tive regulation such as qui tam are needed to increase busi-
ness motivation to make restorative justice meaningful.
Whether the allegation of serious fraud is against powerful
corporations or a small-time tax evader, the early-warning
insider legal threat that qui tam can pose may be needed to
sit the organisation in the restorative justice circle in a pre-
ventive, reparative conversation before it does more fatal
damage to itself and others.
Ensuring qui tam supports restorative justice
One way to prevent qui tam from crowding out restor-
ative justice is to give incentives to tax cheats to beat their
whistleblower to the tax authority, the environmental
criminal to beat their whistleblower to the environmental
regulator. The incentive would be an enforcement policy
that if the corporate criminal voluntarily reports their
crime to the state before the whistleblower does, they will
be spared qui tam enforcement and instead will be given
the opportunity of a restorative justice conference. Such
an enforcement policy gives both whistleblowers and
offenders reason to report early when preventative and
reparative possibilities are greater, rather than later when
the ?rm might be facing collapse. Whistleblowers who ar-
rive a fraction too late might still be given a seat in the
restorative justice circle convened by a regulator and
might even be compensated for information and research
they are able to provide to the circle if this is of probative
value in transforming a corporate offender. This is already
part of the dynamic of how the False Claims Act works in
the US; ?rms can avoid the cost of qui tam by beating the
whistleblower to the Justice Department to confess the
fraud.
One referee raised a concern here: ‘I could imagine that
some ?rms would pursue tax fraud as a way to cope with
pressing concerns, with the idea that they will later own up
to it, submit to a restorative justice process, and pay a
small price (rather than a qui tam price) for their tempo-
rary indiscretions.’ This is a good point. It must be balanced
with the concern that qui tam on a broad front would risk
overwhelming the courts if confessing ?rst and submitting
to other kinds of enforcement such as restorative justice
were not an option. A lot depends on how serious were
the punitive and reparative consequences of the confession
and restorative justice process and how much the ?rm
worries about heightened future monitoring of their con-
duct by law enforcement as a result of a fraud confession.
The more fundamental point to make here, however, is
that the criminological deterrence literature continues to
show that deterrence is overwhelmingly driven by cer-
tainty of detection rather than severity of punishment
(Braithwaite, 1989 , p. 69). That is why ‘more police, less
prisons’ is a central criminal justice policy debate today
(see the 2011 special issue of Criminology and Public Policy
on ‘More Police, Less Prison, Less Crime?’). A package of qui
tam integrated with restorative justice actually means
‘more (private) police and more prison’ compared with
the status quo. Yet it seeks to maximise detection rather
than to maximise punishment by a privatisation of
enforcement that also has the effect of forcing public law
enforcement to increase its investment in the public inves-
tigation and resolution of fraud cases. A ?nal countervail-
ing point to the undeniable validity of our referee’s
scenario is the case developed empirically in Braithwaite
(2002, pp. 102–122):
Most punishments are more feared in anticipation than
they are once experienced. A criminal justice system
that privileges restorative justice ahead of punitive jus-
tice thereby increases the deterrent power of punitive
justice through a Sword of Damocles effect (Braithwaite,
2002, p. 122).
This connects to a more general analysis that increasing
use and severity of punishment increases deterrence and
also increases de?ance (Sherman, 1993). More punishment
translates to less crime only at those points on the deter-
rence curve where deterrence effects exceed de?ance ef-
fects. This often happens only when deterrence is
tyrannically high. On this analysis, trying restorative jus-
tice ?rst gives punishment more legitimacy and engenders
less de?ance.
The idea is that restorative justice circles would work
under the kind of framework of enforceable undertakings
under business regulatory statutes. This means the com-
pany must agree to suf?cient compensation to victims,
including victimised whistleblowers, voluntary ?nancial
penalties paid to the state, internal discipline or dismissal
of responsible executives and transformation of the com-
pliance culture of the ?rm to persuade judges that it is
not necessary for them to impose additional criminal/civil
penalties or order additional compensation to victims.
Once the enforceable undertaking developed by the restor-
ative justice circle of stakeholders is rati?ed by the court,
criminal penalties for contempt hang over the company
that fails to implement them. The court receives reports
from the regulator and from independent compliance
monitors on how satisfactorily the undertakings are
completed.
Indeed under my favoured model such reports are pub-
lic on the internet. Public compliance reports encourage a
market in the virtue of compliance professionalism. This
idea is that if a shoddy compliance report is posted by a
shoddy compliance professional, their competitors in the
compliance auditing business will blow the whistle on this
to the regulator (perhaps anonymously) or to the court.
They have an interest in doing this to discredit or eliminate
their competitor and to encourage regulators and courts to
see them as a compliance auditor with higher standards.
Then regulators are more likely to commend these whistle-
blowing compliance auditors to errant ?rms. Errant ?rms
J. Braithwaite / Accounting, Organizations and Society 38 (2013) 458–468 465
are also more likely to prefer them so that their transfor-
mation can appear credible to the regulator and to courts.
This is one way the worst ?rms can be levered into the
market in virtue. When compliance reports are generally
on the internet, competitors moreover have the opportu-
nity proactively to go to ?rms and offer a superior service
than they see in that report, a service likely to be more suc-
cessful in keeping the ?rm out of trouble.
4
Joseph Murphy (Sigler & Murphy, 1988), a doyen of
compliance professionalism in the US, argues that the
way to ?nd the ?rm with the most state-of-the-art compli-
ance program is to look at ?rms that have been in most
trouble with a regulator in recent years. So counterfactuals
worth considering are these. Might Wall Street have been a
better place in the 2000s had Arthur Andersen not col-
lapsed? Was it a bad thing that competition for the busi-
ness of the Fortune 500 contracted from a Big Five to a
Big Four? What if Arthur Andersen had been given an
opportunity to become a ?fth competitor that took audit-
ing integrity and rigour up through a new ceiling as pe-
nance for its culture of recklessness in the 1990s that
many regulators could have exposed by turning over the
rocks presented through speci?c cases of non-compliance?
What if Arthur Andersen had been encouraged by regula-
tors and succeeded in leading other ?rms, like KPMG
who also behaved extremely badly in 1990s corporate
tax compliance, up through that new ceiling in audit
integrity?
Restorative justice may have promise if we are commit-
ted enough to R&D on new forms of justice. But do we have
a capitalism that allows us to be capable of doing some-
thing assertive to reduce risks of crisis? To accomplish that
we need ?rst to increase the sense of spectre that hangs
over the heads of ?rms that might not consider an oppor-
tunity for transformation, an opportunity to lead a new
market in virtue. Our argument has been that qui tam
can sit alongside other measures like heavy penalties for
promoters of tax shelters and power to withdraw or sus-
pend tax practice licences to motivate transformative lead-
ership. As argued in footnote 4, another detection-
enhancing measure qui tam can sit alongside is the Rudolf
Giuliani approach of ‘gotcha’ to a minnow who gives up a
bigger ?sh, who gives up an even bigger ?sh, until eventu-
ally the greater sharks on Wall Street are netted.
In the case of the epidemic of housing mortgage de-
faults in the US during the mid-2000s that were the prox-
imate cause of the Global Financial Crisis of 2008–2009,
Braithwaite (2008, 2009, 2010) has argued that the preven-
tive potential of restorative justice should have been de-
ployed. US regulators had access to good data on housing
loan defaults. So the argument is that the remedy should
have been to sit down with the leadership of a bank or a
bank branch to express concern if their mortgage defaults
in the mid-2000s were twice their state average. The sug-
gestion is that self-investigation reports agreed in a restor-
ative justice process and overseen by independent law/
accounting ?rms into the reasons for mortgage default
hot-spots would have revealed banks signing many ‘liar
loans’. We know now that a 2006 federal Financial Crimes
Enforcement Network (FinCEN) report showed a 1411% in-
crease in mortgage-related suspicious activity reports be-
tween 1997 and 2005, with 66% of them involving
material misrepresentation or false documents. Then there
was a further 44% increase between 2005 and 2006 (Ngu-
yen & Pontell, 2010). BasePoint Analytics (2007) work on 3
million loans suggested 70% of early payment defaults had
fraudulent misrepresentations on their original loan appli-
cations. The loans with fraudulent misrepresentations
were ?ve times as likely to go into default (Nguyen & Pon-
tell, 2010). There were public warnings from the FBI start-
ing in 2004 that they were seeing a spike in mortgage fraud
cases (Black, 2009).
The most important function of business regulation is to
prevent crises of capitalism before they occur. This is more
important than punishing criminals who crawl from the
ashes of broken banks. On the radically different vision of
business regulation promoted here, punitive regulation
with real bite, like that delivered by the False Claims Act,
is nevertheless preventively critical. That critical role is to
motivate early prevention of crisis through restorative jus-
tice by hitting ?rms hard if they pass up the corporate so-
cial responsibility opportunity restorative justice proffers,
and escalating punitiveness as opportunities for reform
are spurned.
At the same time, restorative justice gives criminals an
opportunity for reform and redemption. An anonymous
referee here made a point that was more sophisticated
than my text on this point:
It seems to me that the author is saying that the fear of
severe punishment and associated stigma causes ?rms
to get locked into deeper wrongdoing. And creating a
structure that in a sense legitimates coming forward
with admissions of wrongdoing reduces the tendency
that ?rms will become entrenched in wrongdoing. The
head of Satyam (an Indian computer services company)
[Cohan, 2009] told the press that he had wanted to
undo the fraud he was perpetrating at his ?rm, but
could not ?gure out how to ‘dismount the tiger without
being eaten.’ It seems that the author wants to help
wrongdoers like that get off their mounts.
Responsive regulatory theory argues that individuals
have multiple selves in business regulatory contexts:
neglectful and negligent selves, ruthless pro?t-maximising
selves, socially responsible selves, selves that love riding
the tiger and selves that want to dismount (Braithwaite,
2002, 2011). The art of effective regulation is enticing exec-
4
The documentary on the Global Financial Crisis, Inside Job, showed the
need for a radically more transparent approach to external compliance
auditing. The madam of a Wall Street brothel disclosed that she had credit
cards from major Wall Street ?rms on which she was authorised to record
prostitution services as, for example, ‘payments to compliance consul-
tants’! The further shocking revelation was that no law enforcement
authorities had asked to examine these credit card records. If US law
enforcement were serious about putting Wall Street criminals behind bars
it would have used the strategy Rudolf Giuliani deployed that led up to
Donald Levine and Michael Milken’s imprisonment. That means using
comparatively minor crimes like credit card fraud to sit someone down and
say you will be going to jail for this credit card fraud and you will suffer the
shame of your family knowing the lurid motivation for the fraud unless you
provide the evidence of more major fraud against a bigger ?sh in your
organization. Then likewise moving up from that ?sh to even bigger ?sh in
the way Giuliani did on Wall Street in the 1980s.
466 J. Braithwaite / Accounting, Organizations and Society 38 (2013) 458–468
utives to put their most responsible self forward – to re-
deem themselves by righting the wrongs of the past before
they become more catastrophic wrongs. Reintegrative
shaming approaches (Braithwaite, 1989) theorise this. They
build on labelling theory (e.g. Lemert, 1967). Labelling the-
ory points out that permanent stigmatisation of fraudsters
can make crime problems worse by reinforcing criminal
identities, willing law breakers to reject their rejectors
and reject values of the law abiding community. Reintegra-
tive shaming opts instead for reintegration and praise for
the painful journey of earned redemption; condemnation
of the crime combined with support for redemption.
Conclusion
Capitalism today has more vibrant markets than ever,
more regulation than ever, and more opportunities for
ingenious ?nancial engineering around regulation than
ever (Braithwaite, 2008, chap. 2, Partnoy, 1997, 2000,
2003). Put another way, we have more vibrant markets
in virtue and more virulent markets in vice. This means
more ef?cient production of goods that generate wealth
and unprecedented pro?ciency in the production of bads
that can destroy it, triggering catastrophic crises. I doubt
we can manage this new intensity of markets in virtue
and vice through extant risk management models.
We do not have the quality of insider knowledge to
know where catastrophe is brewing. A radical new ap-
proach is required to draw out insider confession and con-
trition for recklessness with new risks. Then we need to
learn how to convene diagnostic conversations on how to
make early prevention work to head off looming catastro-
phes of gaming commercial rules. More than that, reforms
are required that institutionalise ethical re?ection within
?rms, that transcend the dominant ethos of contemporary
capitalism that freer markets means that law and ethics
are challenges to be gamed (Jackall, 1988). To make all of
that happen, we must punish heavily those who refuse to
cooperate with early preventive diagnosis and repair of
our markets. At the same time we must be more forgiving
of those who do switch sides to the market in virtue. Here
we can learn some lessons from how air safety regulators
tackled the systemic risks of an incomprehensibly complex
air transport system by forgiving pilots who confess near
misses (Wilf-Miron, Lewenhoff, Benyamini, & Aviram,
2003).
We also need to lean on the managerial creativity in
both privatised enforcement and in compliance system de-
sign to succeed where reactive public regulators have
failed. The managerial creativity of markets in virtue is en-
abled by the freer markets of regulatory capitalism. So
markets in virtue must be harnessed to enhance capital-
ism’s ethical conversation. In that conversation, this essay
has been silent on what should be settled as ethical and
unethical, rational and irrational, lawful and unlawful,
and when it is right to break bad laws. It has been no more
than a partial, preliminary attempt at exploring the role
restorative justice and qui tam could play as two of many
needed contributors to a paradigmatic transformation of
webs of business and accounting regulation.
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