Why are corporate fines for shady or illegal business practices so often less than the amount they made by doing those illegal practices? At that point, don’t the fines just become a cost of doing business?
Specifically thinking about Perdue Pharma. PBS article says they made $35billion pushing opioids, but the current court case is only seeking $6billion on fines. Ignoring the Sackler’s immunity request, this is still a net win.
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This can be really complex and there are a lot of reasons. Additionally, not everybody agrees on what the penalty should be.
Let’s make up a completely fictional example.
X Corp sells the drug Xcessive. Xcessive can and does treat the condition for which it is prescribed, Pong-Pong. It is useful and does a lot of good.
However, there are downsides to Xcessive. It can cause harm (1 in 10,000 people who take it end up with damaged gloggleglands) and, while it can treat the condition Pong-Pong, it is only effective in 50% of cases. X Corp has this data.
X Corp looks at the market for the drug and determines that they will probably make $10 billion selling Xcessive. They want to make more, so they decide to lie. They produce biased studies and create advertisements that say that Xcessive works in 90% of Pong-Pong cases and that it never causes glogglegland damage.
They sell the drug for years, and it makes them $14 billion.
They get caught in their lie, and they are fined. What should they be fined?
First, nobody knows how much of that $14 billion is due to the lie. Would the drug have made only $3 billion? $10 billion? $12 billion? Who knows, and how did they come up with the answer?
Additionally, there are other questions. Were the studies deliberately biased, or did the executives cherry-pick the studies they liked? Did they think that the studies were valid? Did they actually have an accurate view of the harm the drug did or its level of effectiveness? How much of their decision-making process was deliberate lies, poor business practices, or wishful thinking?
Assuming that you get good answers to these questions, then you have a process for setting and levying fines that is often heavily biased in favor of the industry it is aimed at. In part, this is due to all kinds of potentially shady or even illegal business practices, but often it is nearly inevitable. In order to determine what the fines for a particular violation should be, you have to rely on the decisions of experts who worked in these fields and often spent years as co-workers and friends of the people still working in the business. Were else are you going to find experts who actually have the knowledge and experience?
Now, add in the fact that fines that were “locked down” in the laws or regulations may have been quite massive when the legislature created them, but over time they became less and less impactful. The growth of the industry and inflation has taken the bite out of them. Add in the fact that not everyone agrees on just how bad the violation was in the first place, and, well, you end up with a huge mess.
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