Enveloping the Push

In the past decade or so, lawyers and accountants have faced a new pressure from clients: “don’t just tell us what the statutes, regulations and cases mean, tell us how to circumvent the law for our individual benefit. Oh, and please don’t give us that ‘it’s bad for the nation crap if the interpretation you want gets implemented.’” Bottom line: the most highly paid legal practitioners and CPAs make those big bucks by finding and expanding loopholes. Every time a statute passes that attempts to regulate business – to the extent the lobbyists have failed to stop it or curtail it in the first place – while those same lobbyists are trying to reverse the earlier failure, a body of legal and accounting experts sets in to find a reason for courts to throw the law out or at least twist the application of that law to minimize any negative impacts on their corporate clients.

Mark Everson, former IRS Commissioner (2003-2007), wrote this in an Op-Ed for the June 18^th New York Times: “It will take decades to fully untangle the causes of the 2008 financial crisis, but as our economy fitfully heals, it would be prudent to ask whether lawyers and accountants offer the same protection against corporate misconduct that they once did... Three or four decades ago, investors and regulators could rely on these professionals to provide a check on corporate risk-taking. But over time, attorneys and auditors came to see their practices not as independent firms that strengthen the integrity of capitalism, but as businesses measured chiefly by the earnings of their partners…

“Lawyers and accountants who were once the proud pillars of our financial system have become the happy architects of its circumvention. Nowhere is this more the case than in the world of tax law. Companies (and wealthy individuals) pay handsomely for tax professionals not just to find the lines, but to push them ever outward.” General Electric, for example, has one of the most effective tax departments in the nation, when it comes to pushing the walls to benefit GE often at the expense of the underlying intention of the relevant statutory or regulatory provisions being contested. Big Wall Street law firms often generate $1000+ an hour billing rates for the same efforts towards circumvention.

Everson suggests that we open up to public scrutiny conversations and communications between lawyers and their corporate clients – literally narrowing the attorney-client privilege – when it comes to such forced interpretations, and eliminate compensation to in-house lawyers and financial executives which generates stock incentives and bonuses for favorable results in pushing the statutory interpretation envelope. Neither recommendation appears to have even the remotest chance of being implemented; both practices are so ingrained in our system that it is beyond doubtful that any legislature in the land would be successful in this effort.

There may be a secondary tact – finding resonance in the Sarbanes-Oxley Act (“SOX” – a federal law that applied more stringent obligations on corporate officers of public companies and their legal and accounting representatives) – of possible ethical restrictions combined with legal teeth. Under SOX, a lawyer/auditor representing a client who sees a serious legal violation is required to pursue getting that matter corrected within the client’s executive hierarchy, but failing that, must resign and inform the Securities and Exchange Commission that the resignation was motivated by a failed attempt to correct a SOX issue. While the lawyer/auditor doesn’t have to report the details (a concession to accountant/ attorney-client privilege), such a filing with the SEC would undoubtedly trigger a governmental investigation , looking for violations. Thus, where a lawyer or CPA were engaged to circumvent legislative intent, a comparable limitation and ethical proscription could at least moderate the effort to drill for loopholes.

In the end, this ability of rich individuals and corporations to engage accounting and legal experts to circumvent legislative intent is just further evidence of a system that clearly favors wealthy special interests at the expense of ordinary citizens. Every dollar of failed tax collection of necessity puts additional pressure on the remaining taxpayers who don’t have such resources and exacerbates our federal deficit. A highly polarized nation where special interests have created such a disparity over average citizenry literally fosters a political structure that begins to smack of unsustainability in the longer term. In short, the aggregation of such legal and accounting efforts creates two tiers of laws – one for the rich and another for everyone else – that truly undermines the ability of the United States to survive as an intact political nation.

I’m Peter Dekom, and it’s time for all of us to pull together for what’s best for the United States of America.