EVERY YEAR, AT BRANDED COCKTAIL receptions and bloated buffet breakfasts, government agents spend two days hobnobbing with the tax-haven attorneys they spend the rest of the year investigating.

The Offshore Alert conference takes place in Miami each spring, in London each fall and in “key offshore jurisdictions” all year round. Officially, participants come to discuss “wealth creation, preservation and recovery.” Less officially, the tax lawyers come to learn what the feds will crack down on next year. The government investigators come to fish for future jobs. Imagine a yearly picnic where sheriffs give drug dealers tips on hiding baggies from pat-downs and leave with a new set of endorsements on LinkedIn.

In person, the conference is even more surreal than it sounds. From across a cologne-scented hotel lobby, I watched tanned attorneys fresh off flights from the Caribbean mingle with ashen IRS agents who bring business cards from Kinko’s because the agency won’t pay to get them printed anymore. I listened to officials from the FBI and SEC lay out enforcement priorities as cryptocurrency investors and Russian bankers took notes. At lunch, I talked “Game of Thrones” with a Senate advisor, a government auditor and a Bahamanian lawyer who later offered to set me up a shell corporation for $5,000.

The finance types were frosty during the day—an investor who appeared to be wearing monogrammed slacks wouldn’t tell me his first name—but they loosened up at the happy hours. An offshore tax advisor bragged that he could take his clients’ tax rates from 49 percent to 15 percent and complained that they were constantly pushing him to go lower. Another told me that most of his clients aren’t trying to hide money from the government but from their second or third wives. “The first one raised their kids so they feel like she’s entitled to something,” he explained. “It’s the trophy wives they want to lock out.”

Jack Albertson is a government investigator—that’s not his real name and he won’t let me get more specific about his job description—who has been coming to Offshore Alert for years. When I ask him how this cops-and-robbers conflagration even exists, he tells me I’m thinking about it the wrong way. He, like all the other investigators here, knows that many of the lawyers who attend are hiding their clients’ money sketchily or outright illegally. He even knows how they’re doing it. The tactics for hiding money from tax authorities are not particularly sophisticated and have barely changed in the last 50 years. Set up a shell company and buy an appreciating asset—Iowa farmland, a London apartment, a New York pizzeria, something common enough that it won’t attract attention.

Contrary to the “Catch Me If You Can” myth, Albertson said, solving financial crimes is not a cat-and-mouse game between cunning investigators and slippery con artists. Most of the time it is simply the blunt application of resources to a series of unimaginably tedious tasks. “Investigators can already crack almost any offshore account if they have enough time and money,” he said. “The problem is that they only get that for a few cases a year.”

Over the last four decades, the agencies responsible for investigating elite and white-collar crime—roughly speaking, the IRS, SEC, the Occupational Safety and Health Administration, the Environmental Protection Agency and FBI—have seen their enforcement divisions starved into irrelevance. More than a third of the FBI investigators who patrol Wall Street were reassigned between 2001 and 2008. Enforcement funding at the IRS has fallen by 23 percent over the last decade. And, worst of all, every time a scandal exposes the government’s inadequacy, Congress steps in to squeeze the regulators even harder.

The most instructive case of this deliberate stunting is the Consumer Product Safety Commission. Founded in 1972, the CPSC’s job is to make sure the things you buy won’t pierce, poison or burn you. In the 1980s, Ronald Reagan slashed its budget as part of his crusade against bureaucratic waste. In the 1990s, Clinton instructed the agency to produce more data as part of his push for government accountability. No matter which party was in power, every administration gave the CPSC more to do and less money to do it with. By 2007, it had shrunk from its initial 786 employees to just 420.

SINCE DONALD TRUMP BECAME PRESIDENT, WHITE COLLAR PROSECUTIONS HAVE FALLEN TO A RECORD LOW.Getty Images

That same year, Mattel announced a recall of more than 1 million⁠ of its children’s toys that had been contaminated with lead paint. Despite the company’s sophisticated international operations and billions in revenues, it had never bothered to inspect the Chinese sub-contractors. By then, the CSPC had fewer than 100⁠ inspectors to monitor all imports to the United States. The Los Angeles-area ports where a chunk of the tainted toys arrived was overseen by a single part-time inspector.

Congress responded to the scandal by compounding the mistakes that had caused it. Lawmakers agreed to double the CPSC’s budget and increase its staff, but also obligated the agency to carry out dozens of new activities, including the creation of a public database to track safety hazards for every single product sold in the U.S.

The new mandate swallowed up all the agency’s new funding and more. Soon, the CPSC was dedicating nearly all of its time to lead abatement in children’s toys, neglecting millions of products that posed far greater risks to children, like flammable blankets or dangerous table saws. The product database filled up with unconfirmed complaints and spammy comments. Mattel, meanwhile, faced no consequences for manufacturing the lead-tainted toys beyond a $2.3 million fine—roughly 0.006 percent⁠ of its net income. According to Rena Steinzor, the author of “Why Not Jail? Industrial Disasters, Corporate Malfeasance, and Government Inaction,” the same cycle has repeated itself across every form of elite deviance, from tax compliance to financial regulation to environmental protection. In 2010, following a series of tax-haven scandals, the IRS set up a “wealth squad” to investigate the ultra-rich —but only staffed it with enough agents to perform 36 audits in its first two years.

After the Enron-led avalanche of corporate bankruptcies in the early 2000s, Congress gave the SEC enough funding to hire 200 new auditing staff. At the same time, however, lawmakers obligated the agency to review the filings of every publicly traded U.S. financial firm every three years—a mandate far larger than the agency’s new staffing levels. Then, after the financial crisis, it happened again: The Dodd-Frank act tasked the SEC with monitoring even more companies and trillions of new assets while increasing its enforcement staff by less than 10 percent.

This cycle has left America’s regulators with no choice but to engage in an increasingly desperate pantomime of white-collar law enforcement. On the outside, they report impressive performance statistics to avoid even more budget cuts. Behind the scenes, they’ve retreated to investigating only the defendants they know are guilty and the crimes they know where to find.

The primary beneficiaries of this shift are American elites. Rich people generate mountains of financial data. Millionaires can have over 100 bank accounts; billionaires’ tax returns run to 800 pages long. For people who earn most of their income from working (i.e. almost everyone), the IRS has an automatic system that compares individuals’ reports to the records submitted by their employers and banks. For the wealthy, who make much of their income from interest and investments, the agency has nothing to compare their reports against. The only way to tell if a rich person is cheating on their taxes is to sit down and go through them line by line.

In 2018, prosecutors convictedjust 37corporate criminals who worked at companies with more than 50 employees.SOURCE: U.S. SENTENCING COMMISSION.

“Let’s say you get a tip that some billionaire is hiding a bunch of money offshore and not paying taxes on it,” said Arthur VanDesande, who spent 25 years as a criminal investigator for the IRS. “And you manage to narrow the tax evasion down to 20 of his bank accounts. OK, now you have to prepare 20 subpoenas, get them signed by a judge and deliver them to the banks. But when you go to Bank of America, they say, ‘We don’t accept subpoenas at this location, you have to go to our authorized representative in Orlando.’ So then you go to Orlando and and you find out the money is linked to an offshore account. So then you have to write to the embassy…’”

Due to the IRS’ lean resources, VanDesande did most of this legwork himself. “You type your own shit, you make your own copies, you write every single affidavit. Sometimes you feel like, ‘I’m a senior-level person with a college degree. Why am I calling Wells Fargo and sitting on hold for 45 minutes?’”

Only some of this drudgery can be outsourced to lower-level staffers. White-collar cases involve understanding arcane laws, absorbing thousands of pages of documents, traversing international jurisdictions and coordinating a vast array of agencies from the Secret Service to the Post Office. They require investigators to be Jack Ryan, Magnum P.I. and Leslie Knope all at once. Even though auditing millionaires and billionaires is one of the most cost-effective government activities imaginable—an independent report estimated in 2014 that it yielded up to $4,545 in recovered revenue per hour of staff time—the IRS investigated the returns of just 3 percent of American millionaires in 2017.

In addition to reducing their caseload, America’s white-collar enforcement agencies have started prioritizing crimes they can prosecute in bulk. In 2017, the Department of Justice took on 889 prosecutions for identity theft (which, according to a 2010 survey, is estimated to cost individuals $371 out-of-pocket) and just 24 for antitrust violations. According to a ProPublica report, 43 percent of all tax filers audited by the IRS earn less than $56,000 per year. Roughly one in six of the SEC’s enforcement actions in fiscal 2019 were against financial firms for filing paperwork late—a six-fold increase since 2004.

Helen Richmond, a paralegal in a white-collar prosecutor’s office (that’s not her real name), said most of the defendants her office pursues are “either dumb or unlucky.” She’s worked on cases against money launderers who named stolen items on their wire transfers and fraudsters who sent emails with recipe-like details of their schemes. Criminals with even a scrap of sophistication, Richmond said, mostly avoid detection.

Another bargain-hunting strategy is to try cases in administrative proceedings rather than civil courts, an innovation that reduces hearings from months to hours. The downside, though, is that these cases largely play out in secret, resulting in fines rather than prison time and don’t compel defendants to testify, turn over evidence or admit guilt. In 2007, the SEC filed 60 percent of its settlements in civil courts. In 2015, that proportion was 17 percent. In 2014 and 2015, the agency didn’t file a settlement against a single U.S. Wall Street firm.

According to former OSHA assistant secretary David Michaels, these strategies are designed to achieve the all-consuming yet unstated goal of every regulation agency in America: Make yourself look more powerful than you are. The best way to do this is to focus on the cases that will yield the maximum deterrence for the lowest cost. At OSHA, Michaels said, “we would issue press releases announcing waves of random inspections so employers would look at their hazards. We never told them we only planned to do a few inspections.”

Similarly, the IRS has explicitly instructed agents to prioritize cases likely to generate headlines. (Ever wonder why so many B-list celebrities get busted for tax evasion?). Federal investigators go after media punching bags like Martin Shkreli, Martha Stewart and Fyre Festival scammer Billy McFarland to make the public think criminal prosecutions are routine. They’re not: In a case-by-case analysis of the 216 alleged large-scale corporate frauds discovered between 1996 and 2004, researchers found that the media uncovered twice as many as the SEC.

And so, after decades of operating in survival mode, white-collar enforcement agencies are better at reporting success than producing it. In a 2016 study, a Georgetown University School of Law professor named Urska Velikonja discovered that while the SEC reported a steady rise in prosecutions between 2002 and 2014, most of the increase was statistical padding. When a trader was charged with fraud and then lost her license to trade securities, for example, the SEC logged the sanctions as two separate cases. When the agency was in danger of posting sluggish performance stats for the year, investigators filed dozens of slam-dunk cases in September to catch up. As Velikonja put it, “they’re engaging in their own version of accounting fraud.” (The SEC declined to comment.)

For the agents charged with cracking offshore tax schemes and protecting consumers from lead-painted Elmo collectibles, this charade is profoundly demoralizing. “We killed a generation of agents,” VanDesande said. “If you investigate mom and pop grocery stores for 20 years, you lose the ability to do Bernie Madoffs.”

VanDesande has spent months building cases only to have the DOJ toss them with little explanation. Richmond, the paralegal, tells me federal and state prosecutors have been playing hot potato with one of her cases for months because they can’t justify an expensive prosecution for a fraud that adds up to the low six digits. During his first year on the job, Lewis Winters, an SEC examiner (and another government employee who couldn’t use his real name), had an investigation of a shady CEO rejected by the agency’s enforcement division. Even though he had found plenty of violations, the crimes just weren’t … grand enough for the agency to pursue.

“It felt personal,’” Winters said. “Why did I spend three months examining this guy if enforcement just goes, ‘meh’?”

ENRON USED TO BE CONSIDERED the capstone to the Golden Age of white-collar prosecutions, a shining example of the system working like it’s supposed to. Weeks after the company filed America’s then-largest corporate bankruptcy, federal agents searched its headquarters and discovered a $63 billion game of three-card monte. Using an intricate network of off-the-books shell companies, Enron executives made loans look like income and debt look irrelevant. The year before the company collapsed, its leaders had falsified 96 percent of its net income and 105 percent of its cash flow.

Between 2002 and 2006, the FBI’s Enron Task Force filed charges against more than 30 architects of Enron’s fraud. Investigators discovered a “shred room” at the company’s financial auditor, Arthur Andersen, and convicted the company of obstruction of justice. Four Merrill Lynch bankers were found guilty of helping Enron falsify its financial returns by purchasing three Nigerian barges. Task force agents convinced the company’s chief financial officer to testify against his higher-ups by threatening to charge his wife with a felony. He flipped; they convicted her of a misdemeanor.

Eventually, after a five-year investigation, Enron founder Ken Lay and former CEO Jeffrey Skilling were convicted of securities fraud and a meal deal of lesser charges. Though Lay died at a rented mansion in Colorado shortly afterwards, Skilling got 24 years in prison. At the time, it was one of the longest white-collar sentences in U.S. history. Prosecutors called it a victory. Skilling’s lawyers called it just the beginning.

ENRON’S JEFFREY SKILLING AND KEN LAY.Getty Images

As soon as the nation turned its attention elsewhere, Skilling’s lawyers began quietly dismantling his sentence. They filed appeals objecting to the statutes used to convict him, the trial’s Houston location and the questionnaires filled out by potential jurors. In 2013, citing the “extraordinary resources” it had spent prosecuting and defending Skilling’s conviction, the Department of Justice agreed to cut ten years off Skilling’s sentence if he promised not to file any more appeals. He was released in February 2019 after serving less than half his original sentence.

The rest of the FBI’s victory has crumbled under the same blitzkrieg of high-priced lawyering. The Supreme Court overturned Arthur Andersen’s conviction in 2005. The convictions of three of the Merrill Lynch bankers were vacated after they convinced an appeals court that they were merely trying to “solidify business relationships” rather than acting for personal gain. In the end, just 18 people served prison sentences (by comparison, more than 500 served time for the savings and loan crisis of the 1980s and early 1990s). Fourteen of them served fewer than four years. Andrew Fastow, the mastermind of Enron’s network of shell companies, now makes his living lecturing business school students and fraud investigators about how he did it.

Nearly every high-profile corporate scandal has the same overlooked epilogue. The wealthy have always attempted to spend their way to lighter sentences, but in the last two decades, the American judicial system has become increasingly willing to let them.

Fraud by large corporations costs Americans up to$360 billionper year—the equivalent of two decades’ worth of street crime. SOURCE: NEW YORK UNIVERSITY, DRUG AND ALCOHOL DEPENDENCE.

“We’ve seen a concerted effort to define deviance downward,” said Paul Leighton, a professor at Eastern Michigan University and the co-author of “The Rich Get Richer and the Poor Get Prison.” “We’ve made felonies into misdemeanors, misdemeanors into torts and torts into regulatory offenses.”

Honest services fraud, for example, is the subsection of mail and wire fraud that prohibits companies from lying to customers to get their business and CEOs from lying to investors after they’ve already been hired. Think of a mechanic telling you that your perfectly functional transmission is busted, then telling you it will cost $2,000 to fix it. He hasn’t defrauded you exactly—he really will replace your transmission—but he used his position of authority to scam you into paying for something you didn’t need.

Since 1909, prosecutors have used the honest services fraud provision to go after companies that lie to boost their stock price and politicians who give golfing buddies lucrative procurement contracts. District Court Judge Jed Rakoff, a former white collar prosecutor, once referred to the statute as “our Colt 45, our Louisville Slugger, our Cuisinart.”

But over the last three decades, the Supreme Court has taken the law apart piece by piece. In 1987, the Rehnquist Court ruled that the statute should never have been used to protect the so-called “right to honest services.” In 2010, the court restricted its application to public-sector bribery and kickbacks. From now on, the lying mechanic is breaking the law only if someone else is paying him to scam you.

Based on that ruling, several white collar criminals—including, wait for it, Jeffrey Skilling—had their sentences or convictions vacated. This year, two former Chris Christie underlings will tell the Supreme Court that orchestrating the “Bridgegate” conspiracy, in which they deliberately orchestrated traffic jams to get revenge on a Democratic mayor, is no longer illegal under the new, narrowed definition. If the Supreme Court agrees, the law will get even weaker.

Other white collar statutes have suffered the same slow strangulation. In 2006, a district court judge reaffirmed the right of companies to pay the legal fees of their executives, effectively giving every C-suite defendant the same deep pockets as their corporate employer. Since 1996, the Supreme Court has consistently blocked plaintiffs from receiving punitive damages, arguing that large punishments deprive corporations of their due process rights. In 2016, the court ruled that federal bribery law only applies to politicians who traded official acts for personal benefit—the kind of immediate, explicit kickback that rarely happens outside of corporate HR training videos.

“Criminal law used to be more closely aligned to our moral intuitions,” said Will Thomas, a University of Michigan professor who studies corporate liability. “We still talk about it like it’s a guiding moral force, but it’s a much more administrative process now.”

Today, Thomas explained, judges are more willing to disregard the consequences of their rulings (like, say, an Enron-scale fraud going unpunished) in favor of resolving obscure procedural ambiguities. In 2017, for instance, a case against New York financier Benjamin Wey was dismissed after he successfully argued that the search warrant used to gather evidence against him was overly broad and vaguely worded.

The confounding thing about these challenges is that they often highlight real weaknesses in the criminal justice system. American law is a contradictory jungle of century-old statutes and arbitrary definitions. Lying to government investigators, for example, is prohibited by at least 215 separate laws, each with their own standard of proof. Mens rea, the concept of “guilty mind” central to establishing criminal liability, has more than 100 definitions across various statutes.

So of course wealthy defendants win cases by arguing that fraud statutes and insider trading rules are poorly written. They are. But so are the rest of the laws. (Numerous state anti-gang statutes, for example, define “gang” so imprecisely that they could apply to most sororities.) The only difference is that white-collar defendants have the ability to dispute every step of the process used to convict them—and a judicial system all too happy to oblige.

One of the most conspicuous aspects of white-collar cases is the doting, near-veterinary care with which judges try to prevent defendants from facing harsh punishment. In 2014, a Colorado judge ruled that two farm owners whose tainted cantaloupes caused a listeria outbreak and killed 33 people couldn’t be sent to prison because it would interfere with their ability to earn income for their families. As he announced a sentence of five years probation, the judge explained, “I must deliver both justice and mercy.”

More than50%of auditors for the country’s largest companies said they had been asked to falsify internal audit reports.SOURCE: INSTITUTE OF INTERNAL AUDITORS.

According to a study by the Federal Judicial Center, four out of five judges in federal courts (where the vast majority of white-collar cases are decided) are white. A 2010 survey found that they have an average age of nearly 70. Their base salary is $210,000 per year.

It is, as one of those high-priced lawyers might say, improbable that these demographic and economic facts exert no influence whatsoever on judges’ rulings. In a 2012 review of sentencing data in Florida, researchers found that “high-status” white collar criminals, such as doctors scamming Medicaid, were 98.7 percent less likely to receive prison terms than welfare fraudsters. A 2015 study found that judges showed increasing mercy as fraud offenders moved up the income scale: Criminals who stole more than $400 million got sentences that were less than half of the minimum recommended by federal guidelines. Criminals who stole $5,000 or less served sentences well over the minimum.

“When you zoom out, you see all the ways that bias accumulates throughout the system,” said Justin Levinson, a University of Hawaii professor and the editor of “Implicit Racial Bias Across The Law.” Sentencing guidelines prescribe lighter punishments for first-time offenders and criminals who can afford to pay restitution. Evidence rules make it nearly impossible to seize records or computers from corporations. Jury selection weeds out the poor, the less educated and minorities.

And then there’s the matter of criminal liability. For many low-level crimes, prosecutors have to prove that a defendant should have known a crime was taking place. If a renter deals drugs out of her apartment, her landlord can be prosecuted. If you loan your friend your car and he commits a murder while driving it, you can be charged with murder, too. For executive-level crimes, however, the bar of criminal liability is set impossibly high: Prosecutors have to prove that defendants knew their actions were illegal and did them anyway. This myopic focus on intent means that white-collar trials often come down to the question of whether the defendant was the kind of person who would commit a criminal act.

John Lauro, an attorney who has represented healthcare and financial executives, said he always emphasizes the complexity of white-collar crimes to the jury—financial disclosures are so technical! How could my client possibly know that stock wasn’t going to pan out? He also plays up the upstanding-citizen angle. The first thing he does when he lands a new client, he said, is visit their homes and meet their families.

“I bring in things like their marriage, their kids and whether they coach little league,” he said. “The prosecution always wants to dehumanize them. They call my client ‘the defendant.’ I’ll call him by his first name until a judge tells me to stop.”

The only way to get around this, said Sarah Larkin, a securities fraud prosecutor in Manhattan (she couldn’t speak on the record, so that’s not her real name), is to make every crime seem as simple as possible. It’s lying, it’s cheating, it’s stealing. She structures every trial like a crash course, spending days explaining how the stock market works and what acronyms like SEC, CDO and GAAP stand for. Before she can convince jurors that the defendant lied on a financial statement, she has to do a week-long “Big Short” interlude to teach them what a financial statement even is—without the help of Margot Robbie in a bathtub.

“And after all that,” she said, “you still have to make the case for why this person who looks very upper-middle-class and has a family sitting in the back row should be branded a criminal. It’s a heavy lift.”

The near-impossibility of establishing white-collar defendants’ motives combines with the high standard of reasonable doubt to create a paradox. Most Americans have a visceral aversion to greedy executives in general. Introduce them to a single banker and a specific crime, however, and their moral outrage often melts away. As Sam Buell, a Duke University law professor, told me: “Put people on a jury and they’ll say, ‘Gee, it seems like this guy was doing his job, so I don’t think it was a crime.’”

Take the case of Brian Stoker, a Citigroup employee who was charged in 2011 with marketing risky investments (one trader called them “dogsh!t” in an internal communication) as safe bets. According to the SEC, the bank made $160 million while investors lost $700 million. In his closing argument, Stoker’s attorney showed the jury an illustration from a “Where’s Waldo” book. Their client was a nobody, he suggested, a scapegoat for the culture of high-stakes gambling that had taken over the entire financial sector. Why make him a patsy when everyone else was doing the same thing?

The jury declared Stoker not guilty. But in the same envelope as their decision, they included a handwritten note. “This verdict,” it read, “should not deter the S.E.C. from continuing to investigate the financial industry.” In other words: Keep trying to lock up greedy bankers. Just not this one.

And this is it, the Rosetta Stone for understanding why judges are so comfortable explaining away the misconduct of corporate executives; why Congress never strengthened the castrated white-collar statutes; why so few pharmaceutical executives have been imprisoned for the opioid crisis and only a single banker went to prison for the financial crash. American law is incapable of prosecuting crimes in which elites use their legitimate power for nefarious ends.

3%of the millionaires who filed tax returns in 2017 were audited by the IRS.SOURCE: TRANSACTIONAL RECORDS ACCESS CLEARINGHOUSE AT SYRACUSE UNIVERSITY.

“The way businesses harm people is the same way they interact with them normally,” Albertson said. Banks collect debts and foreclose on homes every day. Banks give out home loans every day. When they entice customers into unaffordable mortgages or foreclose on borrowers tricked into signing loans they can’t afford, the courts can’t tell the difference.

This insight also explains why the legal system applies the opposite logic to organizations run by the rich and organizations run by the poor. Teenage gang members who argue that they committed crimes due to the culture of the Crips or the Latin Kings receive harsher sentences—stealing money for yourself is bad; stealing money for a criminal organization is worse. Corporate defendants who claim they committed crimes due to the internal culture of Goldman Sachs or HSBC, on the other hand, get lighter sentences—how could an individual possibly be held accountable for something everyone else was doing?

And so, as they lose the ability to prosecute high-level crimes and elite offenders, many of America’s criminal justice institutions have simply stopped trying. Of the 649 companies prosecuted by the Department of Justice since 2015, only eight were convicted in court. The rest either took settlements or negotiated themselves a deferred prosecution or non-prosecution agreement.

These arrangements, like so many other aspects of America’s white-collar enforcement apparatus, represent the cynical perversion of a benign idea. Deferred prosecution agreements were created in the 1930s to allow first-time juvenile offenders to avoid jail time if they followed probation rules and didn’t reoffend. Since the early 1990s, prosecutors began extending the principle to corporations: If you agree to investigate your own crimes, turn over evidence against your employees and change your internal policies, we won’t take you to court.

Since then, deferred prosecutions have become one of the primary engines of American impunity. They don’t require companies to explicitly admit guilt and don’t apply steeper punishments to repeat offenders. While courts often appoint independent monitors to make sure corporations comply with the terms of their probation, these reports aren’t released to the public. Since 1999, only three companies have ever been prosecuted for violating the terms of their agreements.

“Criminal law isn’t just about deterrence, it’s about moral education,” said John Coffee, the director of the Center on Corporate Governance at Columbia Law School. “You show the public that a crime occurred and how terrible its impact was. We’re missing that catharsis now.”