As Safe as Money in the Bank

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Common in business ethics textbooks are case studies of unethical practices by for-profit corporations. Needless to say, the crimes and misdemeanors of the likes of WorldCom and Enron are analyzed in great detail Conspicuously lacking are case studies of malfeasance by non-profits and government agencies.

This is no surprise, of course. The authors of most business ethics texts work for government or non-profit colleges, and are ideologically disposed to view government as an honest referee that keeps business from exercising its evil tendencies, safeguarding innocent humanity. Business ethics profs read Immanuel Kant but not James Buchanan – for them, public choice theory doesn’t exist. However, in reality, government is hardly angelic.

Consider a recent report in The Wall Street Journal (Feb. 4, 2008). It details a new sort of government fraud: pocketing “unclaimed” assets. Here’s how the scam works. State governments have laws requiring businesses to return unclaimed property (such as valuables in safe-deposit boxes) to the rightful owners. But a number of states, most notoriously cash-starved California, are stealing those unclaimed assets. To put this simply, they take over the unclaimed assets but make no effort to find the owners, and instead use those assets as general revenues. This is as slick a fraud as anyone could dream up – but the perps are the selfsame angelic referees supposedly devoted to protecting the public.

We’re not talking chump change here. In 2006 alone, the states collected over $5 billion in assets and returned only $1.75 billion to the owners. The states currently hold about $35 billion in OPM (other people’s money). On the list of California’s unclaimed asset holders are such impossible-to-find people as Angelina Jolie and Willie Mays. Apparently, none of the angelic referees in state government has thought to call Brad Pitt or the Baseball Hall of Fame. Also listed is Sergey Brin, co-founder of Google. They could have just Google-searched the dude.

That many states are seeing this as a great new way to snatch revenue is indicated by the fact that they are starting to demand that businesses speed up turning over unclaimed assets – including uncashed employee checks and even unredeemed gift cards – and have cut back on attempts to find the legitimate owners. California, for example, no longer notifies the owners or even publishes their names.

If banks pulled this sort of crap, the government would go after them with a vengeance, and business ethics professors would bemoan the heartlessness of corporate greed. But when government does it, nothing is said.

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