White Collar Crime
Although white collar crime is a $300 billion dollar annual harm to our society, few perpetrators are caught and even fewer receive any sort of punishment. Analysis of white collar crime focuses on two types: the individual perpetrator having special knowledge or occupational expertise or access that permits him or her to gain illegal financial advantage over others; and corporate or organizational perpetrators, including organized and governmental crime. Since white collar crime is intermingled with legitimate business activities and often involves complex and sophisticated technical actions, detection is very difficult. Estimates are that less than 5% of perpetrators are caught. Analysis of federal sentences of corporations convicted of crimes during the late 1980s showed that 80% of the offending entities received fines of $25,000 or less, regardless of the severity of their crimes. While the public has demanded greater accountability and more severe punishment, the reality is that white collar crime pays handsomely, with little likelihood of punishment. With the passage of the Sarbanes-Oxley Act in 2002, Congress has instituted severe penalties for some types of corporate fraud and financial report falsification.
According to the Federal Bureau of Investigation (FBI) data, white collar crime costs the United States more than $300 billion dollars annually. While this total greatly exceeds the annual costs of crimes in the streets, estimated by the FBI to be $3.8 billion a year, most people are not as concerned about "crime in the suites." Despite the cost to our society, white collar crime often goes undetected. If discovered, white collar criminals frequently are dealt with within the civil law framework rather than the criminal law system. Under civil law, regulations deal with economic losses between private parties, so repayment becomes the focus rather than punishment.
Although criminologists continue to debate which specific crimes qualify as white-collar crime, in general white collar crime encompasses a variety of nonviolent crimes usually committed in commercial situations for financial gain. Types of white-collar crime include:
- Financial fraud
- Mail fraud
- Computer & Internet fraud
- Public corruption
- Money laundering
- Price fixing
- Tax evasion Page 40 | Top of Article
- Securities fraud
- Insider trading
- Trade secret theft
- Back-dating stock options
- Phone & telemarketing fraud
- Consumer fraud
- Credit Card fraud
- Bankruptcy fraud
- Healthcare fraud
- Environmental law schemes
- Insurance fraud
- Government fraud
- Investment schemes
- Welfare fraud
- Weights & measures fraud
The tools of the trade are fast-talking, internal networks, accounting systems, and computers. Usually, criminal complaints are brought against individuals, but sometimes corporations are held accountable as well, especially in terms of restitution and fines. Technically speaking, however, offenses committed by a corporation are called "corporate crime," or "organizational crime." Both are considered one type of white collar crime. This division of white collar crime categories into two types—occupational and corporate—was advanced by criminologists Marshall B. Clinard and Richard Quinney in the 1960s, and it remains influential to this day.
Although most individuals conceptualize white collar crime as being nonviolent, in reality this definition is faulty. Corporations that knowingly engage in the production of substandard food, drugs, or building materials, or who intentionally expose their employees to dangerous working conditions, can be held liable for crimes that fall into the white collar framework of analysis. According to statistics from the US Bureau of Labor Statistics, an estimated three million nonfatal workplace injuries and illness were reported by private employers in 2011, with nearly five thousand fatal work injuries. Despite this staggering loss of life, however, few corporations or their leaders are held criminally liable for their misconduct. There are numerous reasons explaining why little is done about white collar crime in general, and these deaths in particular, and they will be discussed later in this article.
Given the current condition of federal and state data collection methods, it is difficult to perform statistical analyses of white collar crime. There are no socioeconomic or occupational data about offenders in the Uniform Crime Reporting (UCR) data, for example, and no information other than the arrest records of corporate criminal actors. Similarly, FBI crime statistics collect information on only three categories of what is considered to be white collar crime: fraud, counterfeiting and forgery, and embezzlement. All other related crimes are encompassed in the category of "other." The FBI's estimate of $300 billion in losses a year, therefore, is probably low. The collapse of the savings and loan industry, for example, cost the American public between $300 and $500 billion dollars, while some estimates place health care fraud alone at between $100 billion and $400 billion per year (Mokhiber, 2007 ). The cost of the 2008 global financial crisis, which was spurred by widespread insurance, mortgage, and securities fraud and mismanagement by financial institutions, has been estimated to be in excess of $30 trillion.
Edwin H. Sutherland
The term "white collar crime" was used first in 1939 by sociologist Edwin H. Sutherland, who defined it as "a crime committed by a person of respectability and high social status in the course of his occupation." Since colored dress shirt fabrics did not come into use until the 1960s, executives and office workers across the nation wore white shirts to work every day, resulting in the label "white collar crime."
Because the term "white collar crime" has gained such acceptance with the public and scholars, it is hard to appreciate the revolutionary nature of Sutherland's arguments. Previously, crime analysis had focused on street crime and violence, rather than on the illegal actions of the rich and powerful. Sutherland sought to expose these crimes and bring justice to individuals harmed by those with powerful social, political, and economic connections. Edward Ross had articulated these same concerns in an article published in The Atlantic Monthly in 1907, but Sutherland's presidential address to the American Sociological Association's national convention in 1939 made front page news nationwide (Wong, 2005 ). Albert Morris had also examined upper- class criminals in his 1935 book on crime, but Sutherland's public platform, catchy terminology, and theoretical research framework launched the subdiscipline. Suddenly, the theoretical analyses of crime based upon poverty and poor socioeconomic conditions were shown to be inadequate as general explanations of criminal conduct (Wong, 2005 ).
Although the term "white collar crime" has gained public acceptance over the decades, sociologists and criminologists have engaged in an extensive debate over how to define the concept. Sutherland's argument that white collar criminals were of high status and respectability was challenged with research of the wide variety of individuals who engaged in white collar crime. Sutherland's argument that murder, robbery, and burglary were “blue-collar crimes” also was challenged. Similarly, scholars argued that the terms "respectability" and "high social status" were too vague and subjective for scholarly study. Thus, Sutherland's efforts to make a class-based definition of crime that focused on the perpetrator failed to withstand scrutiny. In part, this failure can be attributed to each individual's right to equal protection under the law. Within the US legal system, race, gender, wealth, occupation, and ethnicity cannot be used to discriminate among offenders.
Sutherland's assertion that white collar crime was related to occupation has been accepted in both sociological literature and in criminal practice. In 1981, for example, the United States Department of Justice's definition of white collar crime was dependent upon the professional status and/or special knowledge of the offender. It stated that white collar crime was:
Nonviolent crime for financial gain committed by means of deception by persons whose occupational status is entrepreneurial, professional or semiprofessional and utilizing their special occupational skills and opportunities; also, nonviolent crime for financial gain utilizing deception and committed by anyone having special technical and professional knowledge of business and government, irrespective of the person's occupation. (Bureau of Justice Statistics, 1981 , p. 215)
Under this definition, then, white collar crime includes someone who provides fraudulent goods or services to the public. It also includes someone who works for a business or corporation and commits a crime against that entity, such as an employee who embezzles money from his or her employer.
While the dual definition of white collar crime as either occupational or corporate enjoys wide acceptance, since the 1970s there has been a move to further refine the definition to focus on the actual act committed, rather than on the occupation or corporate role of the actor. In 1989, for example, the FBI changed its definition of white collar crime to:
Those illegal acts which are characterized by deceit, concealment, or violations of trust and which are not dependent upon the application or threat of physical force or violence. Individuals and organizations commit these acts to obtain money, property, or services; to avoid the payment or loss of money or services; or to secure personal or business advantage. (p. 3)
Thus, in addition to nonviolent actions, the abuse of trust has surfaced as a major element in the definition of white collar crime (Spalek, 2000). Another important development has been a focus on white collar crime as "power crimes," whether they are committed by individuals, corporations, or gangsters (Ruggiero, 2007). Criminologists Gary Slapper and Steve Tombs (1999 ) have added to the debate by analyzing criminal and noncriminalized wrongdoings. Much of the harmful conduct committed by corporations, such as polluting the environment, often violates American regulatory policies rather than actual criminal statutes. Because the intent of these regulations is to prohibit conduct rather than to punish it, the fines often are remarkably low. Some argue that by making these harmful actions criminal, too great a strain is placed upon law enforcement agencies, which can lack sufficient resources to deal with these problems. Slapper and Tombs, however, argue that the threat of criminal prosecution and adverse publicity would put pressure on corporations to police themselves. Though the likelihood of being caught and prosecuted would be statistically low, the corporations would still assume the costs of regulating themselves rather than the public. Celia Wells (2001 ) argues further for the criminalization of regulatory violations since, by sending a message about what kinds of conduct society deems to be worthy of sanctions and condemnation, it might serve as some additional deterrence.
While it may seem logical to hold organizations and corporations to the same standards individuals are held to, how this is done is not clearly defined within the theories of criminal law. Often, for example, in order to be convicted of a particular crime, it must be shown that the perpetrator had a guilty mind or "mens rea" to commit the crime. To be convicted of first degree murder, for example, the accused must have had the intent to murder or to cause serious bodily injury resulting in death. If the intent is lacking, the perpetrator can only be charged with a lesser offense, such as manslaughter. But all too often in corporate crimes the leadership lacks the specific intent to harm its victims. Instead, corporate executives weigh the risks involved in their actions, both the risks of harming others and of getting caught. Doctrines that hold corporations liable are less well developed than those pertaining to individuals in part because some would argue that there is no intent possible in a nonhuman legal entity. Eli Lederman (2001 ) offered an extensive discussion on developing legal theories to hold corporate entities criminally liable for their actions. One argument, for example, is that a corporation's intent or culpability can be gleaned from the leadership's directives to employees, whether verbal, written, or through everyday behaviors. It is important to realize that this entire legal development is relatively new. The first conviction in the United Kingdom for the offense of corporate manslaughter, for example, occurred in 1994 following an industrial death (Tombs, 1995). This development occurred as a response to a wave of business enterprise deaths at sea and on the nation's rail network. Often a corporate crime is portrayed as a unique accident rather than as the outcome of systemic wrongdoing and intentional neglect. Media images of street violence are intense, immediate, and personalized so that the public feels the threat of danger and becomes outraged; in contrast, corporate-related deaths are portrayed as rare, specific to a unique set of circumstances, and without culpability.
Like their corporate counterparts, individual white collar offenders face remarkably few consequences for their illegal behavior. Most individual white collar offenders are people who "got into financial difficulty and who saw their way out of it through illegal and fraudulent means" (Keel, 2008 , p. 2). These relatively small operators are more likely to get caught, while major criminals have the connections and resources to escape detection and prosecution. In fact, estimates are that less than 10 percent of the perpetrators are ever caught and convicted. Of these, an even smaller percent go to jail. According to the American Bar Association, for example, 91 percent of convicted bank robbers go to jail, while only 17 percent of those convicted of embezzling bank funds do. Even when building contractors knowingly use substandard materials that result in injury and death, they face fines rather than jail time (Long, 2007 ). Penalties have increased over the past few years, but severe punishment still remains unlikely.
There are several reasons why white collar criminals are not as severely punished as their street crime counterparts. Sometimes the status and wealth of a perpetrator does afford him or her special protections. Cronyism, or favors from politically elite friends, may influence whether a prosecutor decides to bring criminal charges against an individual or whether local law enforcement resources are allocated to pursue certain types of crime. Access to excellent, expensive, and well-connected lawyers also plays an important role in protecting these criminals from severe punishment. Since white collar individuals write the laws concerning white collar crime, vague terms and light sentences are established. And because these crimes are usually nonviolent and do not fit society’s image of purposefully evil, illegal conduct, the public perception of white collar crime is different and the demand for severe punishment less vocal.
Detecting & Prosecuting White Collar Crime
White collar crime often is difficult to discover. Special experts are required to trace bank fraud, securities fraud, and other complex and technical illegal transactions. Usually the offenses are hidden within normal business practices and easily kept secret through occupational controls. Additionally, white collar criminals often commit illegal acts that are regulated by government agencies, such as the US Treasury and the Environmental Protection Agency. Understaffed and lacking resources, these agencies often fail to detect white collar crime. However, following the global financial crisis, the US government has increased funding and resources for the US Department of Justice to investigate and prosecute cases of white collar crime more thoroughly.
When corporations are the perpetrators, it can also be difficult to assign blame to specific individuals within the organization. More often than not, corporations make arrangements to pay some relatively small fine as their only punishment. In these cases, it is believed that the removal of corporate officers guilty of the criminal conduct might disrupt the function of the entity, harming employees and shareholders who played no role in the crimes. Similarly, requiring the corporation to pay a huge fine also might affect its stability and the livelihoods of hundreds or thousands of employees. The Federal US Sentencing Commission, for example, found that between the years 1984 through 1987, nearly half of convicted corporations paid fines of $5,000 or less, while 80 percent were fined $25,000 or less (Keel, 2008 ).
Because white collar crime is so difficult to detect and investigate, numerous federal and state agencies work together to control it. In fact, the National White Collar Crime Center (NW3C) exists to:
Provide a nationwide support system for agencies involved in the prevention, investigation, and prosecution of economic and high-tech crimes and to support and partner with other appropriate entities in addressing homeland security initiatives, as they relate to economic and high-tech crimes (2008, ¶8).
Although Sutherland and his colleagues were concerned about crime perpetrated by business entities, all too often their theoretical or legal analysis of corporate crime focused on the criminal actions of individuals within an organization rather than the criminal actions of corporate entities. In 1976, however, another president-elect of the American Sociological Association, Stanton Wheeler, used his public platform to promote the study of organizational crime (Wong, 2005 ). Then, in 1981 , Ermann and Lundman introduced the concept of "organizational deviance" (Wong, 2005 , p. 15). Under their analysis, an organization is deviant if
- It commits an act that is in violation of external norms and the organization's stated goals, but "supported by internal operating norms"
- It socializes new members to consent to the organizations "rationalizations and justifications" for the deviant act
- It gives peer support to the individuals who committed the act, and
- Its dominant leadership supports deviant acts (Wong, 2005 , p. 15-16 ).
Later theorists distinguished between organizations with deviant goals and those "that approved illegitimate means in the achievement of organizational goals" (Wong, 2005 , p. 16). Organized crime syndicates fit into the category of organizations with deviant goals, although not all of the offenses committed by organized crime syndicates fall into the category of white collar crime.
The Organized Crime Control Act (U.S., 1970) defines organized crime as "the unlawful activities of … a highly organized and disciplined association…." It can and does exist in any setting, whether it be local, state, national, or international. In order to thrive and move money throughout the economy, however, organized crime has to have strong ties to legitimate business entities. Often, cooperation from respected members of the business community is gained through bribery, extortion, and blackmail. Added protection for the criminal endeavors is achieved by bribing judicial and law enforcement officials.
In an effort to combat organized crime, in 1970 the federal government passed the Racketeer Influenced and Corrupt Organization (RICO) Act (18 U. S. C. A. § 1961 et seq.) In addition to crimes deemed to be white collar in nature, RICO encompasses gambling, extortion, prostitution, narcotics trafficking, loan sharking, and murder. Punishment under RICO can be harsh, including fines and up to twenty years in prison. Additionally, the defendant must forfeit any claims to the money or property obtained from the criminal enterprise, or obtained from any criminal enterprise barred under RICO (White-collar, 2008).
Another aspect of white collar crime that can be either individual in nature or organized is governmental or political crime. Lawmakers are frequently in a position to trade their influence and legislative votes for money and gifts. Again, the risks of being caught are low, and given politicians' elite political connections within a governmental entity, even the loss of one's political career is not a given. Similarly, entire governments, or groups within a government, can commit acts that fall into the broad category of white collar crime. The Watergate break-in during the Nixon administration and the Iran-Contra scandal during the Reagan administration are both examples of illegal action performed by an organized group of individuals within our government.
Despite decades of corporate criminal offenses, it was not until 2002 that Congress enacted legislation that seriously penalized corporate wrongdoing. The Public Company Accounting Reform and Investor Protection Act, also known as the Sarbanes-Oxley Act (Pub.L. 107-204, 116 Stat. 745) increased penalties for mail and wire fraud to twenty years in prison. Acts of securities fraud could be punished by up to twenty-five years in prison. Additionally, the act criminalized the falsification of corporate financial reports, making it punishable with fines of up to five million dollars and ten years in prison (White-collar, 2008). Also contained within the Act was the directive that the Federal US Sentencing Commission increased the penalties for other white collar crimes. The huge financial losses from the Enron and WorldCom scandals, combined with the evidence of extensive financial report falsification by the accounting firm of Arthur Andersen, finally moved the government to take white collar crime seriously, in large part to shore up public confidence in the stock market and in corporate America. These new regulations changed the landscape of both public and law enforcement attitudes towards white collar crime. However, there was widespread disappointment following the 2008 global financial crisis that few financial executives or institutions were brought to trial for systemic mortgage and securities fraud, reinforcing the idea that white collar crime is extremely difficult to prosecute.
Terms & Concepts
Bribery: The act of attempting to induce someone to do something, especially something illegal, by offering money or some other enticement.
Cronyism: Preferential treatment given to one's friends or colleagues regardless of their abilities or qualifications.
Embezzle: To take for personal use and without permission the money or property belonging to others with which one has been entrusted.
Extortion: The use of threats, force, or other illegal methods to gain money or information from someone.
Mens Rea: Also known as criminal intent. The requirement that, to be found guilty of a criminal offense, the accused must have intended to commit the offense and known that it was a crime. Literally, a "guilty mind."
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