It is not everyday that we hear about white-collar crimes but these non-violent crimes are on the rise too. Federal Bureau of Investigation states that USA, for example recorded white collar crimes amounting $300 billion every year (Cornell University, 2010). White-collar crime is relatively a new idea. It has been present in courtyards for quite a long time but the idea may still be ambiguous for some. Lawyers and law practitioners continue their dispute regarding the grounds and scope for white-collar crimes. It has many aspects that are viable for scrutiny and further interpretation to clear some of its gray areas.
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This paper explores the definition and scope of white-collar crimes. Conflicting definitions and opinions from law experts heighten the ambiguity of the idea. This paper gives run down of these definitions and opinions and discusses one by one thoroughly. By searching the literature, this paper aims to bring front the roots and history of this controversial branch of the law and judicial system. It showcases its revolution in terms of scope, sentences and sanctions, and specific cases through the years, from its conceptualization, formal introduction, and inclusion in the law. Moreover, it looks closely on the specific types of white collar crimes, taking into account their scope, grounds, sanction for the offenders with details about current judicial system. Lastly, it narrates and discussed specific cases that give white-collar crime popularity and ample attention from people of the law, the media, and the public. In the end section, this paper gives concluding remarks about the white- collar crimes.
White-Collar Crime: An Introduction
White-collar crime was defined by Edwin Sutherland as a “crime committed by a person of respectability and high social status in the course of his occupation.” Since this term was coined by Sutherland in 1939 during his speech for American Sociological Society, debates have risen as to what particular crimes will be considered as white collar crimes. In general and ambiguous terms, non violent crimes for financial gain were considered to be under this category. Some of the most common activities under white collar crimes include antitrust violations, different types of fraud (computer and Internet, credit card, bankruptcy, mail, financial and healthcare frauds), insider trading and environmental law violations. Powers of the members of the government, through another means of checks and balances, are also limited by including public corruption and money laundering under white-collar crimes as well (Cornell University, 2010).
In the modern judicial systems, common sanctions given to white-collar crimes offenders include house arrest, fines and financial penalties, sentences of up to 30 years, and offenders of economic crimes can be sentenced as much as that of offenders for violent street crime. The sentencing guidelines are particularly applied by computing the effects or loss caused by the fraudulent acts. Some of the famous white-collar offenders that were prosecuted were Bernard Ebbers of WorldCom, Jeffrey Skilling of Enron, and John Rigas and son Timothy Rigas of Adelphia (Podgor, 2007).
Despite the continuous development of the concept of white-collar crimes, no consensus has been made about a criminology theory that explains white-collar crimes. Experts of the sociology, legal, and criminology areas have clashing theories.
Theories and History of White-collar Crimes
This paper discusses five common criminology theories applied to principles of white-collar crimes which includes: Edwin Sutherland’s theories, Anomie and Corporate Deviation, Control Theory, Rational Choice Theory, and Integrated Theories. Each suggests different roots of white-collar criminal behavior such as the society, individuality, and culture. The motivations for rule breaking and committing such crimes are also presented in different perspectives.
Edwin Sutherland’s Differential Association and Social Disorganization
The original idea was to give a name to crimes or conspiracies committed by members of wealthy classes who use their influence in commerce and industry for personal gain without being held responsible to the law. Sutherland observed that often times, such cases were held under civil courts because the subjects were the properties lost and not the act itself. Offended parties were only concerned of their lost properties rather than filing a formal case to penalize the offenders. Hence, during these times, the law was rather passive to such contempt (Siegel, 2009). The centers of jurisdiction were the properties lost and neither the offenders nor the act. Seldom were the offenders convicted for this type of crime compared to convicted offenders of lower class crimes such as violent crimes.
Sutherland stated that white collar crimes occurs in the business and industry world (manipulation of stock exchange, bribery of and to public officials to achieve favorable contracts, embezzlement) and in other professions such as abortion as administered by a licensed doctor. He also delineated the boundaries of criminal behavior to be attributed solely to the members of the lower classes of the society. He pioneered the belief that criminal behavior does not regard status quo (Siegel, 2009).
The main propositions of Sutherland may be summarized as follows. First, white collar crimes are indeed a criminality. He argued that white-collar crimes are violations of criminal law; hence should be under the scope of criminology. Second, he acknowledged the administrative differences between lower class criminality and white collar ones. Judiciary processes of the two types of crimes should be segregated. Third, criminal behavior is not limited within the boundaries of poverty and inadequacy like other criminal behavior theories suggest. This leads to the fifth proposition that criminal behavior is not limited to members of the lower class. Lastly, he suggested that differential association and social disorganization theories will be the best criminal behavior theories particularly applicable to white collar crimes (Crutchfield and Weis, 2000).
Sutherland’s theory of differential association asserts that criminal behavior is not just solely a by product of poverty and inadequacy. It neither takes root from individual traits nor socioeconomic condition. Rather, it is a function of learning process. He supported this claim by stating that acquiring behavior is neither political nor legal in nature. Criminal behavior is a learned result achieved from exposure to pro crime values and attitude which leads to such behavior (Vito et al., 2007).
According to Sutherland, criminal behavior is a product of the learning process. It is mainly a product of interaction and socialization and not from low IQ and family problems as stated by other criminology theories to pinpoint members of the lower class of society as the only offenders of law. Moreover, this interaction and learning takes place with intimate groups such as family members, peers and co workers, and friends regardless of the status quo one belongs to (Vito et al., 2007).
Sutherland added that criminal techniques are even learned directly or indirectly. Learning crimes can be as direct as having mentors and learning through experience. Hence, the mass media can also create a pro crime environment by showing alike situations in programs that are available to children and even older counterparts. Other methods of learning can be made by taking drugs or alcohol so as to facilitate their criminal acts. Cultural differences in legal code can also influence pursuance of a crime. A perception that such act is not punishable by law in other cultures justifies intentions of committing the same on the other side of the globe where it is unacceptable. Likewise, exposure to justification of the criminal behavior such as the belief of “End justifies the means” can also provide impetus for rule breaking (Vito et al., 2007).
Social disorganization theory, on the other hand, state that criminal behavior is a product of unfavorable conditions in a disorganized zone. Such disorganized zones have difficult situations that force individuals to break rules and commit crimes. This theory is more concerned of the psychological rather than social aspects of criminal behavior. However, sociological conditions such as difficult family situations and personal relationships may take effect too (Gaines and Miller, 2009).
Edward Gross’ Corporate Deviance
By explaining criminal behavior, Gross pointed at the structure of the organization rather than the society as a whole. An organization that is structured as a goal-oriented entity and competition object and subject can be a sole source of a crime. Simply put, goal plus competition is a perfect breeding ground for motivations to break rules and to achieve a goal at all cost. An organization that put high remarks on their goals has more tendencies for rule breaking (Benson and Simpson, 2009).
Moreover, it can deepen the criminal tendencies if achievement of these goals is the objective and may be only basis of good performance. In the case of for-profit organizations, profit is the goal and this may be the only basis for judging one member’s achievement. Non-achievement of the expected profit is automatically considered as non compliance and poor performance regardless of the effort and time exerted towards the achievement of the goal. This pressure leads to fraudulent deals made by the members of the organization in order to be labeled with good performance (Benson and Simpson, 2009).
Meanwhile, the presence of goal displacement can lessen tendencies for rule breaking. However, this may only be true for non-profit organizations for their counterpart organizations will always have profit as their end goal. Another factor is the presence of the subunits within the organization. Subunits that have more interaction tend to face more motivation to break rules. For example, the sales department, which is more likely to interact with external entities, is more prone to criminal acts than that of the engineering department (Benson and Simpson, 2009).
In summary, the aspects of the organization that affects the occurrence of white-collar crimes include: accountability of the members to achieve the common goal, objectivity of performance evaluation, work environment interaction, and flexibility or adjustability of the goal (Benson and Simpson, 2009). Hence, in order to lessen the incidence of white-collar crime in a for-profit organization, the organization should be open to displace their goals so as not to exert overwhelming pressure to its employees. If adjusting goal will be unfavorable, it can devise subjective performance assessment methods and should not rely mainly to objective methods.
Travis Hirschi’s Social Bond Theory
Travis Hirschi proposed that an individual will tend to break rules when his or her bond to the society is weak. For him, deviance is a natural characteristic of an individual but it can be influenced by outside forces and personal dispositions. The elements of the criminal behavior under this theory are centered on attachment to others, commitment to predetermined lines of action, exposure to criminal behaviors, and personal belief and compliance of society’s common laws and values (Benson and Simpson, 2009).
While this is originally devised for juvenile delinquency, James Lasley converted it to the practice of white-collar crimes. He asserted that strong bond with the corporation can make managers and executives resist committing white-collar crimes. Hence, the following theorems were devised: 1) strong bond of executives to co-workers will lessen occurrence of white-collar crimes, 2) firm compliance to the organization’s principle, mission and vision can also lessen white-collar crime tendencies, 3) the more employees are involved in corporate activity, the less are white-collar crimes, 4) strong belief in the corporate rules can also lessen tendencies of white-collar crimes. A survey he conducted with 521 executives and managers supported these theorems (Benson and Simpson, 2009).
This theory was furthered developed when Hirschi and Gottfredson proposed self-controlled theory. They asserted that lack of self-control plus crime opportunity equate to crime. This self-control is achieved in the earlier life and is assumed to remain relatively constant. However, some argue that these may not be applicable to white-collar crimes because people with low self-control may have lower chances to qualify to white-collar jobs (Benson and Simpson, 2009).
Rational Choice Theory
This theory originated from the writings of significant criminology philosophers Beccaria and Bentham. Among their important contribution to the course of criminology includes the assertion that people and naturally rational and that each individual is a product of free will. Their approach towards criminal behavior is purely of rational justifications and even suggest that punishment should be considered equal to the damaged caused (Gerber and Jensen, 2007). This theory suggests that self-interest, including the costs and benefits, is the motivation to commit a crime. If the benefits of the criminal acts are higher than that of the non-criminal act, one will likely to choose to commit the crime. Moreover, objective pros and cons (formal sanctions and higher profit gain) and subjective pros and cons (lower self-respect, conscience, and convenience) are also weighted and examined carefully (Benson and Simpson, 2009).
Benson and Simpson (2009, p.67) argue that rational theory justifies the opportunity perspective of white-collar crimes. It is one of the few theories that acknowledge the importance of opportunity as a motive for committing a crime. Hence, to fully understand the patterns of such type of crime, organizations belonging to the legitimate business world should limit the opportunities in paths that may lead to white-collar crimes. Through expansion of government programs, transformation of banking and financial services, and the rapid growth of communications technology, new opportunities for white collar crimes have developed too. Hence, there is a need to restructure some processes to limit the foreseen opportunities brought by white collar crimes.
Based on an integrated criminal behavior theory, a perfect culture that encourages a crime is that of which promotes competition, materialism, justification, and rationalization of criminal act and removes unified sociological values and attitudes. Moreover, a structure of a perfect crime opportunity is composed of a possibility to control formal sanctions and attractive possibilities. In a more detailed way, Coleman stated that white collar crimes are prevalent in: society that promote culture of competition, an organization that is financially pressured, an occupation with high financial opportunities, and a subculture that directly or indirectly promote or encourage illegality (Friedrichs, 2009).
On the other hand, Braithwaite suggested that white-collar crimes are products of individual egoism trapped in a capitalist society and differential association. He combined differential association and rational choice theory by concluding that a criminal act is learned but actual pursuance is highly dependent on the nature of the opportunity. Moreover, he suggested the concept of differential shaming: the higher is the contempt of the society on the act; the lower is the occurrence of offenders (Friedrichs, 2009). Otherwise, absence of contempt is as good as promoting the crime.
These theories attempt to describe the roots of the criminal behavior in different perspective: from the culture, individual, and organization. These theories centered on the sociological and psychological scope of the criminal behavior. In the next sections, legal aspect of white collar crimes will be the focus. The next section discusses the types of white collar crimes such as anti-trust violations, frauds, tax evasion, public corruption and others.
Types of White Collar Crimes
Since white- collar crimes are non-violent, it takes many other forms. Different types of white collar crimes include: frauds, anti trust violations, tax evasion, public corruption, and many others. We look closely at these types in the section.
Anti Trust Violations
Shevefield and Stelzer (2001, p. 1-2) defined anti trust law as a set of rules meant to preserve the competitive process and to ensure that the commodities needed by the consumers are available at their satisfaction. It basically protects the competitive integrity of the market. It limits the decision making and intervention of the government within free trade. Hence, it is also called as “Magna Carta of free enterprise.” It limits any trust relationships and presence of monopolies in any commodity present for free trading.
Anti trust law protects the free market against trusts and monopolies. Trust is a right to acquire a property under fiduciary relationship with another party who takes the benefit of the property. On the other hand, monopoly is an economic condition wherein an entity shall have commercial advantage to set prices, even high prices, and to set the standard quality of a certain service or commodity as well. Anti trust law guard the economy against these anti competitive practices which let an entity for price control and promote diminishing initiative because of the absence of the threat of competitors. This can stagnate and even cause depression of growth of the industry or may hinder the entire economic growth (Cornell University, 2010).
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Anti trust law originated from the US via the enactment of Sherman Anti trust Act in 1890. It aimed to protect the free market from anti competitive practices which reduce market domination. Competition has been the basic rule of free trade since then. This has been the basis of other anti trust laws in different trading regions and nations. Later on, international anti trust law was also patterned to this premise (Cornell University, 2010).
According to Shevfield and Stelzer (2001, p. 114), anti trust law became an international concern because of the following scenarios: 1) globalization of major businesses going beyond national boundaries, 2) realization that competition can contribute significantly to wealth of the nations, and 3) continuous deregulation of the natural monopolies including gasoline companies, telecommunications, electricity suppliers, and others. Since, US has the most detailed streamline anti trust enforcement, it led the international trade against anti trust violators. From its institution in 1996, violators have been sanctioned and competition has been more or less ensured. According to American Bar Association (2009, p. 56), since 1997 up to 2007, the international antitrust division acquired more than $4billion from individual criminal anti trust fines while for corporate violators, hundred million dollars.
Profit- diminishing sanctions for anti-trust violations can be classified as criminal fine and private treble damage suit. Criminal fine is the most frequently imposed. This deprives the violators with some amount of the illegally gained profit. According to Sherman Act, the maximum criminal fine for individual violators is $ 1 million dollars and for corporate violators, a maximum of $100 million. Under its provision, the fines may be twice as high as the illegal profit gained or lost by the damaged party (Geis, 2009).
Fraud is one of the most common types of white collar crime. It works by plotting misinterpretation and deception to secure financial or information gain though illegal means. It usually takes place when an individual pays for a good or service but does not receive what he has paid for. Unlike petty robbery, fraud for financial gain by initiating a transaction to its victims, promising material gain, gets the money and then gets lost. It is very common that in a survey conducted, 36 % of US households have been victims of fraudulent transactions (Shover and Hocksletler, 2006).
Fraud is a general term. It has many specific forms. In this paper, we focus on computer and Internet fraud, bankruptcy and financial fraud, and healthcare and insurance fraud.
Computer and Internet Fraud
Computer and Internet fraud is defined as the unauthorized access of computer and Internet facilities. It is to create intentional avenues for misinterpretation of facts to initiate loss. These can be done through the following methods: 1) change computer input in an arbitrary authorized methods, 2) change or even delete stored data, and 3) rewrite software codes to completely access information. Some of its common form is hacking via using sophisticated tools to access computer or Internet accounts or the theft of password, credit card information to give authorization of use, and even identity (Cornell University, 2010). Particularly vulnerable to this fraud are bank users’ information that will be used for credit card cramming. Violators can use the information to create fake credit cards, along with the real password and identification number.
Another type of Internet fraud that the author wants to add is the intentional distribution of dangerous computer viruses. These computer viruses are also misinterpreted as useful programs which may also be considered a fraud and can even destroy software systems and even the hardware facilities.
Bernnett, et al. (2007, p. 485), according to The Computer Crime Research Center, the following are the top 10 computer and Internet fraud in descending order: healthcare fraud, solicitation fraud, vacation scams, investment scam schemes, business and work at home scams, pyramiding scams, information hacking (credit card cramming), Internet website design scams, ISP scams, and Internet auction frauds. These fraudulent deals over the Internet have caused millions of damage and thousands of victims.
Sanctions for computer aided frauds ranges from three times maximum of imprisonment and two times maximum fine. Nevertheless, the rapid boom of Internet during the 20th century posed serious problem in a worldwide scope. While there are efforts to enforce law over the cyberspace such as: No Electric Theft Act, Fraud and Related Activity in Related Activity in Connection with Computers, Wire Fraud, and other codes of law (Cornell University, 2010), the huge and rather overwhelming size of the cyberspace is one main problem. Hence, there is a need to restructure this virtual world or if it is impossible to do at the present time, it is up to the people to use common sense or be critical to recognize fraudulent deals over the Internet and report them to authorities. Search engines such as the mighty Google and Yahoo! cannot sort out fraud and fake deals for us. We need to be smart for us not to be consumed by these technologies.
Bankruptcy fraud takes three major forms. The first one occurs when debtors are concealing assets to avoid forfeiting. This accounts for more than 70% of all bankruptcy fraud cases. Failure to liquidate and reveal certain assets can allow debtors to keep their assets in spite of having outstanding debt. Second, individual debtors file incorrect or incomplete forms. These can also conceal some significant information about properties subject for liquidation. Third is the multiple record filing. Debtors filing multiple false or correct documents can cause delays and hinders forfeit of their properties. Lastly, bribery of court-appointed trustee is also a prevalent case. Debtors may opt to pay huge amount of money than to lose their properties (Cornell University, 2010).
Bankruptcy fraud is often used to facilitate other white collar crimes such as money laundering, mortgage fraud, public corruption, and even identity theft (Cornell University).Bankruptcy fraud has criminal charges. A violator can be sentenced with up to five years imprisonment or/and a fine of $250,000. However, most of such cases diminish within the lenient bankruptcy law processes. Hence, there is a need to make the enforcement of the law much harder (Wichouski, 2007).
Healthcare Fraud and Insurance Fraud
Healthcare and insurance fraud often go hand in hand. Healthcare fraud is filing false healthcare records and information in order to gain profit while insurance fraud is falsely obtaining improper payment from an insurance benefactor (Cornel University, 2010). These are also prevalent via the Internet and also among the top cases for Internet fraud (Bernnett, et al. 2007). Moreover, there are other methods and approaches to perform such crimes.
Healthcare fraud can be made through various means. One can obtain fully-covered medical materials and medicines and sell for profit. One can file a bill that was never rendered. A benefactor can also duplicate claims of already obtained materials. Lastly, incorrect reporting of diagnosis to maximize benefits is also a scheme. Healthcare providers pass all of these costs to their customers. A 30-day rule for claiming healthcare frauds by healthcare providers limit the investigation procedures of the company. Hence, more often than not, healthcare companies suffer from their inefficiencies. Some do not recover from loss and end up with bankruptcy, leaving all other customers without any benefits (Cornell University, 2010).
Insurance fraud is defined as “any act or omission with a view to illegally obtain an insurance benefit.” This includes fabricated claims, false statement and other dishonest claims. By fabricating relevant information with the intention for fraud and personal gain, although rightful of the insurance, make it still an act of crime (Milevesky, 2005). It is prevalent and its occurrence is increasing because such crimes are relatively difficult to detect. Such cases amount up to $80 billion each year.
There are two types of insurance fraud namely “hard fraud” and “soft fraud.” Hard fraud is the actual and deliberate destruction of property for collecting insurance money. This includes fabrication of accidents, death, and other destruction of property to claim the insurance benefits. Some fake their death, have their family claim the money and then support them in a secluded place. On the other hand, soft fraud occurs when a true policy holder collects too much of the remitted amount and lies about certain conditions and coverage of the insurance subscription. It can also happen via collecting of funds by fake or illegitimate policy holders.
Tax Evasion and Money Laundering
Tax evasion is basically non compliance of tax- paying policies or avoiding payment by illegal means. Some of the schemes include an individual or corporation intentionally misrepresenting details of income with the motive to pay lower that they are supposed to pay. Intentional misrepresentation of income occurs via underreporting, inflating deductions, and even hiding amounts of money along with interest and other sources of income (Cornell University).
Friedrichs (2009, p. 121) argues that tax evasion should not be limited to individual or occupational white collar crime. Other sources of income outside occupation such as investments and other properties can also be subjects of tax evasion. Moreover, failure to comply with tax laws is not only limited to non payment. Some other violations include failure to file and report income, false income claims and deductions, and other neglect of the tax paying processes. Low compliance to tax laws is a major problem in most countries. A significant amount of the nation’s income is lost due to non-payment and tax evasion. Many countries continue to devise methods to detect tax evasion, make the payment process more convenient and other means so as to encourage their citizens to pay their respective taxes.
In many countries, tax evasion is a crime that is subjected to serious criminal cases. Tax evaders are sentenced with huge fines or imprisonment or both. In the United States for example, a tax evader is amounted of not more than $100,000 or over $500,000 for corporate attempts and/or imprisonment of not more than 5 years. In a likely condition, this includes all the sanctions of the prosecution such as forfeit of the ownership of properties (Cornell University, 2010).
Money laundering refers to any transaction comprising of financial scheme with the motive of concealing the identity, source, and destination of an illegally sum of money. A money laundering can be observed within three exclusive stages: 1) the illegal activity of getting the sum of money such as bankruptcy fraud or bribery, 2) the launderer keeps the money via a complex scheme of bank transactions or any other method to give the money to the criminal partner in the transaction and, 3) the partner return the money to the launderer in obscure way (Cornell University, 2010). In some cases, the partner in the transaction is the same person as the true launder. False identities are used to secure the money in a bank account.
In the absence of trusted partners, launderers opt using offshore accounts in overseas banks to hide their ill gotten money to achieve greater privacy brought about by less regulation, and even reduced taxation. Because any country has no authority to require foreign banks to report the interest earned by their citizen from foreign bank accounts, the money launderer keeps the account abroad along with his money without being noticed by his or her country (Cornell University, 2010).
Becker (2005, p. 427) described money laundering as a scheme on how to legitimate a previously illegitimate income. He stated that money laundering are frequently products of income from illegal drugs. Along with the increase of prevalence of illegal drugs, occurrence of money laundering increased too.
The International Monetary Fund acknowledges that money laundering is a threat to financial integrity and social stability. Presence of money from drug trafficking and money laundering accounts for 2 to 5 % of global domestic income. Hence, to improve the processes of combating money laundering, many nations have participated to modify bank secrecy laws and to strengthen law enforcement efforts (Cortright et al., 2002).
Public Corruption, Bribery, and Embezzlement
Public corruption involves an infringement of public trust and/or abuse of office by government officials together with private sector counterparts (Cornell University, 2010). It is a crime of official misconduct with the known corrupt behavior of an official in the course of exercising his or her duty (Lippman, 2000). Some of the types of this misconduct include embezzlement, misappropriation or diversion of properties and obstruction of justice. There are different view regarding public graft and corruption and it is only in the recent years that countries aim to come up with international standards of what will be included as public corruption. This standardization aims to include specific offences and not only generic definition and offense of corruption (OECD, 2008).
In many countries, especially in the third world countries, public corruption is a major problem. It accounts for significant losses of public funds. Sectors that are particularly vulnerable are the less represented ones such as the agriculture and fisheries sector, the youth and education, the senior citizens and veterans and other minority groups.
On other hand, bribery is the offering, giving, soliciting, or receiving of any token of value used to influence the actions of an official holding a public office or legal duty. Bribery of any kind is objectively handled in best suiting of the private interests with regard to the maker of the decision (Cornell
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