White Collar Crime Penalty Enhancement Criminology Essay

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The last few years have seen some major scams and corporate collapses across the globe. A key aspect that is being debated in the corridors of India is whether we need major regular changes to improve corporate governance, or whether improved standards of corporate governance could be achieved through adoption of principle based standards of conduct. Perhaps the most vital corporate governance legislation in recent years is the Sarbanes-Oxley Act, 2002 of US which is becoming a global benchmark for internal best practices in corporate governance. The inclusion of White Collar Crime Penalty Enhancement Act, 2002 in the corporate reform package creates new substantive offenses, significantly enhances financial and incarceration penalties, and relaxes some procedural evidentiary requirements for prosecutors. White Collar Crime is not only a crime but a very serious crime with wide and often gory repercussions. Its seriousness can be gauged from the fact that effect of even a few White Collar Crimes on the economic fabric of society can be far more devastating. This paper outlines that it is high time for the Indian corporate sector to draw lessons from the experience of the functioning of the Act in US in order to cope up with the ongoing global reforms in corporate sector, regulatory framework and governance practices.


The words of Woody Guthrie :--

Well, as through this I have rambled

I have seen lots of funny men,

Some rob you with a sixgun

Some with a fountain pen

White collar crime-definitional issues

Economic crimes in its wide ambit also includes white collar crimes because of the diverse nature of its component activities, is incapable of simple definition.

American Sociologist Edwin Sutherland first coined the phrase, "White Collar Criminality" which he described as 'a crime committed by a person of respectability and high social status, in the course of his occupation'. However this definition is restrictive in nature as it does not seem to include crimes committed outside of one's occupation. The role of class has been highly contested, as the status of an offender may matter less than the harm done by someone in a trusted occupational position. The term 'crime' is also contentious as many of the harmful activities of businesses or occupational groups are not subject to criminal law and punishment but to administrative or regulatory law and 'penalties' or 'sanctions. Therefore, a region specific definition of White Collar Crime can be:--

"White Collar Crime is an illegal act or series of illegal act for achieving an illegal objective committed by any person by non-physically or non-violent means and by guile, to gain money or property wrongfully or to avoid payment of legal dues or retain money or property wrongfully as to obtain wrongful business of personal advantage."

White Collar Crimes Broad Categories

This list is indicative of the broad categories of White Collar Crime prevalent in India and all over the world but cannot be considered comprehensive.

Bank Fraud--To engage in an act or pattern of activity where the purpose is to defraud a bank of funds, Blackmail--A demand for money or other consideration under threat to do bodily harm, to injure property, to accuse of a crime, or to expose secrets, Bribery--When money, goods, services, information or anything else of value is offered with intent to influence the actions, opinions, or decisions of the taker, Cellular Phone Fraud--The unauthorized use, tampering, or manipulation of a cellular phone or service, Computer fraud--Where computer hackers steal information sources contained on computers such as: bank information, credit cards, and proprietary information, Counterfeiting--Occurs when someone copies or imitates an item without having been authorized to do so and passes the copy off for the genuine or original item, Credit Card Fraud--The unauthorized use of a credit card to obtain goods of value, Currency Schemes--The practice of speculating on the future value of currencies, Embezz1ement-When a person who has been entrusted with money or property appropriates it for his or her own use and benefit, Environmental Schemes--The overbilling and fraudulent practices exercised by corporations which purport to clean up the environment, Extortion--Occurs when one person illegally obtains property from another by actual or threatened force, fear, or violence, or under cover of official right, Forgery--When a person passes a false or worthless instrument such as a check or counterfeit security with the intent to defraud or injure the recipient, Health Care Fraud--Where an unlicensed health care provider provides services under the guise of being licensed and obtains monetary benefit for the service, Insider Trading--When a person uses inside, confidential, or advance information to trade in shares of publicly held corporations, Insurance Fraud--To engage in an act or pattern of activity wherein one obtains proceeds from an insurance company through deception, Investment Schemes--Where an unsuspecting victim is contacted by the actor who promises to provide a large return on a small investment, Kickback--Occurs when a person who sells an item pays back a portion of the purchase price to the buyer, Larceny/Theft--When a person wrongfully takes another person's money or property with the intent to appropriate, convert or steal it, Money Laundering--The investment or transfer of money from racketeering, drug transactions or other embezzlement schemes so that it appears that its original source either cannot be traced or is legitimate, Racketeering--The operation of an illegal business for personal profit, Securities Fraud--The act of artificially inflating the price of stocks by brokers so that buyers can purchase a stock on the rise, Tax Evasion--When a person commits fraud in filing or paying taxes, Welfare Fraud-- To engage in an act or acts where the purpose is to obtain benefits (i.e. Public Assistance, Food Stamps, or Medicaid) from the State or Federal Government, Weights and Measures--The act of placing an item for sale at one price yet charging a higher price at the time of sale or short weighing an item when the label reflects a higher weight.

In fact, today corruption has broken the ramparts of traditional spheres of police and revenue departments and has entered the sanctum sanctorum of national life-the schools and colleges. The entire fabric of educational system based on the fabric of white collar crime where cheating and dishonesty is the base of the entire system.

12 Step Process of White Collar Crime

The process of white-collar crime has been broken down by the researchers into 12 steps.

The first step initiates when the perpetrator is hired into a position of power. Second step, personality and life circumstances affect the perpetrator in such a way that they recognize their power. In the third step "drivers" who turn a blind eye or condone certain activities come into view. The fourth step sees passive participants recognizing an opportunity. In fifth step reluctant participants are drawn into the web of deceit by the "leader". In sixth step distrust of the other people involved emerges. The seventh step makes the perpetrator recognizes that they have their accomplices in a vulnerable position and begin to exploit that position. In eight step bullying tactics become increasingly common as illegal goals are aimed for. In ninth step, the crime continues, but the perpetrators, trapped in their insatiable addiction, become more blazes, taking bigger risks, and seeking more lucrative exploits. In tenth step, an undeniable paradox becomes apparent, as the participants' values and their behavior are now obviously in conflict. In eleventh step, a whistleblower steps up to the mark and the leader loses control. Finally in twelfth step, blame is laid at the feet of the perpetrator at which point they either deny everything or admit their guilt and seek forgiveness by laying bare their activities.

Philosophy of White Collar Crime

The philosophy of White Collar Crime is that success and material advancement are the only important things that matters in life and in achieving that one need not hesitate to adopt unethical conduct. It encourages an aptitude of contempt for those who live with semblance of idealism. The philosophy of 'get rich quickly' is also responsible for white collar crime. A European Police Officer is reported to have once observed: 'India has always seemed to me a very paradise of swindlers.'

In the words of Ramsey Clark, one time Attorney General of India, "White collar crime is the most corrosive of all crimes. The trusted prove untrustworthy, the advantaged dishonest. It shows the capability of people with better opportunities for creating a decent life for them to take property belonging to others. As no other crime, it requisitions our more fibre."

White Collar Criminals

"White collar crimes are committed by persons of respectability and high social status in the course of their occupation-also are extremely widespread, but an index of their frequency is not found in police reports. Prosecution for this kind of crime is frequently avoided because of the political or financial importance of the parties concerned, because of the apparent triviality for prosecution, particularly in the cases of crimes by corruptions." [1] 

White collar criminals operate in upper socio economic levels. White Collar crime is the product of social disorganization, competence and conflict is intricately and intrinsically more serious than traditional crime committed by the traditional criminal. According to Barnes and Teeters

"Although we must continue to focus our attention on the underworld of crime, we must recognize the over world of respectability that permits crime to flourish. Those who deal with crime problems should not only become alert to the fundamental and significant changes in crime patterns but should adopt their thinking and tactics to the realities of the 20th century." [2] 

The financial corporation and institution have a high incidence of hidden criminality. Dishonesty is the rule and honesty is an exception. High crime rates are to be accepted in a social system in which great emphasis is placed upon the success goal-attainment of individual wealth and relatively slight emphasis is placed upon the proper means and devices for achieving this goal.

Victims of White collar crimes

White Collar Crime is not only a crime but a very serious crime with wide and often gory repercussions. Its seriousness can be gauged from the fact that effect of even a few White Collar Crimes on the economic fabric of society can be far more devastating than all the thefts, burglaries, robberies and dacoities put together. Victims of white-collar crime can be an individual; a group of individuals; a local organization; a company; government or a large corporation.

Role of Enforcement Agencies

Economic laws in India are enforced by separate departments. The role of police is very limited. In India, keeping in view the dangerous portents of White Collar Crime, the Central Bureau of Investigation(CBI) which is the premier investigating agency for white collar crime in addition to anti corruption crimes has through a major reorganization and restructuring aimed at achieving highest levels of specialization in economic crimes. White Collar Crime investigation formed a separate Economic offences division in 1994. In order to discharge its functions and responsibilities effectively, the Branches/Units, Regions/Zones of the Economic Offences Division are required to maintain close liaison with the Ministries of Finance, Commerce, departments of Revenue, Banking, CEIB, SEBI and such other Central/State level economic institutions. All the economic crimes created by the special statutes are non-cognizable.

Implementation of law

A differential implementation of laws is there with regard to white collar crimes. It can be explained under three different categories:

Diffused resentment of people against White Collar Crime

Apparent respectability of the criminal

Soft laws and softer punishments

In India, the legislature has recently shown great awareness and sensitivity to enactment of laws or making amendments prescribing deterrent.

In 2003 Supreme Court in Assistant Commissioner, Assessment-II, Bangalore & Ors. v. Velliappa Textiles Ltd & Anr [3] took the view that since an artificial person like a company could not be physically punished to a term of imprisonment, such a section, which makes it mandatory to impose minimum term of imprisonment, cannot apply to the case of artificial person. However, Supreme Court in 2005 in Standard Charetered Bank v. Directorate of Enforcement [4] in majority decision of 3:2 expressly overruled the Velliapa Textiles case [5] . K.G.Balkrishnan J. in majority opinion held "We hold that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which punishment prescribed is mandatory imprisonment. We overrule by the majority in Velliappa Textiles on this point".

Systemic weakness

On October 12, 2008, Business Line reported that Satyam "refuted reports in the international media that World Bank has barred it from doing offshore work."This denial was a lie. In December 2008, the Bank publicly declared Satyam "ineligible for contracts for providing improper benefits to Bank staff."There are no reports about SEBI questioning Satyam about this. The Government has established a Serious Fraud Investigation Office (SFIO) under the Ministry of Corporate Affairs. The magistrate denied SFIO's request, stating that the latter needed to specify the correct legal provisions to question the accused. These police and court actions imply that SFIO may not fit in well within a criminal proceeding. The police told the court that Satyam had 13,000 fictitious employees, whose salaries were used to siphon off funds from the company. However, following a statement issued by the HR department of Satyam, this does not appear to be true.

The picture that emerges is that there are no well-defined roles and system of collaboration within the investigative agencies. None of them appears to have all the skills or authority to successfully prevent or prosecute white-collar crime. Without meaningful actions to redress these fundamental weaknesses, corporate governance in India will remain weak. In turn, this would make the public hesitant to invest their money in the shares of any company. Potential clients would wonder whether they should do business with the firm, notwithstanding its technical expertise.

There has been a sudden awakening to the fact that the country can progress economically with legally correct distribution of wealth only if business & industry are made to behave. The recent liberalization of the economy to rid business and industry of the permit-license raj at least to some extent, is a step in the right direction. If, in spite of such liberalization, large scale economic offences are committed, then such offenders should be dealt sternly and severely.

Corporate Accountability and Excellence under the Sarbanes-Oxley Act, 2002

In the United States (US) the Sarbanes-Oxley Act, 2002 (Act) came into force the wake of collapse of corporate giants like Enron, Tyco, Quest, Global Crossings and WorldCom and the Xerox fiasco.  In almost all the cases, reasons of the fall of multinational corporations (MNCs) were accounting manipulations, failure on the part of auditors and dereliction of duties by the Board of Directors.  The thrust of corporate India has also been to prevent malpractices and shape the corporate governance.  To accomplish these objectives, the Companies (Amendment) Bill, 2003, (Bill) based on the recommendations of Naresh Chandra Committee on corporate audit and governance has been placed in the Parliamen [6] .

The Corporate and Criminal Accountability Act, 2002, has been strengthened by amending the Federal criminal law to impose stringent criminal penalties for: (1) knowingly destroying, altering, concealing, or falsifying records with intent to obstruct or influence either a federal investigation or a matter in bankruptcy; and (2) auditor failure to maintain for a five year period all audit or review documents pertaining to an issuer of securities.

The White Collar Crime Penalty Enhancement Act, 2002, has been strengthened by amending the Federal criminal law to: (a) establish criminal penalties for attempt and conspiracy to commit criminal fraud offences; and (b) increase criminal penalties for mail and wire fraud. The provisions have been made more stringent to establish a maximum 20 years prison term for tampering with a record or otherwise impending an official proceeding.

 It has been made mandatory for the Chief Executive Officer (CEO) and the Chief Finance Officer (CFO) of a company to certify that: (a) the periodic reports filed with the SEC are materially correct;  (b) the financial disclosures 'fairly represent' the company's operations financial conditions, and (c); they are responsible for evaluating and maintaining adequate internal controls.  The penalty in case of false or improper certification ranges from US$ 1 million to US$ 5 million or imprisonment up to ten years or both.


It is suggested that in the light of the experience of the Act in the US, following reforms should be introduced in India for achieving corporate excellence and accountability [7] :

Enactment of laws on the pattern of the Corporate and Criminal Accountability Act, 2002 and White Collar Crime Penalty Enhancement Act, 2002 for investigation and prosecution white collar corporate crimes. [8] 

Strengthening of the Enforcement Agencies such as CBI, DRI, and the Directorate of Enforcement is a sine qua non.

The judiciary should play a proactive role for speedy trial of corporate frauds and award deterrent punishment to unscrupulous management found guilty of corporate offences. [9] 

The liability of directors under the Companies Act for their non-compliance of statutory provisions and fraudulent practices should be strict as that of an 'occupier' under the Factories Act.  The listing agreements with stock exchanges should also provide for strict penalty in case of misstatement or false information in quarterly reports. [10] 

The institutional investors should effectively discharge their responsibility in protecting the interests of small investors by bringing in class action. [11] 

The independent character and role of the Audit Committee under Companies Act and Listing Requirement need to be strengthened. The practice of the boards of family managed companies appointing their friends as non-executive directors should be stopped because the decision whether a director is independent or not is left to the Board of Directors. [12] Â 

Warning system like 'whistle blowing' can be an effective anti-corruption tool. Indian Companies should encourage employees to directly inform top management about anything wrong observed by them in the company.  On reported, a committee of officers and workers, including women representatives, should look into cases and grievances. [13] 

Strengthening the independence of auditors and segregation of audit and non-audit practices.  Management of a company should be prohibited from influencing auditors in discharge of their duties.  At the same time, only those auditors having arm's length relationship with the board of companies should be appointed as auditors and they should be prohibited from providing non-audit and tax audit services. [14] 

There should be greater self-discipline and emphasis on codes of ethics and social responsibilities on the part of companies.  In the ultimate analysis the society has created business institution for its welfare and it has to discharge its duties and responsibilities as  good corporate citizens. [15] 


It is high time for the Indian corporate sector to draw lessons from the experience of the functioning of the Act in US in order to cope up with the ongoing global reforms in corporate sector, regulatory framework and governance practices. [16] Â  Section 906 of the US Act provides for 20 years of imprisonment, whereas in India the Companies Act, Section 628 provides for 2 year imprisonment only. [17] It is perhaps due to the fact that sufficient deterrent is conspicuously absent in India and fraud after fraud are taking place. The government will have to come up with harsh legislation in this regard so that the culprits are severely punished in order to ensure better corporate governance.