WHITE COLLAR CRIME
White collar crime is the illegal activities of people and organizations whose acknowledged purpose is profit through legitimate business enterprise. White collar crime involves illegal business practices (embezzlement, price-fixing, bribery) with merchandise that is ordinarily seen as a legitimate business product.
In the late 1930s, criminologist Edwin Sutherland first coined the term "white collar crime" to describe the criminal activities of the rich and powerful. He defined it as "a crime committed by a person of respectability and high social status in the course of his occupation." As Sutherland saw it, the rich were engaged in a conspiracy to use their position for personal gain without regard to the law. Today, it is recognized that persons in all social classes can commit white collar crimes, but the notion of getting away with disregard for the law still exists in the justice system's tendency to treat these offenses as civil rather than criminal matters. The following types of white collar crime are recognized today:
Corporate crime -- Usually occurs when a strongly competitive business environment fosters corporate irregularities (antitrust violations, price-fixing, false advertising)
Government crime -- illegal and socially injurious cooperation between governments and corporate institutions (space shuttle disasters)
Occupational crime -- Usually occurs when employees come across an opportunity to make extra money by bending or breaking the rules (theft, pilfering)
Professional crime -- people or groups of people who systematically set out to look for opportunities to make money illegally (fraud, tax evasion, deceitful claims, phantom operations, false pretenses, forgery)
There have been numerous attempts to create typologies of white collar crime. One such typology is the following:
|A typology of white collar crime:|
1. Stings and Swindles -- pretending to run a business
(or religion) in order to bilk people out of their money (e.g. Bank of
Credit and Commerce International, or BCCI, in 1991 was believed to be the
world's 7th largest bank, but it turned out to be a money laundering
facility for Ferdinand Marcos, Saddam Hussein, and Columbian drug cartels)
SECURITIES LAW VIOLATIONS
Part 15 U.S.C. Sections 77a-78kk contains the Securities Act (originally passed in 1933 and amended numerous times). It prohibits the use of "manipulative or deceptive devices, mail or wire fraud, making false statements in order to increase market share, conspiracy, and unfair market practices." Some common forms of securities fraud include: churning -- when brokers place repeated, excessive, unnecessary orders for the buying and selling of stock with a customer's money; bucketing -- skimming customer profits by falsifying trade information; front running -- placing orders ahead of a customer's order to profit from market effects of the trade; insider trading -- using confidential, market sensitive information of pending corporate actions to buy stock or give that information to a third party; and illegal arbitrage -- using insider information on such deals as merger negotiations to speculate on the difference between current stock prices and the price the acquiring company pays.
FORMS OF CLIENT FRAUD
Health care fraud includes: ping-ponging -- referring clients to other physicians in the same office; gang-banging -- billing for multiple services; and steering -- directing patients to certain pharmacies. The 1993 Stark laws (named after Congressman Pete Stark of California ) also prohibit any doctor from sending a patient to any service the doctor has invested in.
Basic bank fraud includes check kiting -- where a client with accounts in two or more banks takes advantage of the time required for checks to clear; e.g. you have $5000 in one bank and $50 in another bank; so the second bank (because you're a member) cashes a check for you for $3000 drawn on your account at the first bank, but before the check clears, you withdraw or write additional checks depleting the original $5000, so your "take" is $8000 or more. Check kiting works best when it involves banks in separate states or countries.
Tax evasion is either passive neglect (a misdemeanor) or affirmative (a felony). Signs of affirmative tax evasion include keeping double books, false entries, destruction of records, and covering up sources of income. Moonlighting workers who get paid "under the table" are determined on a case-by-case basis by the IRS if they are passive or affirmative.
THE SAVINGS AND LOAN SCANDAL
From 1980 to 1990, the savings and loan (S & L) scandal cost taxpayers over $500 billion, the largest single financial disaster in history. It will take about 40 years to recover from it. It started when the government decided to "deregulate" S & Ls, allowing them to do more than just home loans, allowing them to invest in speculative real estate transactions and high-risk commercial lending. In order to compete with the regular commercial banks, the S & Ls offered low-interest loans to just about anybody, and worse yet, restrictions were relaxed on who could own and operate an S & L. Given this green light, they made irresponsible loans to shady businesspeople and risky real estate developers. Sometimes kickbacks accompanied the loans. As most of the banks headed into bankruptcy, many executives, believing that FDIC would cover their customer's losses, "looted" the remaining funds to throw lavish Christmas parties, redecorate their homes, refurbish their offices, purchase airplane fleets, etc. The land bought by the banks was continuously "flipped", or regularly remortgaged, to drive up the assessed valuation, then sold in "reciprocal lending" to another S & L in an illegal industry profit-sharing scheme. The S & Ls also made loans to one another ("linked financing") that were never intended to be paid off.
SHERMAN ANTITRUST ACT
Trusts and monopolies are concentrations of wealth in the hands of a few. Such conglomerations of wealth are injurious to the public because trusts minimize, if not obliterate normal marketplace competition, and yield undesirable price controls. These, in turn, cause markets to stagnate and sap individual initiative. To prevent trusts from creating restraints on trade or commerce, and reducing competition, Congress passed the Sherman Antitrust Act in 1890. The Sherman Act was designed to maintain economic liberty, and to eliminate restraints on trade and competition. The Sherman Act is the main source of Antitrust law. It outlaws conspiracies between corporations designed to control the marketplace.
Four kinds of market conditions are considered anticompetitive: (1) a division of markets -- where firms divide a region into territories, each promising not to compete in one another's territory; (2) a tying arrangement -- in which a company requires its customers to use some other service it offers; (3) group boycotts -- in which a company boycotts retail stores that do not comply with its rules or desires; and (4) price-fixing -- in which the price of a commodity is set or controlled via a conspiracy.
Price-fixing may take one of four forms: (1) predation -- in which large firms agree to sell low to drive our weaker firms; (2) identical bidding -- in which bidders all agree to submit identical bids for a contract; (3) geographic market sharing -- which divides markets into territories among companies to fix prices and (4) rotational bidding -- in which the winning bid is rotated among a group of companies for lucrative contracts.
Trust violations are jointly investigated by the FBI and FTC.
OSHA & ENVIRONMENTAL CRIMES
The control of workers' safety has been the province of the Occupational Safety and Health Administration (OSHA). The agency sets industry standards for the proper use of chemicals, and invokes criminal penalties on violators. It has been estimated that 21 million workers are regularly exposed to hazardous materials while on the job. It would cost $40 million to alert these workers, and $50 to track whether or not they develop diseases. Industries that have been hard hit include the asbestos and cotton industries.
Pollution is another problem. Sometimes pollution involves negligence and other times it is deliberate. The Union Carbide disaster in 1984 in Bhopal, India killed 10,000 people and injured another 60,000, and was determined to be negligence. The Exxon Valdez spill in 1989 fouled 700 miles of shoreline, and resulted in $1 billion in criminal and civil fines. This was the largest amount paid in history for environmental pollution. There are a number of recent Environmental Laws:
The Clean Air Act (1990) -- give EPA power to impose penalties on anyone knowingly violating EPA standards
The Clean Water Act (1990) -- punishes knowing or negligent discharge of pollutant into navigable waters
The Refuse Act (1899) -- punishes waste discharge that damages water quality anywhere
The Resource Conservatory Act (1976) -- provides criminal penalties for storage or disposal of any solid waste without a permit
The Toxic Substance Act (1988) -- prohibits manufacture or distribution of any chemical substance in a manner not in accordance with required testing or manufacturing requirements
The Insecticide, Fungicide & Rodenticide Act (1988) -- regulates the manufacture and distribution of pesticides
The Superfund Act (1988) -- requires the cleanup of hazardous waste at contaminated sites
Computer crime tends to fall into one of five categories:
1. Theft of services -- unauthorized user penetrates a system
2. Use of data for personal gain -- blackmail, harassment, etc.
3. Financial gain -- some type of financial processing to obtain assets
4. Theft of property -- extracting money under false pretenses
5. Hacking -- using a virus to disrupt or destroy programs or networks
Types of computer theft:
Trojan horse -- using one computer to reprogram another
Salami slice -- using a dummy account to extract a few cents
Super-zapping -- using diagnostic program to crack system
Logic bomb -- using a subroutine that waits for an error to occur
Impersonation -- using an authorized identity for unauthorized access
Data leakage -- using printouts of small amounts of data
Other recent Computer Laws:
Computer Fraud & Abuse Act (1986) -- makes it a felony to use a computer to gain $5000 or more or to access data affecting national interest
Computer Abuse Act (1994) -- criminalizes "reckless" conduct and enhances penalties for defense, financial, or federal interest targets
Communications Decency Act (1996) -- criminalizes use of computer to provide minors with indecent material and for harassing someone
INTELLIGENCE ANALYSIS OF WHITE COLLAR CRIME
One of the more prominent theories is that offenders possess an "unshareable financial problem", the result of living beyond their means, piling up gambling debts, etc. (the three Bs: Babes, Booze, Bets), and feel they cannot let anyone know about their situation without ruining their reputation. Other theories stress the "culture at the top" notion, which sets the tone for the ethical climate in the organization. The whole world of business is kept in line by what is called "economism" -- a self-regulating compliance strategy based on the deterrent effects of economic sanctions and civil penalties. This inherently places a lot of trust in the personalities of those who work in business.
Regardless of the motivation, the offenders are probably as complex as the laws and regulations in this area. The required mental states, for example, range from "negligently" to "recklessly" to "knowingly", depending upon what type of white collar crime you're talking about. Prosecution, or more specifically, deciding who prosecutes, opens up a cornucopia of agencies, all with joint and/or overlapping responsibilities. In some cases, the level of cooperation is well-known, such as between the FBI (threat of criminal charges) and FTC (civil cease & desist orders), but OSHA inspectors have only recently been equipped with police powers, and the investigative arms of many other agencies are not well known.
One of the most important things in investigation of white collar crime is the need for partnership and teamwork. Intelligence work in this area is often disorganized and inefficient, and a team approach can solve this. The Treasury Dept., for example, may have the money laundering analysis expertise, and a local police department may have a proven ability to produce analytical activity charts. The "strike force" model is one of the most common team approaches in law enforcement. This establishes a network of agencies all working on different aspects of the problem.
Another thing that should not be overlooked is the corporation itself. Businesses spend millions of dollars a year conducting internal audits. Along these lines, one should not neglect the private security force employed by the corporation. Their employees can be valuable sources of information. In addition, sometimes the employees of the organization itself can be induced to "snitch" or "whistle blow" on other employees.
The main piece of evidence that will be viewed most strongly in court is any evidence of disguise or coverup. This will ordinarly be presumed as evidence of intent under most legal standards. Concealment of the violation is therefore the most vital piece of evidence to look for. This necessarily involves unraveling the "paper trail" and pouring over a large roomful of obscure documents. Many agencies have hired college students or recruited interns to temporarily help them with these chores. Records analysis is something that may take years to complete, but then you have to focus on individual offenders eventually. But with records analysis, you should look for:
Maintenance of two sets of books or records
Destruction of any books or records
Payments to fictitious companies or persons
False invoices or billings & double payments on billings
Company loans to employees or other persons
Large or frequent currency transactions
Use of photocopies instead of original documents
Presence of second or third party endorsements on checks
Over the years, a certain number of "indicators" have tended to be a composite of the white collar criminal. These indicators include:
The presence of illegal income
The presence of large cash transactions
The presence of multiple bank accounts
The sudden ownership of one or more businesses
Multiple businesses at one address
Corporations with little or no physical assets (paper corporations)
Out-of-country bank accounts
BCCI Affair: Report to the Committee on Foreign Relations
City of Bellevue PD: White Collar Crime Unit
Classic Financial Scandals (other than S & L)
DOJ: Antitrust Division
FDIC: The S & L Scandal: A Chrono-Biography
Fraud Watch Intelligence Service
National CyberCrime Training Center
National Fraud Information Center
National Health Care Anti-Fraud Association
Types of White Collar Crime and Schemes
Yahoo's List of Antitrust Law websites
Last updated: 03/05/01
Lecture List for JUS 392
MegaLinks in Criminal Justice