Issues with White Collar Crime
What is White-Collar Crime?
White-collar crime is an enterprise crime, which refers to illegal and unethical acts done to gain profits illegally through legitimate business. These types of crimes cause enormous financial, physical, and social harm. The term “white-collar crime” was coined by criminologist, Edward Sutherland in the late 1930s. He defined white-collar crime as “a crime committed by a person of respectability and high social status in the course of his occupation”. Despite popular belief, the cost of white-collar crime is much more than street crimes, it is more dangerous and the accused probably will get away from the predicament quite easily. White-collar crimes not only cause monetary problems but also hamper the trust of the public in business and government.
White-collar crime is very different from the much-discussed street crimes and these differences can be understood by the three characteristics of white-collar crime, which are discussed below :
- Legitimate access- Unlike other street crimes, offenders of white-collar crime have legitimate access to their victims, via their occupational position. The offender can easily access the victim under the pretense of a legitimate role. For example, a fraudulent banker may access information on clients and may sell them faulty investment schemes for his/her gain.
- Spatially separated from victims- It is possible for the offenders to never directly confront or come in contact with their victims, in case of white-collar crime. For example, a chemical factory may dump its hazardous waste illegally in a public place, and the people who will get affected may never come into contact with the perpetrator.
- Superficial appearance of legitimacy- The actions of the offenders of white-collar crime might appear legal. The obviousness of these illegal activities is not easily established. It is difficult to say anything at first glance. For example, a corrupt physician may overcharge his/her patients or may charge them for services that were never rendered to them.
White-collar crimes are widespread, and it is very important to understand and control them as it causes massive damage to the economy and society. It disrupts the fair business environment and the rich & privileged ones were able to get away scratch-free while the others suffer the most. It is time that white-collar crime should be scrutinized as same as street crimes. From bank fraud to environmental crimes, there are many types of white-collar crimes which are discussed in the following section.
Types of White Collar Crime
There are various types of white-collar crimes, some major categories were:
(a) Embezzlement: Embezzlement essentially means stealing from the employer. It is an illegal act done by an individual who uses their position to embezzle company funds for their benefit. Retail employees stealing cash or merchandise is one of the examples of this type of crime.
(b) Tax Evasion: It refers to intentionally evading or defeating tax. It happens when an individual knowingly tries to escape from paying the actual payable tax. Lying about one’s assets, not disclosing income, overstating their deduction, showing false records, etc are considered tax evasion.
(c) Corruption: It refers to the dishonest act by an entrusted official by abusing his/her power for his/her illicit gain. It can happen in two ways, the offender can withhold a service unless an additional charge was paid to them or the offender use their institutional position to grant favors to others in exchange for a huge donation.
(d) Bank Fraud: An illegal act of using deception to obtain money from a financial institute is referred to as bank fraud. Check forgery, false statements on loan applications, sale of stolen checks, credit card fraud, illegal transactions to foreign banks, etc are considered bank fraud.
(e) Consumer Fraud: It refers to the deliberate use of deception in selling defective products or services. Some of the most common examples are mislabelling products, misleading advertising, real estate fraud, repair fraud, etc.
(f) Securities fraud: It is an act of using securities (stocks, bonds, shares, etc) to gain massive profits from investors fraudulently. It can be done by Misrepresentation of stocks, Stock manipulation, Misappropriation of stocks, Insider trading, and Phony investment schemes.
(g) Restrictive trade agreements: It refers to an illegal agreement among competitors to control how the industry works, it infringes the free market competition system. Examples include malpractices like; Division of markets, Tying arrangements, Group boycotts, and Price fixing.
(h) Healthcare fraud: It involves fraud committed by healthcare professionals to defraud patients. Examples of healthcare fraud committed by physicians are; billing for services that were never rendered, overbilling, billing for far more expensive procedures than the actual procedure performed, and performing medically unnecessary procedures, just to acquire insurance payments.
(i) Environmental crime: Violation of environmental laws is a criminal offense. Not only the environment but the very humans working in the environment can be affected by such infringements, so this also involves cases of compromising workplace safety. Examples include illegal dumping of hazardous waste, smuggling of prohibited substances, intentional exposure of toxic substances to unaware workers, etc.
Why do people commit white-collar crimes?
Why do people commit crimes? Offenders can list many reasons for their misdemeanor which they believe fully justified. Without a doubt motivation behind white-collar crimes is monetary gain, which can be agreed upon by all. The best way to understand the reasoning behind white-collar crimes or any crime is to look at criminological theories, the theories relevant to white-collar crimes were described by the followings:
- Rational choice theory — According to this theory perpetrators can choose rationally and they do decide to engage in these types of crime based on their logical reasoning that the potential profits from their misconduct outweigh the future punishments. So the possible reason behind such malpractices in business is one’s greed for acquiring wealth quickly or/and the need to satisfy their extravagant lifestyle. For instance, an employee may find himself/herself in a financial crisis due to overspending, and to recover he/she tries to embezzle company assets.
- Neutralization theory — This theory suggests that the offenders were quick to rationalize their activities and their effects, to neutralize any guilt they might have felt. According to this theory, individuals who intentionally participate in robbing people via their occupational role will tend to ignore any victims or completely ignore them or just simply deny the existence of any. Also, they do not think that their misconduct is a crime. They tend to remain in complete denial of any responsibility & will try to give any justification to free themselves of any guilt.
- Cultural view theory — According to this theory, corporate life itself creates a culture that supports white-collar crimes or encourages offenders by rewarding negative conduct. Some businesses are responsible for orchestrating unhealthy work climates that deem any malpractices as just business strategies and promote white-collar criminality by rewarding as well as tolerating the wrongdoers as long as their corporate is gaining massive profits. This theory places the liability for increasing white-collar criminality not on the individual participating but on the work culture/environment that is a thriving place for such criminals.
- Self-control theory — This theory suggests that like any other crimes, white-collar crimes occurred because of the desire of the perpetrator for acquiring “quick benefits with minimal effort”. According to this theory, white-collar criminals were self-centered, impulsive individuals who lack self-control and were completely driven by their desire for monetary gains with disregard for the consequences of their actions. For instance, the physicians involved in healthcare fraud, like performing medically unnecessary procedures on patients just to claim insurance for the same, were just following their monetary impulses.
The above-mentioned theories do help people to understand white-collar criminality and one can argue that one of them or some of them collectively can work to explain not only the reasons behind such criminality but also what encourages it. The consequences of such criminality are huge, not only in the economy but also in society, it generates distrust among the public towards govt and private institutes. Also, it disrupts a healthy and free market system and undermines the people who follow the law. Thus, it becomes imperative to control such crimes.
Why are white-collar crimes challenging to regulate?
It turns out that despite the astoundingly devastating effects on the economy and society, regulation of white-collar crime is still a difficult procedure and is even ignored in some instances. There are several challenges in controlling white-collar crimes, the most important one is, detection. Detection of white-collar crimes is a very difficult task, unless some serious suspicion not arises, the victims may remain completely unaware of the injustices they were suffering from. Even if it was detected, the investigation itself is very time-consuming and expensive. These types of crime are embedded in business settings and may involve multiple players and thus will require more time and expertise from investigators, which normal police investigators may lack. Another challenge is assigning responsibility for the offense, as these types of crime occur in corporate settings, it involves collective actions of a group of individuals, and in such cases, it became difficult to decide who should be held responsible for the illegal activity.
There are two types of strategies known for controlling white-collar crimes and they are; compliance and deterrence strategy. And most regulatory bodies follow either one of them or a combination of them. Compliance strategy aims for law conformity, it relies on cooperation and self-policing of businesses under regulation. These strategies were believed to work because most of the parties concerned know that following rules is much easier than risking their livelihood for quick monetary gain which may cost them huge damage and may restrict their future trade. In case of any deviance, sanctions were imposed on the business and economic incentives were provided to businesses that obey the law. In this regulation setting, the institution rather than the individual is punished. On the other hand, the deterrence strategy is much more strict, it aims to deter potential offenders through fear of punishment. It involves detecting criminal violations, determining who is responsible, and penalizing the offenders. In this regulation setting, the individual rather than the institution is punished, it focuses on apprehending criminals and punishing them.
What are the difficulties in prosecuting white-collar crimes?
“It is a civil matter”, indeed it is, but why? Most white-collar criminal cases were resolved arbitrarily or in civil lawsuits. This is because proving a criminal case against a corporation can be very difficult, even if it was discovered by the concerned authority, as here, the defendant is not an individual but a corporation. Not only this, but it is also hard to prove that the offender knowingly intended to violate the laws. Convictions are also difficult to secure because the defendants typically have access to not only expensive but excellent defense counsel. These types of defense teams have good experience in saving their clients at any cost. As a result, it is difficult for the prosecutor to prove that the defendant is guilty beyond a reasonable doubt. Again prosecuting and investigating these types of crimes is expensive and time-consuming. In such cases, the victims will willingly agree to settlements in exchange for a court trial, as they will be more concerned about getting their money back, and thus have no desire in spending more time and money in a trial where they probably won’t win. Therefore, not only investigating but prosecuting such crimes is very challenging, and without a doubt, it does give us a clear distinction in the justice system for the rich and the poor.
Conclusion
With advancements in society and technology, opportunities for white-collar crimes are increasing. The rise in white-collar crimes can be attributable to growing numbers of white-collar jobs, the changes in financial services, growing dependency on the Internet for transaction & communication, inclination towards capitalism, and lack of awareness among people regarding the issue. White-collar crimes can be controlled by better and strict regulatory laws, and measures should be taken by both government and private institutions. Organizations can help in preventing white-collar crimes by strictly following the laws and by certain actions like thorough employee screening before their recruitment, establishing multi-level verification for monetary transactions, regularly monitoring employees' activities, subjecting themselves to internal auditing, keeping and maintaining inventory on all the assets, and being transparent by maintaining public records. The government needs to know that enacting the law is only useful if it was enforced. Some of the actions which can be taken by the government are implementing strict regulatory policies, providing proper training to investigators so that cases can be built easily, and spreading awareness among the general public about the implications and ramifications of white-collar crimes.
I hope with a better understanding and awareness of the subject, people will be able to be cautious of such misconduct and thus will proceed with needed precautions.
As usual, thank you for reading! And I hope you all enjoy it.
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References -
Criminology for Dummies by Steven Briggs
21st Century Criminology: A Reference Handbook by J. Mitchell Miller
Criminology — Theories, Patterns & Typologies by Larry J. Siegel
White-Collar Crime Survey (2019) by Indian National Bar Association (INBA)
