White Collar Crime - Coursework Example

WHITE-COLLAR CRIME INTRODUCTION In contemporary context, there has been increased attention of white-collar crime and offenders have been increasingly looked upon as criminals; fewer and fewer people see these individuals as untouchable elites (Cullen, et al., 2009). Due to recent and large scale corporate malfeasance, society as a whole has come to a greater consensus that white-collar criminals should be treated in the same manner as street criminals, with harsh criminal sanctions. The fraudulent accounting uncovered at Enron and WorldCom has been seen as some of the worst cases of white-collar offending in recent history. The large-scale loss that resulted from these cases has made the public increasingly aware of the possible damages that can be caused by white-collar offending. The Enron case, for example, revealed that fraud could not only cause the seventh largest company in the United States to go bankrupt, but could also cause the loss of 90% of the Enron employees’ retirement savings (Rosoff, et al., 2007). The magnitude of loss that this single company had on almost 20,000 employees and at a cost of $1.3 billion USD has reinforced to scholars and the public alike the importance of the need for increased attention to this phenomenon. White-collar crime is one of the most understudied and misunderstood behaviors in criminology (Freidrichs, 2004). These “upper class” offenses have not received the research attention that “lower class” offending has. These recent scandals and others like them have brought the attention of white-collar offending to the forefront in the minds of the public, policymakers and judicial authorities. WELFARE FRAUD Welfare fraud is defined as intentional misuse of welfare system by either withholding information or providing inaccurate information (Gustafson, 2009). Practically, this intentional misinformation aims to solicit individuals in acquiring underserved welfare benefits. It is believed that welfare fraud in the United States started during the Carter Administration, when the media began paying increased attention to fraud in government spending. The concern with fraud first arose regarding the military contracts after evident examples of misuse and abuse were exposed. In 1978, numerous investigations revealed costly fraud and abuse in the programs overseen by the Department of Health, Education and Welfare (Gustafson, 2009). Defaulted loans in the student aid programs and abuses by medical providers in the Medicaid and Medicare programs were the most frequent welfare frauds reported and investigated. Moreover, overpayments to AFDC recipients and fraud by government officials in both cash aid and food stamp programs were also indicated but considered less prevalent than the student aid and medical aid abuses (Gustafson, 2009). Incidents of welfare fraud as well as growing distrust to poor welfare recipients occurred systematically during 1980s and 1990s. For instance, in the early 1980s the investigation has been started against Linda Taylor, 47-year-old mother, for welfare fraud. She was reported for using 14 different aliases over 28 years to collect hundreds of thousands of dollars in welfare and social security payments (Gustafson, 2009). From the critical perspective, by its mechanism welfare fraud is similar to the mechanisms employed various versions of white-collar crimes. Both acts largely rely on the deception of information or providing of intentionally altered information to receive inappropriate benefits. However, unlike white-collar crimes, welfare fraud is punished less severely and can vary by jurisdiction from suspension of welfare privileges to fines and jail time. UNDERSTANDING THE COMPLEXITY OF WHITE-COLLAR CRIME Despite laws designed to address the problem of white-collar crime scandals in the U.S., fraudulent acts continue to occur (Marshall & Heffes, 2005). Given the increased emphasis on strengthening internal controls for financial reporting propagated by Section 404 of the Sarbanes-Oxley Act of 2002, researchers concluded in current findings that financial fraud is still difficult to detect and predict (Wells, 2007). White-collar crime is an action that may be perpetrated by an individual, or a group of individuals colluding together. This non violent crime is often deceitful, purposeful, deceptive, and may even be committed by a person holding a position of trust (Wells, 2007). White-collar-crime, may range from simple financial schemes to more highly complex accounting techniques employed specifically to deceive investors that typically might contain intentional misstatements of the true financial condition of the firm (Lomax, 2003). There are several examples of the methods used in corporate white-collar crime scandals that misstate financial reports. The most common forms of fraudulent reporting techniques include (a) fictitious revenues, (b) recording revenues prematurely, (c) overstatements of revenue, (d) overstatements of accounts receivable, (e) recording fictitious assets, (f) capitalizing expenses as noncurrent activities that understates expenses and falsely increases earnings, and (g) understatement of expenses or other liabilities (Beasley, Carcello, & Hermanson, 1999). Concern about adequate punishment for white-collar offenders has spiked in recent years with the fraud cases of Enron, WorldCom, and the ponzi scheme by investor Bernie Madoff. Although the major players and upper management of these companies were prosecuted and punished, and Bernie Madoff received the largest sentence ever handed out for securities fraud, some critics believe that the punishment of white-collar criminals is still not sufficient enough to deter future offenders. Critics of current white-collar crime prosecution and punishment claim that the sentences for these white-collar criminals, especially, the 150-year prison term given to Bernie Madoff was deemed merely symbolic, and that both prosecutions and punishment need to be increased. They argue that corporate offending will continue as long as benefits of committing corporate crimes outweigh the costs of prosecution and punishment. The benefits of committing white-collar offenses can mean a profit in the billions, and under current practices, it seems that these individuals will continue to risk committing these offenses. Some believe that offending has become pervasive and well entrenched in the business world. Accompanied by distinct forms of real financial harm, the scandals of company fraud and insider trading have reinforced what white-collar crime scholars have foretold; these crimes are occurring at a larger volume than can be detected or punished (Williams, 2008). LEGISLATION REGULATING WHITE-COLLAR CRIMES Increased legislation providing stricter sanctions for white-collar offending has recently been passed by Congress to combat crimes of financial abuse and mistrust. The Federal Sentencing Guidelines, implemented in 1987, have also had a great impact on how law enforcement officials deal with white-collar offenders. The Federal Sentencing Guidelines have moved sentencing in a direction that embraces uniformity. The United States Sentencing Commission set up the Federal Sentencing Guidelines as the parameters for guiding the determination of an appropriate sentence. Because of guideline implementation, federal judges have less control over the determination of the sentence, and there is little recognition given to individual offender characteristics, as the guideline parameters are based upon offense seriousness and prior criminal record (Podgor, 2007). The guidelines also allow for raising or lowering the sentence for aggravating of mitigating factors such as the amount of harm or loss caused, or for cooperating with the government. The want for uniformity has arisen from the need for ameliorating the disparities that were present between sentences of offenders who commit similar crimes and have similar prior criminal histories, but receive different sentences either due to individual demographic characteristics or other forms of bias. After the implementation of the Federal Sentencing Guidelines, sentences have increased for many white-collar crimes. The United States Sentencing Commission attributes two factors to the increased imprisonment in the fraud/theft category. First, the increased penalties for many fraud offenses resulting from the Congressional Economic Fraud Crime Package of 2001 and the passage of the 2002 Sarbanes-Oxley Act, which required greater disclosure of accounting records and increased penalties for failing to do so. Second, at the federal level, very few cases are eligible for sanctions other than imprisonment due to the guideline structure and specifically the installation of the loss-table calculations (Podgor, 2007). These calculations of actual loss and anticipated loss are figured into the sentencing of offenders. The sentence lengths are proportionate to the amount of calculated loss or anticipated loss. These loss table calculations can result in sentences that are extremely lengthy despite the offender’s background or lack of a prior criminal history. WHITE-COLLAR CRIMES AND CHALLENGES IN SENTENCING The prosecution of white-collar offenders is done predominantly by the Federal Criminal Justice System, as most of the laws against corporate offending are federal laws. Although seemingly a powerful entity, the federal government is far less concentrated and centralized than is true for entities prosecuting conventional crimes. The most recent amendment to the Federal Sentencing Guidelines §2B1.1, affects larceny, embezzlement, and other forms of theft. It incorporates the estimation of loss that the court needs to estimate through the examination of evidence and available information (USSC, 2009). This includes taking into account the “fair market value of property unlawfully taken, copied or destroyed, or if the fair market value is impracticable to determine or inadequately measure the harm, the cost of the victim of replacing the property” (USSC, 2009, 4). In the sentencing white-collar offenders, the individual’s motive is often overlooked and a large amount of the company’s personnel can be involved and implicated (Podgor, 2007). Corporate crime cases, however, can vary drastically in that some cases have defendants arguing that higher-ups knew of the wrongdoing and approved of the activity, while other cases have CEO defendants arguing that they did not know the criminality was occurring while they were in charge (Podgor, 2007). Perhaps the most noticeable characteristic omitted by sentencing is the future dangerousness of the individual; most white-collar offenders, especially those coming from the corporate arena, are usually first-time offenders. Another difficulty in the sentencing of white-collar offenders is that the economic crime committed clearly harmed individuals, but the offenders do not present a physical threat to society in comparison to physically violent offenders (Podgor, 2007). For the above reasons, debate continues on how best to punish those who commit white-collar violations. One important predictor of sentence lengths of white-collar violators seems to be whether the offender decides to go to trial. Those who exercise their due process right to confront their accusers at trial and are subsequently found guilty seem to be sentenced the harshest. Barker and associates (2007) research on federal white-collar crime revealed that only two of the defendants who plead guilty were sentenced to more than 15 years. The majority of those who plead guilty received sentences fewer than five years in length, which shows that judges reward cooperation with the Department of Justice. The majority of convicted defendants in their study received five-to-ten-year sentences, which means that a quarter of those who were convicted received sentences that were more than ten years in prison. Today, white-collar offenders in the United States have faced sentences far beyond those imposed in prior years. The culture of mandated guidelines still saturates the structure and as such, prominently advises judicial sentencing decisions (Podgor, 2007). The sentences imposed today on first time offenders of economic crimes can exceed the sentences meted out for violent street crimes, such as murder or rape (Podgor, 2007). This demonstrates that there is little recognition given to the lack of prior record or the future risk of recidivism when sentencing decisions are made. Without the consideration of these factors under the Guidelines, white-collar cases with high loss values will continue to get harsh sentences as the financial loss is primarily what they are based on. REFERENCES Barker, E., Boxter, B., Frankel, A., and Raymond, N. (2008). Progress report: how the Justice Departments 440 highest-profile corporate fraud cases turned out. Federal Sentencing Reporter, 20(3), 206-210. Beasley, M. S., Carcello, J. V., & Hermanson, D. R. (1999). COSO’s new fraud study: What it means for CPAs. Journal of Accountancy, 187(5), 12-13. Cullen, F.T., Hartmen, J.L., andJonson, C.L. (2009). Bad guys: Why the public supports punishing white-collar offenders. Crime, Law, and Social Change, 51, 31-44. Friedrichs, D.O. (2004). Enron Et Al.: Paradigmatic White-Collar Crime Cases for the New Century. Kluwer Law International, 12, 113-132. Gustafson, K. (2009). The Criminalization of Poverty. The Journal of Criminal Law and Criminology, 99(3), 643-716 Lomax, S. (2003). Cooking the books. Business & Economic Review, 49(3), 3-8. Marshall, J., & Heffes, E. M. (2005). Sarbanes-Oxley Effect: Caution to guidance. Financial Executive, 21(10), 10. Podgor, E.S. (2007). The Challenge of White-Collar Sentencing. Journal of Criminal Law and Criminology, 97, 731-759. Rosoff, S., Pontell, H., and Tillman, R. (2007). Profit Without Honor: White-Collar Crime and the Looting of America. Upper Saddle River: New Jersey. Wells, J. T. (2007). Corporate fraud handbook: Prevention and detection (2nd ed.). Hoboken, NJ: John Wiley & Sons Williams, J.W. (2008). The lessons from Enron media accounts, corporate crimes, and financial markets. Theoretical Criminology, 12, 471-499. United States Sentencing Commission (2009). Amendments to the Sentencing Guidelines (1 51). Washington, D.C.: United States Sentencing Commission. Read More