White-Collar and Corporate Offenders - Essay Example

Complex Financial Fraud Name Tutor Name Course Date Q. “White-collar and corporate offenders should not be seen, and should not see themselves, as above the law. Therefore it is essential that whenever white-collar offences or harms are detected, relevant authorities initiate a criminal prosecution”. Critically assess this statement in light of your chosen case study. Introduction Based on Sunderland’s theory of differential association, the statement can be interpreted to mean that within certain occupations or businesses, lawbreaking can subsist when persons in high authority are not prosecuted for complex financial frauds. Generally, white-collar offenders have been viewed or tended to view their possible prosecutions as rather evasive. These individuals, who maintain high position or statues in the society or corporations, have exploited the legal loopholes or structures to engage or facilitate acts that have in some cases gone unpunished (Sunderland 1940; Sunderland nd). To some considerable extent this is true, since whenever such offenders are found to be involved in financially motivated crimes for some form of illegal monetary gain, they should face the full force of the law. This essay adopts Sunderland’s theory of differential association to discuss different scenarios why white-collar offenders see or are seen as being above the law, and why this shouldn’t happen. Case Study Mr. Alex Young is a 54-year-old Australian male. He is the President of Preesco, and owns a small investment advisory business called Invesco in Melbourne, which until one month ago was on the verge of collapse or possible acquisition. He considers himself to be quite knowledgeable when it comes to investment matters. Two years ago, Mr. Young was recruited to join Preesco as its president. He left the management of Invesco to his son and wife. Mr. Young has no criminal record. Mr. Walt Smith, Preesco’s chairman of the board of directors, found out that a $320,000 check cleared his bank. The time was 3pm on Friday, on a Memorial Day Weekend. The bank called him to advise that he needed to activate Preesco’s line of credit. Mr. Smith was quite surprised. He knew that he had sufficient fund for the particular month. Alex Young, the president of Preesco who was a non-owner, had left for a long weekend and would not be back to Sydney until Thursday. Mr. Smith (who was a shareholder in the company), called his attorney, Mr. James Mayor, and with a tinge of concern in his voice, asked him for his opinion about what could have happened to the money. After long deliberations, the attorney suggested possible complex financial fraud. Later, Mr. Mayor summoned one of his forensic accountants, even though it was late on Friday. A team of forensic accountants came to the scene at around 8pm. The forensic investigators had engaged in a range of industry sectors such as financial advisory, superannuation, banking, internet service providers and community organizations to uncover complex financial frauds. Hence, the team had a wide scope of experience and capabilities in investigating white collar crime. The offices had long been closed two hours earlier. Along with Mr. Smith, they investigated the accounting books and records of Preesco, and the office of the President. Towards 10pm, the investigators uncovered that $320,000 had been mailed as a cashier’s cheque to an attorney in a Melbourne. Apparently, the lawyer had represented Invesco in a case. Invesco has gained its footing and is planning further expansion to Sydney. Mr. Young was informed to report to the office on Saturday, as there was an emergency. Mr. Smith set up a meeting with the corporate counsel, the forensic accountants, the Human Resource directors and the President. He has a strong conviction that Mr. Young took the money to invest in his company, Invesco. In any case, his attorney has prevailed over him that the allegations needed strong evidence to have a legal backing in the court of law. Mr. Mayor further alluded to the fact that it would be tough to prosecute the crime under the present law. He suggested that there were however two ways to acquire sufficient evidence to prosecute. One was to intercept his communications with his attorney and wife in Melbourne. The second was to use a whistle-blower or a covert operative. In any case, both would require utmost discretion and a permit. Mr. Smith is beside himself with worry that Mr. Young, who had been a long-term family friend, has betrayed his trust. The attorney is concerned about establishing the intention for such acts that must have resulted to debilitating fraud. He is suddenly aware that instead of insisting that Mr. Young is the offender, Mr. Smith should focus his efforts on assisting the forensic accountants to access the files in the President’s office to establish a case. When the President arrived to the company premises, he was escorted to the conference room for cross-examination by the forensic accountant and the corporate counsel. For close to two and a half hours, the probing went on rather lethargically with the president supplying limited information which seemed to be clearly based on what he perceived had already been uncovered by the forensic accountants and the attorney. For some time, the effort seemed futile. This necessitated the forensic accountants pursue further investigations to document the background of a range of transactions. They examined the likely invoices as well as other necessary documentation that had been submitted to Preesco, copies of cancelled cheques and any other document. The forensic experts compiled a file, which they submitted to Preesco’s fidelity bond insurance carrier on Monday at 10pm, and after a comparatively lengthy discussion time extending towards three hours. The insurance carrier decided to make restitution in the sum of $640,000, considering the amount of fidelity bond. After the meeting, Mr. Smith approached his attorney and asked him for an idea about the possible cost of litigation. The attorney suggested that it would possibly be huge given the magnitude of embezzled funds. The entire collection of the documents was submitted to the Australian transactions Report and Analysis Centre (AUSTRAC), an Australian specialist financial intelligence unit. An investigation was opened. After an investigation that lasted 20 days, the AUSTRAC made several milestones. Preesco was subject to this incapacitating fraud since internal controls had not been properly instituted. Mr. Smith, who was the chairman of the Board, had put absolute faith on Mr. Young, the President, whom he had recruited by himself. Mr. Young had discharged his duty with absolute autocracy. For instance, he “bullied and intimidated” the financial controller and other workers in the accounting department and coerced them into approving his payments or facing the sack. While in the end Preesco cold have appeared to have suffered a loss of $600,000 (the original embezzlement totaled an estimated $1 million, less than $1,020,800 in fidelity bond insurance recovery), the cost was relatively greater. Further, AUSTRAC also found that the bank also needed to institute proper internal controls and compliance on the part of the upper-level management to evaluation of transactions. Question 1: Case Analysis The statement appears as specifically targeted for analysis of financial crimes by persons with high statuses of positions in the society or corporations. It seeks to view financial fraud from the perspective of the senior management who have the company finances at their disposal, and since they are the principal managers of the company and therefore see themselves and expect to be perceived as not being subject to the law or are immune to prosecutions. Indeed, this analysis is relevant to the case where the President of Preesco is involved in debilitating embezzlement. In any case, whenever such offenders are found to be involved in financially motivated crimes for some form of illegal monetary gain, then they should be held as legally responsible and face the full force of the law (McGraw Hill 2012). However, this has not been possible due to various complexities as discussed below. According to Sunderland’s theory of differential association, criminal behaviour is learned in relation with those who define such conducts favourably and separate from those who define it unfavourably and that an individual in an appropriate position engages in such criminal behaviour of the weight of the favourable definition exceeds that of the unfavourable definition (Sunderland 1940; Croall 2001). Based on this theory, Mr. Young has used his position knowing he could be immune to prosecutions. In addition, Mr. Mayor is aware that successful prosecution of Mr. Young may be evasive since many detrimental occupational and business activities are not subject to criminal law and retribution, but to the Preesco’s regulatory or administrative law and sanctions or penalty. Newman (1954) argues that these assumptions have been perpetuated by the confusions in the definition of the white-collar crimes and its very limited applicability in the legislative statutes. Additionally, white-collar legislations are generally regulatory and not penal in philosophy. Further, they are administrative in procedure and tend to be directed towards the professional or business classes of the society. Newman (1956) posits that the widely acceptable definition of white-collar crimes is a crime committed by and individual of high statues or respectability in the course of discharging his duties in an occupation. Based on this perspective, it is critical to note that white-collar crimes are generally confined to the individuals with high influence or status in an organization or society, in which case, Mr. Young committed a white-collar crime through embezzling of the funds amounting to $320,000. This perspective is indeed consistent with Croall’s (2005) observation that white-collar crimes are in most cases committed by persons of respectable stature or high social status in the course of his occupation. In the case study, it can be observed that the crime was perpetuated and committed by an individual with respectable stature in the company and who hoped to get away with the crime by intimidating the accountants. Alex Young is the President of Preesco, and has the accounting department under his disposal and control. Further, many forms of white-collar crimes are dealt with by the regulatory agencies such as Australian transactions Report and Analysis Centre (AUSTRAC), instead of by the police criminal investigation unit. The regulatory agencies have been criticised for being less efficient in ensuring successful prosecutions since they tend to focus on adopting compliance approach, where prosecution is not viewed as an ideal option of securing compliances with regulations. In addition, they have tended to consider prosecutions to be relatively costly alternatively (Croall 2005). Since the compliance approach is not intended to establish sufficient evidence against the offender, and rather whether the company put up enough measures against fraud, prosecuting such offenders is difficult (Bannerman 1991). Further, it may explain the reason why such white-collar offenders view themselves as being above the law. A similar scenario is evident in the case study. For instance, forensic accountants were asked to investigate the crime. After submitting the file to AUSTRAC who conducted further investigations, it is clear that AUSTRAC adopted a compliance approach is its findings were more focused on establishing how the bank and the Preesco failed to institute systems in place to prevent possible frauds (CAQ 2012). Next, white-collar crimes are generally perceived as violations of trust -- by misrepresentation or duplicities -- that has been placed upon an individual based on his high stature in the society of occupational norms. Since these violations of trust must have been generally viewed as being noncriminal deviations and unethical practices rather than violations of the law, a common perception is that the white-collar crime offenders are viewed as being above the law. In the case study, the same assumptions can be built based on the fact that Mr. Smith, who is the chairman of Preesco, hired Mr. Young, who had been a close family friend because of trust. Further, Mr. Smith has viewed Mr. Young as having betrayed his trust rather than in the light that Mr. Young committed a crime punishable by the law. The majority of legislations that underlie white-collar crime are different from conventional criminal laws in their origin, determination of intent, philosophy, trial procedure and sanctions applied in punishing offenders. In the first instance, majority of the white-caller legislations have been created legislatively as of a given date. Additionally, some of them tend to overlook the common-law principles. According to Newman (1956), such laws are therefore mala prohibita, established by the legislative bodies contrary to majority of the conventional criminal code. Therefore, they tend to be viewed as being purely legislative expression of natural crimes. Indeed, this is indicated in the case study when Mr. Smith’s attorney informed him that it would be difficult to prosecute the crime under the present law. He suggested that there were however two ways to acquire sufficient evidence to prosecute. Once was to intercept his communications with his attorney and wife in Melbourne. The second was to use a whistle-blower or a covert operative. In any case, the law was also against such acts of spying on individual. Further, most regulatory laws define such violations as misdemeanors instead of absolutely serious felonies of penal law. In addition the question of intent, which is very dominant in the criminal code, is not exactly relevant under any regulatory laws even though if intentional violations are proved, may increase the chances of prosecution (Frongillo and Jaclyn 2007). In the case scenario, this may explain why Mr. Mayor was more concerned about establishing Mr. Young’s intention of embezzling the funds, and therefore asked for more investigations into the books of accounting. With this regard, Newman (1956) opined that white-collar violations are more like traffic laws that can be violated and gotten away with. In fact, this explains why white-collar offenders are regarded or regard themselves being above the law. Since provisions in the Crimes Act 1914 (Cth) forbidding white-collar crimes tend to be focus more on finding possible remedies, they are substantially understood to be aimed at preventing or correcting the existing structure that encourage the crime rather than punishing the white-collar offenders. In this case, a range of functions instead of criminal punishments of fines, probations and imprisonment are used by the enforcing agencies (Newman 1956; Pan et al 2011). Therefore, violation of such laws or standards may be subject to seizures, civil suits for damage or consent decrees or enforcement of standards. In the case study, this explains why AUSTRAC focused on the fact that the bank and the company needed to institute proper internal controls and compliance on the part of the upper-level management to evaluate transactions, even for the president or the COO. The fact that various legislations such as the Crimes Act 1914 (Cth) have a narrow view of white-collar crime offenders as criminals also explains why such offenders have tended to view or be viewed as being above the law. Freiberg (2000) explained that the narrowest legal idea of the such offenders view them as individuals who have been involved in acts or omissions that are forbidden by the penal law and as a person convicted by due process. In which case, undetected or un-apprehended white-collar offender is practically and theatrically not a criminal (Freiberg 2000). The basis of Freiberg’s (2000) assumptions is reflected in the case study. For instance, this explains why Mr. Mayor was hesitant to refer to Mr. Young as a criminal and instead asked that the forensic accountants should focus on finding concrete evidence that would give their argument in the case a legal backing. From a strictly legal perspective, Mr. Young had been handled by administrative action outside the penal law jurisdiction and therefore he would neither be a misdemeanant nor a criminal since he has no criminal record (Braithwaite 1985; ACC 2012). This is before the case was referred to AUSTRAC. In actual fact, his behavior is unethical or damaging in civil sense. Consequently, it would be inappropriate to refer such a case to the criminal courts, as the case involved administrative decisions, since ‘wilful intent’ could not be established, as demonstrated in many white –collar prosecutions. Based on this argument, it is critical to observe that such assumptions may make Mr. Young to view himself as immune to law. In any case, it demonstrates why white-collar crime offenders are viewed or tend to view themselves as being above the law (McGraw Hill 2012). In Australia, many litigation cases against white-collar offenders in corporations have proved futile since their wealth is bound up with the company’s fortunes. The legal proceedings in these cases generally require huge expenditures of financial resources and time beyond the stock of an average investor (Freiberg1991; Braithwaite 1989). This scenario is reflected in the case study. Mr. Smith asked the attorney to consider the possible costs of litigations and advise him accordingly. The risk of spending much more on the litigation and eventually losing the case was clearly a factor that Mr. Smith had to consider (Smith 1999). He consented that the case be referred to AUSTRAC. Such barriers to successful legal proceedings contribute significantly to the ongoing assertions that white-collar offenders are above the law. These have promoted contemporary accounting frauds (Bhasin 2012). In which case, a relevant authority should be allowed to handle the matter. From a different perspective however, white-collar offenders should not see themselves as being above the law, and therefore, it is significant that white-collar offences should be referred to the relevant authorities to start criminal prosecution whenever they are detected. This is because the conviction for white-collar crimes is facilitated by a number of statutory provisions that establish the legitimacy of the actions of the offender, or the agent by who the offence was done within the scope of his actual authority (Grabosky 1998). In the case study, it is critical to note that Mr. Smith was aware of the criminality of the offences and that explains why he engaged the services of his attorney from the outset. It should further be argued that the attorney hoped to involve the law to convict Mr. Young for the embezzlement, and therefore asked the forensic accountants to find concrete evidence that would be used during the prosecution. The case was further referred to AUSTRAC to conduct its investigations and possible prosecutions. In conclusion, based on Sunderland’s theory of differential association, the statement has been interpreted to mean that within certain occupations or businesses, lawbreaking can subsist when persons in high authority are not prosecuted for complex financial frauds. Essentially, Individuals in high statuses or positions may exploit legislations or structures that are technically in favour of their actions to commit crime. This is because many detrimental occupational and business activities are not subject to criminal law and retribution. In addition, majority of legislations that underlie white-collar crime are different from conventional criminal laws in their origin, determination of intent, philosophy, trial procedure and sanctions applied in punishing offenders. However, referring such cases to relevant authority can result to successful prosecution. Indeed, it is based on this premise that the case study formulates its underlying argument that Mr. Young, the President of Preesco, used his position in the company to embezzle funds from the company with hope of being exempted from prosecution. References ACC 2012, Serious and Organised Investment Fraud in Australia, Australian Crime Commission: Canberra City ACT 2601 Bannerman, B 1991, International aspects of investigating complex commercial frauds, Proceedings of the AIC Conference on Complex Commercial Fraud, viewed 20 Sept 2013, http://www.aic.gov.au/media_library/publications/proceedings/10/bannerman.pdf Bhasin, M 2012, "Corporate Accounting Frauds: A Case Study of Satyam Computers Limited," International Journal of Contemporary Business Studies, Vol 3 No 10, pp.16-42 Braithwaite, J 1985, "White Collar Crime," Ann. Rev. Social, Vol 11, pp.1-25 Braithwaite, J 1989,Crime, shame and reintegration, Cambridge University Press: London. 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