White Collar Crime - Term Paper Example

? White collar crime and Executive summary White collar crimes often relate to crimes that have to do with large finances yet no physical violence takes place. These crimes involve most of the legal principles as other crimes, but they are complex than other crimes as they involve complicated legal and factual issues. White collar crimes are less obvious due to their ability to incorporate legitimate and criminal behavior. Whether committed by corporations or individuals, white collar crimes cause serious financial and social repercussions in the society. These crimes tend to increase the cost of doing business, which is in turn passed on to consumers in the form of increased prices and decreased services. Victims of white collar crimes and all members of society affected by these crimes experience emotional consequences, which include violation of trust, stress from victimization, and damage to public morale. Categories of crime include fraud, conspiracy, embezzlement, tax evasion, and money laundering. All these types of crimes have different magnitude of negative impact in the society, and this report has recommended turf penalties to be imposed on those who are implicated. The issues are recurrent and are likely to reoccur with the emergence of new opportunities, therefore, measures should be taken to avoid loss of property, money, markets, or personal possessions. For that reason, the society has the responsibility to deploy its private and public administrative, law enforcement resources and research in trying to contain white collar crime. White collar crime Introduction The phrase white collar crime best describes a violence free method of obtaining money illegally. With regards to criminology, Edward Sutherland was the first to use the phrase during the 1939 speech to the American Sociological Society. In 1940, more than forty years ago, Sutherland coined the term white collar crime. He turned his energies to upper-class crime, specifically in the business sector after making popular contributions in the field of criminology (Geis and Edelhertz, 1973). The active involvement of regulatory and law enforcement agencies in the crimes of business and the upper classes denied Sutherland the opportunity to discover them. In the early 1930s, the passage of the first securities act laid a powerful foundation for the legislative weapons against financial fraud as it saw the prosecution of bankers and government officials for abuse of trust; whereas the federal mail fraud statute took a key role as part of an extensive law enforcement tool against business fraud. Furthermore, a president of the New York Stock Exchange was convicted before Sunderland discovered white collar crime. Nevertheless, he discovered white collar crime for the American criminologists; and although it has been dormant, white collar crime has been a top agenda for over forty years (Glovin, 2009). White collar crimes often relate to crimes that have to do with large finances yet no physical violence takes place (Levi, 2010). The same rights and protections given to defendants of other crimes are accorded to people accused of white collar crimes. White collar crimes involve most of the legal principles as other crimes, but they are complex than other crimes as they involve complicated legal and factual issues. Criminal forfeiture, fines, restitution and prison sentences are among the penalties involved in white collar crimes. A consultation with an experienced white collar criminal defense attorney should be the first option for anyone charged with white collar crime. Discussion White collar crimes vs blue collar crimes What is available to the potential offender constitutes the function of the types of crimes committed. Therefore, the risks to engage in crime are lower in those employed in unskilled environments and living in inner-city areas as compared to those who live in prosperity and where large financial transactions take place. Shoplifting and vandalism are types of blue collar crimes that are more obvious and which tend to attract active police attention. On the other hand, white collar crimes are less obvious due to their ability to incorporate legitimate and criminal behavior. In white collar crimes, it is difficult to identify a victim and the culture of commercial confidentiality to protect shareholder value in the corporate world complicates the issue of reporting whereas blue collar crimes are easy to identify as they use physical force. White collar crimes are not usually detected and in cases where they are detected, reports are rarely filed. Cost of white collar crimes Although it is a widespread problem, many overlook white collar crimes deeming it less serious compared to other crimes, hence, they fail to see the tremendous cost it inflicts on consumers and businesses. Whether committed by corporations or individuals, white collar crimes cause serious financial and social repercussions in the society. Economic hardships are felt by the average citizens and consumers, especially in terms of financial costs that incorporate various types of white collar crimes. These crimes tend to increase the cost of doing business, which is in turn passed on to consumers in the form of increased prices and decreased services. Furthermore, the average citizens are subjects of the inequality of the nation’s tax burdens as they pay higher taxes; while multi-million-dollar corporations and the wealthy individuals in society are strategic and evade paying tax by setting their fortunes in secret foreign bank accounts and other tax shelters that are operated illegally (Ball & Bryan-Low, 2011). Hazardous products require a lot of money to purchase, and citizens use millions of dollars when they seek medical help due to the effects caused by these products while unfair labor practices and swindles are crimes that cost people their jobs and life savings. Planned obsolescence and products that have a fast expiry, makes the society incur an enormous cost in the course of replacing these products. Estimates suggest that the United States incurs between $300 and $600 billion, in costs, a year in financial losses. Business failure and recovery costs are secondary societal economic costs that increase these costs. An estimate in regards to business failure claims that about a third to one half of these failures are contributed by thefts carried out by employees. In recovery costs, the burden falls on tax payers who pay billions to support the efforts of criminal, civil and regulatory justice systems. Although financial costs are real, the social consequences of white collar jobs are hard to quantify. The common by-products of certain types of white collar jobs are illness, disability, injury, death and their associated psychological suffering. Victims of white collar crimes and all members of society affected by these crimes experience emotional consequences, which include violation of trust, stress from victimization, and damage to public morale. Victimization experiences are stressful, but the white collar crime victimization wears the crown for the stress it causes. A greater deal of the stress is from the violation of trust included as a package in white collar crimes. Physical harm is also caused as a result of the victimization caused by white collar crimes. At times, physical harm is directly caused by white collar offense; for instance, sexual abuse results in physical harm to the victim. Nonetheless, experiencing financial harm leads to physical problems. For example, white collar crime victims who lose their retirement savings suffer from health related problems. Serious physical injury or, even worse, death is a possibility of white collar crimes, and a case filed by Ninemsn Staff in 2010 reported use of lemon juice instead of antiseptic by a doctor caused the death of seven people. Reinaldo Silvestre was discovered to run an unlicensed medical clinic in Miami Beach. He substituted sedatives for humans by animal tranquilizers and performed botched surgeries (Ninemsn Staff, 2010). Categories of white collar crime Fraud The 8th edition of the 2004 Black Law dictionary defines fraud an act of misrepresenting the truth or concealing a material fact so as to induce another to act as a cover for ones’ detriment. Loss of money or property owned by an individual is the injury that fraud inflicts. Organizations worldwide lay a paramount concern on fraud. For an effective fraud management program, regulators and governments show concern on management responsibilities. The risk of fraud is real regardless of the size of an organization or the country. Management should focus on enforcing proper components and internal controls required to prevent, deter, and detect fraud rather than reacting when it occurs (Levi, 2010; Levi & William, 2002). Procedural compliance controls are the only focus by many internal controls. The responsibility of implementing programs to prevent, identify and detect fraud is an obligation that management should take seriously. It requires a proactive approach management, as opposed to passive approach. For starters, an effective control environment is attained by the management’s assurance of sound governance activities. Such instances require inclusion of an additional system, in addition to the system that applies to all employees. This involves establishing an effective program for monitoring and reporting fraud by the employees and evaluating the efficiency of the risk management program (Geis & Edelhertz, 1973). The second step is to carry out a complete, comprehensive fraud risk assessment. Management requires an understanding of risks associated with fraud because it has an advantage when protecting its stakeholders and the organization at large. The comprehensive fraud risk management should include an identification process that takes into consideration the possible opportunities to commit a crime, the pressures and the assessment of the incentives. Identification helps to determine the responses expected for each fraud risk scenario that is likely to occur (Geis & Edelhertz, 1973). Thirdly, design of effective internal controls is implemented. The controls create a balance between the measures aimed at preventing and deterring occurrence of fraud and methods for detecting and identifying incidents of fraud. Provision of antifraud training, conducting exit interviews, establishing authority limits, and carrying out effective background investigations are among the strongest precautions taken in fraud prevention. More so, whistleblower hotlines and process controls such as independent reviews and reconciliations constitute effective measures for detecting fraud. The forth best step is the migration of organizations from the passive to proactive detection procedures. These procedures include continuous monitoring, data analysis, and the use of fraud detection software in flagging anomalies, trends and risks that serve as indicators for further investigation and follow up. Last but not least would be the establishment of a process to be used in reporting and investigating fraud incidents, and that will help in implementing remediation efforts and corrective actions (Geis & Edelhertz, 1973). The transaction carried out during the occurrence of the fraud incidents helps in classifying fraud crimes. Fraud is broadly defined as a serious criminal offense. It can be charged against an individual who can be imprisoned or against a business by subjecting it to pay substantial fines. The reputation of a person or company undergoes serious damage by the mere utterance of a fraud charge on them, and it results to victimization of the individual, business and/or government. The following are some of the specific categories of fraud. Mail fraud For fraud to be considered as mail fraud, it has to show proof of four elements: a scheme portraying an interest of obtaining property or money through fraudulent means; intent; materiality; and the use of mails in communicating about the scheme. Mailing is not fraud as long as it is not used in fuelling fraud, but it is considered a fraud if proved to be an essential part of the fraudulent scheme. Insurance fraud, credit fraud, securities fraud and medical fraud fall in the category of mail frauds. This fraud inflicts serious socio-economic impacts and hence should be stopped at all means (Roth et al, 2004). Wire fraud Wire fraud requires the same elements as mail fraud, but differs in that it requires a transmittal in interstate and foreign commerce by use of channels such as wire, radio, television, signs and signals, electric forms of communicating written messages, pictures and sounds, as opposed to using of mails. This fraud is hard to detect, and it does not require one to see its occurrence, it just occurs. Its transmission is very fast and can cause a lot of damage to individuals and organizations. Therefore, strong measures should be put up to ensure this form of fraud is detected on time and stopped. Serious penalties should be imposed on those who are involved as a measure of stopping the vice (Roth et al, 2004). Bank fraud In the bank fraud statute, a knowing attempt to execute or a scheme to obtain property owned by or under the custody of the financial institution by false promises or representations is what constitutes a crime. At the strategic level of every bank, estimation of exposure to fraud risks should be done to ensure proper mechanism of management. In this case, extreme capital allocation system of calculation provides a clear viewpoint of assessing and calculating bank’s exposure to fraud risks. If not stopped on time, these risks may result to loss of billions of money and at some points render a bank bankrupt hence collapsing. Therefore, operations of banking need a clear framework to ensure holistic approach of dealing with fraud (Ball & Bryan-Low, 2011). Securities fraud The law of securities binds anyone who offers, buys or sells securities such as notes, bonds and stocks. Securities fraud can be committed by a Corporation that submits false reports of its financial status to the public. If analysts have a conflict of interest, they fail to put their clients’ interests first and are liable for securities fraud. Moreover, analysts who engage in the pump and dump scheme, whereby they pitch a stock by making sales calls that increase its demand and increase the price of shares so as to sell them quickly at high profits are liable for securities fraud. The listed companies have practiced rampant financial fraud, and the large shareholders are wielding their control strengths at the expense of the rights of small stakeholders. To address this problem, the listed companies’ governance structure should be improved through introduction of independent director system, which will compel companies to appoint independent directors and at least one of them to be a professional accountant. This will go a long way in ensuring accountability and transparency in the stock markets. Information disclosure is a very important issue, which directly impacts on investors’ protection and efficiency of security market. Furthermore, practice of transparency in the information disclosure is likely to attract external investors. Therefore, organizations should increase the number of information disclosure requirements. Also, the courts should allow the shareholders to sue their companies if they lie about their accounts. Insider trading This is a securities fraud. Publicly traded securities operate in markets that assume no trader has an advantage over others, and that trade is to be carried out using the information equally available to all participants. Insider trading occurs when a participant, described as an insider, violates the markets’ assumptions and uses information unavailable to other participants to make trades in securities. The unavailable information may be from the company in which the insider works or information about other companies that he has learned from someone who works there. The advantage of insider information is that it is unknown to the general public. Insider trading is a retrogressive activity that amounts to defrauding of shareholders, and which should be punishable by the toughest terms possible. The illegal form of insider trading is the one that takes place in a security market, following exchange of material information, which is not offered to the general public. The strong criticism of many security market regulators shows that this issue is not taken with the seriousness it deserves, by the regulatory bodies, which are entrusted to curtail the insider business. It should be in the best interest of companies to avoid insider trading so they are not investigation by the regulatory bodies - this is particularly because, even after being cleared of any wrong doing, such an investigation can have a lasting damage on the company’s reputation. Conspiracy Conspiracy to deceive United States or to commit a crime as under 18 U.S.C &371, provides that, for any agreement made by two persons to execute a task, leading to a new federal offence, the crime is treated as a separate offense. Thus, conspiracy is any business or contract meant to execute unlawful act and each member made accountable of each other or acts as an agent of the other members. No prove of whether the conspirators did or did not accomplish the execution of unlawful act is needed in the prosecution of conspiracy cases. This is because, once the agreement is made and a commission of any overt act follows, a conspiracy offence arises immediately. An overt act is any action carried out by a conspirator with an intention of performing a conspiracy. There are contradictory beliefs in each simplified conspiracy offense. When dealing with serious unlawful behavior in a group, conspiracy is commonly the effective tool. Nevertheless, it doesn’t mean personal behavior is always less dangerous compared to group behavior. Some of the problems vociferously argued by the protection legal representative would be eased by curbing the number of conspiracies charged. These problems include: large and complex combined trials, inadequate evidence of true accord, and convictions due to rumor declarations. Nonetheless the policy does not get rid of conspiracy in the circumstances in which it is essential and good. Examples of such circumstances include; substantive crime situation in which a large scale criminal effort can only be revealed and verified by reference to the concept of a criminal conspiracy, and true inchoate offence in which no attempt has been made. The circumstances are nevertheless not many. The doctrine of conspiracy will remain the source of at least irregular injustice, and confusion until the charge is curbed. Embezzlement When a person who has legal possession of property misappropriates the property of another, it is referred to as embezzlement and a frequent form of this is employee theft. For an embezzlement case to be established, the prosecution must characteristically prove several things. First, the party that lost property and the defendant must have had a fiduciary association. Second, it should have been through that association the property should have come into defendant’s possession. Third, the defendant should have dishonestly assumed the possession of property. Lastly, the defendant should have deliberately misappropriated the property. It should be noted that, the value of property misappropriated determine the penalty of embezzlement. Tax evasion One of the most frequent crimes in taxes is tax evasion found under 26 U.S.C. § 7201 regarding attempt to evade or overcome tax. Deliberate and unlawful escaping of paying compulsory government taxes is basically referred to as tax evasion. Tax evasion is of different forms. The first type is one which a person makes false statement or fails to file a tax return, such as writing off personal expenses as business expenses to avoid paying taxes for them or forging deductions or not reporting on income on a return. The other type is an abusive trust scheme where a person purports to transfer money into another person’s account, but in reality he does not make the transactions. The transfer leads to a cancellation of individual income taxation. The next form is when the business misstates expenses or income and occurs in various ways. One is through payroll where employers file false payroll tax returns or pay employees on cash and with hold the taxes. The other way is where the retailers avoid reporting on tax reimbursement collected from the clients. Tax evasion is a crime that leads to loss revenue by the government, hence stalling or constraining its development programs. Heavy penalties should be imposed on individuals or organizations that are caught with this fraud as it impacts on the economy very negatively. Also, Governments should ensure they install strong control systems and policies within their tax collection agencies to help curb this fraud (Reuter & Truman, 2004). Money laundering Money laundering is an illegal practice of obtaining money through sequence of deals or filtering dirty money so that it appears the funds were from lawful activities and earnings. Money laundering occurs in three different steps. Placement is one of the steps, which involves moving of ill-gotten funds through wire transfer, money order, and deposits among others, into a money institution such as brokerage, insurance company or a bank (Bartlett, 2002). The second step is layering, which ensures the incomes obtained from illegal activity are separated from the source through the use of complex money deals making it hard to trace the origin of the funds. The third step is integration involving use of extra deals to clean money and make them look like they were obtained lawfully by buying assets. Just like other forms of fraud, this category has serious economic implications and those who are implicated should be dealt with severely or jailed depending on the magnitude of their crime (Winch, 2006). Conclusion and Recommendations To be precise, the incidences that arise as a result of white collar crimes are not issues that can be eliminated once and for all, but at least they can be dealt with. Although it is a widespread problem, many overlook white collar crimes deeming it less serious compared to other crimes, hence, they fail to see the tremendous cost it inflicts on consumers and businesses. Whether committed by corporations or individuals, white collar crimes cause serious financial and social repercussions in the society. The issues are recurrent and are likely to reoccur with the emergence of new opportunities, therefore, measures should be taken to avoid loss of property, money, markets, or personal possessions. For that reason, the society has the responsibility to deploy its private and public administrative, law enforcement resources and research in trying to contain white collar crime. This is accomplished by setting up methods that deter, detect, investigate and civilly and criminally prosecute these crimes and any issues that have a relation with them. A classified model on causes of white collar crimes and how to control them has been suggested as shown in the appendix section. There are many resources that have not been fully exploited in trying to curb white collar crimes. The academic community is one of these resources. Business schools have ignored the problem of white collar crime and law schools deem it as a minor part of the regulatory and criminal laws. On the other hand, social scientists have identified issues relating to white collar crimes, but are yet to establish measures for collecting, organizing and describing these criminal behaviors. However, a systematic effort to evaluate the pros and cons of using alternative approaches, and relate agency functions and organization has been observed in few instances, in the area of policy analysis. Programmatic demands, such as the clamor for resources, by law enforcement agencies that fight violent crimes and common theft inflict stress on agencies that aim at containing white collar crimes. These two groups of agencies compete for these resources. Nonetheless, systematic consideration of strategies to deal with white collar and organized crimes that require complex strategies in enforcing tools, remedies, and criminal behaviors to be contained can be implemented. The strategy has been useful in the Division of Criminal Justice in New Jersey, the policy analysis branch of the Criminal Division of the U.S Department of Justice, and the Arizona Attorney General’s Office (Edelhertz et al., 1981). Law enforcement officers have to readjust their plans so as to exploit all the weapons available to them especially when dealing with matters pertaining to civil prosecution as they have been strengthened by incorporation of new federal and state anti-racketeering statutes (Blakely & Gettings, 1980). Law and accounting professions have a responsibility in containing white collar crime by reporting these crimes and assuming responsibilities caused by them. These considerations are likely to be made by civil judgments and criminal prosecutions against leading public accounting firms. There has to be a clear differentiating barrier between economic and sociological impacts when reacting to white collar crimes. This helps in setting enforcement priorities and allocation of resources. For example, welfare programs are the most vulnerable to attacks whenever frauds are exposed whereas these frauds have an insignificant effect, in economic terms, as compared to antitrust violations. Conversely, con games and swindles affect the public consciousness and cause injuries to individual victims; however, the injury caused to the affected business body, by the great loss of funds as a result of procurement fraud and abuses, requires greater attention and use of enforcement resources. Lastly, people concerned with white collar crimes have to determine their method of involvement in developing a rational method of marshaling and deploying the available resources for containing these crimes and their effects (Edelhertz and Rogovin, 1980). Currently, the resources are divided among many federal, local, state and private agencies. On the basis of function, they are further divided into regulatory agencies, investigative agencies, police departments, compliance offices, prosecutors and courts. The same functions are performed by groups in private industry. The belief that the decision by an agency to respond to a white collar crime is related to the resources and capabilities of the agency is not substantial. Their involvement is rather a show of which agency moved in first and which has greater resources. Agencies have jurisdictions that are mostly similar, and thus it is difficult to stop them from carrying out the same practices. A lot can be said about white collar crimes, and most of it has been disclosed in this document. However, some information that others would consider material has been omitted. It is evident that many people since 1980s have taken the responsibility of fighting white collar crimes by establishing methods of deterring and detecting these frauds. References Internet source Glovin, D. (July 2009). Bourke convicted of Bribery in Kozeny’s Azerbaijan. Retrieved from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXO.vHLdvbcM Ninemsn Staff, 2010. Understanding white collar crime. Retrieved from http://www.sagepub.com/upm-data/43839_2.pdf Winch, D. (2006). Money Laundering Law Changes. Retrieved from http://www.accountingevidence.com/documents/articles/Money%20laundering%2 0law%20changes.pdf Books Edelhertz, H., & Rogovin, C. (1980). A National Strategy for Containing White-Collar Crime. Lexington, MA: D. C. Heath. Reuter, P., & Truman, E (2004). Chasing Dirty Money. New York: Peterson. Journal and reports Ball, D., & Bryan-Low, C. (2011). U.S. Banks Oppose Tighter Money Rules. The Wall street journal. Retrieved from http://online.wsj.com/article/ Bartlett, B. (May 2002). The Negative Effects of Money Laundering on Economic Development. Asia: Asian Development Bank. Blakey, C. R. & Gettings, B. (1980). Racketeer influenced and corrupt organizations (RICO): basic concepts—criminal and civil remedies. Temple Law Q. 53: 1009–1048. S3:1009- 1048. Edelhertz, H. et al. (1981). The Containment of Organized Crime: A Report to the Arizona Legislative Council. Report No, BHARC 300/81/043. Battelle Human Affairs Research Centers, Seattle, WA, December Geis, G. & Edelhertz, H. (1973). Criminal law and consumer fraud: a sociolegal view. Amer. Criminal Law Rev. 11 (Summer), 989-1010. Levi, M. (May 2010). Combating the Financing of Terrorism: A History and Assessment of the Control of 'Threat Finance. British Journal of Criminology 50 (4), 650–669. Levi, M., & William G. (2002). Terrorist Finance, Money Laundering and the Ris of Mutual Evaluation: A New Paradigm for Crime Control?. European Journal of Law Reform 4 (2), 337–364. Roth, J. et al. (20 August 2004). Monograph on terrorist financing. National commission on terrorist attacks, pp 54-56. Appendix - Policy Model Ranking of the roots of White-Collar Crime and the control measures causes grade Control measures 1.0 Opportunistic causes 3.27 Placing good internal control and governance systems. Education on good governance systems and ethics 1.1 Poor internal controls 3.57 1.2 Type of industry 3.05 1.3 Poor hiring practices 2.97 1.4 override of internal controls by the management 3.19 1.5 Poor ethical practices 3.50 1.6 Devoid of control over management by directors 3.34 2.0 managerial and organizational causes 3.22 Education on good governance systems and ethics. Strong control systems 2.1 The idea that bribes are paid by the competitors, to win contracts 3.63 2.2 The desire by the senior executives to achieve financial goals 3.31 2.3 Fear that lenders might call off debt facilities if the financial performance is poor 3.09 2.4 When the financial targets are hard to attain 3.04 2.5 Corporate culture 3.02 3.0 Behavioral causes 2.99 Reducing situations and opportunities for these pressures, especially the managerial and organizational causes 3.1 Desire to be awarded bonuses on good performance 3.2 Fear of being fired 2.98 3.3 Peer influence 2.76 3.4 conspiracy between third parties and employees 3.00 Read More