The Private Sector and Further Perpetration - Report Example

Corporate Crime: Do Governments’ Ways of Handling Crimes within the Private Sector Contribute to Further Perpetration Introduction One of the biggest challenges that governments are having to deal with is the increasing prevalence of corporate crimes. Apparently, more cases of organizational crimes are being reported across all political jurisdictions. The role of the government in ensuring that these types of crimes are not committed stems from its primary mandate of protecting the citizenry. Corporate crime is generally referred to as white collar crime. Coined by sociologist Edwin Sutherland (1933), the term refers to the various types of criminal/ underhand activities carried out at the firm/ corporation level (Coleman, 2009). As the crimes grow both in magnitude and number, government agencies are consistently seeking better ways to curb future recurrence of the incidents. However, their efforts, even in the face of growing severity, are partly unrealized as more mega scandals are emerging with greater frequency. This poses the question: does the severity of punishments rendered against offending corporate entities help in reducing the rates of such crimes? Any responses towards this question have to be based upon the current trends as observed across several jurisdictions. Apparently, the increasingly tougher penalties meted out by government agencies have not helped in reducing the rates and magnitudes of corporate crime. Clarke and Newman (2012) were able to relate some of the wrong notions that drive many corporations into crime. Inevitably, every government is faced with a situation where it needs greater mobilization of resources, most of which are available from taxes levied upon members of the corporate world. In their pursuit to cater for ever increasing populations and increasing demand for better services, governments have consistently increased the tax levels on corporations. On the other hand, corporation managers are bestowed with the role of meeting strict targets, which automatically determine their abilities to keep their jobs. In this state, being the heads of their organizations they are faced with opposing demands; one for improved tax compliance from the government agencies and the other for increased profitability from the shareholders and proprietors. The net effect is what results in corporate crime (Coleman, 2009). This paper attempts to answer the question of whether increased severity of penalties given to the corporates is a catalyst for reduction in corporate crime, bearing the view that in reality, the magnitude and number of such crimes are steadily rising. Analysis In November 2009, while at the height of the global financial recession, The Economist published a report detailing the increased rates of corporate crimes in 54 countries between 2003 and 2009. Apparently, as argued above, corporate managers tend to revert to unorthodox means of cost cutting and financial reporting when faced with financial crises. According to the report, the most likely forms of corporate crimes committed by the corporate organizations are accounting fraud and bribery/ corruption. As shown in the diagram below, both forms of evil were on the rise within the study period (2003 – 2009). Figure 1. Increase in accounting and bribery/ corruption cases between 2003 and 2009. (Adapted from The Economist, 19th November 2009). Clearly, the figure demonstrates rising levels of crime in the corporate world with time. In reference to the anomie theory, Whyte (2009) noted that: “A central proposition of anomie theory is that discrepancies between cultural and institutional means available to people for the achievement of these goals make for a weaker commitment to prevailing standards” (pp. 152). This note clearly ties with the earlier one that heightened expectations from individuals bestowed with roles for steering corporations to higher profitability and accountability often leads to a collapse of either (profits or accountability). But, is this the overall position adopted by all researchers into the field of corporate criminality and its causes? Apparently, there are dissenting voices in this area. The more neutral notion, and which the governmental authorities buy more easily is that increased accountability results in increased profitability, which in turn ensures safety of the job of the corporate manager (Tomasic, 1993). According to this argument, managers who exercise higher levels of accountability are less likely to lose out on profits for their firms. However, empirical research has not always demonstrated veracity of this statement; in fact, findings are as divided as the opposing assertions themselves. The general argument is not supposed to take the blame away from the corporations that commit crime in the name of saving their shareholders their investments. In fact, this is the wrong notion, and it should be discouraged at any cost. However, the fact that targets set for the corporate managers are at times unrealistic is itself an indisputable catalyst for commission of corporate crimes. This underscores both the need to prevent such occurrences both by being realistic to changing tax and governance regimes as well as performing critical reality checks pertaining the suitability of the tools accorded those bestowed with the roles of leading corporate firms to better times. We need to look into the developments in the restrictions/ laws governing treatment of corporate crime. Coleman (2009) reported that against an earlier finding that found out only less than 50% of corporate employees were cheated of their employment or earnings by their employers, research done in 2008 in a different region of the US indicated that as many as 62.5% of employees had fallen victim of various unethical and criminal practices of their employers. However, within the space spanning the two research studies, several constitutional amendments had been made to strengthen the laws that govern corporate crime. This is partly paradoxical since the new laws and regulations were meant to reinforce the positions of the corporations in restraining staff from perpetrating corporate crime. The value losses incurred from the commission of these crimes has also been rising steadily. For instance, Coleman (2009) reported that unlike previous estimates, the 1991 estimates placed the losses at $260 billion for the year in the country alone. The researcher noted that this figure had eventually overtaken the losses incurred through such other violent forms of crime such as street and gun robbery. Coleman asserts that the ability of the regulations to curb the commission of the vice among corporation officers is low, especially due to the large number of factors in play when such crime is committed. The main factors include lack of incentives, collusion, improper relationships between the management and junior staffs, and lack of proper internal control systems to oversee appropriateness of transactions performed within a firm. Almond (2009) took the concern that the introduction of the Corporate Manslaughter and Corporate Homicide Act (2007) in the UK was not yet effective in reducing rates of corporate crime in the country two years down the line. In fact, the researcher’s findings corroborated an otherwise unexpected phenomenon; one that showed the act of parliament had not only failed to reduce the rates of crime, but had also withstood an increase in the rates. A comparison of this case with the previous one mentioned for the US indicates that indeed, tougher laws do not limit the commission of corporate crimes. Some other forms of corporate crimes committed by managements basically rest around tax evasion and misreporting of accounting figures (Diskant, 2008). However, other forms of corporate criminality are occasionally being reported across the world. One unique crime was reported in 2005 during the J. Paul Getty Museum Investigation (Brodie & Proulx, 2014), which involved the illegal transfer of Italian artefacts into the museum. Apparently, the wider context within which this crime was recorded is that the museum administration intended to benefit financially from misrepresentation of facts by pretending to be the honest owners of the artefacts in question. This goes to show how widely practiced corporate crime is. Almond (2009) equates corporate crime with ‘corporate manslaughter’. His argument is that the eventual position of the corporation is dented after discovery of unethical engagements, which not only drives investors away, it also leads to substantive penalties, loss of jobs, lengthy probations and decline in stock prices. These events comprise a set of regrettable but avoidable occurrences. Coleman (2009) noted that a rise in “leakage” of ownership and other sensitive details about corporations to competitors has been on the increase. Whereas this form of a crime may hardly be realized, it is also becoming one of the more prevalent forms of crime under this category occasionally undermining the privacy of firm owners and compromising internal operations. Conclusion Despite our greater commitment to more appropriate methods of communicating the financial positions of corporates, there is the unavoidable risk of firms committing corporate fraud in response to proprietary/ shareholder pressure. Inevitably, many instances of unrealistic pressure on the management lead to increase in the rates of corporate crime. While the list of factors that contribute to corporate crimes such as tax evasion, misreporting of accounting figures and underhand techniques of cost cutting and competition remains inconclusive, research has gradually revealed many of the associated factors. For instance, besides proprietary pressure (which is considered the main cause of corporate crime), government levies, business/ operational inefficiencies, poor moral backgrounds, national/ regional cultural confines and existence and severity of laws against corporate crime have been highlighted as some of the leading contributors to the vice. Studies into the diverse number of contributing factors has largely been necessitated by the discovery of corporate crimes in regions where the vice has not been commonly reported. The biggest contributor to the emerging cases in jurisdictions that were previously considered free from corporate crime is the enactment of universal laws that govern the way corporations transact around the world (Simpson, 2002). While this view holds true to some extent, it is also clear that corporations within jurisdictions that already adopted the universally accredited legal framework for determining what comprises corporate crime have also witnessed increase in such cases. This clears the question posed at the beginning of the paper, with indicators clearly pointing to inadequacy of broader restrictions in dealing with corporate crime. References Almond, P. (2009). Understanding the seriousness of corporate crime: Some lessons for the new ‘corporate manslaughter’ offence. Criminology and Criminal Justice. 9(2): 145-164. Brodie, N. & Proulx, B. B. (2014). Museum malpractice as corporate crime? The case of the J. Paul Getty Museum. Journal of Crime and Justice. 37(3): 399-421. Clarke, J. & Newman, J. (2012). The alchemy of austerity. Critical Social Policy. 0(0): 1-21. Coleman, K. (2009). Controlling corporate crime: An analysis of deterrence versus compliance. North-western Interdisciplinary Law Review. Illinois: Northwestern University. Diskant, E. B. (2008). Comparative corporate criminal liability: Exploring the uniquely American doctrine through comparative criminal procedure. The Yale Law Journal. 118(126): 126-176. Simpson, S. S. (2002). Corporate crime, law, and social control. New York: Cambridge University Press. The Economist (2009). The rot spreads. The Economist Newspaper Limited. Retrieved from http://www.economist.com/node/14931615. (Accessed 16th December 2014). Tomasic, R. (1993). Corporate crime and corporations law enforcement strategies in Australia. Canberra: University of Canberra. Whyte, D. (2009). The organization of domination (Section 5 in Crimes of the Powerful Reader, Berkshire: Open University Press) pp. 130-169. Read More