WHITE COLLAR CRIME
1. INTRODUCTION
White-collar crime, crime committed by persons who, often by virtue of their occupations, exploit social, economic, or technological power for personal or corporate gain. The term, coined in 1939 by the American criminologist Edwin Sutherland, drew attention to the typical attire of the perpetrators, who were generally businesspeople, high-ranking professionals, and politicians. Since Sutherlands time, however, such crimes have ceased to be the exclusive domain of these groups. Moreover, developments in commerce and technology have broadened the scope of white-collar crime to include cybercrime (computer crime), health-care fraud, and intellectual property crimes, in addition to more-traditional crimes involving embezzlement, bribery, conspiracy, obstruction of justice, perjury, money laundering, antitrust violations, tax crimes, and regulatory violations.(1)
White-collar crime that is part of a collective and organized effort to serve the economic interests of a corporation is known as corporate crime. In some cases corporate crimes are conducted by bogus entities that pose as legal corporations or partnerships. Although corporations cannot be incarcerated, they can be criminally punished with fines and other sanctions. Criminal liability in these cases is based on the acts or omissions of the companys employees and executives.
2. UNDERSTANDING WHITE COLLAR CRIME
"White-collar crime" is a term first coined by sociologist Edwin Sutherland in 1949 who defined it as a crime committed by a person of respectability and high social status during his occupation. White-collar workers historically held non-laboring office positions while blue-collar workers traditionally wore blue shirts and worked in plants, mills, and factories.(2)
High-profile individuals convicted of white-collar crimes include Ivan Boesky, Bernard Ebbers, Michael Milken, and Bernie Madoff. Their crimes have included insider trading, accounting scandals, securities fraud, and Ponzi schemes.
Rampant new white-collar crimes facilitated by the internet include so-called Nigerian scams, in which fraudulent emails request help in forwarding a substantial amount of money to a criminal ring. Other common white-collar crimes include insurance fraud and identity theft.
3. CORPORATE FRAUD
The FBI cites large-scale corporate fraud perpetrated by many throughout a corporate or government institution, as among its highest enforcement priorities. This type of crime incurs a significant financial loss to investors and can damage the U.S. economy and investor confidence.
Corporate fraud gathers the widest group of partners for investigations, including the FBI, the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Industry Regulatory Authority, the Internal Revenue Service, the Department of Labor, Federal Energy Regulatory Commission, and the U.S. Postal Inspection Service.
4. FLASIFICATION OF FINANCIAL INFORMATION
The majority of corporate fraud cases involve accounting schemes that are conceived to deceive investors, auditors, and analysts about the true financial condition of a corporation or business by manipulating financial data, share price, or other measurements to inflate the financial performance of the business.
In 2014, Credit Suisse pleaded guilty to helping U.S. citizens avoid taxes by hiding income from the Internal Revenue Service and paid penalties of $2.6 billion. Bank of America sold billions in mortgage-backed securities (MBS) tied to properties with inflated values without proper collateral and agreed to pay $16.65 billion in damages.
5. SELF-DEALING
Self-dealing occurs when a fiduciary acts in their own best interest rather than in the best interest of their clients. Considered a conflict of interest, this illegal activity can lead to litigation, penalties, and termination of employment for those who commit it.
Self-dealing includes front-running, when a broker enters into a trade with the foreknowledge of a non-publicized transaction that will influence the price of the asset, resulting in a financial gain for the broker. It also occurs when a broker or analyst buys or sells shares for their account ahead of their firm's buy or sell recommendation to its clients
Insider trading occurs when individuals act upon or divulge to others information that is not yet public and is likely to affect share price and company valuations once it is known. Insider trading provides an unfair advantage for individuals to profit and does not matter how the material nonpublic information was received or if the person is employed by the company.
6. MONEY LAUNDERING
Money laundering is accepting cash earned from illicit activities, such as drug trafficking, and making the cash appear as earnings from legal business activity. Criminals often filter money from crimes such as human and narcotics trafficking, public corruption, and terrorism in a three-step process:
Placement is the initial entry of a criminals financial proceeds into the financial system.
Layering separates the criminals financial proceeds from their source and creates a deliberately complex audit trail through a series of financial transactions.
Integration occurs when the criminals financial proceeds are returned to the criminal after "laundering" from what appear to be legitimate sources.
A cash-based business, such as a restaurant that is owned by a criminal organization, is a common tool to launder illegal money. Daily cash receipts may be inflated to funnel illegal cash through the restaurant and into the bank for distribution to the owners.
7. SECURITIES AND COMMODITIES FRAUD
The perpetrator of a securities fraud can be an individual, such as a stockbroker, or an organization, such as a brokerage firm, corporation, or investment bank, and includes crimes such as:
High-yield investment fraud involves promises of high rates of return coupled with claims of little or no risk in investments like commodities, securities, and real estate.
Ponzi and pyramid schemes are fraudulent investment scams that generate returns for earlier investors with money taken from later investors.
Advance fee schemes involve fraudsters convincing their targets to advance small amounts of money with a promise to deliver greater returns.
Pump and dump schemes artificially inflate the price of lower-volume stocks on small over-the-counter markets. "The 'pump' involves recruiting unwitting investors through false or deceptive sales practices, public information, or corporate filings. Once the target price is achieved, the perpetrators dump their shares at a huge profit and leave innocent investors to foot the bill.
Late-day trading is the illegal practice of recording trades that are executed after hours as having occurred before a mutual fund calculated its daily net asset value (NAV). Late-day trading can dilute the value of a mutual fund's shares and harm long-term investors.
8. CONCLUSION
In conclusion, it can be said that white-collar crimes are in fact serious crimes that can have equally serious consequences. There is a certain stigma attached to these crimes, making it seem that it is not as serious or hurtful as other, more conventional crimes. In reality, these crimes can be as serious as the normal ones, especially when there is substantial loss in finances and other monetary assets.(3)
Governments around the world are trying to remove the notion that not only street crimes are existent and deserving of punishment, but also the lesser-known white-collar crimes. This is why there are serious consequences for crimes like tax evasion and money-laundering.
I believe that this progressive approach towards dealing with white-collar crimes in the same way as normal crimes will help countries in reducing the rate of overall crime in society. Furthermore, I think it is imperative to keep a check on white-collar crimes for the sake of the economy, as such crimes have the potential to cause significant economic damage.
Especially in a country like India, the legal consequence should be strict and precise for white-collar crimes, as it is a developing economy and does not have the luxury to constantly battle white-collar criminals. Therefore, if a society is able to deal with white-collar crimes effectively and give them the same notoriety as normal street crimes, then it will be beneficial for its socio-economic growth and well-being.
9. CITATION
1. White collar crime is available at : https://www.britannica.com/topic/white-collar-crime (last visited on Nov 3, 2023)
2.White collar crime is available at : https://www.investopedia.com/terms/w/white-collar-crime.asp#:~:text=White%2Dcollar%20crime%20is%20a,a%20personal%20or%20business%20advantage. (last visited on Nov 3, 2023)
3. White collar crime is available at : https://lexforti.comlegal-news (last visited on Nov 3,2023)
