White Collar Crime

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White collar crime refers to non-violent crimes committed through deceptive practices, for the purpose of financial gain. Typically, white collar crimes are committed by business people who are able to access large amounts of money, though the term is sometimes applied to others who pilfer monies in other circumstances. White collar crimes are non-violent, and are committed by a broad range of activities, such as insider trading. To explore this concept, consider the following white collar crime definition.

Definition of White Collar Crime

Noun  

  1. Crimes that are committed using deceptive practices for financial gains.

Origin

1939    Term created by Edwin Sutherland, Professor of Sociology, President American Sociological Society

What is a White Collar Crime

White collar crimes are financially motivated crimes committed by individuals, businesses, and government entities. The actual term “white collar crime” was coined by Edwin Sutherland, Professor of Sociology, 29th President American Sociological Society. Sutherland described such crimes as “a crime committed by a person of respectability and high social status in the course of his occupation.”

White collar crimes cover a wide range of activities, but generally, the crimes are committed by people who are involved in otherwise lawful businesses. The perpetrators often hold respectable positions in their communities or businesses, until their illegal activities discovered. The laws concerning white collar crimes vary, depending on the exact nature of the crimes committed, though many fall under federal authority.

Common Types of White Collar Crime

The term white collar crime covers a wide array of crimes, but they all involve crimes committed through deceit for the purpose of gaining money or other assets. The most common types of white collar crime include fraud, insider trading, and bribery. White collar crimes can often be difficult to prosecute, as the perpetrators take sophisticated steps to ensure their illegal activities are difficult to detect. The most common types of white collar crime are explained below.

Fraud

Fraud is committed by misrepresenting facts in order to gain something in return. The crime of fraud requires four elements:

  • The perpetrator made a statement of fact that he knew to be false
  • The perpetrator intentionally made the false statement
  • The victim believed the statement to be true, relied on the statement, and lost something of value, based on his belief

Example of Fraud

Joseph responded to an ad about an apartment for rent. He met with the supposed landlord, toured the apartment, and agreed to rent the apartment by signing a lease. Joseph paid the security deposit and first month’s rent up front. The next week, Joseph went to the apartment to pick up the key, and learned that someone else actually occupied the residence.

After doing some investigation, Joseph learned that the apartment was not for rent at all, but that the man he met with and gave the money to was not the property owner. In this example of white collar crime, the man who posed as the owner to swindle money out of a prospective tenant has committed fraud.

Insider Trading

Insider trading is often considered a type of fraud, though many people are surprised to learn that not all insider trading is illegal. Insider trading is against the law if a securities transaction, which is the sale or purchase of stocks, is engaged in by a person, or small group of people, inside the company, who have special knowledge not available to others.

Example of Insider Trading

Jeff works for a private company that is working on a device that can detect certain serious heart problems. One day, while at work, Jeff receives an email that was intended for his boss. The email stated that the device would be released on a certain day, which had not been announced to the public. Jeff immediately calls family and friends, telling them to buy company stock right away.

By time the product is released, which immediately raises stock values, the company’s stocks have already been bought out. In this example of white collar crime, Jeff used “insider information” to give his friends and family an edge, enabling them to obtain company stocks at the previously low rate.

Bribery

Bribery is committed when a person uses something of value to tempt or influence someone to act in a specific way, to make certain decisions, or to express certain opinions. This is most commonly seen in one person offering to pay money to another person, who is in a position of authority, for the purpose of persuading him to do something, or to refrain from doing something. Both offering bribes, and accepting bribes, are considered illegal.

Example of Bribery

DrillTech company is in the process of engineering a horizontal drilling project for a company installing a pipeline that runs through North City. The City Engineering office is dragging its feet on approving the drilling project, bringing up question after question about the project. Mr. Smith, DrillTech’s Vice President of hole-drilling, invites Sam, the City Engineer to lunch, during which he offers to “donate” $100,000 to his children’s education fund, if Sam will just finish the approval process, allowing DrillTech to get on with the project.

This is considered bribery, as its purpose is to induce a city official to take an action that will benefit the company’s business and profit. In this example of white collar crime, DrillTech has committed an illegal act in attempting to bribe the city official. If Sam accepts the bribe and greenlights the drilling project, he has also committed an illegal act.

Forgery

The altering, making, possession, or use of a falsified document, such as a check, contract, or other document, with the intent to defraud or injure the recipient of the document. This includes such crimes as passing forged checks, and creating, possession, or selling falsified art.

Other Types of White Collar Crime

White Collar Crime Statistics

Every year, the federal government investigates and prosecutes people for committing white collar crimes. Most people, however, are not aware of the actions that may be considered a white collar crime. While the general public thinks of criminals like Charles Ponzi, Bernie Madoff, or the Tyco and Enron scandals when they think of white collar crime, regular people are often guilty of such crimes to a lesser degree.

Each year, government departments and organizations track white collar crime statistics, publishing the results every few years. of the white collar crime statistics are shocking to those unaware of this crime’s prevalence. Fraud and other white collar crimes cost businesses and individuals more than $400 billion each year in the U.S.

  • White collar crime most commonly occurs in companies with fewer than 100 employees
  • 75% of white collar crime is committed by men
  • The typical perpetrator of white collar crime is a college-educated male of Caucasian descent
  • On average, companies lose $9 or more per day, per employee due to fraud
  • Managers are responsible for four times the amount of loss than employees
  • Each year, there are around 5,000 arrests per 100,000 people in the United States for white collar crimes
  • Of those arrests, 635 are related to property crimes
  • Bribery accounts for the fewest white-collar-crime-related arrests
  • Estimates show that one out of every four households will be the subject of a white collar crime at some point in their life

Penalties for White Collar Crime

The criminal penalties for white collar crime vary greatly, depending on the type of crime committed, and the circumstances surrounding the case. Most individuals facing criminal charges for a white collar crime have never faced the criminal justice system, and the process is frightening. Typically, penalties for white collar crime include any combination of imprisonment, restitution, fines, probation, and community service.

Such crimes that are serious enough to face prison time may place the perpetrators behind bars for many years. In fact, Congress passed the Sarbanes-Oxley Act of 2002, which increased oversight in corporate responsibility and mandated financial disclosures, in an attempt to stem large scale white collar crime. As a result of the Act, penalties for white collar crime involving wire or mail fraud increased.

In addition to any criminal penalties imposed on a perpetrator, civil penalties may be imposed for white collar crime, as the victims can file a civil lawsuit against the perpetrator. Criminal conviction is not required for a financial crime victim to be successful and be awarded damages for his financial losses in a civil lawsuit.

White Collar Crime Example Involving a Ponzi Scheme

Bernie Madoff, a former non-executive chairman of the NASDAQ stock market, began his own Wall Street investment securities firm in 1960. He employed his brother, his brother’s daughter, and two of his brother’s sons at the firm, where he worked as Chairman until December 2008, when he was arrested for committing a white collar crime known as a Ponzi scheme.

While Madoff started the business with his personal earnings as a lifeguard and sprinkler installer, his father-in-law also loaned him money. About 10 years later, Madoff began attracting major investors and, through the years, even convinced a number of wealthy celebrities to invest in his firm.

Madoff would acquire money from these investors by promising them huge returns. However, when he received the money, he would deposit it into a personal account. If an investor asked for some of the money, Madoff would take it from his fake business capital, which was composed of other people’s investment money, and give them a small amount, stringing them along for bigger returns. By the 2000s, Madoff was unable to repay any of the investors, as the money cycle began running out. This sparked an investigation.

In December 2008, Madoff’s own sons reported to federal authorities that their father had admitted to them that his asset management company was a massive Ponzi scheme. The next day Madoff was arrested and charged with securities fraud. At trial, in March, 2009, Madoff pled guilty to 11 federal charges involving white collar crimes. These felony charges included securities fraud, perjury, and money laundering.

According to the criminal complaint, investigators could document that Madoff had defrauded his clients to the tune of around $65 million, making his scam the largest Ponzi scheme ever recorded. The Securities Investor Protection Corporation (“SIPC”) put investors’ actual losses at closer to $18 billion.

Madoff claimed that he was the only one responsible for the fraudulent acts, and refused to name any family members or anyone else associated with the con. He was sentenced to 150 years in federal prison. Later that year, however, a number of Madoff’s key personnel, including David G. Friehling, Accountant and Auditor, and Frank DiPascali, Finance Chief, later pled guilty to more than a dozen felony charges.

Friehling, who was facing more than 100 years in prison, cooperated extensively with authorities for a shortened sentence, naming five former employees, each of which was convicted and sentenced to prison. For his help, Friehling’s sentence was reduced to 1 year of home detention, and 1 year probation. DiPascali also cooperated, testifying at the trials of the five additional employees. While he originally faced 125 years in prison, he died of cancer before being sentenced.

This extreme example of white collar crime shocked the public, increasing awareness of how people in key positions can bilk others of huge amounts of money. Even small consumers were spurred to take extra care in trusting their financial wellbeing to another, whether a small time advisor, or huge corporations.

Related Legal Terms and Issues

  • Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
  • Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property, or an injury.
  • Felony – A crime, often involving violence, regarded as more serious than a misdemeanor. Felony crimes are usually punishable by imprisonment more than one year.
  • Fraud – A false representation of fact, whether by words, conduct, or concealment, intended to deceive another.
  • Intent – A resolve to perform an act for a specific purpose; a resolution to use a particular means to a specific end.
  • Ponzi Scheme – A fraudulent investment scheme in which payment to the original investors comes from the investments funds of newer investors. By promising a high rate of return from an investment opportunity that doesn’t actually exist, new investors join in, garnering pay from even newer investors. These scams collapse when the influx of new gullible investors runs out.
  • Victim – A person who is injured, killed, or otherwise harmed as a result of a criminal act, accident, or other event.