What Is White-Collar Crime?
White-collar crime is a nonviolent crime committed for financial gain. According to the FBI, a key agency that investigates these offenses, "these crimes are characterized by deceit, concealment, or violation of trust." The motivation for these crimes is to obtain or avoid losing money, property, or services, or to secure a personal or business advantage.
Examples of white-collar crimes include securities fraud, embezzlement, corporate fraud, and money laundering. In addition to the FBI, entities that investigate white-collar crime include the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), and state authorities.
White-collar crime is non-violent wrongdoing that financially enriches its perpetrators
These crimes include misrepresentation of a corporation's finances to deceive regulators and others
A host of other offenses involve fraudulent investment opportunities in which potential returns are exaggerated and risks are portrayed as minimal or non-existent
White-collar crime has been associated with the educated and affluent ever since the term was first coined in 1949 by sociologist Edwin Sutherland, who defined it as "a crime committed by a person of respectability and high social status in the course of their occupation."
In the decades since the range of white-collar crimes has vastly expanded as new technology and new financial products and arrangements have inspired a host of new offenses. High-profile individuals convicted of white-collar crimes in recent decades include Ivan Boesky, Bernard Ebbers, Michael Milken, and Bernie Madoff. And rampant new white-collar crimes facilitated by the internet include so-called Nigerian scams, in which fraudulent e-mails request help in sending a substantial amount of money.
Some definitions of white-collar crime consider only offenses undertaken by an individual to benefit themselves. But the FBI, for one, defines these crimes as including large-scale fraud perpetrated by many throughout a corporate or government institution.
The agency names corporate crime as among its highest enforcement priorities. That's because it not only brings "significant financial losses to investors," but "has the potential to cause immeasurable damage to the U.S. economy and investor confidence."
Falsification 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 entity. Such cases typically involve manipulating financial data, the share price, or other valuation measurements to make the financial performance of the business appear better than it is.
For instance, Credit Suisse pleaded guilty in 2014 to helping U.S. citizens avoid paying taxes by hiding income from the Internal Revenue Service. The bank agreed to pay penalties of $2.6 billion. Also in 2014, Bank of America acknowledged it sold billions in mortgage-backed securities (MBS) tied to properties with inflated values. These loans, which did not have proper collateral, were among the types of financial misdeeds that led to the financial crash of 2008. Bank of America agreed to pay $16.65 billion in damages and admit to its wrongdoing.
Corporate fraud also encompasses cases in which one or more employees of a company act to enrich themselves at the expense of investors or other parties. Self-dealing is when a fiduciary acts in their own best interest in a transaction rather than in the best interest of their clients. It represents a conflict of interest and an illegal act and can lead to litigation, penalties, and termination of employment for those who commit it. Self-dealing may take many forms but generally involves an individual benefiting — or attempting to benefit — from a transaction that is being executed on behalf of another party. For example, front-running is when a broker or other market actor enters into a trade because they have foreknowledge of a big non-publicized transaction that will influence the price of the asset, resulting in a likely 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 clients.
Most notorious are insider trading cases, in which individuals act upon, or divulge to others, information that isn't yet public and is likely to affect share price and other company valuations once it is known. Insider trading is illegal when it involves buying or selling securities based on material non-public information, which gives that person an unfair advantage to profit. It does not matter how the material nonpublic information was received or if the person is employed by the company. For example, suppose someone learns about nonpublic material information from a family member and shares it with a friend. If the friend uses this insider information to profit in the stock market, then all three of the people involved could be prosecuted.
Other trading-related offenses included fraud in connection with mutual hedge funds, including late-day trading and other market-timing schemes.
Detection and Deterrence
With the range of crimes and corporate entities involved so wide, corporate fraud draws in perhaps the widest group or partners for investigations. The FBI says it typically coordinates with the U.S. Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Financial Industry Regulatory Authority, Internal Revenue Service, Department of Labor, Federal Energy Regulatory Commission, and the U.S. Postal Inspection Service, and other regulatory and/or law enforcement agencies.
Money laundering is the process of taking cash earned from illicit activities, such as drug trafficking, and making the cash appear to be earnings from legal business activity. The money from the illicit activity is considered "dirty" and the process “launders” the money to make it look "clean."
With such cases, of course, the investigation often encompasses not only the laundering itself but the criminal activity from which the laundered money was derived. Criminals who engage in money laundering derive their proceeds in many ways including healthcare fraud, human and narcotics trafficking, public corruption, and terrorism.
Criminals use a dizzying number and variety of methods to launder money. Among the most common, though, use real estate, precious metals, international trade, and virtual currency such as Bitcoin.
There are three steps in the money laundering process, according to the FBI: placement, layering, and integration. Placement represents the initial entry of the criminal’s proceeds into the financial system. Layering is the most complex step, as it often entails the international movement of funds. Layering separates the criminal’s proceeds from their source and creates a deliberately complex audit trail through a series of financial transactions. Integration occurs when the criminal’s proceeds are returned to the criminal from what appear to be legitimate sources.
Not all such schemes are necessarily sophisticated. One of the most common laundering schemes, for example, is through a legitimate cash-based business owned by the criminal organization. If the organization owns a restaurant, it might inflate the daily cash receipts to funnel its illegal cash through the restaurant and into the bank. Then they can distribute the funds to the owners out of the restaurant’s bank account.
Detection and Deterrence
The number of steps involved in money laundering, along with the often-global scope of its many financial transactions, makes investigations unusually complex. The FBI says it regularly coordinates on money laundering with federal, state, and local law enforcement agencies, along with a host of international partners. Many companies, especially those involved in finance and banking, have anti-money laundering (AML) rules in place to detect and prevent money laundering.
Securities and Commodities Fraud
Apart from corporate fraud noted above, which primarily involves falsifying corporate information and using inside information to self-deal, a host of other crimes involve duping would-be investors and consumers by misrepresenting the information they use to make decisions.
The perpetrator of the securities fraud can be an individual, such as a stockbroker, or an organization, such as a brokerage firm, corporation, or investment bank. Independent individuals might also commit this type of fraud through schemes such as insider trading. Some famous examples of securities fraud are Enron, Tyco, Adelphia, and WorldCom scandals.
High-yield investment fraud typically involves promises of high rates of return while claiming there is little to no risk. The investments themselves may be in commodities, securities, real estate, and other categories.
Ponzi and pyramid schemes typically draw upon the funds furnished by new investors to pay the returns that were promised to prior investors caught up in the arrangement. Such schemes require the fraudsters to continuously recruit more and more victims to maintain the sham for as long as possible. The schemes typically fail when demands from existing investors outstrip new funds flowing in from recruits.
Advance fee schemes can follow a more subtle strategy, where the fraudster convinces their targets to advance them small amounts of money that are promised to result in greater returns.
Other Financial Crimes
Other investment scams flagged by the FBI include promissory note fraud, in which generally short-term debt instruments are issued by little-known or nonexistent companies, promising a high rate of return with little or no risk. Commodities fraud is the illegal sale or purported sale of raw materials or semi-finished goods that are relatively uniform and are sold on an exchange, including gold, pork bellies, and coffee. Often in these frauds, the perpetrators create artificial account statements that reflect purported investments when, in reality, no such investments have been made. Broker embezzlement schemes involve illicit and unauthorized actions by brokers to steal directly from their clients, usually with a slew of false documents.
More elaborate yet are market manipulations, so-called “pump and dump” schemes that are based on artificially inflating 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. The FBI says that brokers—who are bribed by the conspirators—then use high-pressure sales tactics to increase the number of investors and, as a result, raise the price of the stock. Once the target price is achieved, the perpetrators “dump” their shares at a huge profit and leave innocent investors to foot the bill.
Detection and Deterrence
Allegations of securities fraud are investigated by the Securities and Exchange Commission (SEC) and National Association of Securities Dealers (NASD), often in concert with the FBI.
State authorities can also investigate investment scams. In a unique attempt to protect its citizens, for example, the state of Utah established the nation’s first online registry for white-collar criminals in 2016. Photos of individuals who are convicted of a fraud-related felony rated as second-degree or higher are featured on the registry. The state initiated the registry because Ponzi-scheme perpetrators tend to target tight-knit cultural or religious groups, such as the Church of Jesus Christ of Latter-day Saints community that's based in Salt Lake City, Utah.
almost all societies have certain norms, beliefs, customs, and traditions that are implicitly accepted by its members as conducive to their well being and healthy development. infringement of these cherished norms and customs condemned as anti-social behavior. Thus, many writers have defined 'crime' as anti-social, immoral, or sinful behavior. however, according to the legal definition crime is any form of conduct that is declared to be socially harmful in a state and as such forbidden by law under pain of some punishment. crime can be defined as an act or omission, which is unlawful, illegal, or infringes provisions of law and which is punishable by law.
Historical Background (white-collar crime)
the concept of white-collar crime is usually associated with E.H. Sutherland whose penetrating work in this area focused the attention of criminologists on its demoralizing effects on the total crime picture. Sutherland pointed out that besides the traditional crimes such as assault, robbery, decoity, murder, rape, kidnapping, and other acts involving violence, there are certain anti-social activities which the persons of upper strata carry on in course of their occupation of business. Definition The concept of white-collar crime found its place in criminology for the first time in 1941 when Sutherland first published his research paper on white-collar criminality in the American sociological review. he defined white-collar crime as a crime committed by persons of high social status in course of their occupation. eg- misrepresentation through fraudulent advertisement, infringement of patents, copyrights, and trade-marks, a publication of fabricated balance sheets and profit and loss account of business, etc.
Classification of White Collar Crimes
Theoretically, various white-collar crimes may broadly be classified into four major categories as follows:- 1. Ad hoc crimes: they are also known as personal crimes because, in this category of white-collar crimes, the offender pursues his objective having no face to face contact with the victim. hacking on computers, credit card frauds tax evasion, etc. are common forms of ad hoc white-collar crimes. 2. white-collar crimes involving a breach of trust or breach of faith bestowed by an individual or institution on the perpetrator. insider trading, financial embezzlements, misuse of funds fictitious payrolls, etc. are common illustrations of this type of white-collar crime. 3. individuals occupying high positions or status who commit crime incidental to, and in furtherance of their organizational operations constitute this category of white-collar crimes. people occupying high positions commit such crime, not because it is their central purpose, but because they individually find an opportunity in the course of their employment to earn quick money or gain undue advantages by using their power or influence. example of such crimes is fraudulent medical bill claims, fake educational institutions, issuance of fake mark sheet/certificates, etc. 4. white-collar crimes may also be committed as a part of the business itself. violation of trademarks or copyrights, patent law or competition law, etc. the violation of domain name and other corporate crimes are also white-collar crimes of this type.
White-Collar Crime in India
white-collar criminality has become a global phenomenon with the advance of commerce and technology. like any other country, India is equally in grip of white-collar criminality. the reason for an enormous increase in white-collar crime in recent decades is to be found in the fast-developing economy and industrial growth of this developing country. The Santhanam committee report in its findings gave a vivid picture of white-collar crimes committed by persons of respectability such as businessmen, industrialists, contractors, and suppliers as also the corrupt public officials. The commission broadly classified white-collar crimes and socioeconomic crimes into eight categories and suggested the insertion of a new chapter on white-collar crimes in the Indian penal code.
White-Collar Crime In Certain Professions:
1. Medical Profession
white-collar crimes are commonly committed by persons belonging to the medical profession includes- # issuance of false medical certificates. #helping illegal abortions. #selling sample drugs and medicines to patients and chemists. #sex determination of a child in the worm. #fake and intended prolonged treatments to increase the bills.
# underhand dealings with contractors and suppliers # passing of sub-standard works and materials # maintenance of bogus records of work-charged labor # construction of buildings, roads, canals, dams, and bridges with sub-standard material
3. Legal Profession
# violating ethical standards of the legal profession to earn large profits # engaging professional witnesses for fake testimony # fabricating false pieces of evidence
4. Educational Institutions
# by submitting fictitious and fake details about their institutions to achieve financial aid and government grants. # fake and bogus enrolment of students. # charging huge amounts by donations and capitation fees # procuring students to appear in different examinations based on manipulated eligibility certificates in return of huge sums.
Acts/Legislation Against White Collar Crime In India:
In India various legislation for identifying white-collar crime are as follows : # Indian penal code, 1860 # Companies Act, 1961 # Customs Act, 1962 # Prevention of corruption Act,1988 # Income-tax Act, 1961 # Commodities Act, 1955 # Imports and exports control Act, 1950 # IT Act, 2005 # Prevention of money laundering Act, 2002 # Lokpal Act, 2014
Remedial Measures and conclusions In-country like India where large-scale starvation, mass illiteracy, and ignorance affect the life of the people, white-collar crimes are bound to multiply in large proportion. control of these crimes is a crucial problem for criminal justice administration in this country. however, some of the remedial measures for combating white-collar criminality may be stated as follows: 1. creating public awareness against these crimes through the media of press, platform, and other audio-visual aids. intensive legal literacy programs may perhaps help in reducing the incidence of white-collar criminality to a considerable extent. 2. special tribunals should be constituted with the power to award sentence of imprisonment. 3. stringent regulatory laws and drastic punishment for white-collar criminals 4. A separate chapter on white-collar crimes and socio-economic crimes should be incorporated in the Indian penal code by amending it. 5. White-collar offenders should be dealt with sternly by prescribing stiffer punishments kipping in view the gravity of injury caused to society because of these crimes.
By Prakriti Jha, Law Student