WHITE-COLLAR CRIME WHITE-COLLAR CRIME THE CLASSIC STATEMENT

• White-collar crime: crime committed by those within legitimate occupations or organizations.

• The concept of white-collar crime was first introduced in the social sciences by Edwin Sutherland in 1939.

• He described white-collar crime as “a crime committed by a person of respectability and high social status in the course of his occupation”.

• Sutherland’s investigation using records of regulatory agencies, courts, and commissions found that of the 70 largest industrial and mercantile corporations studied over a 40-year period, every one violated at least one law and had an adverse decision made against it for false advertising, patent abuse, wartime trade violations, price fixing, fraud, or the intended sale of faulty goods. WHITE-COLLAR CRIME THE CLASSIC STATEMENT

• According to Sutherland (1949), while “crime in the streets” attracts headlines and police attention, the extensive and far more costly “crime in the suites” proceeds relatively unnoticed.

• White-collar crimes cost several times more than other crimes put together but in most cases, they are not treated under the criminal law.

• White-collar crime differs from lower-class criminality only in the implementation of criminal law that segregates white-collar criminals administratively from other criminals (Sutherland, 1949).

• The status of the offender rather than the legal uniqueness of the crime is most important. WHITE-COLLAR CRIME

RELATED CONCEPTS

• In 1907, Ross coined the term “criminaloids” to refer to those who prospered by shameful practices which may not yet come under the ban of public opinion.

• Ross viewed offenders as morally insensible and concerned with success but not with the proper means of achieving it.

• In 1952, C. Wright Mills used the term “the higher immorality” to illustrate the moral insensibility of the power elite (wealthy).

• Mills argued that “the higher immortality” of the power elite allowed for a continuing, institutionalized component of modern U.S society, involving corrupt, unethical, and illegal practices committed by the wealth and powerful. WHITE-COLLAR CRIME RELATED CONCEPTS

• Occupational Crime: refers to personal violations that take place for self-benefit during the course of a legitimate occupation.

• Corporate Crime: refers to crimes by business or officials, committed on behalf of the employing organizations.

• Organizational Crime: refers to crime on behalf of the organization and it becomes corporate crime when it is done for the benefit of a private business.

• Considered organizational crime when it is committed by bureaucrats within and for the benefit of the state. MEASUREMENT AND COST OF OCCUPATIONAL AND CORPORATE CRIME

• The gathering of accurate data on most occupational and corporate crimes is difficult to collect because of the following:

• The higher professions are self-regulating, and very often codes of silence and protectionism rather than sanctions greet wrongdoers.

• Many employers simply ask for resignations from errant workers in order to avoid scandal and recrimination.

• Occupational crime statistics are not kept on a systematic basis by criminal justice agencies or by professional associations.

• Probes of occupational wrongdoing by outsiders are usually greeted by secrecy or a professional version of “honor among thieves”. MEASUREMENT AND COST OF OCCUPATIONAL AND CORPORATE CRIME

• The cost of white-collar crimes far exceeds the cost of traditional crimes as recorded in official police statistics.

• The Senate Subcommittee on Investigations estimated that cost at roughly $36 billion in 1976 and upward of$50 billion in the 1980’s.

• Today, the estimated cost is north of $500 billion (especially in savings and loan companies). CONS AND SCAMS

• Scam is a criminal slang term used to refer to various criminal techniques, “hustles”, or operations.

• A scam is an illegal game to swindle people out of their money.

• Confidence (con) games: games that win the confidence of victims in order to take advantage of them.

• Many victims are so humiliated that they do not even report their victimization to the police.

• Short cons usually prey not on the affluent but on middle-aged, retired, and widowed working-class types, particularly females. CONS AND SCAMS

• Badger game: a scam that preys on naive elderly victims.

• For example: An alert teller at a savings and loan association alerted police when an obviously distressed 81 year old man withdrew his life savings of $10,622—in cash. He had been visited on a number of occasions by a 19 year old girl who had indicated that she represented a Bible Institute. During the last visit, a man pretending to be the girl’s father bursted into the apartment and accused the old man of having illicit relations with his daughter. The father informed the old man that he would forgive him if he paid him. CONS AND SCAMS

• The Bank Examiner’s Scam: swindlers pretend to be bank examiners (government investigators) and ask to borrow “buy money” to catch a dishonest teller.

• The victim (mark) is asked to withdraw money and turn it over to investigators, who will mark it in order to apprehend the dishonest employee.

• Too-good-to-be-true opportunities for easy money and get-rich-quick schemes lure victims.

• Paying advance fees for estates that have been left to you by unknown people, chain letters, work-at-home schemes, and sales of far-off lands.

• Home Repair Scams BIG CONS

• Wealthy marks such as business executives, entertainment personalities, and wealthy professionals who are searching for tax shelters are ideal targets.

• Traditional Steps Associated with Big Confidence Games:

• Putting up the mark (investigating and locating likely victims)

• Playing the con (gaining the confidence of the victim)

• Roping the mark (steering the victim to meet the inside man/woman)

• Telling the tale (showing the victim who he or she can make big money dishonestly)

• Giving the convincer (permitting the victim to make a profit)

• Having the victim invest further

• Sending the victim after more money

• Playing the victim against the “big store” and fleecing him/her

• Getting the victim out of the way

• Cooling out the mark (having the victim realize that he/she cannot turn to the law)

• Putting in the fix (bribing) BIG CONS PONZI SCHEMES

• Ponzi Scheme: a con game that involves paying early investors high investment returns with money from later investors in a nonexistent enterprise.

• In 1919, Charles Ponzi discovered that post return coupons could be purchased overseas and redeemed in the U.S at anywhere from 100 to 300 percent profit.

• He offered investors 40% profit in 90 days…paid his investors sooner and with larger dividends.

• Investors were thrilled and told others. People invested and did not withdraw money (convinced to reinvest).

• Profits/dividends were covered by the $$ acquired from new investors.

• When people demanded their $$, there was no money to actually give.

• Ponzi schemes prey on greedy victims who want something for nothing. BIG CONS PONZI SCHEMES

• The explosion of financial services, deregulation, and the bewildering number of new investments available to the public contributed to the resurgence of Ponzi schemes in the 1990’s.

• During the initial stages, the scheme may focus on a specific group of possible investors and then rely on initial victims to enthusiastically recruit new customers. BIG CONS PONZI SCHEMES

• Bernie Madoff led the biggest Ponzi scheme in history…$65 billion in losses to his investors (actually stole $20 billion).

• No one actually knows when Berne Madoff actually started his Ponzi scheme..some say 1987, others say 1992.

• Reported to authorities by his sons.

• Sentenced to 150 years in prison. BIG CONS PYRAMID SCHEMES

• A financial scheme relying on the continual recruitment of investors in a nonexistent product. BIG CONS RELIGIOUS CONS

• A source of big money in professional crime is the rapid growth of religious cults.

• Although most are probably sincere operations, a number appear to be interested in capturing the mind, bodies, and assets of their members.

• For example: In the 1970’s, an IRS audit of the Church of Scientology found that the founder L. Ron Hubbard had skimmed millions of dollars from the church, laundering money through dummy corporations in Panama and then hiding it in Swiss banks.

• Televangelist W.V. Grant raised $350,000 per month for an orphanage in Haiti but actually gave the orphanage between $2,000 and $4,000. LEGAL REGULATION OCCUPATIONS AND THE LAW

• In Western societies, the legal regulation of occupations is often self- regulation.

• Although laws and codes of ethics exist to protect the public from harmful occupational activity, much self-governance has been used instead to protect the interests of members of the occupation.

• The more developed professions attempt to convince legislatures that they posses highly sophisticated, useful, specialized knowledge; that they are committed to serving societal needs through a formal code ethics; and that they therefore should be granted autonomy because they and only they are in a position to evaluate the quality of their service

• The legal codes that control occupational practice tend to be formulated by members of the occupations themselves. LEGAL REGULATION OCCUPATIONS AND THE LAW

• Occupational crime can be controlled by professional associations, by traditional criminal law, by civil law, and by administrative law.

• Actions by professional ethics boards can include suspensions, censure, temporary or permanent removal of license and membership, and the like.

• Traditional criminal prosecution such as larceny, burglary, and criminal fraud; civil actions by the government may include damage and license-suspension suits. OCCUPATIONAL CRIME CRIMES BY EMPLOYEES AGAINST INDIVIDUALS (THE PUBLIC)

• Political corruption by public servants or office holders, or commercial corruption by employees in the private sector.

• Public Corruption:

• The list of occupation-related crime on the part of political employees or office holders may include furnishing favors to private businesses such as illegal commissions on public contracts, fraudulent licenses, tax exemptions, and lower tax evaluations.

• Example: In the 1980’s, health inspectors in New York City turned the Department of Health into the Department of Wealth and doubled or tripled their salaries by extorting payments from restaurants, threatening to cite them for health code violations if they did not pay up. OCCUPATIONAL CRIME CRIMES BY EMPLOYEES AGAINST INDIVIDUALS (THE PUBLIC)

• “There is no distinctly American criminal class except Congress” (Mark Twain, 1899).

• The use of public office for private gain defines political corruption.

• Example: Randy “Duke” Cunningham

• Congressman from San Diego (1991-2005)

• Resigned from Congress in November 2005 after pleading guilty to bribery.

• As a member of a subcommittee that awarded defense contracts, he received $2.4 million from 3 defense contractors in exchange for contracts.

• He purchases a yacht, Rolls Royce, and mansion.

• He was sentenced to 8 years in prison and had to pay $1.8 million in restitution. OCCUPATIONAL CRIME CRIMES BY EMPLOYEES AGAINST INDIVIDUALS (THE PUBLIC)

• Police Corruption—The Mollen Commission

• From 1992 to 1993, the Mollen Commission conducted an investigation of corruption in New York City’s police department and focused attention on police wrongdoing.

• The investigation identified police extortion practices, theft and reselling of drugs, rolling of drunks, robbing of dead people, snorting cocaine while on duty, and indulging in brutality in poor sections of the city.

• The commission also found a blue wall of silence and loyalty to peers can take precedence over concerns about graft and violation of oath of office. OCCUPATIONAL CRIME CRIMES BY EMPLOYEES AGAINST INDIVIDUALS (THE PUBLIC)

• Private Corruption:

• Commercial bribery and kickbacks can take place in a variety of ways.

• Buyers for large retail chains may accept gift cards or cash in return for placing orders.

• At the expense of the general public in the form of higher prices, insurance adjusters, contracting officers, and quality control inspectors may all be willing to accept bribes in return for overlooking their duties to employers.

• Auto dealers can be perpetrators of shady practices.

• Leonard and Webb (1970) found that four may domestic auto producers pressured roughly 30,000 dealers into bilking their customers (coerced crime).

• The dealers committed coerced crime because in order to retain their franchises, they were required to meet sales quotas and in order to meet these quotas, they began forcing accessories on the customer, service gouging, high finance charges, overcharging for parts, misuse of “book time” (labor time), and odometer tampering. OCCUPATIONAL CRIME CRIMES BY EMPLOYEES AGAINST EMPLOYEES

• Sweetheart contract (in labor-management negotiations) which involves labor officials and negotiators secretly making a deal with management to the disadvantage of the workers whom the labor official represent.

• Example: The Union president and representatives might make a deal with management to take a bribe of $50,000, then the representatives might indicate to the workers that they have examined the company books and found that management can only afford a 20 cent per hour raise rather than the 50 cents originally promised. OCCUPATIONAL CRIME CRIMES BY EMPLOYEES AGAINST ORGANIZATIONS

• Embezzlement: theft from an employer by an individual who has reached a position of financial trust.

• The typical embezzler is a middle-aged, middle-class man who has lived a relatively respectable life and lacks a history of criminal or delinquent behavior.

• Motivated by greed, temptation, and opportunity.

• In recent years, there has been an increase in the number of women engaged in embezzlement activities.

• Example: Dorothy Hudson was a stockbroker at Merrill Lynch who systematically cheated investors out of $1.4 million and used the money to finance Las Vegas and Lake Tahoe gambling junkets.

• In 2000, Merrill Lynch discovered a $40 million embezzlement that had been perpetrated by a former employee who stole from elite, private banking clients by using the name of a dead person to transfer the securities from Arab International Bank to Swiss bank accounts. OCCUPATIONAL CRIME CRIMES BY EMPLOYEES AGAINST ORGANIZATIONS

• Employees are less likely to feel guilty about committing embezzlement when the victim organization is large and wealthy.

• Many individuals, who would consider themselves criminals were they to steal from other persons, rationalize their theft from large, impersonal organizations by saying that they can afford the loss.

• The “Robin Hood myth” holds that theft from such organizations really hurts no one because the victim is a large, wealthy organization….not true…higher cost of goods and services.

• In retail establishments, inventory shrinkage (loss of goods) is primarily caused by employee theft rather than shoplifting… estimated 75% of loss is due to employee theft.

• Example: Security personnel suspected an employee of stealing goods because he would leave the store every shift with a wheelbarrow full of boxes…they searched the boxes but they were empty…it wasn't until months later that they realized that the employee was not stealing goods in packages, he was stealing wheelbarrows…over 1,000.

• Employees can be ingenious in illegally supplementing their wages at the expense of employers…some common techniques are:

• cashiers who ring up a lower price on single-item purchases and pocket the difference or who ring up lower prices for friends.

• Clerks who do not tag some sale merchandise, then sell it at the original price and pocket the difference.

• Receiving clerks who duplicate keys to storage facilities and return to the store after-hours to help themselves.

• Truck drivers who make fictitious purchases of fuel and repairs and split the gains with truck stop employees.

• Abusing expense accounts, travel allowances, and company cars. CRIMES BY INDIVIDUALS (OR MEMBERS OF OCCUPATIONS) CRIME IN THE PROFESSIONS

• Medicine:

• Medical quackery and unnecessary operations may very well kill more people in the United States than crimes of violence.

• It is estimated that the American people fall victim to 2.4 million unnecessary surgical procedures per year at an estimated financial loss of $4 billion and 11,900 deaths.

• 1 million American patients are injured yearly by hospital errors and 120,000 die.

• U.S physicians defraud federal and state medical assistance programs of up to 40% of the program’s allocated budget.

• Example: In 2010, federal officials charged 94 people (doctors and nurses) in the largest Medicare fraud takedown in history…approximately $251 million by falsely billing Medicare for unnecessary equipment, nonexistent physical therapy, and kickbacks.

• Some physicians may become involved with fee splitting (doctors refer patients to other doctors for further treatment and split the fee with them).

• “Ping-ponging” doctors refer patients to other doctors in the same office, “steering” entails directing patients to particular pharmacies, and “gang visits” involve billing for unnecessary multiple services. CRIMES BY INDIVIDUALS (OR MEMBERS OF OCCUPATIONS) CRIME IN THE PROFESSIONS

• In 2009, drug manufacturer Pfizer was fined $22.3 billion for illegal marketing.

• It had promoted the company’s drugs for unapproved use.

• The risk of using these drugs for unauthorized purposes exceed the benefits.

• A major occupational violation has been making payoffs to doctors int he form of speaker’s fees, meals, and consulting fees. CRIMES BY INDIVIDUALS (OR MEMBERS OF OCCUPATIONS) CRIME IN THE PROFESSIONS

• Finance:

• The savings and loan scandal in the United States had an estimated cost of $500 billion. CRIMES BY INDIVIDUALS (OR MEMBERS OF OCCUPATIONS) CRIME IN THE PROFESSIONS

• Insider Trading:

• Occurs when agents, brokers, or company officials who are aware of pending developments make use of this privileged information to buy or sell stocks before the public learns of these events.

• The backdating of stock options, a practice in which executives improperly change the dates of stock-options grants to increase the value of the grants when cashed in. CRIMES BY INDIVIDUALS (OR MEMBERS OF OCCUPATIONS) CRIME IN THE PROFESSIONS

• Education:

• In 2011, standardized cheating scandals broke out in Georgia, Long Island, and Pennsylvania.

• In Georgia, educators were accused of changing answers on tests and giving answers to students.

• 180 educators in 100 Atlanta schools were accused of cheating.

• At least 20 students on Long Island were accused of cheating, and in Pennsylvania, 50 districts were ordered to report to the state education secretary for cheating.

• in 2015, 3 of the defendants in this case, all high-level school system administrators, were sentenced to 7 years in prison and 13 years on probation. CORPORATE CRIME

• Organizational crime refers to crime committed on behalf of and for the benefit of a legitimate organization.

• Corporate (business) crime: is a type of organizational crime committed in free enterprise economies and involves criminal activity on behalf of and for the benefit of a private business or corporation.

• Multinational Bribery:

• In 1977, the U.S Congress passed the Foreign Corrupt Practices Act, a law that forbids the payment of bribes in order to obtain business contracts.

• The Bribe Payers Index measures/estimates the likelihood that companies in a particular country pay bribes to public officials in foreign countries in order to secure contracts. (0=always pay a bribe and 10=never pay a bribe).

• Netherlands (8.8); Switzerland (8.8); Canada (8.5); U.K (8.3); U.S (8.1); India (7.5); China (6.5); Russia (6.1); CORPORATE CRIME CORPORATE FRAUD

• Equity Funding Scandal: a corporate scam in which fake insurance policies (ghosts) were created in order to take advantage of reinsurers.

• While filling for bankruptcy in 1973, the scandal came to light and it was learned that the company had scammed more than $2 billion.

• Executives at Equity Funding’s Life Insurance subsidiary used the company computer to create roughly 56,000 phony or “ghost” policies.

• Reinsurers who bought the rights to the dummy policies were out millions of dollars and stockholders lost about $100 million.

• By using computer records (rather than hard copy paper records), the executives were able to transfer genuine information from the “real” policies to the phony ones.

• Ultimately, the company president and 24 employees were indicted.

• The president received an 8 year sentence and the remaining employees received lesser sentences. CORPORATE CRIME CORPORATE FRAUD

• In 1989, the FBI launched a major investigation into massive fraud, bribery, and big rigging in defense industry bids on Pentagon contracts.

• The FBI focused on the “revolving door”, a system in which defense company executives served stints as Pentagon officials and then return to the industries they previously oversaw as contract officers.

• This was a clear conflict of interest because of the practice of deferred bribes in which cooperative defense contract officers were rewarded at a later time with defense industry jobs.

• In 2008, the FBI raided three medical centers in Los Angeles and arrested executives there for alleged schemes involving recruiting homeless people as phony patients and then billing government programs for millions of dollars in unnecessary health service.

• National Medical Care Inc agreed to pay $500 million in civil fines, penalties and restitution including $101 million in criminal fines for requiring needless tests of Medicare recipients and paying kickbacks for referrals. CORPORATE CRIME SALE OF UNSAFE PRODUCTS

• In the early sixties, in order to compete with foreign imports, the Ford Motor Company rushed the compact Pinto model into production.

• Because retooling for the assembly line was a costly investment, the company chose to proceed with production despite the results of its own crash tests, which indicated that the gas tank exploded in rear-end collisions.

• Choosing profit over human lives, the company continued to avoid, and to lobby against federal safety standards that would have forced modification of the gas tank.

• An estimated 27 people burned to death because of the firetrap engineering of the gas tank.

• Investigators from Mother Jones (investigative magazine) collected documents and called to public attention Ford’s wrongdoing.

• Ford estimated that the cost to make the necessary modifications to the gas tank was about $11 and Mother Jones found that the real cost was $5.50.

• Using the National Highway Traffic Safety Administration estimate of the cost per fatality (assuming lawsuits) of roughly $200,000, Ford had, according to a company memo, performed a cost-benefit analysis of the problem.

• Paying for deaths injuries, and damages without changing the tanks was estimated to cost $49.5 million, whereas modifying the 12.5 million vehicles would cost $137 million….cheaper to ignore the problem. CORPORATE CRIME SALE OF UNSAFE PRODUCTS

• In May of 1978, the U.S Department of Transportation recalled all 1971-1976 Pintos…it was too little, too late…over 500 people died, were maimed, or scarred.

• The Ford Pinto Case was the first time in U.S history that a corporation was indicted for murder.

• Prosecutors in the state of Indiana charged Ford Motor Company with the murder of three victims who were burned to death, Ford was acquitted.

• In 2010, the federal government indicated that it had proof that Toyota knew about a safety problem involving sticky gas pedals for 4 months before it recalled 5.4 million vehicles in the U.S. CORPORATE CRIME SALE OF UNSAFE PRODUCTS

• In the book titled, “In the Name of Profit: Profiles in Corporate Irresponsibility”, Heilbroner et al. maintained that the people who run our super corporation are not merely amoral (lacking a moral sense) but positively immoral.

• B.F Goodrich plotted to sell defective air brakes to the U.S Air Force by faking test records and falsifying laboratory reports.

• In 1994, U.S Secretary of Transportation Federico Pena made a deal with General Motors not to order a recall of its pickup trucks, whose defects cost 150 lives, in return for a payment of $51 million to support safety programs.

• In the largest product liability settlement in U.S history (at that time), a federal judge in 1994 granted $4.25 billion in a class action suit against 60 silicone breast implant manufacturers. It was alleged that these implants caused cancer and other medical harm and deformities in patients

• In 1995, top executives of seven tobacco companies told a congressional committee under oath that they did not know for certain that tobacco was addictive and caused disease. Attorney General Janet Reno asked the U.S Justice Department if the companies were guilty of fraud and perjury when it was revealed that Brown and Williamson Tobacco Corporation documents indicated that the company’s own research had shown for years that cigarettes were addictive and harmful. A record $368 billion deal between the tobacco companies and 40 states, including punitive damage awards of $50 billion, affected how cigarettes are advertised and sold. CORPORATE CRIME ENVIRONMENTAL CRIME

• Three Mile Island:

• The worst nuclear plant disaster in history occurred at Three Mile Island, Pennsylvania.

• The accident released radioactivity into the surrounding area and required the temporary evacuation of young children and pregnant women from the immediate vicinity.

• On November 7, 1983, a federal grand jury indicted Metropolitan Edison, the owners of the Three Mile Island facility, on criminal charges of faking safety test records before the accident.

• The indictment alleged that the company attempted to conceal from the Nuclear Regulatory Commission the rate of leakage in the main cooling system, in which water passes over the reactor’s radioactive core.

• Allegations had been made that the corporation was eager to have the reactor online by a certain date in order to take advantage of tax benefits.

• In April 1984, Metropolitan Edison pleaded guilty to knowingly using inaccurate and meaningless testing methods and agreed to pay a $1 million fine. CORPORATE CRIME ENVIRONMENTAL CRIME

• Toxic Criminals:

• In 2007, the American Electric Power Company agreed to pay $4.6 billion to settle 8 years of charges thats its acid rain- causing chemicals ate away at parks, bays, and the Statue of Liberty.

• On the subject of environmental and health assaults on consumers, there is the care of corporate dumping, a practice whereby corporations sell products overseas that have been deemed unsafe in the United States by the FDA, EPA, and other federal agencies.