Table of Contents
What is White-Collar Crime?
White-collar crime refers to financially motivated, nonviolent criminal acts. The term has been used to describe a wide range of fraudulent behavior, including, for example, bribery, embezzlement, tax evasion, insider trading, etc. White-collar crimes are often committed by individuals who work in business or the government, as they tend to have access to other people’s funds.
Sociologist Edwin Sutherland coined the term in the 1940s when he published an article entitled “White-Collar Criminality.”He defined it as “a crime committed by a person of respectability and high social status in the course of their occupation.”
DID YOU KNOW?
According to a 2013 study by Vanderbilt University professor Mark A. Cohen, total victimization costs of white-collar crime exceed $1.6 trillion, excluding psychological costs and many other monetary damages. Compare that to street crime victimization costs, which were estimated to be $833.8 billion in 2012.
The FBI remarks that “A single scam can destroy a company, devastate families by wiping out their life savings, or cost investors billions of dollars (or even all three).” Although street crimes dominate the news cycle due to their visceral and/or ‘close-to-home’ qualities, white-collar crimes actually cause much more far-reaching monetary and psychological damage. They are not victimless crimes. The lack thereof of shocking optics, perhaps, makes white-collar crime appear much less severe than it actually is.
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White-Collar Crime Examples and Cases
As mentioned in the introduction, ‘white-collar crime’ has served as an umbrella term for most, if not all, financially motivated, nonviolent criminal activity. Its many forms can often involve deceit, coercion, and other unsavory means to ultimately make illegal profits.
We will cover some of the common white-collar crime schemes, as well as discuss some potential examples for each. You will notice that a single case often involves multiple strategies used in combination to create a complex web of deceit.
Corporate fraud refers to illegal activities committed by a corporate employee or business in order to gain a competitive advantage and/or generate illegal profits. The majority of corporate fraud cases involve fudging of financial information, insider trading, attempts to conceal these illegal activities from regulatory authorities.
WHAT’S THE DIFFERENCE?
Under some definitions, corporate crime specifically refers to illegal activity committed by an employee to benefit their employer. White-collar crimes is a broader term where the beneficiary can be the employee and/or the employer.
The FBI, however, uses the terms interchangeably.
Paul Rand, Public domain, via Wikimedia Commons
Houston-based energy corporation Enron seemed to be a giant in the space, reporting earnings above $100 billion in 2000. Fortune gave Enron the distinction of being “the most innovative company in corporate America” for six consecutive years, from 1995-2000. However, by the end of 2001, the energy giant declared for the largest bankruptcy ever (to that point in time).
While Enron’s success and eventual downfall surprised many, the facts unearthed by the Department of Justice’s investigation revealed a highly effective smoke-and-mirrors job. A federal jury, in 2006, convicted Ken Lay and Jeff Skilling, two Enron chief executives, on fraud, conspiracy and related charges.
The DoJ press release linked above describes how Enron executives allegedly committed corporate fraud.
“The scheme was designed to make it appear that Enron was growing at a healthy and predictable rate, consistent with analysts’ published expectations, that Enron did not have significant write-offs or debt and was worthy of investment-grade credit rating, that Enron was comprised of a number of successful business units, and that the company had an appropriate cash flow. It had the effect of inflating artificially Enron’s stock price, which increased from approximately $30 per share in early 1998 to over $80 per share in January 2001, and artificially stemming the decline of the stock during the first three quarters of 2001.”
In the aftermath of the scandal, Congress passed the Sarbanes-Oxley Act, which established further consequences for destroying or fabricating financial statements. The Financial Accounting Standards Board (FASB) raised the amount of cash independent, outside investors have to provide from 3% to at least 10% of partnership funding.
This kind of white-collar crime involves a person misappropriating funds/property entrusted to them by another individual or their employer. An example of embezzlement is an employee siphoning money from their employer’s revenues and putting it in their own bank account.
Bernard ‘Bernie’ Madoff
U.S. Department of Justice, Public domain, via Wikimedia Commons
Once highly respected on Wall Street, Bernie Madoff began as a trader in penny stocks (shares of small public companies that trade for less than a $1). He eventually created his own thriving business Bernard L. Madoff Investment Securities LLC. The success of the business was, perhaps, for questionable reasons.
In late 2008, Reuters reported that Madoff had been “arrested over $50 billion in fraud.”
The FBI press release details the court case, reporting Madoff was charged with 11 felony charges. It also documents the schemes Madoff had allegedly executed. We have taken an excerpt from the press release explaining just one of his supposed strategies below.
“Among the false representations he made to clients and prospective clients about his investment strategies, MADOFF marketed an investment strategy referred to as a “split strike conversion” strategy. Clients were promised that BLMIS would invest their funds in a basket of approximately 35-50 common stocks within the Standard & Poor’s 100 Index (the “S&P 100”), a collection of the 100 largest publicly traded companies in terms of their market capitalization. MADOFF claimed that he would select a basket of stocks that would closely mimic the price movements of the S&P 100. MADOFF further claimed that he would opportunistically time those purchases, and would be “out of the market” intermittently, investing clients’ funds in these periods in United States Government-issued securities such as United States Treasury bills. MADOFF also claimed that he would hedge the investments that he made in the basket of common stocks by using investor funds to buy and sell option contracts related to those stocks, thereby limiting potential losses caused by unpredictable changes in stock prices.”
In June 2009, the FBI announced Madoff’s sentence: 150 years in prison. Furthermore, going far beyond the reported $50 billion in losses, the court ordered him to forfeit a total of $170,799,000,000 ($170.8 billion), which “represented the total proceeds of and property involved in certain of MADOFF’s crimes.”
NPR covered how countless investors lost millions in savings and had to put off retirement for as long as a whole decade. Although much has been paid back recently, that lost time, that long period of financial instability that should not have been, cannot be returned.
Pyramid, or ‘Ponzi,’ Schemes
The Italian-born ‘businessman’ Charles Ponzi
Boston Library (NYT); en.wikipedia.org, Public domain, via Wikimedia Commons
Charles Ponzi was the mastermind behind a lucrative mail coupon scheme in the 1920s. Ponzi realized that he could buy a Spanish post reply coupon for 30 centavos and exchange it for a U.S. one worth 5 cents, yielding a 10% profit due to Spain’s weakened economy. He reasoned that he could make a killing by buying huge quantities of these coupons in other countries with weak economies and redeeming them in countries with stronger currencies. Without revealing much, he reportedly managed to attract 40,000 investors (according to the Smithsonian article linked above).
His efforts made such a mark that a white-collar crime was named after him: the Ponzi, or pyramid, scheme.
A Ponzi scheme refers to an investment scam where perpetrators promise high returns on investment for little to no risk. Those executing a Ponzi scheme end up paying off old investors by attracting new ones, not through the high-reward, low-risk vehicle they proposed. The scheme collapses if they fail to attract a steady stream of investors.
A $550 Million Ponzi Scheme in Maryland
The most recent case of a major alleged Ponzi scheme emerged in 2019. CNBC reported on the case, claiming the following:
“The Securities and Exchange Commission and Department of Justice said…they have halted a $364 million Ponzi scheme that targeted hundreds of investors across the U.S. by promising them riches off the purchase and sale of consumer debt…the three men charged in the case are accused of using a web of lies, forgeries and fake documents to carry out the fraud since 2013, using the money to fund lavish lifestyles, including the purchase of dozens of luxury cars as well as diamond jewelry, high-end real estate and a private fitness club. Some of the millions of dollars also went to casinos.”
The frontman Kevin B. Merrill, according to the DoJ press release, pleaded guilty.
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You’ve probably seen a crime movie or TV series where a restaurant was used as a ‘front’ for some form of illegal business. Some of the ‘dirty’ money gets filtered through the front as legitimate, ethical profits, making the original source of the money untraceable. That’s money laundering, in essence.
There are countless ways to commit this white-collar crime anonymously, especially with all the advancements in technology. Through multiple transactions made by proxies, those who wish to launder money can do so without ever having their names attached to the crime.
To learn more about how money laundering works, check out our articles on shell companies and crony capitalism.
JeroenT96, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons
In the modern world, cybercrimes often overlap with white-collar crimes. The internet has, perhaps, become the place to most effectively commit and get away with crime. Whether it’s fraud, money laundering, counterfeiting of currency, or identity theft, you probably have received a dubious, poorly written email making grand claims about diamonds in Africa.
Identity theft, or ‘phishing,’ is widely viewed as the fastest growing white-collar crime in the U.S. Victims will unwittingly click a link and provide their personal information for a fictional investment or to help out someone who claims to be in need. Of course, the scammers will cut contact and run off with your money or, even worse, your identity.
The International Cybercrime Group FIN7
In August 2018, the DoJ announced “the arrest of three members of [the] notorious international cybercrime group “Fin7”…for [their] role in attacking over 100 U.S. companies.”
The press release goes on to state the following:
“In the United States alone, FIN7 successfully breached the computer networks of companies in 47 states and the District of Columbia, stealing more than 15 million customer card records from over 6,500 individual point-of-sale terminals at more than 3,600 separate business locations. Additional intrusions occurred abroad, including in the United Kingdom, Australia, and France. Companies that have publicly disclosed hacks attributable to FIN7 include such familiar chains as Chipotle Mexican Grill, Chili’s, Arby’s, Red Robin and Jason’s Deli. Additionally in Western Washington, FIN7 targeted other local businesses.”
About a year later, Fedir Hladyl, one of the men arrested, pled guilty to hacking and wire fraud charges in Seattle. He also agreed to pay $2.5 million in restitution. According to cybersecurity expert Greg Otto, in an interview quoted in the article linked above, the U.S. attorney’s office dismissed 24 other counts in Hladyr’s indictment, hinting at a possible “cooperation deal to give more information about the FIN7 group.”
White-Collar Crime: A Serious Concern
The BBC interviewed Georgie Weatherby, a professor of sociology and criminology at Gonzaga University, who argued that the public has a misconception about the severity of white-collar crimes.
According to Weatherby, the public tends to view white-collar criminals as examples of the American dream gone wrong, rather than as cold hard criminals. Not only does that perception determine public sentiment, but it can also seep into the courtroom.
“Defendants, particularly in very high-level crimes, often project an image of success. They have wealth, and access and are glamorous,” she says. “Judges can get caught up in that, they can be drawn to it.”
This claim is an important one. If it is true, then white-collar criminals are receiving lenient sentences that are incommensurate to the millions, or even billions, of monetary and psychological damages they cause.
Remember: by the numbers, white-collar crimes cause much more significant damages across the globe than street crimes do. But there’s a tendency for people to underestimate just how harmful they can be. It doesn’t come with bloody scenes, or carnage. It involves millions and billions, abstractions that can prove hard to truly conceive or relate to.
It’s about time we made white-collar crime a bigger deal, and the Zero Theft Movement is designed to help you do so.
On the Zero Theft platform, citizens author theft proposals, and the community decides whether that investigation has convincingly proven (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas are and start working on addressing them systematically.
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.