It always comes as a major shock to the whole world whenever a white-collar crime is unearthed. People lose their jobs, homes, security, and even their dreams. These kinds of frauds are one of 21st century’s major economical problems. This post talks about what white-collar crimes are, their types, and even some of the famous frauds that shook the world in recent years.
A single major corporate crime causes damages more than all street crimes in a year combined.
“The world is full of obvious things which nobody by any chance ever observes.” ―Sir Arthur Conan Doyle
Greed, jealousy, competition, shame, or simply fun! What leads some of the most high-profile suits into committing some of the most complex crimes in modern times, has had psychologists scratching their heads over quite a few decades now. White-collar crime is a gray area. The motivations are bizarre, and the scale is enormously huge. The Industrial Revolution undeniably changed the world in many ways for the better. Moreover, it fetched hefty currency for the business minded. But the other side of this coin has never been as gruesome. Massive frauds, unnerving deceits, and disgraceful tactics has had the whole world in shock over the past few decades.
The types and forms of white-collar crimes are numerous, and government agencies like the FBI, SEC, and IRS have to be constantly on their toes to nab these law-breakers before too much damage is done. Investors need to be very aware of the nature of white-collar crimes, and stay protected from fraudulent schemes. White-collar crimes are punishable by law, and can lead to very serious repercussions for those who commit them.
Simply put, a white-collar crime is an offense that is committed for some kind of financial gain. Although the crime is nonviolent, it involves many unlawful and unethical practices. Though, the white-collar crime definition is a topic of debate among criminologists because of its influence in diverse sectors.
TYPES OF WHITE-COLLAR CRIMES
Though it is difficult to limit the number of types, the following are some in broad spectrum.
Illegal Insider Trading
This is the trading of a company’s non-public information by someone who has access to related files. It is illegal because it is unfair to the investors who don’t have such access. The act of insider trading leads to bias towards investors, resulting in selected investors making large profits, while the rest sit dangling around with little to gain. Insider trading has both legal and illegal versions. It is legal for corporate insiders (company officers, employees, or directors) to buy and sell stock in their own company, but they must report their trades to the U.S. Securities and Exchange Commission.
✿ Example: A high-profile employee of a corporation learns about a merger that is going to bring in profits for the company, and buys shares before it is made public.
This is the deception of investors by providing them false information that is required to make in investment. It may be committed by a person or a company. Any form of misleading or false information about companies or schemes is a security fraud. So, it basically includes almost all other types of white-collar crimes.
✿ Example: Fraudsters create dummy corporations and mislead investors into buying shares in this corporation.
This kind occurs when a corporation, which dominates the market in a certain sector, uses this position to the disadvantage of the buyers, like hiking the prices of its products.
✿ Example: A company that makes computers and holds a majority of the market share, forcefully attaches a particular product with theirs, forcing the buyers to purchase both.
Offering gifts or money to influence the actions of an individual is bribery. This is carried out to lure someone into committing an act of crime.
✿ Example: The CEO of a corporation may bribe an employee and indulge in insider trading through him/her.
Environment Law Violations
Corporations that cause harm to the environment or a habitat directly or indirectly are in violation of the Environmental Law. They have to comply with the norms stated by the government, failing to which they are fined or even prosecuted, depending upon the extent and seriousness of the violation.
✿ Example: A company producing toxic waste may decide to dump this waste in rivers or oceans, so as to avoid paying for its chemical treatment.
Economic Espionage and Trade Secret Theft
This is the unlawful gathering of confidential trade secrets or intellectual property of another corporation. The process of gaining these include bribery, theft, blackmail, etc. Rival corporations may indulge in such acts to overpower their competitors.
✿ Example: A soft drink corporation unlawfully obtains the formula for a secret ingredient of its rival soft drink company.
Bankruptcy fraud occurs when a company or person claims to be bankrupt, even though its/his/her financial situation is not as bad as portrayed. Filing for bankruptcy may cause partial pardoning of the debt, saving the company or person from paying up at least some amount. This is usually done by concealing or destroying certain documents that may lead up to actual records.
✿ Example: A man with assets worth $20,000 shows its worth to be $10,000, and later files for bankruptcy. This is committing a bankruptcy fraud by concealing the remaining $10,000 in assets.
This occurs when a person claims for the advantages of an insurance scheme under false circumstances, or by staging events that lead up to it. The opposite is also true in this case, wherein someone knowingly denies the person his benefits under the insurance scheme. Insurance frauds are spread across various sectors, and in large numbers.
✿ Example: A man whose house or property was damaged in a fire claims for payment of a value that is more than the value of the actual damaged property. This is a case of property insurance fraud.
Credit Card Fraud
This is basically the use of credit card (or any other payment card) for false payments or theft. It can also be used to steal another person’s identity by using his credit card details.
✿ Example: A person may use lost/stolen credit cards to make purchases on the actual card holder’s name.
This is done by gaining access to someone’s computer or online bank account by hacking, or other attacks like phishing which involves sending a fake link to the user. Internet fraud also includes e-mail fraud, which is the sending of fraudulent e-mails and seeking personal details under false offers or schemes. It is therefore essential to authenticate such e-mails before responding.
✿ Example: When a person gets a link to a page that is similar to his business transactions page, and enters his PIN and other personal details, he/she is directed to the fraudster who uses this information for theft or other wrongdoings.
Counterfeiting means imitating a valuable item and passing it off as real. It includes currency, bond papers, brand-name products, etc. The quality of the duplicate item is not up to par, causing harm to the value of original item in the market.
✿ Example: A wrist watch belonging to a particular brand is not available in a particular region. But wrist watches with almost similar design (although not at par with the quality) are still available with a brand name that sounds almost similar to the original one.
The punishment for white-collar crimes includes imprisonment, fines, restitution, probation, besides other methods. With the scale of scandals and frauds uncovered increasing rapidly in recent times, government agencies like the FBI and SEC are adopting stricter laws related to such crimes. After the breaking out of major scandals in the year 2000, the Sarbanes-Oxley Act was passed in 2002, which focused on the shareholders and their rights. The punishments for white-collar crime is a debated topic across various governments. In some nations like China, offenders of white-collar crime can also be given the death penalty. White-collar crimes, although not violent, do affect their victims in substantial ways.
Former energy giant Enron Corporation was exposed in late 2001 to be a part of one of the biggest and highly coordinated accounting frauds in history. The revenues generated by the corporation were manipulated in the account audit books to show larger amounts of profits. The executives were highly pressurized to find ways to hide the company’s debts. The financial statements were so complex and confusing that the shareholders and analysts were unable to make out the misrepresented earnings. The Enron scandal cost almost 4,000 employees their jobs, and many of them their life savings. Investors lost millions of dollars, making it one of the most gruesome white-collar crimes ever. Many of Enron’s executives, including the major perpetrators, founder and chairman Kenneth Lay, and COO Jeffery Skilling, were later convicted and incarcerated.
Shortly after Enron’s collapse, another company that followed the path of corruption and accounting fraud was Worldcom. With the telecommunications industry in decline in the year 2000, Worldcom CEO Bernard Ebbers used fraudulent methods to deceive investors into thinking that the company was unaffected by the decline, drawing in huge amounts of money from investors. Bernard Ebbers was sentenced to 25 years in prison, in 2005.
BERNIE MADOFF CASE
Bernard ‘Bernie’ Madoff founded a firm called ‘Bernard L. Madoff Investment Securities LLC’ in 1960. Madoff committed the largest financial fraud in the history of the United States, admitting the firm he ran for more than 40 years to be a massive Ponzi scheme (a fake investment operation). He generated false trading reports and went on to build a multi-billion dollar firm. He was exposed after one of his sons, Mark, reported his misdeeds. In 2009, a few months after his arrest, Bernard Madoff admitted to a wide range of crimes, which included securities fraud and money laundering. The losses incurred by investors were more than $18 billion. His son, Mark Madoff, committed suicide two years after his father’s arrest, and Madoff was sentenced to 150 years in prison, and asked to forfeit $170 million in assets.
It is difficult to track down white-collar crimes before they cause substantial damage with the level of sophistication involved. What is useful in this scenario is the right knowledge and awareness of your rights and laws, whether you are an investor or a business person starting out your own company.