White-Collar Crime

Financial, economic, or corporate crime, usually involving FRAUD and theft, that is often carried out by sophisticated means. The result is usually economic loss for businesses, investors, and those affected by the actions of the perpetrator.

White-collar crime is a broad term that encompasses many types of nonviolent criminal offenses involving fraud and illegal financial transactions. White-collar crimes include bank fraud, BRIBERY, blackmail, counterfeiting, EMBEZZLEMENT, forgery, insider trading, MONEY LAUNDERING, TAX EVASION, and antitrust violations. Though white-collar crime is a major problem, it is difficult to document the extent of these crimes because the Federal Bureau of Investigation's (FBI) crime statistics collect information on only three categories: fraud, counterfeiting and forgery, and embezzlement. All other white-collar crimes are listed in an "other" category. Nevertheless, law enforcement officials agree that white-collar crime is a major problem.

Sociologist Edwin H. Sutherland coined the term in a speech to the American Sociological Association in 1939, and published the book White-Collar Crime ten years later. Sutherland argued that there were significant differences between crimes such as ROBBERY, BURGLARY, and murder, which he classed as "blue-collar crime," and white-collar crime. Perpetrators of blue-collar crimes were typically street criminals. Their crimes had no link to their occupations and they were typically poor. In contrast, individuals of higher economic and social status committed white-collar crimes and their crimes were linked to their socially respected professions. In addition, Sutherland noted that very few white-collar criminals occupied prison cells. Sutherland argued that white-collar criminals inflicted more harm on U.S. society than burglars and robbers, however, the justice system treated white-collar offenders with more lenience and with less consistency than street criminals.

White-collar fraud did not begin in the late twentieth century. Embezzlers, counterfeiters, stock swindlers, and con men have practiced their crimes for hundreds of years. Political corruption thrived during the nineteenth century and, for example, tarnished the administration of President ULYSSES S. GRANT. The TEAPOT DOME SCANDAL of the mid-1920s did the same for President Warren G. Harding's administration. Overall, however, there was a lack of interest in the United States in punishing fraudulent business behavior.

The STOCK MARKET crash of 1929 and the subsequent Great Depression of the 1930s began to change public and political attitudes toward white-collar crime. These types of activities also began to draw more attention thanks in part to advances in the modern media. The 1930s saw the enactment of federal laws that regulated the banking and SECURITIES industries. The SECURITIES AND EXCHANGE COMMISSION was established in 1934 to protect investors from illegal stock manipulation, insider trading, and other white-collar offenses perpetrated by stockbrokers. Though the SEC has not always succeeded in policing these white-collar crimes, numerous brokers and dealmakers have been prosecuted over the years.

Over the years, numerous regulations covering other areas of business have been enacted by both state and federal government. With more laws on the books violations have led to more prosecutions. The hallmark of many white-collar crimes, however, is sophistication. Perpetrators have specialized knowledge that allows them to commit complex transactions that are often difficult to identify. Law enforcement authorities rarely catch white-collar criminals at the very onset of their activities. The collapse of a business institution may reveal signs of financial irregularities that took place over many years. In addition, the use of computers and electronic financial transactions has complicated the detection and prosecution of white-collar crimes. Though law enforcement may be able to reconstruct electronic records and chains of events, the process is laborious and costly.

ORGANIZED CRIME has also added white-collar offenses to its repertoire of illegal activities. The federal government passed the Racketeer Influenced and Corrupt Organization (RICO) Act (18 U.S.C.A. § 1961 et seq.), in 1970 to address these types of crimes. RICO is specifically designed to punish criminal activity by business enterprises controlled by organized crime. RACKETEERING includes a number of discrete criminal offenses, including gambling, bribery, EXTORTION, BANKRUPTCY fraud, MAIL FRAUD, securities fraud, prostitution, narcotics trafficking, loan sharking, and murder. The punishment for violating RICO's criminal provisions is extremely harsh. If convicted, a defendant is fined and sentenced to not more than 20 years in prison for each RICO violation. Moreover, the defendant must forfeit any interest, claim against, or property or contractual right over the criminal enterprise, as well as any property that constitutes the racketeering activity or was derived from the racketeering activity. Finally, RICO contains civil provisions that allow a party injured by a RICO defendant to recover damages from the defendant in civil court.

During the late 1990s, a number of corporations manipulated financial information and made improper financial transactions. Accounting firms helped conceal the illegal nature of these actions, which undermined investor confidence in the stock market and corporate governance in general. The corporate scandals that emerged in 2001 involved Enron, WorldCom, and the accounting firm of Arthur Andersen and were of national importance. Congress responded to these elaborate white-collar crimes by enacting the Public Company Accounting Reform and Investor Protection Act, also known as the SARBANES-OXLEY ACT (Pub.L. 107-204, 116 Stat. 745, [2002]) The act increased penalties for the white-collar crimes of mail fraud and wire fraud from a maximum of five years to 20 years in prison. It also directed the UNITED STATES SENTENCING COMMISSION to review and amend its sentencing guidelines regarding white-collar crimes. In addition, the law makes it a crime for corporate officers to falsify financial reports. A conviction could result in a $5 million fine and 10 years in prison. Most importantly, the act created a new crime of securities fraud. A person convicted of this white-collar crime could be sentenced to 25 years in prison.

The Sarbanes-Oxley Act, apart from its substantive provisions, expressed a new recognition of the seriousness of white-collar crime.