White-collar crime

Overview

White-collar crime describes nonviolent illegal acts committed to generate some type of monetary or financial benefit for the perpetrator(s). White collar refers to the collared, button-down white dress shirts traditionally worn as business attire. The term was coined in 1939 by Edwin Sutherland (1883–1950), an American sociologist and criminologist who pioneered studies into criminality among members of the economic upper classes. Commentators note that “[p]rior to his writings on the subject, many people resisted believing that members of the ‘upper class’ engaged in criminal activity” (Corporate Finance Institute, n.d.).

Many forms of illegal activity meet prevailing definitions of white-collar crime. The Federal Bureau of Investigation (FBI) broadly subdivides white-collar crime into six distinct subareas: health care fraud, corporate fraud, money laundering, securities and commodities fraud, mortgage and financial institution fraud, and intellectual property theft or piracy (Federal Bureau of Investigation, 2023).

In the United States and other countries, health care fraud primarily involves falsifying patient records and insurance claims to extract illegal payments from the health care and insurance systems. Though it is primarily associated with privatized, for-profit elements of health care systems, criminals can also carry out acts intended to defraud publicly funded health systems and institutions. Both medical practitioners and patients engage in health care fraud. Examples of health care fraud include phantom billing, double billing, unbundling, and upcoding. Phantom billing describes the fraudulent practice of billing insurance providers for health care services or medical supplies that were never rendered or received by the patient. Double billing occurs when a perpetrator submits more than one insurance claim for the same service, while the related concept of unbundling refers to a health care provider submitting more than one medical bill for the same service. Upcoding involves submitting a bill for a costlier procedure, service, or device than the patient received. Other cases involve elaborate schemes to defraud health care systems and insurance providers, in which insiders “exploit patients by entering into their medical records false diagnoses of medical conditions they do not have, or of more severe conditions than they actually do have. This is done so bogus insurance claims can be submitted for payment” (National Health Care Anti-Fraud Association, 2023).

Corporate fraud encompasses a wide range of activities involving “accounting schemes and self-dealing by corporate executives, as well as obstruction of justice (activities designed to conceal this type of conduct)” (Federal Bureau of Investigation, 2023). Accounting schemes generally involve the falsification of financial records, including “[f]alse accounting and/or misrepresentation of financial conditions,” “[f]raudulent trades designed to inflate profits or hide losses,” or “[i]llicit transactions designed to escape regulatory oversight” (Federal Bureau of Investigation, 2023). Individuals or groups who engage in self-dealing crimes abuse insider or otherwise privileged status to carry out illegal activities designed to generate illicit profits for the perpetrator(s). These crimes include insider trading, kickbacks, the misappropriation of corporate assets or property for an individual’s private gain, and tax crimes related to self-dealing activities (Federal Bureau of Investigation, 2023). Insider trading is defined as the purchase or sale of securities as guided by non-public knowledge or information that is likely to impact the security’s value on open financial markets. Kickbacks are “illegal payment[s] intended as compensation for preferential treatment or any other type of improper services” (Kenton, 2021).

Money laundering aims to turn “dirty” money obtained through criminal enterprises into “clean” money by making it appear as though the laundered funds were generated by legitimate legal activities (Federal Bureau of Investigation, 2023). It typically takes place across a complex network of actors including criminal entities, insider enablers with access to laundering opportunities or vehicles, and financial institutions. In some cases, financial institution personnel are aware of the associated criminal activity and are complicit in it; in others, the financial institution itself may not have direct knowledge or involvement in money-laundering activity, but instead maintains policy loopholes that criminals and their associates can exploit for their own gain. Alternate money laundering strategies do not directly involve financial institutions, but instead launder criminal proceeds through other assets such as precious metals, artwork, collectibles, real estate, or cryptocurrencies.

Regardless of the form money laundering takes, it always involves three distinct steps: placement, layering, and integration (Federal Bureau of Investigation, 2023). Placement represents the entry of illicitly obtained funds into the mainstream financial system; layering creates a documented separation of the criminal funds from their origin source, often by routing the funds through a complex network of seemingly legitimate participating entities; integration completes the process by allowing the criminal or criminal organization to extract laundered funds from the financial system in a manner that makes it appear as though the money was legally earned (Federal Bureau of Investigation, 2023).

Securities and commodities fraud has evolved into a major area of concern as investment vehicles have become more complex, and as a growing number of individuals and institutions directly engage in investment activities (Federal Bureau of Investigation, 2023). In general, securities and commodities fraud involves schemes masterminded by an individual or group that appears legitimate and claims to have advanced knowledge of appealing investment opportunities. Many such schemes promise to deliver aggressive returns while also offering unusually low risk profiles relative to the investment’s profit potential. In exchange, investors are asked to forward cash, ostensibly to serve as a down payment or another form of principal. The promised returns are then either never delivered or delivered only to a few people in the upper levels of a scheme to create a convincing air of legitimacy. Such scams are known as Ponzi schemes or pyramid schemes. Disgraced financier Bernie Madoff (1938–2021) perpetrated one of the most notorious such examples in history before he was arrested for a slew of financial crimes in late 2008.

Mortgage and financial institution fraud covers activities intended to misuse banking networks to obtain and abscond with illicitly acquired funds. These forms of fraud typically involve the fraudulent use of a customer’s identity, personal information, or account details (Federal Bureau of Investigation, 2023), allowing the criminal to profit by taking out loans they have no intention of repaying or otherwise acquiring funds belonging to the financial institution or its customers. Mortgage fraud specifically involves misrepresentations designed to secure real estate loans or extract owner equity from properties; these types of white-collar crime are usually perpetrated by individuals posing or working as professionals in the real estate or mortgage lending industries.

Intellectual property (IP) theft typically victimizes corporations, educational institutions, and individuals who have developed devices, processes, designs, trade secrets, creative works, ideas, or other proprietary assets with actual or potential financial value. It generally involves infringing on patent protections, trademarks, or copyrights to generate financial returns or monetary gain. Many cases of IP theft occur when an individual has privileged access to protected intellectual property, which they abuse to gain actionable insights and later sell to rivals, use to secure highly paid positions with rivals, or to start their own competing companies.

Further Insights

Estimates of the total economic damage caused by white-collar crimes vary. In examining costs to the United States, the FBI has estimated the annual economic toll of white-collar crime at $300 billion (Legal Information Institute, n.d.). Other researchers place the total in the range of $426 billion to $1.7 trillion (Office of Justice Programs, n.d.).

Legal experts note that “[m]any white-collar crimes are difficult to prosecute because the perpetrators use sophisticated means to conceal their activities through a complex series of transactions” (Legal Information Institute, n.d.). In many cases, the successful prosecution of white-collar crimes requires someone with inside knowledge of the crime, or complicity in it, to come forward or otherwise cooperate with law enforcement. This cooperation, known as whistleblowing, has become more common in the United States since the Great Recession (2008–2009) (Legal Information Institute, n.d.), during which multiple high-profile examples of corruption in the US financial system and banking networks became public knowledge and drew the ire of the everyday people left to disproportionately shoulder the financial burdens of the recession’s economic turmoil.

In the United States, federal legislation allows law enforcement agencies and justice institutions to hold corporations and other organizations legally responsible for white-collar crimes. Federal laws also allow US government agencies to impose financial penalties and other sanctions on organizations found to be involved with white-collar crime. However, most white-collar crime prosecutions involve individual actors (Legal Information Institute, n.d.).

Typical criminal and civil penalties levied on individuals convicted of white-collar crimes include fines, in-home detention, and other forms of close and structured supervision within the perpetrator’s community (Legal Information Institute, n.d.). Offenders may also be forced to cover the financial costs of their own prosecution, pay restitution (compensation to victims), and/or forfeit assets gained, financed, or involved in white-collar criminal activity. Imprisonment is also indicated for more severe forms of white-collar crime, with sentencing guidelines recommending extended prison terms in cases where “at least one victim suffered substantial financial harm” (Legal Information Institute, n.d.). In addition to the FBI, federal agencies and institutions that participate in the investigation and prosecution of white-collar crimes include the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS), among others. The IRS plays a particularly high-profile role in white-collar crime cases that involve money laundering and/or tax fraud.

The question of whether senior corporate officers can or should be held responsible for acts of white-collar crime committed through their organizations or by their employees has been taken up by the Supreme Court of the United States (SCOTUS). In particular, two SCOTUS cases—United States v. Dotterweich (1943) and United States v. Park (1975)—have combined to establish a legal precedent known as the responsible corporate officer doctrine, the responsible relation doctrine, or the Park doctrine. The responsible corporate officer doctrine “creates a presumption that a high-ranking corporate officer is aware of his or her corporation’s wrongdoing. As such, a corporate officer could be found guilty of a crime of which the officer had no [direct or personal] knowledge” (Legal Information Institute, n.d.). However, the responsible corporate officer doctrine has rarely been used to prosecute individual executives or secure convictions since its legal precedents were established in the mid-1970s.

Viewpoints

Historically, white-collar crime has been viewed by the public and treated by justice systems as “relatively harmless compared to violent crime” (Holtfreter, Van Slyke, Bratton & Gertz, 2008). Experts have also noted trends indicating that “white-collar crime remains a ‘low priority’ compared to violent crime and threats to national security, such as terrorism” (Holtfreter et al., 2008). This is generally because many forms of white-collar crime victimize corporations, financial institutions, and insured businesses, contributing to a public perception that it is either victimless, or that the associated losses can easily be absorbed by the victimized organization. However, researchers noted a marked shift in public sentiment regarding white-collar crime during the Great Recession, which brought rampant levels of corporate and institutional financial corruption to light and followed closely on high-profile stock scandals involving companies including Enron and WorldCom (Holtfreter et al., 2008). Since that time, public opinion has generally shifted in support of the more aggressive prosecution of white-collar crime, and stiffer punishments for individuals convicted of perpetrating it.

In the immediate aftermath of the Great Recession, the National White Collar Crime Center carried out a comprehensive survey released as The 2010 National Public Survey on White Collar Crime. One of the survey’s key findings noted a “high rate of white collar victimization, coupled with decreasing rates of other crime,” prompting the authors to surmise that “criminals may be migrating from more traditional street crimes to white collar crimes” (Huff, Desilets, & Kane, 2010). In endeavoring to explain the trend, the researchers emphasized that “[m]any white collar crimes require significantly higher levels of education or specialized technical skills than street crimes. Both of these things are becoming more available in our society as literacy rates, computer use, and educational attainment continue to skyrocket” (Huff, Desilets, & Kane, 2010). The increasing prevalence and sophistication of white-collar cybercrime and associated prosecutions that have since followed suggests the authors’ hypothesis may have some merit (Ring, 2016).

A 2013 Pew Research Center study examined gender gaps in the prosecution of white-collar crimes, noting a pattern of disparity among female offenders reflecting those associated with the wider corporate world: it found that female participants in white-collar crimes “typically hold inferior positions to men in the criminal conspiracies in which they are engaged, rarely lead a fraud ring and make significantly less money” from their criminal activities, relative to male offenders (Morin, 2013). The Pew Research Center examined 83 white-collar crime cases from 2002 to 2009 that combined to encompass 436 criminal defendants, finding that only 9 percent of all individuals indicted in the cases were female (Morin, 2013). Additional studies have found that in the United States, white-collar crimes are more commonly committed by White people, who are “overrepresented as offenders in elite white-collar crimes” (Sohoni & Rori, 2021). Commentators have described this phenomenon as evidence of systemic biases favoring White people, who they describe as having greater levels of access to positions of power that enable the commission of major white-collar crimes (Sohoni & Rori, 2021).

About the Author

Jim Greene is a freelance writer, researcher, and editor who specializes in developing, composing, revising, and updating student reference materials in digital and print formats. He primarily covers topics related to the humanities, social sciences, economics, law, and criminal justice. Born in Canada, he holds degrees from the University of Guelph and Toronto Metropolitan University, along with an MFA in creative writing from the University of Southern California.

Bibliography

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Federal Bureau of Investigation. (2023). White-collar crime. Retrieved October 19, 2023, from www.fbi.gov/investigate/white-collar-crime.

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Huff, R., Desilets, C., & Kane, J. The 2010 National Public Survey on White Collar Crime. National White Collar Crime Center. Retrieved October 19, 2023, from www.ojp.gov/pdffiles1/bja/grants/233013.pdf.

Kenton, W. (2021). Kickback definition, how it works, and examples. Investopedia. Retrieved October 19, 2023, from www.investopedia.com/terms/k/kickback.asp.

Legal Information Institute. (n.d.). White-collar crime. Cornell Law School. Retrieved October 19, 2023, from www.law.cornell.edu/wex/white-collar‗crime.

Morin, R. (2013). Even in white collar crime, female crooks face a glass ceiling. Pew Research Center. Retrieved October 19, 2023, from www.pewresearch.org/short-reads/2013/08/05/even-in-white-collar-crime-female-crooks-face-a-glass-ceiling/.

National Health Care Anti-Fraud Association. (2023). The challenge of health care fraud. Retrieved October 19, 2023, from www.nhcaa.org/tools-insights/about-health-care-fraud/the-challenge-of-health-care-fraud/.

Office of Justice Programs. (n.d.). How much does white collar crime cost? United States Department of Justice. Retrieved October 19, 2023, from www.ojp.gov/ncjrs/virtual-library/abstracts/how-much-does-white-collar-crime-cost.

Ring, S. (2016). U.K. white-collar prosecutions rise as cybercrime threat grows. Bloomberg. Retrieved October 19, 2023, from www.bloomberg.com/news/articles/2016-05-22/u-k-white-collar-prosecutions-rise-as-cybercrime-threat-grows#xj4y7vzkg.

Sohoni, T., & Rorie, M. (2021). The whiteness of white-collar crime in the United States: Examining the role of race in a culture of elite white-collar offending. Theoretical Criminology, 25(1), pp. 66–87. DOI 10.1177/1362480619864312.