White collar criminality

• Criminologist Edwin H. Sutherland is generally given credit for introducing the term white
collar crime into the literature in 1939
• Recognition of this type of crime extends well back in history. Records from ancient times
include identification of and sanctions against fraud carried out in the context of various
types of commercial transactions.
• In the 18th century, Cesare Beccaria (1764) recognized that “the great and rich”
committed acts that caused immense public injury, and that had to be kept in check by
law.
• In the 19th century, Karl Marx and Friedrich Engels (1848) insisted that the powerful and
the privileged commit “crimes,” loosely defined as consequences of the character of the
capitalist economic system and the special status of the privileged within it.
• American muckrackers i.e. investigative journalists and writers in late 1920s who exposed
corruption in big business, government, and societal problems referred to the
exploitative crimes of the “robber barons” and their confederates.
• E. H. Sutherland’s landmark American Sociological Society presidential
address in Philadelphia in December 1939 was entitled “The White Collar
Criminal.”
• In this initial characterization of white collar crime, published the following
year in the American Sociological Review, Sutherland alluded to “crime in
the upper or white-collar class, composed of respectable or at least
respected business and professional men”
• He characterized white collar crime as a form of organized crime.
Sutherland argued that the crimes committed by corporations were
rational, deliberate, persistent, and much more extensive than prosecution
of them indicated. Victims were often quite impotent to respond
effectively to corporate crimes, which were difficult to prove, and
corporations were well positioned to “fix” cases against them.
Businessmen caught violating the law generally did not suffer a loss of peer
status; in fact, businessmen as a group were commonly contemptuous of
law, he noted. In their view, if they were technically in violation of certain
laws, it was not because they were criminals but because the laws were
bad.
Key features of white collar crime
• (1) occurs in a legitimate occupational context;
• (2) is motivated by the objective of economic gain or occupational
success; and
• (3) is not characterized by direct, intentional violence
Distinguishing between White Collar Crimes,
Traditional Crimes, Organized crimes,
Occupational crimes, Socio-economic
offences
White collar crime
• Crimes committed by educated, respectable persons of high social status
in the course of their occupation or profession.
• They are of non-violent nature, involves deceit, concealment, or breach of
trust, offenders use position, power, or expertise and are difficult to detect
• Examples:
• Tax evasion
• Insider trading
• Corporate fraud
• Bribery and corruption
• Money laundering
Traditional crime
• Crimes involving physical force or direct harm to persons or property.
• They are often Violent or overt acts with easily identifiable victims,
motivated by anger, revenge, or immediate gain and are punishable under
general criminal law
• Examples:
• Murder
• Theft
• Robbery
• Assault
• Rape
Organised crime
• Criminal activities carried out by structured groups for continuous illegal
profit.
• They are characterized by a hierarchical organization with planned and
systematic, use of violence or intimidation which is often transactional and
transnational in nature
• Examples:
• Drug trafficking
• Human trafficking
• Arms smuggling
• Mafia-style operations
• Illegal gambling syndicates
Occupational Crimes
• Crimes committed by individuals during the course of their employment,
primarily for personal financial gain, not for the organization.
• Key Characteristics:
• Offender abuses employer’s trust
• Usually committed by employees, not owners
• Financial in nature
• Victim is the employer
• Examples:
• Embezzlement
• Forgery of accounts
• Misappropriation of funds
• Employee fraud
Socio Economic offences
• Crimes that harm the economic and social structure of society and affect public welfare.
• Key Characteristics:
• Impact society at large
• Often involve government regulation
• Affect national economy and public interest
• May overlap with white-collar crimes
• Examples:
• Black marketing
• Hoarding of essential commodities
• Smuggling
• Adulteration of food
• Violation of labour laws
• State of Gujarat v. Mohanlal Jitamalji Porwal (1987)
• “The entire Community is aggrieved if the economic offenders who
ruin the economy of the State are not brought to books. A murder
may be committed in the heat of moment upon passions being
aroused. An economic offence is committed with cool calculation and
deliberate design with an eye on personal profit regardless of the
consequence to the Community. A disregard for the interest of the
Community can be manifested only at the cost of forfeiting the trust
and faith of the Community in the system to administer justice in an
even handed manner without fear of criticism from the quarters
which view white collar crimes with a permissive eye unmindful of the
damage done to the National Economy and National Interest.”
Why does crime occur?
• Social disorganization
• poverty
• psychopathic conditions
• sociopathic conditions
Edwin Sutherland
• An adequate explanation of criminal behavior must proceed along
quite different lines.
• Varied types of white-collar crimes in business and the professions -
misrepresentation in financial statements of corporations,
manipulation in the stock exchange, commercial bribery, bribery of
public officials directly or indirectly in order to secure favorable
contracts and legislation, misrepresentation in advertising and
salesmanship, embezzlement and misapplication of funds, short
weights and measures and misgrading of commodities, tax frauds,
misapplication of funds in receiverships and bankruptcies.
• These consist principally of violation of delegated or implied trust,
and many of them can be reduced to two categories:
misrepresentation of asset values and duplicity in the manipulation of
power.
• Adequate evidence that crime is not so highly concentrated in the
lower class as the usual statistics indicate.
• Financial cost of white-collar crime is greater than the financial cost of
all the crimes which are customarily regarded as the “crime
problems”
• White-collar crimes violate trust and therefore create distrust, which
lowers social morale and produces social disorganization on a large
scale
• As per Sutherland , white-collar crime is both a crime committed by a
specific type of person, and it is a specific type of crime.
Differential association theory
• Differential association theory suggests that criminal behaviour is
learned through communication and association with other
criminals/delinquents, where techniques and methods are learnt, as
well as new attitudes and motives to commit a crime.
• Sutherland suggests that this is true for elite, eductated, privileged
groups also
Priniciples of differential association theory
• 1. Criminal behaviour is learned.
• 2. Criminal behaviour is learned from interactions with others through communication.
• 3. The learning of criminal behaviour occurs within intimate personal groups.
• 4. When criminal behaviour is learned, the learning includes (a) techniques of committing the
crime (b) the specific direction of motives, drives, rationalizations, and attitudes.
• 5. The specific direction of motives and drives is learned through interpretation of legal codes as
being favourable or unfavourable.
• 6. A person becomes delinquent because of an excess of definitions favourable to violation of law
over definitions unfavourable to violation of the law.
• 7. Differential associations can vary in frequency, duration, priority and intensity.
• 8. The process of learning criminal behaviour by association involves all of the mechanisms that
are involved in any other learning.
• 9. Criminal behaviour is an expression of general needs and values.
In summation
• 1. White-collar criminality is real criminality, being in all cases in violation of the criminal
law.
• 2. White-collar criminality differs from lower class criminality principally in an
implementation of the criminal law which segregates white-collar criminals
administratively from other criminals.
• 3. The theories of the criminologists that crime is due to poverty or to psychopathic and
sociopathic conditions statistically associated with poverty are invalid because, first, they
are derived from samples which are grossly biased with respect to socioeconomic status;
second, they do not apply to the white-collar criminals; and third, they do not even
explain the criminality of the lower class, since the factors are not related to a general
process characteristic of all criminality.
• 4. A theory of criminal behavior which will explain both white-collar criminality and lower
class criminality is needed.
• 5. An hypothesis of this nature is suggested in terms of differential association and social
disorganization.
Theories of financial crime
Gottschalk - Theories of fraud/financial crime
• Organisational theory - explain organizational phenomena of financial
crime
• Behavioural theory - explain individualistic aspects of financial crime
• Managerial theory - general management theories are applied to the
phenomenon of financial crime.
Differential association theory (a social
learning theory).
• It proposes that a person associating with individuals who have
deviant or unlawful mores, values, and norms learns criminal
behavior. Certain characteristics play a key role in placing individuals
in a position to behave unlawfully, including the proposition that
criminal behavior is learned through interaction with other persons,
as well as interaction occurring in small intimate groups.
Edwin Sutherland – Differential association
theory
• Criminal behavior is learned.
• Learning occurs through interactions with others via communication.
• Most learning happens in intimate personal groups.
• Learning includes techniques, motives, rationalizations, and attitudes necessary for criminal
behavior.
• The direction of motives and drives is influenced by interpretations of legal codes as favorable
or unfavorable.
• An individual becomes delinquent when favorable definitions outweigh unfavorable ones.
• Differential associations vary in frequency, intensity, priority, and duration.
• The mechanisms for learning criminal behavior are the same as those for any other behavior.
• Criminal behavior is an expression of general needs and values, but these do not explain the
behavior since non-criminal behavior expresses the same needs and values
Self-control theory.
• This theory proposes that individuals commit crime because of low
self-control.
• rare cases of mass fraud, not all elites within a given organization or
industry will commit crime. Hence, though elites at the top of their
profession and corporation differentially associate with the people of
equal status in their own and other corporations, not all corporate
elites commit crimes and behave in an overtly deviant manner.
Social bonding theory.
• The presence of four key elements of
• belief,
• attachment,
• commitment, and
• involvement
• may lead to elite misdeeds based on the strength of the bonds
formed between corporate “bad boys.”
Control balance theory.
• It measures the potential for individuals to commit corporate crimes.
• Control balance theory utilizes a ratio of control exercised relative to
degree of control experienced.
• Control balances surpluses, rather than deficits, lead to white-collar
and corporate deviance.
Role theory
• Role that the criminal or potential criminal is occupying for the time
being.
• Politically exposed persons (PEPs).
• A PEP is an individual who is entrusted with prominent public
functions. Such an individual must be tracked by financial institutions
as he or she poses potential reputation risk to regulated entities.
Utility theory
• A criminal will attempt to maximize the utility from criminal behavior.
• An expected utility maximizing criminal commits an illegal act and, if
he is not caught and punished, his total wealth thereby increases by
an amount x.
• His criminally enhanced total wealth, x, will be greater than his
current wealth w. He is caught and punished with probability p and
the punishment consists of a fine, z, which is less than or equal to his
enhanced wealth, w + x. His personal assessment of any benefits to
him of his criminal activity is described by a utility function linking p
and z to w and x
Fraud triangle theory
• Introduced by criminologist Donald Cressey in 1953,
• fraud triangle" symbolize three elements that must exist for fraud to take place
• (1) Incentives/pressures. Political, societal, and financial pressures, Internal or
external in nature.
• (2) Opportunities. gap in the organization's control system that allows fraudsters
to avoid detection is referred to as "opportunity." Failure of internal control
mechanisms, not applying suitable disciplinary procedures, and inadequate
directives and oversight may all contribute to this potential
• (3) Attitudes/rationalization. According to Cressey, criminals frequently construct
morally acceptable ideas that justify their unethical behavior, which is referred to
as rationalization. Thus, rationalization is the formulation of justifications and
excuses that allow immoral conduct to lose its illegality in the minds of
perpetrators
Fraud diamond
• The fraud triangle was enhanced by adding one more component,
capability, changing the fraud triangle to a fraud diamond by Wolfe
and Hermanson, (2004).
• The fraud diamond theory maintains that an individual is inclined to
commit fraud when they have pressure fueled by opportunity and
capability which can be rationalized by the individual.
• A person's personal characteristics and capability influence the
likelihood of fraud: an opportunity facilitates fraud, and incentive
(pressure) and rationalization can entice a person toward it; however,
the individual must be capable of recognizing the opportunity and
repeatedly act on it
Fraud Pentagon
• The Fraud Pentagon Theory was coined by Crow Howarth in 2011.
• This idea connects Cressey's (1953) Fraud Triangle and Wolfe and
Hermanson's (2004)Fraud Diamond.
• Crowe's pentagon fraud theory incorporates two additional elements
of fraud: competence and arrogance
• The fraud pentagon theory's concept of competence is the same as
Wolfe and Hermanson's (2004), definition of capability in the Fraud
Diamond Theory. Arrogance is a person's attitude of superiority
based on their position or rights, such that they believe the
company's internal controls or policies do not apply to them
Organisational theories
• Theory of monopoly in organized crimes the monopolistic model implies
that potential criminals have no other choice but are forced to join the
criminal organization if they decide to commit a crime.
• Chang (2005) disagrees with this theory and proposed that individual crime
and organized crime are coexisting alternatives to a potential offender. The
model makes the size of a criminal organization a variable and explores
interactive relationships among sizes of criminal organization, the crime
rate, and the government’s law enforcement strategies.
• The criminal organization’s payoffs and the extra benefit provided by the
criminal organization play crucial roles in an individual’s decision to commit
a crime and the way in which he or she commits that crime.
• Theory of organizational crime
• First, the internal structure and setting of organizations is of such
nature as to raise the probability that the attainment of the goals of
the organization will subject the organization to the risk of violating
societal laws of organizational behavior.
• Second, persons who actually act for the organization in the
commission of crimes will, by selective processes associated with
upward mobility in organizations, be persons likely to be highly
committed to the organization and be, for various reasons, willing and
able to carry out crime, should it seem to be required in order to
enable the organization to attain its goals, to prosper, or minimally, to
survive.
• Alien conspiracy theory. This theory blames outsiders and outside
influences for the prevalence of organized crime in society. Eg sicilian
mafia, irish mafia etc
Managerial theories
• Agency theory
• Alliance theory
• Network theory
• Contract theory
• Neo-classical economic theory
• Theory of core competencies
• Resource-based theory
• Relational exchange theory
• Stakeholder theory
• Theory of firm boundaries