White-Collar Crime
Refers to a set of deceptive practices carried out by businesses and government officials
What Is White-Collar Crime?
White-collar crime refers to a set of deceptive practices carried out by businesses and government officials. These crimes are defined by deliberate deception, concealment, or breach of trust, but they are not always committed with physical violence or threats.
This term was coined in 1939 by Edwin Sutherland, an American criminologist, to describe a crime among a specific group of professionals: business people, high-ranking professionals, and politicians.
Wage theft, fraud, bribery, insider trading, labor racketeering, embezzlement, cybercrime, copyright infringement, money laundering, identity theft, and forgery are all examples of white-collar crimes. Some of these offenses are linked to corporate crime.
Many people believe that these are crimes that have no victims, but that is not the case.
One single scam, for example, can harm a variety of stakeholders, including corporations, their families, and investors, as well as individuals who have staked their entire lives on a single event.
Depending on the size and type of investment, the consequences on the aforementioned stakeholders may vary.
For example, if a person invests all of their life savings in a fraudulent cryptocurrency, such as the recent 'squid game' scam, the fraudsters will be able to take all of the person's money without fear of being detected due to the anonymity provided by the blockchain.
This enabled the developers of this fake cryptocurrency to disappear and cash out more than 3 million dollars.
This would be detrimental to the individual since they would lose all of their life savings and other investors who may have invested in varying amounts and believed the "SQUID" currency was a legitimate token in the crypto market.
The internet has made fraud schemes more sophisticated than ever before. In the US, the Federal Bureau of Investigation (FBI) is committed to preventing these crimes through dedicated technology and expertise.
In the United States, white-collar crime is punishable by a variety of means, including imprisonment, fines, restitution, community service, probation, etc.
In some countries, such as China, committing such a crime can result in harsh punishments, such as the death penalty, while in others, such as Canada, the sentence is 10 to 25 years in prison.
The issue of sentencing disparity has long been a source of contention.
To target these international and multi-layered white-collar criminal organizations, the FBI collaborates with partner law enforcement and regulatory agencies such as:
Types of White-Collar Crime
The types of white-collar crime are diverse, complex, and pervasive across various industries
Some of the types are:
1. Fraud
Fraud is a broad term that encompasses a wide range of schemes aimed at defrauding individuals of their funds. It is frequently a purposeful act to get illegal benefits by using deceit or misleading ideas to persuade people to accept the presented context.
All of these activities are considered unethical.
According to the University of Southern Indiana (USI), some examples of fraud include:
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Embezzlement
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Forgery
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Alteration of documents
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Manipulation of files
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Fraudulent financial reporting
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Authorization to accept payments for goods and services that have not been provided.
The fraud triangle is a well-known diagram that depicts the intent to commit fraud.
When there are incompetencies, such as a lack of internal controls, there is an opportunity.
Financial stress, unforeseen expenses, drug addiction, shopping, and unrealistic deadlines or goals are just some of the things that can cause pressure.
When a person tries to justify their behavior in committing fraud, this is known as rationalization. This varies depending on the situation.
Consider the following scenario:
A fraudster sends an email offering a prize of $20,000 to someone. All the person has to do is send the fraudster $200 in the form of a 'finders fee' or 'commission.'
When a person sends money to a fraudster, the fraudster will, of course, not send the money that was promised in the first place.
This is a simple depiction of how a fraudulent activity might appear.
Insider trading is when a public company's stock, bond, or security is traded using non-public information. This is a white-collar crime because it is considered unfair to the company's investors, who do not have access to this type of information.
Insider trading has the potential to allow internal managers and directors to profit more than an investor would.
If an investment bank learns that certain firms are about to acquire other companies, for example, staff may surreptitiously purchase the shares of the companies that will be purchased in order to profit when the deal occurs.
This is due to the fact that acquisitions usually result in a rise in stock prices.
3. Ponzi Scheme
A Ponzi scheme is a financial scam in which current investors receive monies from new investors who have invested in the firm.
This term originated after Charles Ponzi promised investors a 50% return on their money by investing in a series of worldwide postal coupons in the 1920s. On the other hand, Madoff utilized monies from new investors to repay previous investors.
When an individual is unable to recruit new investors, the scheme frequently collapses, leaving many existing investors with significant losses.
The Bernie Madoff scam was one of the most well-known Ponzi schemes. Over a 17-year period, he scammed billions of dollars from thousands of investors in what is claimed to be the greatest Ponzi Scheme in American history.
4. Identity theft and other cyber crimes
In today's society, this is one of the most common crimes. It occurs when someone steals the identities of others by obtaining personal data without their knowledge or consent.
According to a Harris Poll survey from 2018, almost 60 million Americans have been harmed by identity theft. There have been 73,000 incidents of identity theft documented in California alone.
According to a report, victims of identity theft frequently experience psychological suffering such as loss, helplessness, rage, loneliness, and betrayal, all of which can lead to profound financial concern and insecurity.
These can have a long-term influence on others and the financial system's credibility.
5. Embezzling
Embezzlement occurs when a person withholds assets with the intent of converting them to cash when the assets were requested to be retained for a specified purpose.
This is a planned crime, which means that the criminals would painstakingly arrange how to transform the current assets entrusted to this individual into cash without the trustee's approval.
Forgery of checks is a type of embezzlement. For example, if an employee writes a check to himself under the company's name, he or she can later modify financial accounts and statements to conceal the transaction.
Overbilling customers is another example. Overbilling customers and keeping the excess money while hiding their tracks is also a fraud.
6. Counterfeiting
Counterfeiting, like forgery, entails the creation of counterfeit commodities or papers. When someone tries to pass these things off as real, they are committing a federal felony.
Typically, counterfeit products will include:
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Money
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Documents
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Tickets
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Clothing
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Drugs
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Or when goods are passed off as genuine products
According to the United States Department of Treasury, counterfeit banknotes worth between $70 and $200 million are in circulation. The US Border Protection detected almost $1.5 million in counterfeit money in Chicago alone in the first three months of 2021.
To prevent being duped by counterfeit goods, look for color-shifting ink, a watermark, and a security thread, and compare the item to an authentic one.
Money laundering is a service used by many criminals to deal with huge sums of money obtained from unknown or unlawful sources.
To 'clean' the money, it will be routed through many accounts to ensure its legitimacy. This is done to ensure that the funds are mixed up with real business income and costs.
Drug traffickers frequently utilize money laundering services because drug payments are typically substantial sums of cash.
The indictment of Paul Manafort and Rick Gates, associates of a former US President, was a high-profile money-laundering case.
The claimed charge was connected to Manafort and Gates laundering money for more than a decade through foreign businesses and accounts, as well as providing false statements to the Justice Department when questioned about engaging with foreign organizations.
This channel, as well as shell corporations and offshore bank accounts, was used to launder at least $75 million. This case drew media attention since it was controversial that such powerful officials would commit such crimes in order to deceive the people.
8. Espionage
Espionage, commonly referred to as spying, is a type of white-collar crime. This is the act of getting secretive or sensitive information without the authorization of the information's owner.
When there is a commercial concern, governments frequently utilize espionage. For example, if a government agency needs information from Google Inc., they might enter the organization using an employee status and collect this sensitive information.
White-Collar Crimes and the Internet
The internet has transformed the way conventional criminals conduct fraud, shifting operations from stocks and postal fraud to computer and wire fraud.
Most fraud instances in our technologically sophisticated period are perpetrated using computers, making them more difficult to trace.
According to a PWC analysis, cybercrime may cost an individual business up to $42 billion, depending on the magnitude and severity.
The following are a few reasons why white-collar cybercrime has increased over the last several decades.
1. The chaos caused by the pandemic
The worldwide COVID-19 crisis has thrown the world into disarray.
This has generated chances for hackers to exploit the gap, resulting in an increase in fraudulent activity. To steal money, some fraudsters impersonate unemployment benefit organizations, health professionals, or even charities.
There were 1.1 billion fraud attempts in the first half of 2020 alone, and the FTC reports that Americans have lost over $145 million to fraud-related activities during the pandemic.
2. Changing the e-commerce landscape
The pandemic and technological progress have driven the retail sector online. This raises the likelihood of fraudulent activity in card-not-present (CNP) transactions.
CNP-related fraud surged to up to 27% of all debit transactions in 2019 and is already on an unprecedented scale.
Point-of-sale financing has also been a key source of fraudulent activities. This is due to the fact that the loan application process is very straightforward and unregulated, which means that loans may be authorized in a matter of minutes.
This gives scammers additional opportunities to act.
3. The emergence of new marketplace platforms
A variety of applications, such as social networking, dating, food delivery, alternative transportation, and several other platforms, have helped provide the convenience that everyone seeks.
Quarantine procedures have also increased the relevance of such applications since they give extra safety for COVID-19-sensitive persons.
However, due to the growing use of apps, fraudsters have been able to alter their strategies to exploit the online marketplace and applications to engage in a variety of unlawful activities.
4. Payments are moving online.
Payments have been shifting toward peer-to-peer (P2P) mechanisms. The widely used Apple wallet, for example, is an example of the P2P approach.
These applications are becoming increasingly popular since they allow users to purchase from online retailers easily. In the United States, 71% of people use some type of peer-to-peer payment.
While it is simple to conduct transactions, the bulk of these transactions is conducted with unknown organizations, increasing the danger of fraud.
5. More sophisticated fraud tactics
A growing number of data breaches in recent years have proved that fraudsters are capable of gaining access to personally identifiable information (PII).
For example, fraudsters frequently blend actual and fake data to create new synthetic identities that are difficult to track down. With these fake identities, the fraudsters may create bank accounts and receive loans just like any other consumer.
The projected yearly cost to lenders of these fake identities is $6 billion.
Control over bank cards and accounts is also becoming easier as criminals get access to more PII. This can include everything from taking control of tiny transactions to taking control of major ones.
Famous White-Collar Crimes
Some cases have become cautionary tales, illustrating the potential fragility of even the most established institutions, while others have spurred significant changes in laws and regulations.
Some of the most famous white-collar crimes in history are:
1. Martha Stewart's insider trading
The well-known homeware and kitchenware retailer was embroiled in a high-profile insider trading case. Stewart has stock in ImClone, a biotech startup.
Someone inside informed Stewart that the FDA would not approve the experimental cancer medication. With this revelation, Stewart sold her ImClone shares, insulating her from the losses other investors experienced.
Al Capone made a fortune as a Chicago gangster by selling and abetting extortion, murder, and other mafia acts. He was able to conceal his tracks cleanly while engaging in all of these activities, making it difficult for investigators to track him down.
However, Al Capone was arrested red-handed with $215,000 in delinquent taxes. As a consequence of a federal agent and the team unearthing these unpaid taxes, Al Capone was sentenced to 11 years in jail.
3. Enron
Enron was characterized as "America's most innovative company" since it was an energy company with a revenue of $1 billion or more.
However, suspicions circulated that the corporation engaged in dubious accounting procedures in order to generate such a high income.
Investigations into Enron's books were initiated, and the rumors were confirmed. Accounting flaws allowed Enron's board of directors to remain unaware of billions of dollars in debt.
The key strategy employed was the employment of 'special purpose vehicles,' which were utilized to conceal the company's real financial status.
4. Worldcom
In the 2000s, WorldCom was a telecommunications company. They took part in an accounting scam that underreported expenditures while inflating income.
The employment of these deceptive methodologies was utilized to deceive investors, resulting in expenses of approximately $4 billion in just over a year.
WorldCom was compelled to disclose that it had exaggerated its assets in its financial situation by more than $11 billion.
The jury convicted the founder, Bernard Ebbers, guilty of fraud, conspiracy, and submitting fraudulent paperwork in 2005. After that, he was sentenced to 25 years in jail.
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