White-Collar Crime

The term “white-collar crime” was first used by Sutherland in America. He defined this crime in the following words:

A crime committed by respectable people of high status in society in the course of their professional life.

He presented violations of anti-trust laws in America, false advertising, theft of trade secrets, and bribery as examples. In this type of crime, those individuals are also included who use insider information for their own benefit, as well as bank presidents who take people’s money for themselves in the form of loans, along with many other such offenses.

This term soon became popular among social scientists and the general public. Such crimes are committed by corporations, companies, and individuals, including those who take bribes and government officials and officers who misuse their positions and authority.

In different countries, white-collar crimes are increasing day by day, and no reduction in them is visible. Society has to pay a very heavy price for these crimes. This loss is far greater than the total losses caused by other types of crimes. For example:

In Bhopal (India), in 1984, when toxic gas was released, two to five thousand people lost their lives, and forty thousand people were seriously injured.

In 1986, one million newborn babies died worldwide because they were fed milk from defective bottles. In the United States, due to defective vehicles, 120 people die daily. Also in the United States, 800 people die every day from diseases caused by smoking. From cancer caused by asbestos, 8,000 people will die every year in the coming years.

Thousands of women have fallen ill due to the use of the Dalkon Shield, which was used for birth control.

In the United States, 180,000 people suffer from breathing difficulties due to Brown Lung disease as a result of working in the cotton textile industry.

When the word “crime” is mentioned, people usually think of burglary, theft, or robbery rather than monopoly, smuggling, or the sale of fake medicines; and instead of corporate crimes, they think of ordinary crimes.

Here, regarding the nature of crime in general and white-collar crime in particular, the following questions arise:

When a factory throws toxic substances into a river or stream from which people obtain drinking water, and no one prohibits it, has a crime been committed?

Or if, despite prohibition, the factory continues to do so and the police ignore it, has a crime been committed?

Or if the police go to a civil court and obtain an order against throwing such toxic substances into the river, in that case, has any crime been committed?

The answers to all these questions depend upon the definition of crime, which has already been discussed earlier. The definition itself depends on the individual who presents it. As we have seen above, an act becomes a crime only when a criminal court declares it as such. Very few illegal corporate acts or wrongdoings meet this narrow legal definition.

If the lives of thousands of people were not at stake, this definition of crime could be ignored, but the interpretation of the word “crime” itself is highly explosive. The development of the corporate system of justice has also moved in such a direction that corporations or companies may be protected from this interpretation and the stigma of criminal proceedings against offenders may be removed.

That is why, when legal action is taken against such business entities, it is pursued not in criminal courts but only in civil courts. Instead of proving a crime, terms like “acceptance” are used, and in legal proceedings, instead of a plea of guilty, expressions such as “neither admitting nor denying” are relied upon.

Many wrongful acts of business organizations, which do not meet the above definition, in fact fall within the basic meaning of the word “crime,” because they contain all the constituent elements of crime that Sutherland identified in these words: “An act which is prohibited by the state or, as a last resort, upon which punishment is imposed.”

Estimation of the Damage of White-Collar Crimes

Despite the urgent need for statistics in this matter, no estimate has been made of the total cost or loss of these crimes. The reason lies in the philosophical and political complexities mentioned above. The questions are: what exactly is corporate crime? However inadequate the definition of the word “crime” may be, it raises another question—who are the victims of this crime? Once the victims are identified, the damage can be estimated. With even a slight change in various variables, the cost of these crimes can change significantly.

For example, consider the definition of the word “crime” itself. Automobile companies are selling vehicles that lack a specific life-saving feature. This is a dangerous act. Due to the absence of this feature, thousands of people lose their lives in accidents every year. But if the law were to declare the manufacture of such vehicles illegal, then the thousands or millions of people who lose their lives due to the absence of this feature would be considered victims of this crime. However, the industry has not allowed such a law to be enacted.

It also happens that even in very clear cases of crime, it is impossible to estimate the number of victims and the actual cost. For example, the chemical factory mentioned above that throws toxic substances into the river from which people obtain drinking water—how many people will it cause cancer in over the coming years? And will this cancer be caused solely by that drinking water, or could it also be due to smoking or air pollution?

Despite these difficulties in analyzing the illegal activities of white-collar business people, efforts are ongoing to find a formula that can estimate the cost of white-collar crimes. A criminologist, Clinard, has estimated that in the United States alone, these crimes cause losses amounting to several billion dollars. He presents a rough outline of this:

The Judiciary Committee established for monopoly and anti-trust matters has estimated the annual loss from illegal monopolistic activities to be between 14 and 231 million dollars.

The Department of Justice has estimated the cost of violations of federal laws to be between ten and one hundred million dollars.

The losses caused by conspiracies of large manufacturers of lead pipes have been estimated at several million dollars.

Lockheed Corporation admitted that during the 1970s it paid 320 million dollars to relevant individuals in foreign countries in order to sell its products there.

It is very difficult to estimate the losses inflicted upon workers and citizens by the chemical, automobile, and oil industries, but evidence clearly shows that, in comparison, the losses caused by ordinary crimes are insignificant.

It appears that these white-collar crimes are a major cause of deaths. Due to the use of dangerous products, between 28,000 and 130,000 people lose their lives. However, in factories, this number is even higher. During work, about five and a half million workers are injured and require hospitalization.

Every year, at least one hundred thousand people lose their lives due to chemicals and other occupational hazards. In occupational diseases, there is an annual increase of 390,000 new patients. About 28 million people work in industries, and among them, every year 10 million people are at risk of exposure to carcinogens. Among those who die of cancer, 22 to 38 percent are affected by carcinogens during their work.

However, all these are merely indicators pointing toward the immense severity of the problem. Due to the lack of research on this subject, we can only make unrealistic estimates about the actual cost of white-collar crimes.

There is another aspect of this issue as well.

Margon and Renald are professors of economics. In their view, white-collar crimes are not a serious problem. They say that when crime is mentioned, people’s attention goes toward crimes occurring on streets and in markets, which frighten them. They do not pay attention to those financial manipulations which are called white-collar crimes.

Through this concept, some people have tried to change the middle-class assumption that crime is only an activity of the lower class. The Watergate scandal and the crimes of bribery committed by corporations abroad have been cleverly used by some intellectuals to promote the idea that, compared to crimes committed by the upper class, other crimes become insignificant.

White-collar crimes include embezzlement, tax fraud, computer crimes, land schemes, investment frauds, price-fixing against market trends, the manufacture and sale of dangerous products, pollution, misinvestment, shoplifting, and credit card fraud, among others.

According to consumer advocates, due to price manipulation, toxic air, land and water pollution, and the dishonesty of government officials, American society has to bear a cost of about 200 million dollars every year.

Given the diverse nature of white-collar crimes, it is important to distinguish between those crimes on which there is general agreement—such as fraud and deceit through which others’ property is appropriated—and those crimes whose nature is not clearly defined.

The media has given much attention to computer crimes in relation to employee theft. In the United States, the media widely highlighted the case of three individuals who stole 21.3 million dollars from the computer system of Wells Fargo Bank. The data transmission lines transfer about 400 million dollars daily between banks.

This target is very attractive. Although it is true that computer crimes increase the cost of business (in 1982, 150 million dollars were spent on computer security), the efficiency of private business and the consensus that the protection of business property is not the responsibility of law-enforcing government agencies but a matter of private security have kept this issue within limits.

It is also true that, due to embarrassment after suffering losses, business organizations do not cooperate with the police. They prefer to quietly dismiss their employees and continue revising their internal regulations, believing that further legal proceedings would only intensify the problem. Private institutions have no interest in broader issues. Various forms of employee theft from shops, fraud, and similar acts are largely related to internal controls.

Another category of white-collar crimes relates to tax evasion or concealment, investment fraud, and investments falling into the hands of swindlers. The solution largely depends on the prudent behavior of consumers and investors, who should keep in mind the warning that the buyer must beware and should trust reliable institutions.

Such crimes blur the boundaries between civil and criminal law. In the United States, the Racketeer Influenced and Corrupt Organizations Act (RICO) of 1970 combined civil and criminal laws into a powerful framework, but its enforcement is controversial because, under this law, even law-abiding firms may fall under its scope in minor commercial disputes.

Government Regulations

In the United States, many cases under consideration related to white-collar crimes consist of offenses created by government regulations. Every year, thousands of bills are presented in Congress, out of which about one thousand are passed and become law.

It is not possible to enforce all the regulations contained in official rulebooks. When laws become excessive, their enforcement also becomes difficult, because ignorance of the law itself becomes an effective defense. An interventionist society inevitably becomes dishonest. With the decline of honesty, America is producing a deceitful nation. To call the entire nation deceitful also demeans the very definition of crime.

The Questionable Nature of White-Collar Crimes

In the United States, most business is conducted within the limits of the law. Even so, some people commit serious violations of the law. In 1981, twenty-five of the largest oil companies were fined fifty thousand dollars each. They were either found guilty or did not deny the charges.

Eleven companies were not proven guilty. The highest incidence of crime occurred in oil companies, largely due to faulty government directives. The second most common violations were of anti-trust laws. These crimes were based on questionable and controversial economic theories.

Dishonesty in the private sector is very old. Often, the term white-collar crime is used to divert public attention away from the real issue of crime. It increases the cost of business and leads to a reduction in trade and production. The efficiency of private enterprise generally prevents it from crossing limits.

Many white-collar crimes are artificial because they arise from the expansion of regulatory government. Such laws, which the government itself cannot properly enforce, diminish respect among business people and the public. Tax evasion is also largely a product of such a system, which has hollowed out compliance.

The Problem of Punishment

Strict punishment is necessary for officials who commit such crimes.

An American court sentenced three employees of a silver-cleaning company in a murder case to twenty-five years of imprisonment each and a fine of one thousand dollars each. Their crime was that they employed workers at furnaces emitting deadly cyanide fumes without adopting proper safety measures.

Lawyers may not classify this act as murder because the officials who were punished did not have the intention to kill those workers. However, it is also true that due to their negligence and incompetence, the prescribed safety measures were not adopted.

Compared to other professions, dishonesty is not greater in business, but the desire for higher profits in company performance does exist. In this way, company officials sometimes bend principles in an effort to improve the company’s performance.

Until now, American courts had been treating officials involved in criminal activities with leniency, but now the situation there is changing. For example, three officers of General Electric were sent to jail for fixing false prices. Recently, an industrialist was also imprisoned for selling defective parachute cords to the Department of Defense.

Senior officials of large organizations often try to escape responsibility by claiming that they were unaware of the legal violations committed by their employees, and government prosecutors often do not make much effort to refute such claims.

Sometimes in business organizations, a crime is committed but the person or persons responsible cannot be identified. In such cases, the company is fined. For example, the Semiconductor Corporation of America was fined 1.75 million dollars for selling goods to the military without proper inspection, but no individual employee could be held responsible.

Similarly, four banks in New York were fined for violating currency regulations, while their officers escaped punishment. A third example is that of Bache & Company, one of the major brokerage firms in the United States, which had to pay a fine of two million dollars for defrauding banks, but the court could not hold any individual accountable because responsibility did not clearly reach any particular person at a high level.

For the eradication of white-collar crime, it is necessary that the responsible individuals within organizations be punished so that others may take a lesson. One purpose of punishment is deterrence, so that others do not commit such crimes. In this way, punishment also assists in crime prevention. A company itself cannot be imprisoned; it can only be fined or shut down.

As far as large organizations are concerned, fines do not significantly affect them. Moreover, these fines ultimately come out of the pockets of the consumers who use the company’s products, because such penalties are included in the company’s expenses.

The Department of Defense can declare dishonest contractors ineligible for future tenders. In practice, however, this burden falls mainly on smaller firms that supply goods to such departments. But how can restrictions be imposed on large companies such as General Dynamics in the United States? It is the only organization that supplies Trident submarines, F-16 fighter aircraft, and advanced missiles to the U.S. Department of Defense.

If the elimination of such crimes is desired, the only way is that the individuals within these organizations who commit such offenses should, after legal proceedings and proof of guilt, be sent to jail.

The objection that prisons already lack capacity carries no weight, because capacity can be created and prisons can be expanded.

Until now, judges have generally treated such offenders with leniency. Their argument is that the humiliation of arrest and court proceedings is sufficient punishment for them. They believe that such individuals learn their lesson from this, and therefore sending them to prison is not necessary.

This may be true for some people, but the real purpose of punishment is the prevention of crime and to serve as a lesson for others. This can only be achieved when, like ordinary criminals, they are handcuffed and sent to prison for some time.