Final Exam White Collar Crime Review PDF

Key Areas/Terms: Benefits to the Regulatory System Regulatory Justice System - Regulatory agencies combat institutional wrongdoing. - Regulatory agencies are utilized to deter businesses from committing illegal acts through monitoring/oversight. - The goal is to bring the offe...

Key Areas/Terms: Benefits to the Regulatory System Regulatory Justice System - Regulatory agencies combat institutional wrongdoing. - Regulatory agencies are utilized to deter businesses from committing illegal acts through monitoring/oversight. - The goal is to bring the offender into compliance with the law through persuasion and cooperation. - Regulatory agencies have power and enforcement measures of their own. The 4 Perspectives of The Regulatory System 1. The Justice Model 2. The Rational – Legal Model 3. The Economic Model 4. The Conflict Model Justice Model - Social control of economic institutions. - Tied to Sutherland’s perspective that the white-collar criminal can break the law without fear of a criminal penalty. - Sutherland believed all agencies and law enforcement levels knew how detrimental and damaging white collar crimes were, but that because these offenders possessed desirable traits, they were granted preferential treatment. - Instead of: Criminal courts, accountability, punishment, The justice model asserts the regulatory justice system stresses: ‘inspectors’, administrative courts, compliance. Rational – Legal Model - A response to social problems that are acted upon by legislators. - Diagnosing a problem within the realm of corporate crime and then acting upon it through imploring specific regulatory standards. - Problem-Oriented Policing. - Rationalize the problem, then legally input a government imposed control to improve the condition (in this case, regulation. Conflict Model - Tied to Conflict Theory. - Competitive struggle among people + those who are esteemed in society ‘win’. - Regulatory law is supposed to protect the less powerful (the worker, the public) to improve their safety. - The conflict model suggests that the regulatory body has been manipulated to protect the interests of the business owner and/or the esteemed individual. - Regulatory oversight and ‘violations’. The Economic Model - Economic model adopts a cost-benefit strategy to assess whether the benefits of regulations exceed the costs of administering those regulations (Benson & Simpson, 2024). - Reporting is not clear because it is difficult to monetize or measure social costs or benefits. - Corporations tend to be ‘anti-regulation’ and argue that regulations are inefficient and too costly. - Regulation supporters know that if allowed to ‘de-regulate’, corporations would operate in the interest of profits only (no regard for good of society). Small Business VS Big Business self-reporting Sel-Regulation: Which Businesses Are Prone to Criminal Prosecution? - Law enforcement tend to detect the criminal actions of small companies (Benson & Simpson, 2024); This is thought to be due to self reporting. - When smaller companies come forward with their crimes, there is likely to be a mitigation of punishment as the criminal acts are often less impactful/serious. - When large corporations commit crimes, these tend to be more impactful and will be met with a harsh punishment; this is thought to contribute to the lack of self reporting among large conglomerates (Benson & Simpson, 2024).  Language of the Law - The language of the law states that the purpose of the state is to control, enforce, and exercise the law against individuals. - Corporations do not fit this profile. - The law is most successfully and seamlessly utilized against individual(s). Who investigates white collar crime? - White collar crime is subject to jurisdictional issues - Who is victimized? Where are the individual(s) victimized? - Which companies in what locations are breaking the law? - Investigative Agencies: The FBI, The Inspectors General, U.S. Postal Inspection Service, The Internal Revenue Service Law Enforcment Bodies: White-Collar and Corporate Crime 1. FBI focuses on financial fraud cases; bribery, money laundering, embezzlement etc. 2. The Inspectors General ensures that government agencies are operating legally – will examine any corruption/wrongdoing. 3. U.S. Postal Inspection Service oversees the security of the mailing system. 4. The Internal Revenue Service examines tax related frauds and misrepresentation of finances. Non-Prosecution Agreements & Deferred Prosecution Agreements (Pros & Cons) - An agreement between prosecutors, and corporations who have committed a crime. - Corporations agree to certain conditions of the agreement in exchange for avoiding a criminal charge. - Created in response to Arthur Anderson Effect, Arthur Anderson given a ‘death sentence’ because of criminal charges/conviction. Pros 1. If companies are charged criminally, they may not recover which results in job losses of innocent employees. 2. Large multi-national companies involved in criminal enterprise could result in tens of thousands of job losses. 3. In some cases, the health of an entire industry is at stake. 4. The health of the financial markets may be at risk Cons 1. Most of the agreements do not demand any consequential reforms by the corporation. 2. More corporate crimes are being handled through N/DPA’s. This is causing a controversy over quantity and quality of punishment. 3. Agreements are privately negotiated, with little if any, judicial scrutiny; prosecutors may hold too much power. Pros, cons, strengths, weaknesses of civil/criminal/regulatory justice system Civil - Civil law gives way to easier prosecutions of white-collar crime. - Lower standard of evidence/proof that is needed to prosecute and obtain a win in civil court. - Punishments in civil courts are monetary damages and fines to the defendant - NOT imprisonment. - Criminal vs Civil court standards, rules, decorum differ. - In civil court proceedings, the plaintiffs’ representatives have certain powers that would not be allowed in a criminal trial; lower burden of proof, use of evidence, mandatory broadening discovery (access to documents, records etc.) - Civil trials are often shorter in length as the defendant is more likely to offer settlement due to double or ‘treble’ damage awards and increased legal costs. - Corporations can be sued by victims and sanctioned by the government! - Civil trials are easier to win and find a resolution to when there is a direct relationship between the plaintiff and the defendant. - A lone, white-collar criminal is easier to prosecute and convict. - Professionals or those in occupations who commit frauds are relatively easy for victims to identify once they realize they have been victimized. - Mechanics, doctors, stockbroker etc. Criminal -Regulatory agencies combat institutional wrongdoing. Regulatory -Regulatory agencies are utilized to deter businesses from committing illegal acts through monitoring/oversight. - The goal is to bring the offender into compliance with the law through persuasion and cooperation. - Regulatory agencies have power and enforcement measures of their own. 3 Core Practices of Regulatory Justice System 1. Proactive nature: prevent, not react. 2. Specialized expertise: certain specializations regulate certain areas of the corporate and white-collar realm. 3. Fewer legal constraints: regulatory agents do not experience the same legal constrains as conventional law enforcement officers. Regulations and restricting ‘legitimate access’ Laws and Regulations + Tools − Laws and regulations are tools that are used to eliminate, reduce or deter white- collar offenders by removing or reducing the opportunities available to them. − Regulations are meant to restrict ‘legitimate access’ to those professionals who have qualified for, and earned degrees, certificates, professional designations, etc. − Legitimate businesses and corporations are required to register and obtain business license. Development of the SOX Act − Self-Regulatory bodies for Accountants and Auditors. − The Sarbanes-Oxley (SOX) Act of 2002 came in response to highly publicized corporate financial scandals earlier that decade. The act created strict new rules for accountants, auditors, and corporate officers and imposed more stringent recordkeeping requirements − Sarbanes-Oxley (SOX) Act: Enacted in order to better regulate the accounting profession in the U.S. after Enron debacle. − Canada followed suit with (C-SOX). Increased transparency in fiscal reporting for publicly traded companies. − Involves demonstrating a strong commitment to a thorough audit and meticulous documentation of internal controls. − Accountants that perform consulting services to a company are no longer able to also act as their Auditor. Extralegal Remedies; Crime, Shame, Reintegration & Ethics Programs − John Braithwaite (1989) argues that crime control is based on society’s willfulness to communicate the wrongfulness of behaviors to others; shame and reintegrate. − Preventing victimization and educating people to protect themselves. − Social networks can be effective in condemning, shaming and reintegrating the offender. − Does the business world adhere to shaming individuals? − A main issue in business related violations is that they are not deemed illegal in all cases; defined as immoral or aggressive business practice. − Business schools are more often incorporating Ethics Training programs for students to curve the potential of justifying violations and crimes as normal business practice. − Alternatives to legal controls such as social circles are the foundation for promoting pro social behavior according to Braithwaite (1989). − How serious are businesses about ethics programs? Is the commitment behind these programs in effort to earn positive public opinion? − Having ethics codes can minimize a company’s legal exposure in the event of unethical actions by its employees. − Companies who systematically and deliberately conform to the rule of law and behave morally in its business dealings translate to employees and reduce the motivation to commit crime. − Prosocial organizational environment itself can effectively shame offenders. − However, public relations departments go to work to repair damages to reputation and deflect blame; training programs help this case.  SCPT & Opportunity Structure Modifications for prevention of WCC − Situational Crime Prevention Theory takes all tools, such as criminal justice system, regulatory system, civil law, professional associations, etc., and uses them in different combinations to prevent white-collar crime. − According to SCPT, potential offenders assess criminal opportunity in five ways: 1. The effort required to carry out the offense 2. The risk of detections associated with committing the offense 3. The rewards to be gained in the offense 4. Situational conditions that may encourage criminal actions 5. Excuses offenders can use to justify their actions − Opportunity structures are ‘fixed’ and ‘in place’. − Conventional Crime: Unoccupied home > Nighttime > Absent alarm system > Opportunity for perpetrator to commit a burglary. − Intersection of 2 processes creates opportunity in the business world for white collar crime: 1. A legitimate process is typically followed as per routine 2. An illegitimate process that is exploitative of the first process − LIBOR Scandal − Medicare/Medicaid insurance submissions. − To prevent crime, SCPT recommends that opportunity structures need to be modified so that it: 1. Requires more effort to commit the offense 2. Raises the risk of detection for committing the offense 3. Reduces the rewards associated with the offense 4. Reduces any situational provocations for the offense 5. Makes it more difficult to justify or excuse the offense Short Answer Questions: (3 of these will be on the Final Exam): 1. Please list and briefly explain the main reasons why conventional, front line law enforcement do not investigate complex white-collar crimes. Here are the main reasons why conventional, front-line law enforcement typically does not investigate complex white-collar crimes: 1. Focus on Conventional Crimes Conventional crimes, such as theft, assault, or vandalism, are generally simpler to investigate and solve. Evidence like surveillance footage, eyewitness testimony, and physical injuries makes these cases straightforward compared to the complexities of white-collar crimes. 2. Difficulty Detecting White-Collar Crimes White-collar crimes often lack clear evidence of wrongdoing. For example, fraudulent insurance bills or financial records appear legitimate on the surface, making detection challenging without specialized knowledge or tools. 3. Challenges in Proving Intent Intent is central to proving guilt in white-collar crimes. Defendants can claim errors or honest mistakes, making it hard to establish deliberate fraud or criminal intent, such as in cases of healthcare fraud.  4. Unclear Accountability Determining who is responsible within a corporate structure is complex. Is the blame on executives, managers, or front-line workers? This ambiguity leads to corporate liability taking precedence over individual accountability, which complicates prosecution. 5. Legal System Limitations Laws are primarily designed to address individual wrongdoers rather than corporate entities. Corporations, as non- human entities, do not fit the typical framework of criminal prosecution, making the enforcement of accountability through the legal system more difficult. 6. Resource and Expertise Gaps Investigating white-collar crimes requires specialized training, tools, and resources that many front-line law enforcement agencies lack. This makes such cases better suited for dedicated financial crime units or regulatory bodies. In summary, the inherent complexity, lack of clear evidence, challenges in proving intent, and systemic focus on individuals over corporate entities make white-collar crimes difficult for conventional law enforcement to address effectively. 2. Please list the main arguments in FAVOR and AGAINST Non-Prosecution Agreements & Deferred Prosecution Agreements.  Arguments in Favor and Against Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) have become prominent tools in addressing corporate crimes. These agreements allow corporations to avoid criminal prosecution in exchange for fulfilling certain conditions, such as paying fines or cooperating with investigations. While they offer practical benefits, their use is not without significant criticism. Arguments in Favor of NPAs and DPAs 1. Prevention of Job Losses a. Charging a company criminally can lead to severe financial consequences, including bankruptcy or closure. This, in turn, can result in the loss of jobs for innocent employees who were not involved in the corporate wrongdoing. 2. Mitigation of Industry-Wide Impact a. Large multinational corporations play critical roles in their respective industries. Criminal prosecution against one such company could destabilize the entire industry, leading to a ripple effect that harms suppliers, customers, and employees across the sector. 3. Protection of Financial Markets a. Corporate criminal prosecutions, particularly against financial institutions, can have far-reaching implications for the stability of financial markets. By utilizing NPAs or DPAs, regulators and prosecutors can ensure accountability without risking systemic economic damage. 4. Flexibility and Cooperation a. These agreements encourage corporations to cooperate with authorities in uncovering misconduct. This cooperation can lead to quicker resolution of cases and the identification of other potential wrongdoers within the organization or industry. Arguments Against NPAs and DPAs 1. Lack of Consequential Reforms a. Many agreements fail to demand substantial reforms from corporations. Without structural changes to prevent future wrongdoing, NPAs and DPAs may amount to little more than financial penalties that do not address the root causes of misconduct. 2. Controversy Over Punishment a. As more corporate crimes are resolved through NPAs and DPAs, critics argue that these agreements diminish the quality of justice. They may create the perception that corporations can buy their way out of criminal accountability, undermining public trust in the legal system. 3. Limited Judicial Oversight a. These agreements are often privately negotiated between corporations and prosecutors, with minimal judicial scrutiny. This lack of transparency raises concerns about whether the terms are fair, consistent, and adequate to deter future misconduct. Prosecutors may wield excessive power in these negotiations, leading to uneven application of justice. Conclusion NPAs and DPAs represent a double-edged sword in addressing corporate crime. While they provide practical benefits such as preserving jobs, protecting industries, and stabilizing financial markets, they also raise concerns about fairness, accountability, and the adequacy of punishment. To ensure these agreements strike a proper balance, greater judicial oversight and requirements for meaningful corporate reforms could help address their current shortcomings. 3. Please describe what the regulatory system is and its purpose in investigating white collar/corporate entities. (You may also include some benefit to the regulatory agency).  The Regulatory System and Its Role in Investigating White-Collar/Corporate Entities The regulatory system refers to a framework of government agencies, laws, and policies designed to oversee and enforce compliance with rules in various industries. Its primary goal is to protect public interests by ensuring that corporations and individuals operate ethically, fairly, and within the boundaries of the law. This system plays a critical role in investigating and addressing white-collar and corporate crimes, which are often complex, hidden, and involve significant societal impacts. Purpose of the Regulatory System 1. Ensuring Legal Compliance a. Regulatory agencies monitor corporate activities to ensure adherence to laws governing finance, labor, the environment, healthcare, and more. This oversight helps prevent fraudulent or unethical practices that could harm consumers, employees, and stakeholders. 2. Detecting and Investigating Violations a. Unlike front-line law enforcement, regulatory bodies possess specialized expertise and tools tailored to uncover complex violations. For example, agencies like the Securities and Exchange Commission (SEC) investigate securities fraud, while the Environmental Protection Agency (EPA) focuses on environmental violations. 3. Protecting Public Welfare a. By holding corporations accountable, the regulatory system safeguards public health, safety, and economic stability. For example, financial regulators help prevent corporate misconduct that could destabilize markets or harm investors. 4. Promoting Ethical Corporate Behavior a. Regulatory oversight acts as a deterrent to corporate misconduct by imposing fines, sanctions, or reputational damage on non-compliant entities. This promotes a culture of accountability and ethical behavior within industries. Benefits to Regulatory Agencies 1. Improved Industry Expertise a. Through investigations, regulatory agencies gain deeper insights into industry practices, helping them refine their policies and enhance oversight mechanisms. 2. Strengthening Public Trust a. Effective enforcement of regulations bolsters public confidence in the government’s ability to protect its citizens from corporate abuse or negligence. 3. Revenue Generation a. Fines and penalties imposed on corporations for regulatory violations often serve as a source of revenue for agencies, funding future investigations and regulatory improvements. Conclusion The regulatory system serves as a critical mechanism for addressing white-collar and corporate crimes. By ensuring compliance, detecting violations, and safeguarding public welfare, it complements the broader legal system in maintaining fairness and accountability in corporate practices. At the same time, the system's benefits, including enhanced expertise and public trust, further its capacity to meet its objectives. 4. Please explain how Enron and Arthur Andersen LLP led to the development of the SOX Act; why is this act impactful in preventing white collar crime? Enron, Arthur Andersen LLP, and the Development of the Sarbanes-Oxley Act The Sarbanes-Oxley Act of 2002 (SOX) emerged as a direct response to one of the most notorious corporate scandals in U.S. history involving Enron Corporation and its auditor, Arthur Andersen LLP. These entities engaged in fraudulent accounting practices that resulted in catastrophic financial losses for investors, employees, and the broader economy. The scandal exposed significant gaps in corporate governance, auditing standards, and regulatory oversight, which the SOX Act sought to address. The Enron Scandal 1. Accounting Fraud: a. Enron manipulated its financial statements using complex accounting techniques, such as off-balance- sheet entities, to hide debts and inflate profits. These practices misled investors and analysts about the company’s true financial health. 2. Collapse: a. When Enron’s fraudulent practices were uncovered in late 2001, the company filed for bankruptcy, erasing billions of dollars in shareholder value and devastating employees’ retirement funds. Arthur Andersen LLP’s Role 1. Auditing Misconduct: a. Arthur Andersen, one of the largest accounting firms globally at the time, served as Enron’s auditor. The firm not only failed to detect the fraud but also actively participated in destroying audit documents to obstruct investigations. 2. Loss of Trust: a. The firm’s involvement revealed serious conflicts of interest and deficiencies in the independence and accountability of external auditors. Development of the Sarbanes-Oxley Act In the wake of the Enron and Arthur Andersen scandals, public outrage prompted swift legislative action. The SOX Act, signed into law in 2002, introduced sweeping reforms to corporate governance, financial reporting, and auditing standards to restore trust in the financial system. Why the SOX Act is Impactful in Preventing White-Collar Crime 1. Enhanced Corporate Accountability a. The SOX Act requires CEOs and CFOs to personally certify the accuracy of financial statements. This makes executives directly accountable for any misrepresentation, deterring fraudulent practices. 2. Strengthened Oversight of Auditors a. The Act established the Public Company Accounting Oversight Board (PCAOB) to regulate and oversee auditing firms, ensuring their independence and adherence to rigorous standards. 3. Increased Transparency in Financial Reporting a. SOX mandates stricter internal controls and disclosures, such as Section 404, which requires companies to regularly assess and report on the effectiveness of their internal controls over financial reporting. 4. Severe Penalties for Non-Compliance a. The Act imposes harsh penalties for white-collar crimes, including significant fines and prison sentences for executives involved in fraudulent activities. 5. Protection for Whistleblowers a. SOX includes provisions to protect whistleblowers, encouraging employees to report fraudulent activities without fear of retaliation. Conclusion  The Enron and Arthur Andersen scandals highlighted critical vulnerabilities in corporate governance and auditing, which the SOX Act effectively addressed. By increasing transparency, accountability, and regulatory oversight, the Act has become a cornerstone in preventing white-collar crime, fostering investor confidence, and promoting ethical corporate behavior. While it imposes compliance costs, its impact in deterring fraud and restoring trust in financial systems is widely regarded as transformative. 5. How does Situational Crime Prevention Theory propose we modify opportunities to commit a criminal offense? (5 ways) Situational Crime Prevention Theory and Modifying Opportunities for Criminal Offenses Situational Crime Prevention Theory (SCPT) focuses on reducing opportunities for crime by altering the environments and conditions that facilitate offending. It does so by using a wide range of tools, including the criminal justice system, regulatory frameworks, civil law, and professional standards, in strategic combinations. SCPT specifically targets the decision-making processes of potential offenders by addressing how they evaluate criminal opportunities. Five Ways to Modify Opportunities 1. Increase the Effort Required to Commit the Offense a. By making it more difficult for offenders to carry out their crimes, SCPT reduces the likelihood of offenses occurring. Examples include strengthening internal controls, implementing security systems, requiring dual authorizations for transactions, and mandating transparency in financial operations. 2. Increase the Risk of Detection a. SCPT emphasizes enhancing the likelihood that offenders will be caught. Strategies include rigorous audits, regulatory oversight, whistleblower programs, and increased surveillance. Visible monitoring systems and unpredictable checks also act as strong deterrents. 3. Reduce the Rewards of the Offense a. Reducing the benefits of crime discourages offenders. This can involve seizing assets gained through fraud, introducing clawback clauses for executive bonuses tied to misrepresented earnings, or limiting access to financial incentives that could encourage wrongdoing. 4. Reduce Situational Conditions that Encourage Offending a. Situations that foster criminal behavior, such as a lack of oversight, weak regulations, or high-pressure environments focused on performance at any cost, are mitigated by improving organizational culture, enforcing strict ethical guidelines, and fostering environments where compliance is prioritized. 5. Eliminate Excuses for Justifying Actions a. SCPT addresses rationalizations used by offenders to justify their crimes, such as “Everyone else is doing it” or “It’s just a minor offense.” By establishing clear ethical standards, increasing awareness of consequences, and promoting a zero-tolerance approach to misconduct, organizations can reduce the excuses available to offenders. Conclusion By targeting these five factors, Situational Crime Prevention Theory effectively modifies the opportunities for criminal offenses, particularly white-collar crime. Through a combination of regulatory measures, organizational reforms, and enhanced oversight, SCPT shifts the cost-benefit analysis for potential offenders, making criminal actions less appealing and less feasible.