Chapter 17 Corporate and White-Collar Crime PDF

Chapter 17 Corporate and White- Collar Crime by John Hagan Northwestern University...

Chapter 17 Corporate and White- Collar Crime by John Hagan Northwestern University Rick Linden University of Manitoba Slides prepared by Stephen Schneider Saint Mary’s University Copyright © 2020 by Top Hat 17-1 Learning Objectives Describe the concept of WCC and explain its impact on the discipline of criminology. Understand the occupational and organizational components of WCC. Explain the physical and social harm caused by WCC in Canada. Analyze how the structure of the modern corporation facilitates criminal activity. Understand the nature and extent of occupational crime. Understand the causes and consequences of our weak laws concerning corporate and WCC. Copyright © 2020 by Top Hat 17-2 Introduction White-collar crime (WCC) and corporate crime are much more costly in dollar terms than street crime. They are also dangerous. Many occupational deaths and injuries are the result of unsafe and illegal working conditions. The concept of WCC has led criminologists to reconsider some very basic assumptions. No longer can we assume that the poor are necessarily more criminal than the rich. Copyright © 2020 by Top Hat 17-3  The Extent and Nature of Corporate and White-Collar Crime Copyright © 2020 by Top Hat 17-4 The Nature of Corporate and WC Crime A range of Crimes against the public Corporate and business crime (Price offences are fixing, tax fraud) committed Crimes by individual and by professional practitioners (immoral practices in relation with patients, corporations unprofessional products) and by Crimes within organizations Offences against the individuals as organization(theft and fraud by part of their employees) legitimate Offences against employees (harassment, violation of labour laws) occupations Copyright © 2020 by Top Hat 17-5 Class, Crime, and Corporations Copyright © 2020 by Top Hat 17-6 Occupation, Organization and Crime WCCs are often committed through and on behalf of corporations. Corporate involvement in crime has been recognized for over 100 years. In 1940, Sutherland coined the term white-collar crime. It was defined as “as a crime committed by a person of respectability and high social status in the course of his occupation.” Copyright © 2020 by Top Hat 17-7 Occupation, Organization and Crime Organizational Occupational crime crime (corporate crime) Crimes committed with WCC committed by the support and an individual or encouragement of a group of formal organization individuals and intended in part to exclusively for advance the goals of personal gain that organization Copyright © 2020 by Top Hat 17-8 Occupation, Organization, and Crime Locating white-collar offenders in authority positions in occupational and organizational structures is a key part of the class analysis of WCC. Sutherland’s work Emphasized the role of class position in any understanding of WCC, and Posited that if the acts are socially injurious (regardless if they are prosecuted as criminal or regulatory infractions), they should be defined as crime. Copyright © 2020 by Top Hat 17-9 Occupation, Organization, and Crime Workplace accidents and occupational deaths are often the result of employer carelessness or unsafe conditions, but penalties are very light. Swartz (1978): deaths of employees due to corporate negligence are deemed “corporate homicide.” However, corporate executives are rarely held personally responsible for their negligence. At most, their companies are ordered to pay small fines. Copyright © 2020 by Top Hat 17-10 Social Class and Crime Social class and WCC are positively correlated. (means that individuals from higher social classes are more likely to commit white-collar crimes (WCC), and the likelihood increases as one’s social class rises) Shover & Hochstetler (2006): there are three components of middle-/upper-class lifestyle that contribute to criminal behaviour: 1. Competitive spirit (winning is the only thing) 2. Arrogance (the rules don’t apply to them) 3. A sense of entitlement (they deserve what they stole) Copyright © 2020 by Top Hat 17-11  White-Collar Crime and the Social Organization of Work Why is WCC positively correlated to class position? Ownership and authority positions within a corporation provide power and freedom from control that may be criminogenic. In other words, powerful people have the power to be free from the kinds of constraints that may normally inhibit crime. Copyright © 2020 by Top Hat 17-12  Crime and the Corporation: Executive Disengagement For white-collar criminals, the corporation is a tool for obtaining money from victims, just like the gun is the tool for the street criminal. The law treats corporations as a juristic person means that corporations are liable to the same laws as natural persons. Some of the obvious faults in this legal analogy become clear when we consider that it is impossible to imprison a corporation. Corporate power remains unchecked and thus is criminogenic(when large corporations have significant power and influence without sufficient oversight or regulation, they are more likely to engage in or promote criminal behavior) There is no "corporate conscience“. When people work within an organization, personal moral restraints may weaken, and it's difficult to pinpoint a shared moral responsibility within the organization as a whole. Copyright © 2020 by Top Hat 17-13 Crime and the Corporation: Executive Disengagement “It is difficult for the boards of directors that are responsible for corporate governance to know the details of their corporation’s daily operations” Top officers and directors can be sued by the corporation itself (through a shareholders’ action) if they allow a law violation to occur through negligence. Executive disengagement: “the courts have not imposed a duty on directors to uncover corporate wrongdoing. This provides an incentive for senior managers and directors to remain uninformed about illegal activities.” Copyright © 2020 by Top Hat 17-14 The Criminogenic Market Structure A criminogenic economic market is structured in such a way that it tends to produce criminal behaviour. This competitive market pressures companies, managers, and employees to break the law. For example: one crime-generating feature of the retail automotive industry is the domination by a relatively small number of manufacturers who insist that their dealers sell in high volume at a small per-unit profit. Copyright © 2020 by Top Hat 17-15 The Large Scale of Corporations “world of the modern corporation, the social organization of work itself is criminogenic.” Access to corporate resources makes it possible to commit very large-scale crimes. Access to these corporate resources is a unique advantage of class positions involving ownership and authority in business organizations The corporate form can be used to commit bigger crimes than can be achieved by individuals acting alone. “power imbalance in which individuals at the top experience relative freedom, while those at the bottom often experience pressure applied from the top that encourages various kinds of white-collar crime” Copyright © 2020 by Top Hat 17-16 Corporate Accounting Scandals How corporate executives are paid Executives’ compensation in stock options is an incentive to cheat in the short run to push up stock prices. ( Many companies offer stock options to senior executives, allowing them to buy shares at a fixed price in the future. If the stock price increases, they can profit by purchasing at the lower price and selling at the higher value. If the stock price decreases, they don't use the option and avoid losses. The goal of stock options is to motivate executives to improve the company’s value, benefiting shareholders.) Huge compensation packages are paid to some CEOs. Copyright © 2020 by Top Hat 17-17 Consumer Safety Issues The consumer movement was established in 1960s. It was prompted by Nader’s investigation into deaths and injuries caused by faulty car designs. (Nader’s book Unsafe at Any Speed, which described the deaths and injuries caused by the faulty design of the GM Corvair automobile, helped focus public attention on consumer safety.) This led to tougher government safety regulations. However, product safety problems and corporate negligence still cause consumer injury and death. Copyright © 2020 by Top Hat 17-18 Consumer Safety Issues Current consumer safety issues related to Chinese products are part of a criminogenic global market structure. Large companies buy from China because of low cost. Low cost is due to low wages and absence of workplace regulations, which results in little quality control. Copyright © 2020 by Top Hat 17-19 White-Collar Crime and Legal Sanctions Copyright © 2020 by Top Hat 17-20 White-Collar Crime and Legal Sanctions How effective are legal sanctions are in combating WCC? WCC is often dealt with through the civil courts (not criminal courts). However, this may have limited impact. Stone (1975): The people who call the shots do not have to bear the risks or pay for any settlements. (the decision-makers in corporations (e.g., top executives) typically do not personally face the risks or pay the settlements, which means that companies are able to take higher risks without facing personal accountability.) This is a consequence of the limited liabilities carry by modern corporate actors in civil suits. Therefore, legal sanctions through civil courts may not be sufficient in deterring WCC because the corporate actors responsible for the crimes are not directly impacted by the consequences. Thus, corporations take higher risks than suggested by the “rational economic corporation/free market” model. (This limited liability encourages risky behavior that might not align with the “rational economic corporation/free market” model, where businesses would theoretically avoid such risks to protect their profits. ) Copyright © 2020 by Top Hat 17-21 White-Collar Crime and Legal Sanctions What about the impact of criminal sanctions? Historically, sentencing of white collar criminals has been lenient. White-collar offenders experience sanctions differently Loss of job, licence, or status is enough punishment. Judges are aware of deterrence, disparity, and discrimination in the sentencing of white-collar offenders. As a consequence, they try to pass sentences that combine different sanctions (fine, prison, probation). However, research shows WCC offenders are advantaged by the types and combinations of legal sanctions imposed on them. Copyright © 2020 by Top Hat 17-22 White-Collar Crime and Legal Sanctions Since 1970s, tougher sanctions have been applied. However, there is no convincing evidence that white collar offenders are now treated more harshly, especially in Canada. Why does the justice system not deal with WCCs more effectively? The public is more concerned about street and violent crime. WCC is complex and costly to prosecute. WCC crime may be multi-jurisdictional. WCC criminals are non-violent and are often paroled to the community quickly. Copyright © 2020 by Top Hat 17-23 White-Collar Crime and Legal Sanctions 2004: Canada passed laws to make it easier to prosecute fraud-related offences. The IMETs was also created, to investigate stock fraud. However, the conviction record has been abysmal (very bad). This is due to the following: Large corporations can hire the best experts and lawyers. The IMETs (Integrated Market Enforcement Teams)are limited to large, complex cases. Corporations use delaying and obstructing methods. Governments are reluctant to impose tough sanctions on big businesses because of the negative impact on jobs and the economy. Copyright © 2020 by Top Hat 17-24 Occupational Crime Copyright © 2020 by Top Hat 17-25 Occupational Crime (crimes committed by individuals who violate the law in the course of practicing a legitimate occupation) Violations are committed during At the heart of the course of occupational crime practicing a is the violation of legitimate trust. occupation. Copyright © 2020 by Top Hat 17-26 Unprofessional Conduct and Malpractice “Malpractice and unprofessional conduct among groups such as lawyers and doctors They are often hidden from public because such cases are dealt with privately by governing bodies. Sometimes professional regulatory bodies fail to do their job. “Cases of sexual abuse by clergy and malpractice by doctors illustrate how the failure of governing bodies to respond to complaints against members of their professions has led to greater harm being done.” Copyright © 2020 by Top Hat 17-27 Unprofessional Conduct and Malpractice Medical doctors have been accused of many types of violations. These violations include false billing, sexual misconduct, and malpractice. The failure by professional licensing and regulatory bodies to hold members accountable has seriously harmed clients and patients. Professional licensing bodies often fail to screen for competence and are reluctant to bar individuals. Copyright © 2020 by Top Hat 17-28 Investment and Securities Fraud Ponzi Investors are promised schemes or substantial returns but existing investors are paid off with money Pyramid from new victims. Schemes Insider trading is illegal trading by Insider people with knowledge that gives trading them an advantage over other investors. Stock prices are artificially Pump & inflated (through misinformation) dump and then shares are sold for a profit. Copyright © 2020 by Top Hat 17-29 The Justice System: Wrongful Convictions People who work in the justice system sometimes break the rules or exhibit incompetence. One consequence is the imprisonment of innocent people. 1. In some cases, justice officials had “tunnel vision,” (“that is, they focused on only one suspect and thus failed to properly investigate the crime or to adequately assess evidence that might have cleared the suspect during the investigation or at trial.”) 2. In other cases, exculpatory evidence (freed from blame) was deliberately withheld to help convict the accused. Copyright © 2020 by Top Hat 17-30 Tax Fraud Not all people report their income honestly. In some occupations, non-compliance is as high as 90%. Trillions are hidden in tax-haven countries by corporations and wealthy individuals. Many people work at jobs that enable them to hide income Tax fraud can involve exaggerating income tax deductions, such as donating to fake charities. Over 200,000 Canadians had their claims for charitable deductions rejected by the CRA, with about $7 billion in false claims. The donated money rarely reached those in need. Copyright © 2020 by Top Hat 17-31 Political Corruption Foreign examples: Repression of human rights by dictatorial governments Post-9/11 abuse of civil rights by United States government Copyright © 2020 by Top Hat 17-32 Blue-Collar Crime Blue-collar crime is also called “occupational crime.” Tradespeople (such as plumbers, electricians, or construction workers) avoid sales tax (defraud the government) by doing work “off the books.” Some blue-collar businesses have very bad records of consumer fraud. Studies have documented an appalling degree of misconduct in the auto repair business. Such as performing unnecessary repairs Copyright © 2020 by Top Hat 17-33 Employee Fraud Employee fraud encompasses crimes committed against employers by employees, such as Taking kickbacks from suppliers Creating phony invoices Stealing company property and cash Losses from internal theft total almost as much as losses from shoplifting. Copyright © 2020 by Top Hat 17-34 Summary The study of WCC shows the relationship between class and crime is more complicated than early criminologists believed. Theories of crime must account for the crimes of the privileged as well as for the crimes of the poor. Even when reported to the authorities, WCCs are often not reported in official crime statistics. This is because they are dealt with under quasi- criminal statutes. Corporations are instruments that enable people to commit crimes that are vast in scope. The financial and physical costs of corporate crimes are high. Copyright © 2020 by Top Hat 17-35 Summary The structure of modern corporations provides managers with freedom from control. This has the unintended consequence of encouraging crime. In some industries, executives demand unreasonably high levels of profit, and consequently, their subordinates feel pressured to break the law. Corporations are subject to legal regulation, but the laws that govern them are weak. Even when punishment is administered, it is so light it is regarded as an accepted cost of doing business. Copyright © 2020 by Top Hat 17-36 Summary There is some evidence that penalties for white-collar offenders are increasing in the United States. However, this does not appear to be the case in Canada. One of the major contributors to occupational crime is the failure of professional organizations to control the behaviour of their members. Another is the fact that many people do not strongly condemn crimes such as tax fraud. Copyright © 2020 by Top Hat 17-37