What is a “White-collar Crime”?
White-collar crime characterizes crimes by criminals of high socioeconomic status or individuals who hold high-ranking, professional positions, such as corporate executives. More broadly, it includes any offense that occurs in a business or professional setting. These crimes can either be for personal gain or with the purpose of harming or benefiting the business.
• Note: Unlike individuals, corporations cannot be put into jail. Corporations can, however, be fined and face other criminal penalties, such as involuntary dissolution.
• Example: White-collar crimes includes: embezzling money, making electronic advances to fictitious employee, and accepting kickbacks from suppliers.
• Discussion: Do you feel like white-collar crimes are punished as regularly or severely as non-white-collar crimes? How do you feel about the inability to incarcerate a business entity, when these entities receive many of the same rights and procedural protections of human beings?
• Practice Question: Gina is the Chief Financial Officer of ABC, Inc. In her role, she approves all major expenditures of corporate funds. She authorizes the use of corporate funds to pay for her vacation to the Bahamas with her family. She uses the funds for travel, lodging, gambling, and dining. She is able to conceal the expenditures by acting as disbursing and approval authority. Do Gina’s actions constitute white-collar crime?
What are crimes directed at conduct endangering workers?
In some instances, a corporate official may be charged with a crime for conduct committed in furtherance of her job duties. Particularly, conduct by business officials that endanger workers may be criminal in nature.
• Note: The Occupational Safety and Health Administration (OSHA) or equivalent state agencies may investigate businesses for violation of health and safety standards. If an agency uncovers potentially criminal conduct, it can turn the investigation over to state or federal authorities for investigation and potential prosecution.
• Example: Examples of such criminal actions include when a business official: commits an assault and battery of an employee or makes decisions that recklessly endanger or company workers. If a company official orders extremely dangerous process, such as handling dangerous chemicals, or fails to institute adequate safety precautions, she may face criminal liability if a worker is injured or killed.
• Discussion: If you have read the famous book by Upton Sinclair, “The Jungle”, you are aware of the harsh working conditions that workers in the United States faced at the turn of the 20th Century. Do you think that criminalizing decision making by corporate executives helped to curve these harsh employer practices? Do you think the criminal penalties against businesses are sufficient to deter these practices?
• Practice Question: Earl is a movie director. He is known for the action sequences in his documentary films. He hires, Faith, a recent film graduate to work on his movie set. As part of a film, Earl wants to film a chase sequence on a railroad track. Earl mounts a camera on the bumper of a vehicle and instructs faith to maneuver it during the action scene. During the scene, Faith is bounced from the vehicle and severely injured. Has Earl committed a crime against faith.
What is bribery and other illegal payments (kickbacks)?
Offering, receiving, or soliciting something of value for the purpose of influencing the action of an official in the discharge of her public or legal duties is illegal in both the domestic and international contexts. Under federal law, this sort of activity is prohibited by the Foreign Corrupt Practices Act, which specifically serves to prevent kickbacks to facilitate business transactions.
• Note: There is an exception under the FCPA that allows payment to individuals to undertake their procedural or routine tasks when such payments are customary in a country.
• Discussion: Do you think businesses should be prevented from paying government officials for official action that helps or favors the business? Should these prohibitions apply outside of the United States as well? Does it change your opinion if the act of paying officials in a particular foreign country is so common that it is expected? Should there be an exception when bidding for contracts against foreign companies that are openly paying officials?
• Practice Question: Sean owns a company and seeks to sell goods to the Brazilian government, specifically the development department. Sean knows that the Brazilian market is difficult to break into for foreigners. Sean, with the purpose of improving his chances of winning the contract, buys very lavish gifts and has them delivered to the home of the director of the development department. Has Sean committed a crime?
What is the “Racketeer Influenced and Corrupt Organizations Act” (RICO)?
This law imposes criminal and civil liability upon those businesspersons who engage in certain prohibited activities that directly affect interstate commerce. The law is commonly used to impose criminal sanctions and forfeiture of resources used in furtherance of the criminal enterprise. Elements of a RICO action include:
• Involvement in an Enterprise – This may include using or investing income from prohibited activities to acquire an interest in or to operate an enterprise; acquiring or maintaining an interest in or control of an enterprise; or conducting or participating in the conduct of an enterprise while being employed by or associated with it.
• Pattern of Racketeering – Racketeering is defined as “any act or threat” involving a specified state crime or any “act” subject to indictment under various federal statutes. There must be some pattern of or recurring activity constituting racketeering.
The law makes it unlawful for any person employed by or associated with any enterprise to conduct or participate in a violation of the law. The law foresees two separate entities — person and the enterprise. Generally, employment alone is insufficient to hold someone liable under RICO.
• Discussion: Do you think this statute goes to far by allowing the government to charge individuals who are not directly involved in the criminal activity? Is the ability to reach those facilitating a criminal activity (and their assets) necessary to the administration of justice?
• Practice Question: Gloria makes a living by illegally importing cocaine into Florida from Colombia, SA. She does not have any hands on the process. Rather, she hires every part of the activity. Once the drugs arrive, she hires Terry to pack them in the trunk of a car and sends them to a distributor in New York. She hires Robert to drive the vehicle carrying the drugs. On the way, Robert is stopped and arrested by North Carolina police officers. The Federal Bureau of Investigation gets involved and traces the scheme back to Gloria. How can the FBI potentially charge Gloria for her involvement in drug trafficking?
What is the “False Claims Act”?
The False Claims Act (FCA) is a federal law that provides criminal and civil sanctions for those who commit fraud against the US Government. It is well known for authorizing a special type of civil action, “Qui Tam” or “Whistleblowing”, which allows a civil plaintiff to bring an action against a company on behalf of the Federal Government. The criminal and civil provisions of the FCA prohibit the following conduct:
• Knowingly presenting, or causing to be presented a false claim for payment or approval;
• Knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim;
• Conspiring to commit any violation of the False Claims Act;
• Falsely certifying the type or amount of property to be used by the Government;
• Certifying receipt of property on a document without completely knowing that the information is true;
• Knowingly buying Government property from an unauthorized officer of the Government, and;
• Knowingly making, using, or causing to be made or used a false record to avoid, or decrease an obligation to pay or transmit property to the Government; and
• Retaliation based upon reporting any of the above infractions.
The unique aspect of the FCA is that it allows individuals reporting criminal fraud against the government and those bringing Qui Tam actions to receive a portion of the proceeds recovered by the government.
• Discussion: What do you think is the justification for allowing civilians to bring an action on behalf of the government? What do you think about awarding a whistleblowing civilian a portion of the civil damages recovered against a company? What is the reasoning behind allowing these types of actions?
• Practice Question: Ron works in the manufacturing services unit for ABC, Inc. ABC has a large contract with the Federal Government to manufacture steel storage containers. The contract allows ABC to charge the government for all materials used in manufacturing and for the labor costs. Ron noticed that ABC was routinely ordering shipments of steel fittings at $25,000 each as part of the materials order for the government contract. In reality, ABC was only using a small portion of the fittings on the contract, and was selling the remaining units to third parties. Ron decides to inform the government that it is being routinely over charged by ABC. Has ABC committed a crime? What rights and protections does Ron have in reporting ABC’s conduct?
What is the “Sarbanes-Oxley Act”?
The Sarbanes-Oxley Act (SOX) is a set of federal laws addressing criminal and unethical conduct of public company boards and management. It also addresses the accounting and auditing practice of firms servicing these public companies. The criminal sanctions under the statute are as follows:
• Title VIII & XI – This portion of SOX contains the “Corporate and Criminal Fraud Accountability Act of 2002”. It provides criminal charges for the creation or destruction of fraudulent corporate records. It generally addresses fraud through the uses of corporate records and provides established ranges of criminal penalty. It also establishes protections against retaliation for those reporting such activity.
• Title IX – This portion of SOX is called the “White Collar Crime Penalty Enhancement Act of 2002”. It provides criminal charges for illegal and unethical conduct by officers and managers that harms the public. It specifically requires corporate managers to certify that records are true and accurate.
SOX was passed in the wake of numerous corporate scandals that rocked the financial markets, such as World Com, TyCo, Enron & Arthur Andersen.
• Discussion: Do you think that additional government regulation of corporate practices in the form of criminal penalties helps to curve unethical conduct? Do any positive effects outweigh the negative consequences to the business (such as increased costs, bureaucracy, etc.)?
• Practice Question: Derek is CFO of ABC, Inc. After years of declining profits, Derek devises a method for improving the appearance of ABC’s balance sheet. Derek creates a group of limited liability companies that are owned by ABC. ABC transfers corporate debt to these entities, which is reported off of the main balance sheet and in the footnotes of the financial statements. Derek knows that this form of disclosure is likely to convince investors that ABC has a strong financial position. Has Derek committed a crime?
What is a “Cyber Crime”?
Federal law provides that a person who intentionally accesses a computer without authorization or exceeds authorized access to obtain classified, restricted, or protected data, or attempts to do so, is subject to criminal prosecution.
• Example: Types of cybercriminal conduct include: hacking, cyber terrorism, destruction of data, unlawful appropriation of data or services.
• Discussion: Do you think it should be a crime for individuals like Edward Snowden to disclose governmental data? Do you think it should be a crime to access the back-end database on someone’s private website? At the opposite end of the spectrum, if someone walks away from a public computer and fails to log out of her email account, do you think it should be criminal to read that person’s emails? What if you were to send an email (even as a joke) from that person’s email account?
• Practice Question: Clarence has his own business website that he hosts on a personal server. He manages the site personally with WordPress. Alice is aware of Clarence’s website setup and wants to play a joke on him. She guesses his password and logs into his website server. She then changes the title to read, “Alice is Amazing”. Clarence is outraged by Alice’s joke. Has Alice committed a crime?