Lecture 13: white collar crimes.
• Whitecollar crimes: “A crime committed by a person of respectability and high social status in the course of his or her
• OCCUPATIONAL CRIME: whitecollar crime committed by an individual or group of individuals exclusively for personal gain
• ORGANIZATIONAL OR CORPORATE CRIME: whitecollar crimes committed with the support and encouragement of a
formal organization, and intended to advance the organization’s goals
• BUTN ▯ ot all occupational crimes are committed by people with white collars (for example, your garage mechanic may defraud you
by charging for work that has not been done), and It may be difficult to separate the organizational and occupational components of
many whitecollar crimes.
COSTS OF WHITECOLLAR CRIME
• The financial costs are enormous far exceed cost of ‘street’ crime.
o Formal organization allows crimes of great magnitude compared to person acting alone
o Also causes many deaths/injuries
• However, most offenses are not dealt with under criminal law, and penalties may be very light
Street crime vs. corporate crime
• Robberies accounted for an estimated $409 million in losses in 2011.
• The Worldcom scandal involved at least $175 billion
• An average of 16,000 Americans are victims of homicides every year while 56,000 die annually on the job or from occupational
• Many others fall victim of pollution, contaminated foods, hazardous consumer products, etc.
WHY DO HIGHERSTATUS PEOPLE COMMIT THESE CRIMES?
• Three cultural components of middleclass life may contribute:
o Competitive spirit
o Sense of entitlement
ORGANIZATION AND WHITECOLLAR CRIME
• Positions of ownership and authority in modern corporations carry with them a freedom from control.
• The ensuing “executive disengagement”(i.e. top guys not knowing what the guys at the bottom do and vice versa. Thus no man may
be considered responsible) may be criminogenic
• The corporate structure also diffuses responsibility, so whitecollar criminals are often not held accountable.
CRIMINOGENIC MARKET STRUCTURE
• Some industries have a criminogenic(Crime producing) market structure.
o This refers to the pressure on people in the organization to produce a level of profit that cannot be achieved by acting legally
o Industries with a high rate of violation include oil, auto, and pharmaceutical.
AMERICA’S ACCOUNTING SCANDALS – ENRON▯ Occupational and organizational crimes both seen.
• Enron 7 largest U.S. Company – primarily involved in trading gas and electricity – investors lost $63 billion
• Used illegal accounting methods to make it appear profits increasing
• Culture of greed within Enron. Took large payouts as company was failing
• Arthur Anderson accounting firm ignored violations because it wanted Enron consulting contracts
• Several Canadian banks among others financed Enron and were fined for this.
AMERICA’S ACCOUNTING SCANDALS WORLDCOM
• Largest U.S. Long distance phone company investors lost $175 billion
• Inflated profits by delaying the writing off of expenses
• Arthur Anderson again the accountants – Anderson went out of business after the scandals
• Worldcom founder Bennie Ebbers now serving 25yr jail term
• Founded the Bernard L. Madoff Investment Securities in 1960. Turned his wealth management business▯Ponzi scheme”
• Pinzon scheme: people give me moneyà suppose to invest but you don’t. When people ask for money à you just take it form other and
give it to them BUT if everyone asks for money at the same time then it is a problems.
• $65 billion lost ($18 billion of investor money)
• Arrested in 2008
• Serving 150 years in prison
CANADA’S NORTEL • In 2000, Nortel was the most valuable company in Canada (TELUS and bell etc. were their clients)
• Financial statements overstated revenues so it looked like the company was very profitable
• Shares eventually dropped from $124 to $1 and many investors lost huge amounts
• Executives were very highly paid. Civil charges have been laid against some.
• Investors lost $300 billion
CONSUMER SAFETY ISSUES
• Over the past 40 years, products have become safer because of consumer movement & government action
• In 2007, several incidents of unsafe Chinese products
o Melamine Contaminated pet food
o Counterfeit Colgate toothpaste
o Unsafe children’s toys – Elmo, Big Bird, Thomas the Train
o Manufacturing has moved offshore thus the globalization has created a criminogenic market structure.