White Collar Crimes

White Collar Crimes With Special Emphasis On Corporate And Cyber Crimes

White Collar Crimes: The Indian Experience

The Santhanam Committee report for the first time attached great importance to the emergence of offences and mal-practices known as “white-collar” crime, which was also acknowledged by the 29th Law commission report in 1972. The Santhanam Committee report recognised the emergence of ‘mass society’ with small controlling elite, encouraging growth of monopolies and the deviance from ethical behaviour which led to growth of white-collar and economic crimes. The report expressed its concern towards such crimes by opining that this crime was more dangerous, not only because the financial stakes were higher but also they caused irreparable damage to public morals.The awareness of the common man towards these crimes is dismal or there is a ‘relatively unorganised resentment of the public’ towards such crimes as the violations in such cases can be appreciated only by experts, secondly due to the complexity of these crimes they cannot be easily presented as news and probably because these agencies of communication are owned by businessmen involved in the violations of many of these laws. White-collar crime, it is stated, goes undetected because it “transcends the visibility of ordinary cheating practices of small merchants”. It can however, be gathered from reports of investigating committees or from conversation with intimate friends.

Another fact that merits serious attention is that white-collar crimes being a characteristic of acquisitive and affluent society, they do not exist in India on the scale on which it exists in England and America, but is not totally absent. The Indian society is by no means affluent, but it is gradually becoming acquisitive, particularly in the urban areas. Corruption of administrative officers, embezzlement by top officials of MNC’s and corporations, evasion of tax (particularly income-tax) by persons who fall in the higher income group, smuggling of goods which are scarce in the our country (such as gold, watches and transistor-radio sets) and deliberate breach of foreign exchange regulations, may be cited as instances of white-collar crime in our country.

As the human race progresses, every aspect of the society gets upgraded and developed, even the unfathomable greed of an individual. From times immemorial, man, who is an animal, has aspired for more power and wealth zealously through all scrupulous and unscrupulous means. It is an era of affluent crimes where a CEO sitting in his AC chamber breaches the fiduciary relationship between his company and clients by misappropriating certain information or embezzling the public money. This person is vividly different from our traditional blue-collar criminal, as he is intellectual and is bestowed upon by God with all the material comforts, despite which he dares to commit an act which can have startling consequences which may vary from the downfall of the economy to the commission of suicides by his shareholders.

Defining White- Collar Crimes: A Complicated Task

There is a plethora of opinions and findings vis-à-vis the definition of white-collar crimes, which is not only an intricate task but also an evolving and non-static concept. The definitions which are offered by legal scholars vary both across and within disciplines and linguistic practises. Black’s Law Dictionary defines white-collar crime as “a non-violent crime usually involving cheating or dishonesty in commercial matters.” The Oxford English Dictionary defines the white-collar criminal as “a person who takes advantage of the special knowledge or responsibility of his position to commit non-violent, often financial, crimes.” The American Dictionary of Criminal Justice more specifically defines white-collar crime as “nonviolent crime for financial gain committed by means of deception by persons whose occupational status is entrepreneurial, professional or semi-professional and utilizing their special occupational skills and opportunities.” White-collar crime is considered a special breed in the criminal justice system, as there is a long history of perceived leniency with regard to these criminals. The leniency argument stems from the apparent ability of alleged white-collar criminals to utilize their resources to escape indictment or conviction. Whatever definitions have been offered have failed to find general acceptance; whatever alternatives have been suggested have proved inadequate. The term was first used in 1940 by Edwin H. Sutherland, the most influential American criminologist of his day, in a presidential address to the American Sociological Association. Sutherland was famously vague and inconsistent in saying exactly what the term should mean. But even if he had been precise and consistent in his usage, it seems likely that the term would still have generated uncertainty and misunderstanding among other users of the term. The definition for which he is most well known, and that has had the longest staying power, defined white-collar crime as:

“The crime committed by a person of respectability and high social status in the course of his occupation” . Sutherland’s definition tells us that only certain types of people can commit white-collar crimes, those with “respectability and high social status”. It also specifies that the act must arise out of the course of the actor’s occupation. A distinguishing feature of Sutherland’s approach was his willingness to include civil and administrative violations as part of white-collar crime, which provoked extensive comment and criticism from legal scholars. Sutherland justified his stand by contending that the inclusion of other types of violations was justified because many civil laws deal with practices that are fundamentally similar to criminal offences and many illegal business practices can be sanctioned under both criminal and civil law.

The Social status of the offender: A major point of contention regarding Sutherland’s definition is whether the social status of offenders should be a defining characteristic of white-collar crime. Sutherland included respectability and high social status in his definition, because he wanted to draw attention to the criminality of business groups. Sutherland argued that the criminological theories of his day were class biased and incomplete because they equated crime with lower-class individuals and ignored crime by upper class individuals. In addition, he was morally outraged by what he regarded as the lenient and preferential treatment afforded to business offenders in the criminal justice system. Although Sutherland was correct about the narrowness of criminological theory and the unfairness of the criminal justice system, the inclusion of social status and respectability in the definition of white-collar crime created several problems for research and analysis. The main problem in using social status as a defining element of crime is that it cannot then be used as an explanatory variable because it is not allowed to vary independently of the crime. Similar offences may be committed by corporate executives and by employees at the bottom of the corporate executives and by employees at the bottom of the corporate hierarchy, but only the former meet Sutherland’s definition of white-collar crime. Ex. A corporate executive may take advantage of privileged information about an impending stock event gained in the boardroom to engage in illegal insider trading. A typist transcribing minutes from a meeting from a meeting may note the same information and use in the same manner as the executive in order to trade company stock illegally.

White-collar crimes to Lawyers and Sociologists: To lawyers, the term “crime” denotes a legal category. It refers to particular kinds of conduct that our legal institutions recognize as “criminal.” Such conduct must be defined in a particular manner, employing certain characteristic concepts such as actus reus and mens rea; it must have a certain “public” character in the sense that a wrong is committed against the public as a whole and charges are brought in the name of the government or the people; the question whether a crime has been committed must be adjudicated in a particular manner, employing distinctive procedures and burdens of proof, and recognizing distinctive procedural rights; and it must entail certain characteristic forms of punishment. To lawyers, therefore, it seems obvious that when one talks about “white collar crime,” one should be talking about some subcategory of conduct that reflects such criminal law-like characteristics. To social scientists, this point is less clear. Sociologists and criminologists are concerned less with legal labels and categories than with describing patterns of behaviour, its causes, and society’s attitudes towards it. Thus, for Sutherland and many of his fellow sociologists, white collar crime is not “crime” in the legal sense of the term. At the time he was writing, much of the activity he was concerned

with such as restraint of trade, violation of patents, unfair labour practices, and adulteration or misbranding of food and drugs—either was not subject to criminal sanctions at all, or, if it was, was rarely prosecuted as such. Paul Tappan disagreed with Sutherland’s definition and was of the opinion that only conduct regarded as criminal by the law should be included in the notion of white collar crime. Another opinion was to set aside the term white-collar crime and replace it with “elite deviance” to refer not only to actual crimes committed by the elite but also to deviant activities of the elite that do not violate the criminal law. From the perspective of law and legal theory, however, the term “elite deviance” is highly problematic. The discipline of criminal law is defined by what is criminal. A wide range of critically important procedural questions turns on whether conduct alleged is violative of the criminal law. To replace the concept of white collar crime with the concept of deviant behaviour is thus to blur a distinction that, at least in legal discourse, is foundational.

The classification of White-collar Crime into Occupational and Corporate Crime: Marshall Clinard and Richard Quinney divided white-collar crime into occupational crime and corporate crime. The first category is meant to include offenses committed by corporations and their officials for the benefit of the corporation. The most glaring example and common form of occupational crime is employee theft and vandalism. The second kind of crime is defined as that which is committed “in the course of activity in a legitimate occupation” and is meant to apply to offenses involving persons at all levels of the social structure. This bi-polar distinction may be helpful to some extent, but it is somewhat unstable; the category of occupational crime should be limited so that it does not also involve blue collar occupational crimes. However, it could be argued that the supposed differences between organizational and occupational crime are “distinctions without a difference.”

Causes of White-collar crimes: There is an opinion which suggests that white-collar criminals are uniquely motivated by macro-economic, social, and organizational factors such as fear of failure in a competitive capitalist society; Benson and Moore, for example, describe motives unique to white-collar offenders “specifically related to their class position in the larger social structure.” Paul Jesilow proposed an Adam Smith-like argument that “white-collar crime is encouraged when excessive regulation of the marketplace is introduced” and that the remedy is a more perfect capitalism. From this vantage point, the white-collar criminal circumvents law not for nefarious purposes but rather in pursuit of profits which serve not only his or her self-interest but those of society as well. Here, “white-collar crime in the business world is a thrust against artificially imposed legal restraint,” and it is government regulators who are the villains. Another economic perspective on crime, the fraud minimalist position, suggests that much white-collar crime is the result of bad judgement, bad luck, and unanticipated financial circumstances facing the moral agents–the outcome of “risky business” rather than criminal intent. A more commonly held view associates white-collar crime with the failure of government to regulate competitive capitalists.

Mens-Rea vis-a-vis White-collar crime: What is the mental state of a person who deliberately (ab)uses the power, faith and confidence reposed in him by the shareholders, by the employees, by the society and by every nation? It is a well established fact that there can be no crime of any nature without an guilty mind. Even is strict or absolute liability some mental element is required. That is why men-rea or actus non facit reum nisi mens sit rea is considered a fundamental principle of penal liability. The meaning of the term “ actus non facit reum nisi mens sit rea” is that intent and act must both concur to constitute a crime.

When it comes to white-collar crimes, the determination of mens-rea for the commission of such offences is an intricate task. In cases of white-collar crimes particularly in the area of regulatory crime- require either no mens rea at all (i.e. they are strict liability offences), or they require a low level form of mens rea, such as negligence. Other white-collar offences present a converse problem: proof of mens rea is so crucial to their definition that conduct performed without it not only fails to expose the actor to criminal liability, but is not regarded as wrongful at all. Consider, for example, the case of bribery. Imagine that X, a constituent of congressmen Y, gives Y a certain amount of money (which we can assume that it falls within the amounts of permissible finance laws). Assuming that X acts with the expectation of receiving nothing in return, he has committed no offense; he has merely made a legal campaign contribution. X’s act of giving money to Y would constitute a bribe only if and only if X’s corruptly intended to influence an official act. The most contentious and litigated levels of mens rea are to be found in the areas of “purpose” and “knowledge”. Purpose requires a finding that the accused has a particular and identifiable object to commit the act. Knowledge requires a finding that the accused had in his mind, even remote, that certain acts would certainly occur from the alleged crime. Wilfulness and specific intent are other classes of mens rea which are to be addressed in white-collar crimes. The American supreme Court has interpreted the term wilfulness in a manner which casts a duty on the Government to prove that the defendant actually intended to violate the Law. The term specific intent was elaborated by the American Supreme court in the case of Cheek v. United States where the court abandoned the traditional doctrine of “ignorance of law is no excuse” in connection with tax fraud offences and imposed intent to violate the law requirement.

White Collar Crime does not take place one fine day. They involve shady deals, cold logical planning of deceit, beguiled misrepresentation to innocent stakeholders and keeping the things in dark in from the regulatory bodies, both internal and external. The act of crime of any normal criminal can be at spur of moment, sporadic, desperate attempt to ends but the accused of white collar crime are men of very high intellectual stature, both social and professional, having the command of best resources at their disposal. The best of lawyers and law firms specialise in defending such cases.

Appropriate punishment for White-collar crimes- Retributive and Utilitarian theory: A question arises that what should be the mode of punishment which should be awarded to white-collar criminals, will it be reasonable to treat them like blue-collar criminals, hence, sentencing them to rigorous imprisonments or a different punitive approach should be awarded in the case of such criminals. The criminal justice system has historically treated white-collar crimes differently than other crimes, even during the ongoing debate as to whether they deserve this distinction. Courts, as well as academics, have treated white-collar crimes less severely and even labelled such crimes victimless. This classification suggests that either no one feels the injury at all or that the injury is substantially more indirect than the causal connection in, for instance, robbery or assault. Opponents argue that while the injuries may be theoretically indirect, they are still real and substantial, and many result in the loss of jobs or retirement plans. Determining the proper amount of punishment for white-collar criminals is a difficult task. Compared to street criminals, the harm caused by white-collar criminals is more indirect, and it is therefore more difficult to gauge the exact level of harm caused by many corporate officers. Two historical foundations for criminal punishment exist: the retributive justification and the utilitarian justification. Retributive justification is characterised as “desert based” whereas utilitarian justification as “result based”.

Retributive theory: this theory suggests that offences deserve punishment. This theory states that the acts of white-collar criminals deserve punishment that must be proportional to the crime committed.

Utilitarian theory: The utilitarian rationale rests on preventing future harm to the society and uses the cost-benefit analysis to determine severity of punishment. Most judges and prosecutors recognize the utilitarian theory as the purpose of white-collar crime punishment. The problem with the utilitarian justification, however, is that empirical evidence of its effectiveness is inconclusive. The utilitarian argument of specific deterrence is problematic because corporate officers are unlikely candidates for recidivism.

Under either the retributive or utilitarian justifications, jail time as a means of punishing white-collar criminals remains a disputed issue.While the public prefers imprisonment for white-collar criminals, fines may be the most effective means of punishment. Additionally, the fairness of imprisoning one corporate officer to dissuade others must be addressed.

Although in India we do not have any statute governing white-collar crimes, but with the enactment of such statutes in foreign nations which recognise white-collar crimes and prescribe punishments for the same, corporate officers now face extremely harsh sentences, sometimes harsher than sentences for manslaughter.White-collar offenders in the United States have faced sentences far beyond those imposed in prior years. For example, Bernard Ebbers, former CEO of Worldcom, was sentenced to twenty-five years, Jeffrey Skilling, former CEO of Enron, was sentenced to twenty-four years and four months; and Adelphia founder John Rigas received a sentence of fifteen years (he was eighty years old when he was sentenced), with his son Timoth Rigas, the CFO of the Company receiving twenty year sentence. Some corporate officers find themselves in the prison cells next to such offenders, a far cry from the “club fed” environment to which corporate officers are accustomed. Many argue that because the crimes are economic in nature, the punishment should be as well. Unlike many offenders who lack the means to pay a heavy fine, corporate officers are in a position to provide economic restitution to their victims. Furthermore, as evidenced by a recent criminology study, the deterrent effect of prison time for white-collar criminals has little to no impact.

White-Collar Crimes Vis-À-Vis Corporate Crimes

Sutherland’s ‘clarion call’ to criminologists to focus upon white-collar crimes fell largely upon deaf ears –notwithstanding notable exceptions. It was not until the end of the 1960s/ beginning of the 1970s that there occurred a re-emergence of interest in corporate crime as one aspect of a more general proliferation of both an academic concern with ‘white-collar’ crime and a popular and political concern with the socially harmful effects of corporate activity. More recently, however, some commentators, have argued that this concern had diminished dramatically by the end of twentieth century, as the social credibility of business had increased with the rise of right-leaning political regimes and commitments to market economics, to the extent that critical scrutiny of corporate activities- not least under the rubric of ‘crime’- had become less feasible and/or less desirable. Certainly one obstacle to the study of corporate crime can be traced back to Sutherland’s path-breaking work, which generated significant theoretical and conceptual confusion, not because having defined in term of people, Sutherland proceeded to study corporations. To date, there remains considerable disagreement as to how o define the area of study.

Corporate Crimes: Corporate crime is viewed as ‘illegal acts or omissions, punishable by the State under administrative, civil or criminal law, which are the result of deliberate decision making or culpable negligence within a legitimate formal organisation.’ Corporate crimes also refer to criminal practices by individuals that have the legal authority to speak for a corporation or company. These can include Presidents, managers, directors and chairmen, sales people, agents, or anyone within a company that has authority to act on behalf of the firm. Examples of corporate criminal behaviour in most jurisdictions include: antitrust violations, fraud, damage to the environment in violation of environmental legislation, exploitation of labour laws, and failure to maintain a fiduciary responsibility towards shareholders.

Dimensions of Corporate crimes: Amongst various categorisations, four are used most frequently: financial offences; offences against consumers; crime against employees and employment protection and environmental offences. Corporate crime is a wide ranging term, covering a vast range of offences of omission and commission of offences and commission with different types of modus operandi, perpetrators, effects and victims. For example, some crimes such as the financial accounting offences associated with Enron can only emerge as a result of intentional, well-planned and systematic deception, not least on a scale amounting to widespread conspiracy; they are rendered possible by the multinational structure of the company; and have both wide range and large number of victims, including employees (loss of jobs), governments (loss of taxation revenue) and investors (loss of returns).

White-collar crimes and Corporate Crimes: two intersecting circles: Corporate crime and white-collar crime are significantly overlapping expressions and would perhaps now be described more abstractly as economic crimes. Sutherland saw white-collar crime as often involving the deliberate violation of the law by corporations as organisations; he focussed especially on the crimes of businessmen. In a footnote to this definition, Sutherland added that the term “while-collar” was used by him “to refer principally to business managers and executives.” Sutherland had conceptualised white-collar crime as lying at the intersection of three spheres, (i) crimes by high-status people; (ii) crimes for organisations and (iii) crimes against organisations. The four-fold typology of corporate crime can be stated as follows, (i) crime by a corporation for its own benefit; (ii) crime by the agents or controllers of a corporation for the benefit of that corporation; (iii) crime against a corporation but for the benefit of another corporation; and (iv) crime against a corporation for the benefit of its agents or controllers. To some extent, corporate crime is a subset of the broader concept of white-collar crime; it might be argued that white-collar crime overlaps with the above typology of corporate crime (especially its second and fourth categories), although white-collar crime need not involve a corporate entity at all. However, as we have seen, Edwin H

Sutherland argued that white-collar crime should however be seen as a crime performed by respectable and higher status persons in the course of their occupation.

Marshall B Clinard and PC Yeager have noted:

“Corporate crime is, of course, white collar crime, but it is of a particular type…[C]orporate crime is actually organizational crime that occurs in the context of complex and varied sets of structured relationships and interrelationships between boards of directors, executives, and managers on the one hand and between parent corporation, corporate divisions and subsidiaries on the other….

The invisibility of White-Collar crimes: The two crucial reasons why corporate crimes are entirely absent from ‘crime, law and order’ agendas are the political and legal considerations which need to be taken into account. At the political level, both in particular policy decisions –such as resource allocations for various enforcement agencies-and in political rhetoric of crime, law and order, corporate crimes are largely marginalised. Protecting and furthering the rights of victims have all been deployed in the context of street or traditional crimes but not to corporate offending-even though they are perfectly applicable here as well. In the very framing of the substance and parameters of legal regulation, its enforcement, the ways in which potential offences and offenders are investigated, the prosecution of offences, and the use of sanctions following successful prosecution, most norms of corporate and organizational offences are relatively decriminalised. The assumptions of the general public pertaining to the corporate crimes as different from ‘real’ crimes are reflected in and reinforced by the media. Where corporate crimes are covered in the media, its presence is vastly outweighed by treatments of conventional crime, it is treated in lesser profile fashions or formats, and is often represented in the rather sanitizing language of scandals, disasters, abuses and accidents rather than as criminal activity.

Corporate Misconduct or Misgovernance: The term refers to ‘frauds committed by corporate entities to wilfully erode shareholder value. The corporate misconduct stretches far beyond malpractices in accounting, reporting, operations and misconduct. Such improper corporate behaviour and aberrations is the product of (i) culture of corporate greed and (ii) opportunism and rationalism. The 1990’s have been mainly responsible for instigating the corporates to indulge in various types of misconduct. During this period the investor expectations were higher and corporate boards exploited these expectations to their benefit. Outside professionals such as auditors, lawyers, consultants who are expected to function as a part of checks and balances system began to emphasize closer client relationships.

Corporate Corruption: White collar crime, fraud, corruption and the stewardship in the corporate sector had always been thought to exist in the past. But their magnitude in the present times has assumed alarming proportion and jeopardised in the very existence of corporate organisations. Any act constituting fraud, corruption or indeed any dishonest act reflects adversely on the integrity of the entire organisation. The damage to confidence, reputation and image that fraudulent activity can inflict on the corporate entity can far exceed the significance of the value of act itself. When exposed, it is taken by media and public as evidence of general weakness or inefficiency. N.Vittal, ex Central Vigilance Commissioner has recounted the example of Alacrity, a Chennai based enterprise engaged in building activity. They have adopted the policy of dealing only with cheques and have adopted the principle that there will be no cash transactions. This has brought the enterprise such reputation that even the public servants who often take bribes, when they come across as employee of Alacrity, do not ask for bribes.

Corporate Misconduct in India: Since the opening up of the Indian Economy in 1992, there has been a spate of corporate frauds and corporate scandals. The blame has to be equally shared by the private sector and the public enterprises including the banks. The casualty of all such scams and scandals has been the erosion of both investor’s faith and wealth in the equity markets. There has been massive price rigging in the counters of companies like Himachal Futuristic communications, Lupin Laboratories, Zee Telefilms, Padmini Polymers, etc. The SEBI woke up too late and by that time speculators like Katen Parekh had defrauded the whole system.

ENRON Imbroglio: Formed from a1987 merger between Houston natural Gas, and Inter-north- two natural gas pipeline companies, Enron profited from the 1990’s deregulation of gas and electricity prices. It transformed itself from power provider to energy broker. Its operations stretched across four continents. After a decade of its inception, Enron dominated the energy “spot” and future markets. In July 2001, Fortune ranked Enron as the seventh largest US Corporation by turnover based on reported revenues for the previous year. Enron was quite good in cultivation political connections. Enron, the Houston-based energy traders 2002 collapse eliminated $ 60 billion U.S. in company stock, $ 2 billion in employee pensions, and thousands of jobs. Chief executive officer Jeffrey Skilling was sentenced to twenty-four years and four months in prison for his part in fraud, conspiracy, and insider trading. Crucial to Skilling’s conviction (and that of the late Kenneth Lay, Enron’s founder) was the testimony of Andrew Fastow, the chief financial officer “pegged as the mastermind” of the crime. Fastow himself was charged with ninety-eight counts of insider trading, money laundering, tax violations, and other offences; he received a six-year term after pleading guilty to two counts of conspiracy to commit fraud. The former head of the U.S. Justice Department’s task force on Enron explained the difference between twenty-four and six years: “those below Skilling all pleaded guilty to some offences, expressed remorse and in some cases went on to cooperate with the prosecution.” Fastow’s lawyer described his client as having “undergone a transformation from a man in denial of what he did to someone desperate to make amends,” and Fastow himself told the court that he was “ashamed to the core.” But the context of the plea bargain he and his wife (and fellow Enron employee) struck with the U.S. government is unmistakably a coercive one: Lea Fastow had already started her two-year sentence on tax evasion when her husband reached his deal, and Mr. Fastow’s term was delayed until she was released so that their two young sons would have at least one parent at home during the Fastows’ incarceration.

Adelphia Communications: John Rigas, the founder of Adelphia Communications, was convicted of conspiracy and fraud for his actions contributing to the collapse of the corporation. Rigas and his son Timothy were charged with concealing $ 2.3 billion in debt at the cable company, deceiving investors, and stealing company cash for their own personal benefit. On June 17, 2005, John Rigas received a prison sentence of fifteen years. He was eighty years old at the time of sentencing.Timothy Rigas, due to his younger age, received a higher, twenty-year sentence in prison after being convicted of the same crimes. Prosecutors initially requested 215 year sentences for both John and Timothy Rigas. John Rigas received a sentence of 15 years and Timothy received 20 years.

The Satyam Scam: In perhaps one of Corporate India’s worst unfolding chapters, Mr B. Ramalinga Raju, Founder-Chairman of the $2-billion Satyam Computer Services, dramatically stepped down a