A DEFINITION OF WHITE-COLLAR CRIME
The term "white-collar crime" was first used by the American criminologist Edwin H. Sutherland to define a violation of the criminal law committed by "a person of respectability and high social status in the course of his [or her] occupation" (White Collar Crime, 1949). In 1981 the U.S. Department of Justice developed a further definition, which included "nonviolent crime for financial gain utilizing deception and committed by anyone who has special technical and professional knowledge of business and government, irrespective of the person's occupation" (Dictionary of Criminal Justice Data Terminology, Bureau of Justice Statistics).
White-collar crimes include the following categories investigated by the Federal Bureau of Investigation (FBI):
- Money laundering, securities and commodities fraud, bank fraud and embezzlement, environmental crimes, fraud against the government, election law violations, copyright violations, and telemarketing fraud.
- International, national, and regional organized crime activities for which the FBI's expertise or capabilities increase the likelihood of a successful investigation and prosecution
- Health care fraud, especially systemic abuses, such as large-scale billing fraud and fraudulent activities that threaten patient safety
- Financial institution fraud involving $100,000 or more
- Telemarketing and insurance fraud where there is evidence of nationwide or international activities.
HOW MANY CRIMES?
In The 2005 National Public Survey on White Collar Crime (2006, http://www.nw3c.org/research/national_public_survey.cfm), a report for the National White Collar Crime Center (NW3C), John Kane and April Wall detailed the results of interviews conducted with 1,605 adults. Survey participants were asked about their experiences and those of their households with white-collar crime during the previous twelve months.
Almost half (46.5%) of households and 36% of individuals surveyed reported that they had been a victim of white-collar crime during the previous year; 62.5% of individuals had experienced at least one type of white-collar crime in their lifetime. The most common white-collar crimes experienced by households included being misled about the price of a product or service (35.9% of reported incidents), having a credit card misused (24.5%), and being directly affected by a national corporate scandal (21.4%). Of households that experienced a white-collar crime, 67% reported the crime to at least one organization (such as a credit card company, business, or personal attorney), and 30.1% reported the crime to a law-enforcement or other crime-control agency. The most commonly reported crimes by individuals were pricing schemes (33.2%), credit card misuse (21.8%), and the effects of national corporate scandals (20.6%).
PERCEPTIONS OF WHITE-COLLAR CRIMES
The NW3C survey included questions about the perceived seriousness of several types of crime, including white-collar crimes. The most serious crime according to respondents was carjacking and murder, which received a score of 6.89 on a scale of 0 ("not serious") to 7 ("very serious"). Car theft was perceived as the least serious crime, with a score of 4.0 out of 7. All of the white-collar crimes included in the survey were perceived to be more serious than car theft, including omission of a safety report (6.18), insurance fraud (5.83), hacking into a database (5.6), embezzlement (5.58), overcharging for insurance (5.49), submitting a false earnings report (5.4), and auction fraud (5.12).
WHITE-COLLAR CRIME ARRESTS
The FBI reported in its Uniform Crime Reports (UCR) that of 14.1 million arrests for all crimes in the United States during 2005, 118,455 were for forgery and counterfeiting, 321,521 were for fraud, and 18,970 were for embezzlement. (See Table 1.4 in Chapter 1.) In an analysis of 10.4 million arrests processed by 10,974 agencies throughout the country in 2005, the FBI found that arrests for forgery and counterfeiting were most often reported in the South (37,328 arrests), followed by the West (23,410), Midwest (13,984), and Northeast (12,624) (http://www.fbi.gov/ucr/05cius/data/documents/05tbl30.xls). The largest number of arrests for fraud was also reported by southern agencies (140,271 arrests), followed by the Midwest (34,501), the Northeast (34,093), and the West (22,856). For embezzlement, the largest number of cases was also reported in the South (7,526), followed by the West (3,410), the Midwest (1,975), and the Northeast (1,186).
Among the 10,974 agencies reporting, most arrests for forgery and counterfeiting were made in cities (64,874 arrests), followed by suburban areas (34,552) and metropolitan counties (14,944) (http://www.fbi.gov/ucr/05cius/data/documents/05tbl31.xls). For fraud, arrests were also most common in cities (120,631), followed by suburban areas (115,295); 70,881 fraud arrests were made in metropolitan areas and 40,209 in non-metropolitan areas. There were 10,341 arrests for embezzlement in cities, 5,524 arrests for embezzlement in suburban areas, and 2,653 arrests for embezzlement in metropolitan areas.
WHITE-COLLAR CRIME OFFENDERS AND VICTIMS
According to the FBI's UCR, most white-collar crime offenders are over the age of 18, and the number of offenders under 18 years old decreased between 1996 and 2005 (http://www.fbi.gov/ucr/05cius/data/table_33.html). In data from 8,009 agencies nationwide, 2,600 people under age 18 were arrested for forgery and counterfeiting during 2005, a 52.1% decrease from 5,433 in 1996. The number of individuals under age 18 who were arrested for fraud in 2005 was 4,779, a 31.2% decrease from 6,947 in 1996. The decrease in the number of arrests of those under 18 for embezzlement in 2005 was less dramatic—14.7% (from 880 in 1996 to 751 in 2005).
Although the 8,009 agencies reported more arrests of males than females for forgery/counterfeiting and fraud in 2005, they arrested more females than males for embezzlement. Specifically, 43,068 males were arrested in 2005 for forgery and counterfeiting, a 4.8% decrease from 45,250 in 1996; 104,201 were arrested for fraud (down 24.4% from 137,874 in 1996); and 5,979 were arrested for embezzlement (up 7.8% from 5,545 in 1996). For females, the arrest totals were 27,670 for forgery/counterfeiting (up 3% from 26,853 in 1996), 89,338 for fraud (down 23.8% from 117,288 in 1996), and 6,108 for embezzlement (up 32.6% from 4,607 in 1996).
The incidence of identity theft has risen significantly in recent years as more and more transactions of every type are handled remotely using telephones, computers, and the Internet. Identity thieves steal personal information from victims, such as their social security, driver's license, credit card, or other identification numbers, and then set up new bank or credit card accounts or otherwise misrepresent themselves as their victims to obtain money, goods, or services fraudulently.
The Federal Trade Commission (FTC) was required by the Identity Theft and Assumption Deterrence Act of 1998 to form the FTC Identity Theft Hotline and Data Clearinghouse in 1999 to track incidents of this type of crime. The FTC reported in Identity Theft Victim Complaint Data: Figures and Trends January 1-December 31, 2005 that 255,565 cases of identity theft were reported in 2005. This figure was 3.5% higher than in 2004 (246,847 complaints) and 18.8% higher than in 2003 (215,177 complaints). (See Figure 4.1.)
In 2005 personal information stolen from identity theft victims was used to set up new credit card accounts or misuse existing accounts in 26% of the reported cases. Other identity theft crimes include unauthorized use of telephone, utility, and other communications services (18%), bank fraud (17%), and employment-related fraud (12%). (See Figure 4.2.)
According to the FTC, 29% of identity theft victims who reported the crimes were between 18 and 29 years old, 24% were 30 to 39 years old, and 20% were 40 to 49 years old. Those under the age of 18 and over age 60 were the least likely to be targets of identity theft. (See Figure 4.3.) The largest share of identity theft victims who reported the crimes (43%) discovered the theft within one month. Of the remainder, 16% learned of the theft within 6 months and 12% within 25 to 48 months. (See Figure 4.4.) The Bureau of Justice Statistics (BJS) reports that about one-third of households that experienced identity theft discovered the theft by missing money or noticing unfamiliar charges on an account; almost one-quarter learned of the theft when they were contacted by a credit bureau. (See Table 4.1.)
Overall, a third of the households participating in the National Crime Victimization Survey (NCVS) experienced one or more problems as a result of identity theft in 2004. According to Katrina Baum of the BJS in Identity Theft, 2004 (April 2006, http://www.ojp.usdoj.gov/bjs/pub/pdf/it04.pdf), more than one-third (34.1%) were contacted by a debt collector or creditor, a slightly smaller percentage (30.5%) had banking problems, 25.8% had problems with their credit card accounts, and 15.4% had to pay higher interest rates as a result of identity theft. About one-third of households were able to resolve the problems associated with the theft in one day, and one-fifth spent two to seven days correcting the situation. For nearly fifteen out of a hundred victims, resolving identity theft problems took between one and two months. (See Figure 4.5.)
Seven out of ten identity theft victims were aware of personal monetary losses resulting from the crime, according to Baum, and total dollar losses among victims reached $3.2 billion in 2004. In households that were aware of the extent of the financial loss they experienced, more than half (55%) sustained losses less than $500. One victim in twenty lost $5,000 or more.
Tracking white-collar crime, especially corporate crime, is generally much more complicated than tracking other crimes. There often is no single offender or victim to report the crime. White-collar crime is often based on trust established between the victim and the offender before any crime is committed. Building trust expands the timeframe of the crime, permitting repeated thefts from an unsuspecting victim.
Different types of ethical violations linked to corporate crime include misrepresentation in advertising, deceptive packaging, socially irresponsible television commercials, sales of harmful and unsafe products, sales of virtually worthless products, environmental pollution, kickbacks and payoffs, unethical influences on government, unethical competitive practices, personal gain for management, unethical treatment of workers, trade secret theft, and victimization of local communities.
The tobacco industry offers an example of corporate crime. In November 1998, forty-six states collectively settled lawsuits they had brought against cigarette manufacturers. They had sought to recoup the health care costs associated with smoking-related illnesses that were paid out by state Medicaid agencies. Although the sale of tobacco products was legal, the states alleged that tobacco firms knew about the highly addictive nature of smoking and deliberately concealed their research findings from the general public for decades while promoting tobacco use.
Since the 1990s, several rulings have been made against tobacco companies. In October 2006, for example, Judge Gladys Kessler of the Federal District Court for the District of Columbia issued a decision in the Department of Justice racketeering lawsuit. She ordered tobacco companies to stop labeling cigarettes as "low tar" or "light" to give the false impression that they are less dangerous than full-flavor cigarettes. In her decision, Judge Kessler stated:
"Over the course of more than fifty years, defendants lied, misrepresented and deceived the American public, including smokers and the young people they avidly sought as replacement smokers, about the devastating health effects of smoking."
|How victims became aware of identity theft, by type of theft, July-December 2004|
|How theft was discovered||Total||Percent of thefts involving—|
|Existing credit cards||Other existing accounts||Personal information||Multiple types of theft during the same episode|
|Note: Table excludes 1% of households victimized by identity theft that did not provide an answer to how they became aware of the identity theft.|
|*Estimate based on 10 or fewer cases.|
|Source: Katrina Baum, "Table 2. How Victim Became Aware of Identity Theft, by Type of Identity Theft," in Identity Theft, 2004, U.S. Department of Justice, Office of Justice Programs, Bureau of Justice Statistics, April 2006, http://www.ojp.usdoj.gov/bjs/pub/pdf/it04.pdf (accessed January 15, 2007)|
|Issuer placed block on account||3.8%||4.5%||3.3%||1.0%*||5.3%*|
|Missing money or noticed charges on account||30.4||31.2||42.1||7.9||29.5|
|Contacted about late/unpaid bills||22.8||30.7||9.0||18.6||25.2|
|Noticed credit card or checkbook was missing||6.2||5.9||7.7||1.5*||9.7|
|Notified by police||1.1||0.4*||0.6*||3.8*||1.7*|
|Denied phone or utility service||2.4||0.1*||4.4||3.7*||5.7*|
|Noticed an error in credit report||5.6||4.4||3.0*||13.0||6.7*|
FALSIFYING CORPORATE DATA
The collapse of the Enron Corporation is one of the most glaring examples of corporate crime and falsification of corporate data in recent history. Enron, based in Houston, Texas, was an energy broker trading in electricity and other energy commodities. In the late 1990s, however, instead of simply brokering energy deals, Enron devised increasingly complex contracts with buyers and sellers that allowed Enron to profit from the difference in the selling price and the buying price of commodities such as electricity. Enron executives created a number of "partner-ships"—in effect, companies that existed only on paper whose sole function was to hide debt and make Enron appear to be much more profitable than it actually was.
On December 2, 2001, Enron filed for bankruptcy protection, listing some $13.1 billion in liabilities and $24.7 billion in assets—$38 billion less than the assets listed only two months earlier. As a result, thousands of Enron employees lost their jobs. In addition, many Enron staff—who had been encouraged by company executives to invest monies from their 401k retirement plans in Enron stock—had their retirement savings reduced to almost nothing as a result of the precipitous decline in value of Enron stock.
In the wake of Enron's collapse, several committees in the U.S. Senate and House of Representatives began to investigate whether Enron defrauded investors by deliberately concealing financial information. Numerous lawsuits were filed against Enron, its accounting firm Arthur Andersen, and former Enron executives including former chairman Kenneth L. Lay and former chief executive officer Jeffrey Skilling.
Enron treasurer Ben Glisan Jr. was convicted of conspiracy charges to commit wire and securities fraud. He was sentenced to five years in prison and was released January 19, 2007. Lay and Skilling went on trial in January 2006. Federal prosecutor Kathryn Ruemmler accused the men of using "accounting tricks, fiction, hocus-pocus, trickery, misleading statements, half-truths, omissions and outright lies" in committing their crimes, as reported by Kristen Hays in the Chicago Sun-Times ("Prosecutor Tells Jury of Lay, Skilling 'Hocus-Pocus,'" May 16, 2006). On May 25 a jury found Lay guilty of all six counts against him in the corporate trial; he was also convicted of four counts of fraud in a separate trial relating to his personal finances. He faced twenty to thirty years in prison but died of a heart attack on July 5, 2006, before the judge set his sentence. The jury found Skilling guilty of nineteen of the twenty-eight counts against him, and he was sentenced to twenty-four years and four months in federal prison. Skilling began serving his sentence at a low-security federal facility in Waseca, Minnesota, and is projected to be released in 2028.
On June 15, 2002, a New York jury found accounting firm Arthur Andersen guilty of obstructing justice in connection with the Enron collapse. Arthur Andersen was convicted of destroying Enron documents during an ongoing federal investigation of the company's accounting practices. As a result of the verdict, Andersen faced a fine of $500,000 and a probation term of up to five years. Although the conviction was overturned by the U.S. Supreme Court in 2005, the firm is effectively out of the accounting business with its few remaining U.S. employees responsible for administrating the many legal cases generated by the scandal.
The Enron scandal helped lead to the passage of the Sarbanes-Oxley Act (SOX), signed into law on July 30, 2002. The law was designed to rebuild public trust in the U.S. corporate sector by imposing new criminal and civil penalties for security violations and establishing a new certification system for internal audits. SOX also grants independent auditors more access to company data and requires increased disclosure of compensation methods and systems, especially for upper management.
The FBI investigates incidents of financial institution fraud, including insider fraud, check fraud, mortgage and loan fraud, and financial institution failures. According to the Financial Institution Fraud and Failure Report, Fiscal Year 2005 (2005, http://www.fbi.gov/publications/financial/2005fif/fif05.pdf), the FBI has seen a marked decline in the number of financial institution fraud investigations since the early 1990s. At the end of fiscal year (FY) 2005, the FBI was conducting 5,041 financial institution fraud investigations; 62 of these cases (1.2%) involved criminal activity related to failed financial institutions. This reflects a 92% reduction in failure investigations since the July 1992 peak of 758 cases. However, although the number of failure investigations has declined, the FBI is still involved in a substantial number of major financial institution fraud investigations. Major cases are defined as non-failure cases involving more than $100,000. In FY 2005, the FBI was investigating 4,135 major cases of institutional fraud. The number of major investigations underway had remained fairly stable during the period FY 2000 through FY 2005, with a high of 4,383 in FY 2001 and a low of 3,915 in FY 2004.
The U.S. Department of Justice reports in the Source-book of Criminal Justice Statistics (http://www.albany.edu/sourcebook/pdf/t31482005.pdf) that the number of convictions in financial institution fraud cases declined only slightly from 2000 (1,394 convictions) to 2005 (1,218 convictions). Almost $3.6 billion in restitution was reported in 2005, almost double the amount for 2002.
FRAUD AGAINST INSURANCE COMPANIES
Annually, thousands of acts of fraud against insurance companies are reported. These include faking a death to collect life insurance, setting fire to a house to collect property insurance, or claiming injuries not actually suffered.
The Internal Revenue Service (IRS) reports that it initiated twenty-four investigations of insurance fraud in FY 2006, down slightly from twenty-eight investigations in FY 2005 and twenty-five investigations in FY 2004 (http://www.irs.gov/compliance/enforcement/article/0,,id=118213,00.html). Of people convicted of insurance fraud in FY 2006, 93.3% were incarcerated and were sentenced to serve an average fifty months in confinement.
In one case, business owner Fred Rich of Portland, Texas, pleaded guilty to a mail fraud and money laundering conspiracy in January 2006. An IRS investigation revealed that he had defrauded insurance companies by staging vehicle accidents and making phony property damage claims for mold and water damage to residences. People who owed Rich money participated with him in several staged motor vehicle accidents at his business and home. The co-conspirators then filed insurance claims and split the proceeds with Rich. Rich was sentenced on March 9, 2006, to fifty months in prison followed by three years of supervised release. He was also ordered to pay $629,000 in restitution and a $10,000 fine.
FRAUD BY INSURANCE COMPANIES
Some insurance companies have been found guilty of defrauding their customers. For example, David Brabandt and his sister Barbara Del Aguila, who operated the Aguila Insurance Agency in Dallas, Texas, were charged in April 2005 with taking payments from over 300 people and not purchasing insurance for them. They pleaded guilty on February 1, 2006, to two felony charges, were sentenced to two years in prison, and were ordered to pay $183,861.29 in restitution.
In March 2006 Michael T. McRaith, director of insurance for the State of Illinois, issued a cease and desist order against the Safe Auto Insurance Company of Columbus, Ohio. According to McRaith, Safe Auto had not properly notified the Secretary of State's office of policies it held for drivers in Illinois. As a result, the state suspended the driver's licenses and vehicle registrations of several policy-holders who had paid premiums to the company. The company was ordered to correct its notification procedures and pay customer expenses resulting from the improper filings.
There are many laws regulating the securities markets—which include the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation (NASDAQ)—and the corporations that sell "securities" on the markets. These regulations require corporations to be honest with their investors about the corporations; they also require stockbrokers to be forthcoming with their clients.
Despite these rules, both the corporate officials who release information about their companies and the stockbrokers who help people invest in securities sometimes knowingly lie to or hide information from consumers to raise a company's stock level for their own profit. Corporations commit this type of fraud by releasing false information to the financial markets through news releases, quarterly and annual reports, Securities and Exchange Commission (SEC) filings, market analyst conference calls, proxy statements, and prospectuses. Brokers commit this type of fraud by failing to follow clients' instructions when directed; misrepresenting or omitting information; or making unsuitable recommendations or investments, unauthorized trades, or excessive trades (churning). Because brokerage analysts' recommendations to clients can affect the fees earned by the firms' investment banking operations, analysts can profit by playing up the value of certain stocks.
The Stanford Law School Securities Class Action Clearinghouse, in cooperation with Cornerstone Research, tracks the number of securities fraud class action filings each year. In 2006 there were 118 filings (Securities Class Action Case Filings, 2006: A Year in Review, 2007, http://securities.stanford.edu/). The 2006 total was considerably lower than the ten-year average of 193 per year and was the lowest annual total since the Public Securities Litigation Reform Act was adopted in 1995. Filings were down by 38% from the 178 filed in 2005.
Of the 110 filings in 2006, almost one-third (36) involved the noncyclical consumer industry (agriculture, beverage, biotechnology, commercial services, cosmetics/personal care, food, healthcare products, healthcare services, household products/wares, and pharmaceuticals). Twenty-one of the filings involved technology companies. The most common allegations made were misrepresentation in financial documents and accounting irregularities.
Cornerstone Research speculates that the dramatic drop in securities fraud class action filings in 2006 might be due in part to increased enforcement activities by the SEC and the Department of Justice as well as passage of the Sarbanes-Oxley Act of 2002. With heavy penalties involved for infractions, corporations appeared to have adopted a more conservative approach in accounting, which resulted in fewer filings.
In a suit resolved during 2006, Gladys Kessler, U.S. District Court Judge for the District of Columbia, approved a plan to distribute $300 million to investors of Time Warner Inc. to settle a lawsuit stemming from accounting fraud perpetrated by the company. In the suit, Time Warner was charged with overstating its online advertising revenue and the number of its Internet subscribers.
Oil and Gas Investment Frauds
The U.S. Postal Inspection Service reports in Oil and Gas Investment Frauds (http://www.usps.com/postalinspectors/fraud/oil-gas.htm) that although many oil and gas investments are legitimate, this area is well known for fraudulent offers made to potential investors. Illegitimate solicitors operate what are known as "boiler rooms," hastily set-up business offices with few furnishings. From these locations telephone solicitors call consumers in an attempt to convince them to invest in bogus oil or gas drilling ventures. Typically, the phone solicitors guarantee high profits, stress that the offer is only available to a select group of investors, and insist on an immediate decision. According to Kathy Chu in USA Today ("Prices Prompt Oil, Gas Investment Scams," August 17, 2006), investors seeking to make quick profits in the energy sector have lost millions of dollars in illegitimate oil and gas investments. Oil and gas fraud was one of the top five investor scams in the state of Texas during 2006.
Telemarketing is a form of direct marketing in which representatives from companies call consumers or other businesses in order to sell their goods and services. Telemarketing services can also be tied to other forms of direct marketing such as print, radio, or television marketing. For example, a television advertisement might ask the viewer to call a toll-free number. The overwhelming majority of telemarketing operations are legitimate and trustworthy.
The National Fraud Information Center (NFIC) is a project of the National Consumers League (NCL), a nonprofit organization. The NFIC reported that in 2006, 31% of all telemarketing complaints received by the NCL's Fraud Center involved false check scams, in which consumers received notification that they have won a prize along with a phony check and a phone number to call for instructions on how to pay taxes or fees associated with claiming the prize (http://fraud.org/stats/2006/telemarketing.pdf). The average loss from these scams was $3,278. Another common telemarketing scam involved requests for payment to claim prizes that were never sent; 26% of all complaints were in this category and these victims lost an average of $2,749.
On December 20, 2006, two co-owners and seven office managers of Gecko Communications Inc. were sentenced for participating in a scheme to defraud an estimated 83,000 people across the country of more than $15.6 million. The company made false offers to provide credit cards to people with poor credit and charged up to $229 for the cards. To execute their plan, the Gecko company purchased lists of consumers with low credit ratings. Misrepresenting themselves as a financial company with credit counselors on staff, Gecko convinced consumers to pay for the opportunity to receive a pre-approved credit card. In fact, those who paid were sent credit card applications. The defendants were sentenced to prison terms ranging from two to six years. They were also ordered to pay restitution.
The U.S. Postal Inspection Service (USPIS) investigates crimes involving the nation's mail, including mail fraud, mail theft, and the mailing of controlled substances. Postal inspections resulted in 6,788 arrests and 5,544 convictions for mail theft (theft and possession of stolen mail) during FY 2005 (http://www.usps.com/postalinspectors/05anrept.pdf). In addition, there were 1,855 arrests and 1,279 convictions for mailing controlled substances (such as narcotics, steroids, and drug paraphernalia) and 1,577 arrests and 1,264 convictions for mail fraud. In one notable case, a twenty-year-old man from Massachusetts was convicted on May 4, 2006, of wire and mail fraud charges. He had advertised Superbowl tickets on eBay, collected approximately $255,000 from customers, and never provided the tickets or refunds.
Federal Computer Crime Legislation
The first state computer crime law took effect in Florida in 1978. Other states soon followed until all fifty states had computer crime provisions.
In 1986 Congress passed the Computer Fraud and Abuse Act (P.L. 99-474) that makes it illegal to perpetrate fraud on a computer. The Computer Abuse Amendments of 1994 (P.L. 103-322) make it a federal crime "through means of a computer used in interstate commerce of communication … [to] damage, or cause damage to, a computer, computer system, network, information, data, or program … with reckless disregard" for the consequences of those actions to the computer owner. This law pertains to maliciously destroying or changing computer records or knowingly distributing a virus that shuts down a computer system. A virus program resides inside another program and is activated by some predetermined code to create havoc in the host computer. Virus programs can be transmitted by sharing disks and programs or through e-mail.
The 2001 USA Patriot Act, which gave increased powers to U.S. government law enforcement and intelligence agencies to help prevent terrorist attacks, amended the Computer Fraud and Abuse Act. The act was expanded to include the types of electronic records that law enforcement authorities may obtain without a subpoena, including records of Internet session times and durations, as well as temporarily assigned network addresses. The Patriot Act was reauthorized on March 9, 2006, in the USA Patriot Improvement and Reauthorization Act of 2005 (HR 3199).
The National White Collar Crime Center and the FBI reported that the Internet Crime Complaint Center (IC3) Web site received 231,493 complaints of Internet crime in 2005 (IC3 2005 Internet Crime Report, 2006, http://www.ic3.gov/media/annualreport/2005_IC3Report.pdf). This represents an 11.6% increase over 2004 when the center received 207,449 complaints. Of these complaints, IC3 referred 97,076 to federal, state, and local law enforcement agencies for further consideration. Almost all of these cases involved fraud leading to financial loss for the victim. The total dollar cost of all cases of Internet fraud referred to law enforcement agencies was $183.12 million, with a median loss of $424 per complaint. This is a significant increase from $68 million in losses reported in 2004.
The most frequently reported Internet offense (62.7% of complaints) involved Internet auction fraud. Other complaints were for nondelivered merchandise and/or payment (15.7% of complaints) and credit card fraud (6.8%). About three-quarters (75.4%) of offenders were male and half resided in just seven states (California, New York, Florida, Texas, Illinois, Pennsylvania, and Ohio). Fraudulent contacts took place primarily by e-mail and Web pages. Almost three-quarters (73.2%) of complainants had engaged in e-mail contact with the perpetrator compared with 16.5% through a Web page.
The IC3 defines "spam" as unsolicited bulk e-mail. According to IC3, spam is widely used to commit traditional white-collar crimes, including financial institution fraud, credit card fraud, and identity theft. Spam messages are usually considered unsolicited because the recipients have not chosen to receive the messages. Generally, spam involves multiple identical messages sent simultaneously. Spam can also be used to access computers and servers without authorization and transmit viruses or forward spam. Spam senders often sell open proxy information, credit card information, and e-mail lists illegally.
The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act, P.L. 108-187, S. 877) established requirements for those who send commercial e-mail. CAN-SPAM requires that all spam contain a legitimate return address as well as instructions on how to opt out of receiving additional spam from the sender. Spam must also state in the subject line if the e-mail is pornographic in nature. Violators of these rules are to be subject to heavy fines.
The law's main provisions include:
- Banning false or misleading header information —The "from," "to," and routing information (including the originating name and e-mail address) must be accurate and identify the person who initiated the e-mail.
- Prohibiting deceptive subject lines —The subject line must not mislead the recipient about the message's contents or subject matter.
- Requiring an opt-out method —Senders must provide a return e-mail address or another Internet-based way that allow the recipient to ask the sender not to send any more e-mail messages to them.
The first person convicted by a jury in a CAN-SPAM case was Jeffrey Brett Goodin of California. He was found guilty on January 12, 2007, of operating an Internet-based scheme to obtain personal and credit card information. Goodin sent e-mails to AOL users that appeared to be from AOL's billing department. The messages instructed recipients to "update" their AOL billing information or lose service. The Web pages were actually scam pages set up by Gooding to collect personal and credit card information on the users.
The Anti-Spyware Coalition—a group composed of software manufacturers, academics, and consumer advocates—defines spyware as "Technologies deployed without appropriate user consent and/or implemented in ways that impair user control over:
- Material changes that affect their user experience, privacy, or system security
- Use of their system resources, including what programs are installed on their computers; and/or
- Collection, use, and distribution of their personal or other sensitive information" (http://www.antispywarecoalition.org/about/FAQ.html).
According to the National Conference of State Legislatures, four states—Hawaii, Louisiana, Rhode Island, and Tennessee—had enacted or adopted anti-spyware legislation in 2006 and another eighteen states were considering such legislation. California's Consumer Protection Against Computer Spyware Act makes it illegal for anyone to install software on someone else's computer and use it to deceptively modify settings, including the user's home page, default search page, or bookmarks. The act also outlaws collecting, through intentionally deceptive means, personally identifiable information by logging keystrokes, tracking Web site visits, or extracting personal information from a user's hard drive.
In November 2006 the federal government reached a settlement in the case of Odysseus Marketing, Inc., a company that advertised a free file-sharing software program and then exploited consumers who downloaded the program. Odysseus intercepted and replaced search results of users, attacked them with numerous pop-up advertisements, and copied their keystrokes, including such information as names, addresses, and Internet browsing habits. In the settlement, the defendants agreed not to download spyware in the future or exploit security vulnerabilities in Internet Explorer or other browsers. In addition, the government imposed a fine of $50,000.
Computer hacking takes place when an outsider gains unauthorized access to a secure computer by identifying and exploiting system vulnerabilities. Criminal hackers use their software expertise to crack security codes in order to access stored information or "highjack" a computer (that is, take it over and instruct it to generate spam or perform other malicious actions). The Web Application Security Consortium tracks hacking incidents that have been reported in the media and that result from vulnerabilities in Web application security. The consortium reported that the number of Web hacking incidents has increased significantly in recent years, from just nine in 2003 to forty-four in 2006. However, the number of hacking incidents in 2006 did decrease from 2005, when sixty-one hacking incidents were reported (http://www.webappsec.org/projects/whid/statistics.shtml).
A survey of security executives and law enforcement personnel conducted by CSO Magazine, the U.S. Secret Service, and the CERT® Coordination Center found that in 2005 hackers were considered the greatest computer security threat to U.S. companies (www.cert.org/archive/pdf/ecrimesummary05.pdf). More than one-third (37%) of respondents identified hacking as the greatest computer security threat to their organizations. About half as many (18%) identified current employees as the greatest threat, and 5% listed former employees.
According to Ethan Butterfield in Washington Technology, state governments increased security activities in response to several hacking incidents in 2006 ("Fear Factor: Spike in Malicious Hacking Creates Need for Vigorous Action at State Level." October 2, 2006, http://www.washingtontechnology.com/print/21_19/29418-1.html). Included in the high-profile incidents were attacks on the Nebraska state child-support payment system and the IT systems of Ohio University, leaving the personal information of hundreds of thousands of people at risk.
The federal government is also vulnerable to hackers. In November 2006 a federal grand jury indicted a Romanian man, Victor Faur, a citizen of Romania, who gained unauthorized access to more than 150 different government computers (http://oig.nasa.gov/press/pr2007-C.pdf). Faur targeted computers at the Jet Propulsion Laboratory, Goddard Space Flight Center, Sandia National Laboratories, and U.S. Naval Observatory. Prosecutors speculate that U.S. government computers were targeted because of their reputation for high security; once he had control of the computers, the hacker merely set up chat rooms and bragged about his accomplishment. If convicted, Faur faces a maximum sentence of fifty-four years in federal prison. The incident cost about $1.5 million in estimated repairs, data losses, and system improvements
According to the World Intellectual Property Organization, "intellectual property" comprises "creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce" (http://www.wipo.int/about-ip/en/). These include industrial property such as trademarks, chemical formulas, patents, and designs, and copyrighted material such as literary works, films, musical compositions and recordings, graphic and architectural designs, works of art in any medium, and domain names.
The Intellectual Property Owners Association reports that the number of intellectual property suits in the U.S. federal court system in 2006 included 4,944 copyright cases, 3,740 cases related to trademark infringement, and 2,830 patent cases (http://www.ipo.org/). Trademark infringements increased by 17.3% between 1997 and 2006, and by 2% between 2005 and 2006. The number of patent infringement suits increased by 34% between 1997 and 2006, and by 4% between 2005 and 2006. Most dramatically, the number of suits related to copyrights increased more than 119% between 1997 and 2006, and by 14.7% between 2005 and 2006.
In the United States intellectual property is protected by the joint efforts of the United States Patent and Trademark Office, the U.S. Copyright Office, the U.S. Department of Justice, U.S. Department of Commerce, and two agencies that focus on international aspects of intellectual property: the U.S. Customs Service, which monitors incoming goods arriving from other nations, and the Office of the U.S. Trade Representative, which negotiates on behalf of U.S interests and develops and implements trade agreements and policies.
In a speech before the U.S. Chamber of Commerce on June 20, 2006, U.S. Attorney General Alberto Gonzales reported that the costs of intellectual property theft to American businesses include $250 billion in financial losses and 750,000 lost jobs every year (http://www.usdoj.gov/ag/speeches/2006/ag_speech_060620.html). Gonzales stressed, however, that these figures do not include the costs of intellectual property theft to the nation's economy overall. In his remarks, Gonzales referred to the case of Danny Ferrer, who pleaded guilty in June 2006 to copyright infringement. Ferrer sold almost $2.5 million worth of pirated software through his Web site until the FBI shut it down in October 2005. Ferrer's sales resulted in almost $20 million in losses to the copyright holders of the products he copied illegally. Ferrer faced a maximum sentence of ten years in prison and a $500,000 fine.
Antitrust violations include price fixing, bid rigging, and other conspiracies that artificially inflate prices and cheat consumers. Such schemes are illegal because they deprive consumers of fair access to products at reasonable prices. Market division, in which competitors agree to divide customers among themselves, is also illegal for the same reason. The Department of Justice reported that in 2006 the Antitrust Division obtained the second highest level of criminal fines in the division's history. For the fiscal year ending on September 30, 2006, the division obtained $473 million in criminal fines, a 40% increase over FY 2005, and filed 33 criminal cases, many of which involved several defendants. (See Figure 4.6.)
|Criminal investigations by the Internal Revenue Service, fiscal years 2004–06|
|Fiscal year 2006||Fiscal year 2005||Fiscal year 2004|
|*Incarceration includes confinement to federal prison, halfway house, home detention, or some combination thereof.|
|Source: "Statistical Data—General Tax Fraud," in Criminal Investigations: Tax Fraud Alerts, U.S. Department of the Treasury, Internal Revenue Service, 2007, http://www.irs.gov/compliance/enforcement/article/0,,id=106791,00.html (accessed January 21, 2007)|
|Average months to serve||26||28||27|
For most Americans, failure to pay the correct amount of taxes to the Internal Revenue Service (IRS) results in agreement to pay off the taxes in some manner. However, when the IRS believes it has found a pattern of deception designed to avoid paying taxes, criminal charges can be brought. In 2006 the Criminal Investigations Division of the IRS initiated 1,863 cases, slightly lower than 1,873 in 2005 but higher than 1,736 cases in 2004. (See Table 4.2.) Of cases investigated in 2006, the IRS recommended prosecution in 1,020 cases, and in 830 cases criminal charges were filed or brought by indictment. The IRS reported 691 convictions for tax fraud, and defendants were incarcerated in 75.1% of cases for an average of 26 months.
FORGERY AND COUNTERFEITING
As technology advances, forgers can use sophisticated computers, scanners, and laser printers to make copies of more and more documents, including counterfeit checks, identification badges, driver's licenses, and money.
Making counterfeit U.S. currency or altering genuine currency to increase its value is punishable by a fine, imprisonment of up to fifteen years, or both. Possession of counterfeit U.S. currency is also a crime, punishable by a fine, imprisonment of up to fifteen years, or both. Counterfeiting is not limited to paper money. Manufacturing counterfeit U.S. coins in any denomination above five cents is subject to the same penalties as all other counterfeit activities. Anyone who alters a real coin to increase its value to collectors can be punished by a fine, imprisonment for up to five years, or both. The level of counterfeit bills in circulation worldwide is estimated to be less than 0.02% of all bills, about one to two counterfeit bills for every 10,000 genuine bills, according to the U.S. Bureau of Engraving and Printing (http://www.moneyfactory.gov/newmoney/main.cfm/media/releases102003newyork).
In response to the growing use of computer-generated counterfeit money, the U.S. Department of the Treasury redesigned the $50 and $100 bills in the 1990s and introduced new $5, $10, and $20 bills between 1998 and 2000. These bills contain a watermark making them harder to accurately copy. Another change in currency design was introduced in October 2003: a new $20 bill with shades of green, peach, and blue in the background. A blue eagle and metallic green eagle and shield have also been added to the bill's design. A new $50 note was issued on September 28, 2004, and a new $10 note was issued on March 2, 2006. On June 29, 2006, the U.S. government announced plans to redesign the $5 note and issue the new note in early 2008.
The Secret Service explains that many counterfeiters have abandoned the "traditional" method of offset printing, which requires specialized skills and machinery. Instead counterfeiters produce fake currency with basic computer training and typical office equipment. Although the number of counterfeit bills in circulation is likely to increase because more people have access to the machines and methods required to produce them, the security features added to the design and manufacture of U.S. currency have also made it easier to detect bogus bills.
The Department of the Treasury reports in The Use and Counterfeiting of United States Currency Abroad, Part 3 (September 2006, http://www.federalreserve.gov/boarddocs/rptcongress/counterfeit/counterfeit2006.pdf), the value of U.S. currency determined to be counterfeit after entering circulation was $61 million in 2005, up by more than 50% since 1999, when $40.6 million in counterfeit was found in circulation. During this period, the value of counterfeit currency seized before entering circulation was $52.6 million, down from $140.3 million in 1999. (See Table 4.3.)
The U.S. Government Accountability Office defines money laundering as "disguising or concealing illicit funds to make them appear legitimate" (http://www.gao.gov/new.items/d04710t.pdf). Money laundering involves transferring illegally received monies into legal accounts so that when money is withdrawn from those accounts, it appears to the police or other government authorities to be legal earnings of the account or the business. When a money-laundering scheme is successful, the criminals can spend their illegally acquired money with little fear of being caught. Many of the techniques that launderers use would be perfectly legal business transactions if the source of the cash were not illegal activities.
|Counterfeit currency seized and passed, 1999–2005|
|[Millions of dollars]|
|Note: "seized" refers to counterfeit currency that was detected before being circulated, while "passed" indicates currency that was determined to be counterfeit after entering circulation. Only passed currency represents a loss to the public; seized counterfeits represent an averted threat.|
|Source: "Table 6.2. Data on Counterfeit Currency, Fiscal Years 1999–2005," in The Use and Counterfeiting of United States Currency Abroad, Part 3, U.S. Department of the Treasury, September 2006, http://www.ustreas.gov/press/releases/reports/the%20use%20and%20counterfeiting%20of%20u.s.%20currency%20abroad%20%20part%203%20september2006.pdf (accessed February 3, 2007)|
Over the years the federal government has enacted a number of laws to prevent money laundering. For example, the Uniting and Strengthening America Act by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (P.L. 107-56), known as the USA Patriot Act, fortified laws dealing with how U.S. banks use foreign banks to transfer money into and out of the country and the financing of terrorist organizations and activities. It also outlawed bulk cash smuggling, making it illegal to take more than $10,000 in concealed cash across the border to avoid reporting requirements.
On July 5, 2006, the Financial Crimes Enforcement Network, a section of the U.S. Department of the Treasury, issued final regulations for Section 312 of the USA Patriot Act. This section addresses correspondent accounts for foreign financial institutions as well as accounts opened in the United States by noncitizens. According to the new regulations, financial institutions are required to establish and implement policies to detect and report suspicious money-laundering activities. In addition to tighter controls at U.S. institutions, the federal government also extended its ability to obtain financial evidence abroad. As of March 2007 the U.S. Department of State and Department of Justice had entered into mutual legal assistance treaties (MLATs) with fifty-one countries. MLATs facilitate evidence gathering in international criminal cases, and make it possible to access banking and other financial records from foreign institutions in money-laundering cases.
Increased awareness of money laundering is reflected in the number of Suspicious Activity Reports (SAR) submitted by banks to the U.S. Department of the Treasury. Banks are required to submit these reports whenever they have reason to believe that a transaction of at least $5,000 involves money derived from illegal activities. In the SAR Activity Review: Trends, Tips, and Issues (May 2006, http://www.fincen.gov/sarreviewissue10.pdf), the Treasury Department reported that it received 345 SARS regarding more than $1,000 in checks cashed by a single individual in one day, 309 suspicious money transfers, and 12 reports regarding suspected money laundering. (See Table 4.4.)
The number of money-laundering investigations initiated by the IRS has declined in recent years, from 1,789 in FY 2004 to 1,443 in FY 2006. Although the number of prosecutions has also decreased, from 1,515 in 2004 to 1,248 in 2006, the number of defendants sentenced has increased from 687 in FY 2004 to 800 in FY 2006. Similarly, the average number of months that those convicted serve in prison has increased from 63 months in FY 2004 to 74 months in FY 2006. (See Table 4.5.)
The U.S. Attorney's office in Seattle, Washington, reported the conclusion of one money laundering case in October 2006. The defendant in the case pleaded guilty to "willful failure to report a currency transaction in excess of $10,000," according to the U.S. Attorney's Office (http://www.usdoj.gov/usao/waw/press/2006/oct/plowman.html). The defendant, an attorney who represented a cocaine dealer, had accepted cashier's checks totaling $176,000 from his client to purchase a laundromat. The attorney did not document his receipt of this money, kept in a safe in his office, and failed to submit the required IRS forms recording large money transfers. According to the prosecutors, the attorney then used a $60,000 check and $100,000 in cash to purchase the business on behalf of his client, but wrote a sales document reflecting a purchase price of only $60,000, allowing $100,000 to transfer in the sale without documentation. Admitting this transaction was part of a pattern of similar unlawful actions. The attorney faced a sentence of ten years in prison.
|Suspicious activity reports submitted to the U.S. Department of the Treasury, 2005|
|Activity||Occurrences||Percentage of total reported activities|
|Source: "Table 1. Types of Reported Activities," in "Section 2—Trends and Analysis," SAR Activity Review: Trends, Tips, and Issues, no. 10, May 2006, http://www.fincen.gov/sarreviewissue10.pdf (accessed February 4, 2007)|
|Check cashing (over $1,000 aggregate for any person on any day)||345||27.87%|
|Check cashing (non-specific)||339||27.38%|
|Money services businesses activities (non-specific)||131||10.58%|
|Informal value transfer systems (including hawala)||49||3.96%|
|Arrests, indictments, and illicit activities associated with the operation of unregistered money services business||15||1.21%|
|On money services business registration list without authorization date||13||1.05%|
|No apparent money services business activity||13||1.05%|
|Black market peso exchange-like activity||2||0.16%|
|Exchange of cashed third-party checks with related business for cash||2||0.16%|
|Registered money services business facilitating transfers for related unregistered money services business||1||0.08%|
|Money laundering and Bank Secrecy Act investigations by the Internal Revenue Service, fiscal years 2004–06|
|Money laundering investigations||Fiscal year 2006||Fiscal year 2005||Fiscal year 2004|
|*Incarceration includes confinement to federal prison, halfway house, home detention, or some combination thereof.|
|Notes: Since actions on a specific investigation may cross fiscal years, the data shown in cases initiated may not always represent the same universe of cases shown in other actions within the same fiscal year. BSA statistics include investigations from Suspicious Activity Report (SAR) Review Teams, violations of BSA filing requirements, and all Title 31 and Title 18-1960 violations.|
|Source: "Statistical Data—Money Laundering Enforcement," in Criminal Investigations: Tax Fraud Alerts, U.S. Department of the Treasury, Internal Revenue Service, 2007, http://www.irs.gov/compliance/enforcement/article/0,,id_113002,00.html (accessed February 4, 2007)|
|Average months to serve||74||62||63|
|Bank Secrecy Act (BSA) investigations|
|Average months to serve||43||42||37|
RETAIL STORE THEFT
The 2005 National Retail Security Survey Final Report (2006) by Richard Hollinger and Lynn Langton of the University of Florida is an annual survey of retail theft. The 2005 survey analyzed data from 156 of the largest U.S. retail chains. The survey found that retail shrinkage—a combination of employee theft, shoplifting, vendor fraud, and administrative error—represented about 1.6% of total annual sales in 2005, an increase from 1.5% in 2004 but a decrease from 1.8% in 1991. (See Figure 4.7.) Shrinkage rates were highest (4.7%) for accessories retailers, followed by home center/hardware/lumber/garden stores (3.2%) and craft/hobby stores (2.6%). (See Figure 4.8.)
According to the survey, employee theft accounts for more losses from retail theft than any other cause. (See Figure 4.9.) However, the average loss per employee-theft incident had decreased from $1,762 in 2003 to $1,053 in 2005. This is probably due to increased use of surveillance technology by retailers.
The 18th Annual Retail Theft Survey conducted by Jack L. Hayes International, a retail security consulting firm, collected information from 24 large retail companies with 13,313 stores and $519 billion in 2005 retail sales (http://www.hayesinternational.com/thft_srvys.html). Nationwide these retailers apprehended more than 670,000 corrupt employees and shoplifters in 2005. Merchandise recovered through these captures was valued at more than $127 million, up 17.3% from 2004. However, goods recovered amounted to less than 3% of losses. The survey indicates that for every dollar recovered by retailers, $37.05 was lost to theft. Furthermore, the companies reported one out of every 26.5 employees was caught stealing. On average, employee thieves stole more than their shoplifting counterparts, with an average $724.15 stolen by employees and $126.87 stolen by shoppers.
Abuse of public trust may be found wherever the interest of individuals or businesses overlaps with government interest. It ranges from the health inspector who accepts a bribe from a restaurant owner or the police officer who "shakes down" the drug dealer, to the council member or legislator who accepts money to vote a certain way. These crimes are often difficult to uncover, as often few willing witnesses are available.
The U.S. Department of Justice reports in its Report to Congress on the Activities and Operations of the Public Integrity Section for 2005 (2006, http://www.usdoj.gov/criminal/pin/docs/AnnReport_05.pdf) that the number of persons indicted for offenses involving the abuse of public office increased steadily from 1973 to 1983 and has remained relatively stable since that time. In 2005, 1,163 people were indicted and 1,027 were convicted in public corruption cases. Of those indicted, 445 were elected or appointed federal officials, 96 were state officials, 309 were local officials, and the remaining 313 were private citizens not employed by the government. (See Table 4.6.)
Bribes, Kickbacks, and Racketeering
In one of the most notable cases involving bribery and kickbacks, Jack Abramoff, a prominent lobbyist in Washington, D.C., pleaded guilty to fraud, tax evasion, and conspiracy to bribe public officials in January 2006. He was sentenced to five years and ten months in prison and ordered to pay $21 million in restitution.
Abramoff received kickbacks from his former business partner, Michael Scanlon, in a conspiracy to defraud Native American tribes who sought government approval to operate casinos. The tribes hired Abramoff to represent their interests, and he then recommended Scanlon's public relations firm to the tribes. Abramoff received a kickback from Scanlon for the referral. Abramoff and Scanlon supplied financial incentives, trips, and entertainment expenses to public officials whose support was needed for the projects they represented.
Abramoff was also listed as a co-conspirator in the charges against former Rep. Robert W. Ney (R-OH), who was sentenced in January 2007 to thirty months in prison and two years of supervised release. In addition Ney was ordered to serve 100 hours of community service for each year of supervised release and pay a $6,000 fine. Ney pleaded guilty on October 13, 2006, to honest services fraud, lobbying violations, and making false statements to the U.S. House of Representatives. Ney represented the 18th District of Ohio from 1995 through 2006. He admitted that he accepted international and domestic trips, meals, sports and concert tickets, and other incentives from Abramoff and others in exchange for his support on matters before the House of Representatives. In addition to Abram-off and Scanlon, a foreign businessman also provided financial incentives to Ney in return for his support in obtaining a travel visa and an exemption from legal restrictions against foreign nationals selling U.S. aircraft abroad.
SCAMS ON THE ELDERLY
Because senior citizens are often retired and living on fixed incomes and savings, the promise of economic security can be very alluring. As a consequence, the elderly can be particularly vulnerable to economic crimes such as fraud and confidence schemes.
Seniors are particularly vulnerable to con artists. Often, they are lonely, isolated from their families, and sometimes more willing than in earlier years to believe what they are told. Some suffer mental or physical frailties that leave them less able to defend themselves against high-pressure tactics. In addition, they may be financially insecure and may want to believe the con artist's promises of future wealth and security. Since many elderly are too embarrassed to admit that they have been fooled, many of these crimes are not reported.
Statistics on fraud against the elderly, sometimes called elder scams, are not collected by the major crime reporting agencies. Surveys conducted by the AARP (formerly the American Association of Retired Persons) indicated that most victims of telemarketing fraud were fifty years of age or older. Top frauds committed against those sixty or older involved prizes/sweepstakes, lotteries/lottery clubs, and magazine sales.
One popular scam involves con artists calling or mailing information to elderly people announcing that they have won a free prize, but must pay postage and handling to receive it. They are told a credit card number is needed to pay these costs. The thieves then use the credit card number to buy items and to get cash. The elderly are also susceptible to repairmen who stop by and say they can fix their homes. The workers may do the repair work, but it is shoddy and overpriced. If the elderly try to complain, the repairmen are no longer in the area, possibly not even in the state.
|Number of officials and private citizens prosecuted in public corruption cases, selected years 1986–2005|
|Source: Adapted from "Table II. Progress over the Last Two Decades: Federal Prosecutions of Public Corruption by U.S. Attorneys' Offices," in Report to Congress on the Activities and Operations of the Public Integrity Section for 2005, U.S. Department of Justice—Criminal Division, 2006, http://www.usdoj.gov/criminal/pin/AnnReport_05.pdf (accessed January 17, 2007)|
|Awaiting trial as of 12/31||83||118||126||149||133||120||83||101||131||129||98||118|
|Awaiting trial as of 12/31||24||26||18||42||39||23||20||44||75||38||48||51|
|Awaiting trial as of 12/31||55||89||122||88||132||89||118||95||110||106||105||148|
|Awaiting trial as of 12/31||84||135||109||67||99||91||106||89||121||139||168||134|
|Awaiting trial as of 12/31||246||368||375||346||403||32||327||329||437||412||419||451|
A more elaborate scam involves a con artist, acting as a bank official, telling the elderly person that a particular bank teller is giving out counterfeit bills and that the bank needs help in catching the teller. The elderly person goes to the teller's window and withdraws a large sum of money. The victim then gives the money to the "bank official" to be examined. The "bank official" assures the customer that the money will be redeposited in his or her account; of course, it never is.
Environmental crime involves illegally polluting the air, water, or ground. Sometimes firms dump hazardous materials and waste. To investigate properly, local, state, national, and international agencies often need to cooperate. It is not unusual for environmental criminals to transport hazardous waste across state or international borders for disposal in places with less stringent environmental enforcement. Even when a problem is known to exist, environmental crime cases are often difficult to prosecute due to their complex nature. The ramifications of pollution may take years to realize as pollutants become dispersed in the environment. In addition, financial penalties are often low enough to make it worth the risk for companies to flout the regulations. The more common means of enforcing environmental laws is through regulatory action by government agencies and the application of civil penalties to those who violate the regulations.
During fiscal year 2006 the Environmental Protection Agency (EPA) initiated 305 criminal complaint cases and charged 278 defendants with environmental crimes ("EPA Enforcement Cuts Total Pollution by Record 3 Billion Pounds Over Last Three Years—Air Pollution Reductions Alone Result in Health Benefits of $3.5 Billion Yearly," November 15, 2006, http://yosemite.epa.gov/). Together these defendants received a total 154 months in prison and were required to pay $43 million in fines in addition to $29 million for environmental rehabilitation. Additional enforcement actions resulted in agreements to pay $391 million to clean up 15 million cubic yards of contaminated soil and approximately 1.3 billion cubic yards of contaminated groundwater at waste sites and $4.9 billion to reduce pollution and achieve compliance with environmental laws.
"White-Collar Crime." Crime, Prisons, and Jails. . Encyclopedia.com. (May 24, 2017). http://www.encyclopedia.com/law/news-wires-white-papers-and-books/white-collar-crime
"White-Collar Crime." Crime, Prisons, and Jails. . Retrieved May 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/law/news-wires-white-papers-and-books/white-collar-crime
White-Collar Crime: History of an Idea
WHITE-COLLAR CRIME: HISTORY OF AN IDEA
Crimes committed by persons of respectability have drawn the attention of societies throughout history. In the United States, interest in such phenomena far antedates the first public use of the concept of white-collar crime by Edwin Sutherland. The muckraking tradition at the turn of the century produced many persons who condemned abuse of position for private gain. Sociologist E. A. Ross, in Sin and Society, drew attention to "the man who picks pockets with a railway rebate, murders with an adulterant instead of a bludgeon, burglarizes with a "rake-off" instead of a jimmy, cheats with a company prospectus instead of a deck of cards, or scuttles his town instead of his ship" (p. 7).
The varied misdeeds denoted by Ross give an early hint of both the value of the concept and the difficulties that have plagued its use. The value is essentially social and evocative. It connotes not a particular type of crime or a statutory violation, but a concern for some combination of abuse of trust, authority, status, or position. In a society whose criminal justice system deals mainly with common crimes and common offenders, it bespeaks a concern for the misdeeds of the haves rather than the have-nots, and it raises the specter of class bias in law enforcement. However, its signifying power is precisely its weakness as an analytical tool, for its meaning shifts with changes in the character of society and in the underlying values and interests of the varied scholars and policymakers who invoke it. It is thus a distinctively social, rather than legal, concept, one suffused with vagueness and ambiguity.
The evolution of white-collar crime
The legacy of Sutherland. Sutherland's interest in the topic dates at least to the 1920s, although the research resulting in his White Collar Crime was initiated during the depression years of the 1930s. The first public treatment of the subject occurred when Sutherland titled his presidential address to the American Sociological Society in 1939 "The White Collar Criminal." He was apparently drawn to the topic in his search for a general theory of crime. The usual explanations in his day (and often today) stressed poverty and other pathological social conditions, but, argued Sutherland, these factors could not be a general cause of crime if crimes were also committed by persons of respectability and high social status. In the book-length version of the speech, which appeared a decade later, Sutherland aimed simultaneously to weaken theories depending on the behavior of the deprived and the depraved, and to provide support for his own social-learning approach to crime causation—the theory of differential association.
Sutherland was rather casual in his conceptualization of white-collar crime, at times stressing social status, at times behavior carried out in an occupational role, and at times crime committed by organizations or by individuals acting in organizational capacities. The confusion is reflected in his most frequently cited definition: "White collar crime may be defined approximately as a crime committed by a person of respectability and high social status in the course of his occupation" (p. 9). His book was devoted, however, to the crimes of organizations, not of persons: seventy large corporations and fifteen public utilities. Thus, a firm basis for ambiguity had been laid. Those following Sutherland sometimes focused on persons of high status, sometimes on occupations, and sometimes on corporate bodies.
Sutherland's book described the illegalities committed by those corporations, arguing that the corporations share most of the characteristics of professional thieves: their offenses are deliberate and organized, they are often recidivists, and they show disdain for law. Needless to say, with these conclusions the book had a controversial reception. Many in the social sciences hailed it as a landmark, whereas many in law and business attacked it as misleading and distorted. The principal basis for disagreement concerned the underlying concept of crime. The "crimes" of the corporations Sutherland examined were rarely prosecuted in criminal court: they were violations of administrative rules or simply contract cases to be processed, if at all, in civil court. Many in the legal community insisted these were not crimes at all. Sutherland's answer was that businessmen were more able to influence the course of legislation; it was only their greater power (relative to the lower-class criminal) that kept their offenses out of the traditional criminal law.
The battle over definition aside, Sutherland's pioneering work stirred few fires in the two decades after its publication. Detailed studies of particular offenses, such as Donald Cressey's examination of the violation of financial trust, were the exception rather than the rule. Of the triumvirate of status, occupation, and organization that underlay Sutherland's conception, interest tended to turn away from the status dimension itself, and toward those crimes made possible because of the defendant's occupational role (Newman). Some analysts spoke not of white-collar crime but of occupational crime. Offenders studied in these terms were not exclusively of high status. They included retail pharmacists, meat inspectors, and bank tellers. Although a much-publicized case of price-fixing in the electrical industry in 1961 (Geis and Meier) helped sustain an interest in the topic of crimes committed through, and on behalf of, organizations, sustained study of organizational crime did not flower until the next decade. Criminological research and theory continued to concentrate on juvenile delinquency and violent crime.
It is unclear why Sutherland's work generated so little new research or theory, although several reasons are plausible. The massiveness of Sutherland's undertaking, as well as confusion regarding the concept itself, may have played a part. The 1950s and 1960s were not depression decades, and the problems of a younger generation occupied public and governmental attention. It had also provided more convenient, historically, for social scientists to study the weak and deprived, rather than those in more powerful positions. The symbolic and evocative nature of the concept remained, however, awaiting changing conditions for new meaning to be infused into it.
From offender to offense. Societal interest in white-collar crime grew rapidly in the 1970s, rivaling the attention street crime had received in the preceding decade. Prosecutors gave it higher priority than in the past. Targets of investigation included individual businessmen, corrupt politicians, and such corporate activities as international business bribery, the manufacture of dangerous products, and environmental pollution. The renewed interest was motivated at least in part by the discovery of corruption and other illegal practices at the highest levels of government, and by a growing sensitivity to dangerous corporate practices. The growth in interest was great enough that it could be fairly labeled a social movement (Katz, 1980).
When the pace of scholarship on white-collar crime also revived, it became evident that the wide range of phenomena suggested by the concept had to be broken down into components. Attention had focused so much on the nature of the offender that actual criminal behavior had gone unexamined. It seemed to make little sense to include under a single rubric as diverse a set of activities as bank embezzlement, land swindles, price-fixing, fraudulent loan applications, and bribery. The first important shift away from the legacy of Sutherland was accomplished by taking the offense itself as the principal object of inquiry. In the first such effort, Herbert Edelhertz proposed to define white-collar crime as "an illegal act or series of illegal acts committed by nonphysical means and by concealment and guile, to obtain money or property, to avoid payment or loss of money or property, or to obtain business or personal advantage" (p. 3). A related shift is to search for behavioral patterns that characterize different types of white-collar crime. Susan Shapiro, for example, distinguishes fraud, self-dealing, and regulatory offenses (pp. 20–24), and Mitchell Rothman separates frauds, takings, and collusion.
The impulse that gives rise to typological efforts is the felt need to put order into the enormous range of behaviors at issue. The statutes that define white-collar crime, passed by legislatures for various purposes at various times, are a patchwork. Important as they may be for prosecution, the legal categories are of limited value for analytic purposes. A given statutory offense may include a wide array of actual behaviors; bank embezzlement, for example, may range from a simple theft by a bank teller to a complex fraudulent loan arranged by a trust officer. Essentially the same behavior may be punished under statutes as different as those governing mail and wire fraud, securities fraud, and false claims and statements. Typologies allow one to see some of the similarities between crimes as different as bribery and price-fixing, which share the element of collusive activity.
The underlying assumption of this type of analysis—still to be proved—is that parallels in behavior may suggest parallels in either the causal processes producing such behavior or in the methods of detection and enforcement brought to bear upon them. Such work is likely to be only partially successful until there is greater agreement on the core properties of white-collar crime. To the extent that the legal categories themselves are a function of concerns not reflected in the underlying conduct—a concern, for example, that the conduct be reachable by federal authorities, or that regulatory agencies can police it—typologies that concentrate on underlying conduct may be prematurely dismissive of the important role played by legal categorization itself.
From offense to organization and consequence. A second trend is to emphasize not behavior but its consequences. This trend rediscovers issues that occupied reformers at the turn of the twentieth century—a concern for the power of organizationsand the harms they commit. From the late nineteenth century on, harms caused by the production and sale of adulterated goods and similar activities were recognized as "strict liability" offenses—criminal acts not requiring proof of a guilty mind. Throughout the twentieth century these activities, and many others later recognized to pose a similar threat, came increasingly to be the subject of administrative regulation, which was seen as a wiser and more effective device for protecting the public interest. Regulation expanded as new dangers to health and to life itself were recognized—dangers to individuals posed by the air they breathed, the water they drank, the food and drugs they consumed, the automobiles and other products they used, and the places at which they worked.
Rediscovery of the power of organizations to inflict physical damage as well as economic injury has led some scholars to direct their attention to specifically organizational offenses. The central concern here is those actions taken by the officials or other agents of legitimate organizations that have a serious physical or economic impact on employees, consumers, or the general public (Schrager and Short). A growing number of analysts thus speak of organizations as offenders of "organizational deviance," and of illegalities committed through the organizational form. This is a response to a society in which organizations increasingly are major actors, and although it reflects experience in the United States, both the concept of white-collar crime and a concern with corporate and governmental offenses are found throughout the world.
The focus on organizational offenses brings with it enduring issues of law and policy. One is the question of the standard by which individual conduct is to be judged. Should organizations' executives be sanctioned for failure to supervise middle-level officials engaged in wrongdoing? Should strict liability be employed, as in some of the earlier public-welfare offenses? How should sanctions be distributed between organization and employees? When the focus is on the corporate body itself, there is the question of how best to protect against harmful corporate practices without stifling organizational innovation and creativity. For example, should unwanted conduct be deterred through increased penalties against the corporation? Or is it more effective to control wrongdoing by reaching inside the organization, either through rules governing production processes and information flow, or rules regarding the composition of the board of directors? The treatment of the offenses of organizations remains fraught with complex policy choices (Coffee; Kadish; Stone).
Finally, there is the issue that sparked the original debate over the concept of white-collar crime: Are these offenses administrative rule violations or "real" crimes? The most complete follow-up study to White Collar Crime defines its subject as any act, committed by a corporation, that is punishable by the state, whether through criminal, administrative, or civil law. The title of this study, Corporate Crime, while reflecting the shift to the corporate form as a primary focus of inquiry, maintains the view that such conduct be labeled criminal (Clinard and Yeager, p. 16). The corporate sanctions examined, however, are overwhelmingly civil or administrative. Thus, the matter of definition remains controversial some forty years after Sutherland's initial exploration of white-collar crime.
White-collar crime from the enforcement perspective
White-collar crime, in either its individual or organizational form, often involves complex paper manipulations and sophisticated cover-up activities. When these traits are combined with the embeddedness of illegalities in organizations, the problems of gathering evidence with respect to motive, intent, and act are compounded. It is often extremely difficult to know who engaged in or authorized the conduct in question, what specific illegality has been committed, or whether there is a crime at all. For these reasons, crucial differences between white-collar crime and common crime appear when one examines how each is detected and prosecuted.
For common crimes, prosecution and defense are typically brought into play only after a crime has occurred and an arrest has been made; but in the case of white-collar crimes, the investigative work of prosecutors and the protective efforts of defense counsel characteristically precede, rather than follow, formal action. Indeed, from an enforcement perspective, white-collar crimes are those detected and investigated by white-collar workers, in contrast to the men in blue who respond to common crimes (Katz, 1979). The first officials to be brought into the case are not police but, more likely, tax agents or employees of a regulatory agency. Defense counsel will be hired when the defendant first becomes aware that he is a target of an investigation—typically, long before an indictment is forthcoming. This means that white-collar crime prosecution and defense often more closely approximate complex civil litigation, with its various strategic moves to gain or shield information from the opposing side, than they do the typical common-crime case. The effect of these differences is to make prosecution of white-collar cases vastly more expensive and time-consuming than that of typical common crimes. With limited resources, prosecutors may find it difficult to justify heavy expenditures for a problematic white-collar investigation when the same resources might be devoted to a number of common-crime cases.
Sentencing of white-collar offenders is also complicated. As in common crime, most cases will be settled by a guilty plea. But sentencing is problematic because the white-collar defendant, although frequently having committed offenses of long duration and great economic magnitude, is more likely to have an exemplary prior record. Judges are torn between the desire to show such offenders leniency because of their past good citizenship, and the desire to show severity because the white-collar offender has abused a position of trust.
With the advent of determinate sentencing, sanctions for white-collar offenders have become more severe. The Federal Sentencing Commission, for example, substantially raised the sentences for white-collar offenders in order to guarantee short terms of imprisonment for offenders whom judges had previously been fining and placing on probation (Federal Sentencing Guidelines § 1A4(d) (Nov. 1998). In no other offense category did the Commission raise sentencing severity relative to pre-Guidelines averages; the appropriateness of its doing so for white-collar offenders remains a matter of intense political and academic controversy.
Thus, at each stage of the criminal justice system, white-collar offenses present a distinctive set of problems for law enforcement officials. For the legal philosopher as well as the policymaker, these differences raise questions of equality of treatment between common-crime and white-collar crime defendants, as well as questions of fundamental fairness in the operation of the criminal justice system. For the researcher, they point to the need to devote detailed attention to the comparative study of the administration of justice in white-collar-crime and common-crime cases.
As this review suggests, the concept of white-collar crime is in a state of disarray. Its evolution has been marked by changes in meaning that often preserve, rather than reduce, fundamental ambiguities. The term still denotes crimes of high status to some, while to others it refers to either occupational or organizational illegality. Some concentrate on the nature of the offense; others, on its consequences. The offending conduct appears in a different guise when the enforcement perspective is examined, and analysts still cannot agree whether it should be regarded as criminal.
Given this confusion, the logical solution is to abandon the concept of white-collar crime and develop separate, more neatly bounded areas of inquiry. One body of researchers might devote their attention to the relation of social status to criminality and to sentence disparity; another group, to the use of occupation in the commission of crimes. Still other investigators might study the various layers of formal organizations so as to examine how corporate offenses are conducted, and yet others might focus on regulatory agencies and their enforcement activities.
As neat as this solution might seem, it misses a fundamental point. Ambiguous since its outset, the concept of white-collar crime nevertheless appears to have enormous staying power. Why is it still in use, given its frailties? The suggestion is that the concept reflects deeply felt concerns that make psychological and social sense, even if they present logical ambiguities. The overall crime problem is commonly perceived to center on the lower echelons of society. It is the down- and-out, the unemployed, and the victims of stratification and race prejudice who constitute the bulk of those processed by the criminal justice system. White-collar crime, on the other hand, stands for all the wrongs committed by those in more advantaged positions. The source of the advantage may differ, sometimes reflecting individual status, sometimes occupational role, and sometimes organizational position. The animus that nourishes the concept is often an expression of frustration or outrage at the great imbalance of power between large organizations and their victims. Often, however, it reflects a concern for the weakening of the social fabric created when people in privileged positions destroy trust by committing crimes. Their offenses eat into the life of the community just as surely, if not as visibly, as physical assault. It is this combination of evocative features that keeps the concept of white-collar crime alive despite its flawed logical status.
When the original arguments over the meaning of the concept were at their height, the sociologist Vilhelm Aubert cautioned against efforts to decide on the concept's true meaning. White-collar crime struck him as a phenomenon highly reflective of more pervasive features of the social order. Theoretical interest lies precisely in the varying attitudes regarding such conduct held by persons from different stations in life. This view remains relevant and may well help explain the longevity of the concept. Many middle- and upper-class citizens engage in some forms of white-collar illegality while condemning others. Rather than abandoning the concept because of its logical flaws, there is a need to examine its social meaning, as well as the conditions under which the various offenses that are grouped under the "white-collar" rubric are committed, detected, and sanctioned.
Dan M. Kahan
See also Class and Crime; Corporate Criminal Responsibility; Crime Causation: Economic Theories; Criminal Justice System; Economic Crime: Anti-Trust Offenses; Economic Crime: Tax offenses; Federal Criminal Law Enforcement.
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Coffee, John C., Jr. "Beyond the Shut-eyed Sentry: Toward a Theoretical View of Corporate Misconduct and an Effective Legal Response." Virginia Law Review 63 (1977): 1099–1278.
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Kadish, Sanford H. "Some Observations on the Use of Criminal Sanctions in Enforcing Economic Regulations." University of Chicago Law Review 30 (1963): 423–449.
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Stone, Christopher D. "The Place of Enterprise Liability in the Control of Corporate Conduct." Yale Law Journal 90 (1980): 1–77.
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"White-Collar Crime: History of an Idea." Encyclopedia of Crime and Justice. . Retrieved May 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/law/legal-and-political-magazines/white-collar-crime-history-idea
Financial, economic, or corporate crime, usually involvingfraudand theft, that is often carried out by sophisticated means. The result is usually economic loss for businesses, investors, and those affected by the actions of the perpetrator.
White-collar crime is a broad term that encompasses many types of nonviolent criminal offenses involving fraud and illegal financial transactions. White-collar crimes include bank fraud, bribery, blackmail, counterfeiting, embezzlement, forgery, insider trading, money laundering, tax evasion, and antitrust violations. Though white-collar crime is a major problem, it is difficult to document the extent of these crimes because the Federal Bureau of Investigation's (FBI) crime statistics collect information on only three categories: fraud, counterfeiting and forgery, and embezzlement. All other white-collar crimes are listed in an "other" category. Nevertheless, law enforcement officials agree that white-collar crime is a major problem.
Sociologist Edwin H. Sutherland coined the term in a speech to the American Sociological Association in 1939, and published the book White-Collar Crime ten years later. Sutherland argued that there were significant differences between crimes such as robbery, burglary, and murder, which he classed as "blue-collar crime," and white-collar crime. Perpetrators of blue-collar crimes were typically street criminals. Their crimes had no link to their occupations and they were typically poor. In contrast, individuals of higher economic and social status committed white-collar crimes and their crimes were linked to their socially respected professions. In addition, Sutherland noted that very few white-collar criminals occupied prison cells. Sutherland argued that white-collar criminals inflicted more harm on U.S. society than burglars and robbers, however, the justice system treated white-collar offenders with more lenience and with less consistency than street criminals.
White-collar fraud did not begin in the late twentieth century. Embezzlers, counterfeiters, stock swindlers, and con men have practiced their crimes for hundreds of years. Political corruption thrived during the nineteenth century and, for example, tarnished the administration of President ulysses s. grant. The teapot dome scandal of the mid-1920s did the same for President Warren G. Harding's administration. Overall, however, there was a lack of interest in the United States in punishing fraudulent business behavior.
The stock market crash of 1929 and the subsequent Great Depression of the 1930s began to change public and political attitudes toward white-collar crime. These types of activities also began to draw more attention thanks in part to advances in the modern media. The 1930s saw the enactment of federal laws that regulated the banking and securities industries. The securities and exchange commission was established in 1934 to protect investors from illegal stock manipulation, insider trading, and other white-collar offenses perpetrated by stockbrokers. Though the SEC has not always succeeded in policing these white-collar crimes, numerous brokers and dealmakers have been prosecuted over the years.
Over the years, numerous regulations covering other areas of business have been enacted by both state and federal government. With more laws on the books violations have led to more prosecutions. The hallmark of many white-collar crimes, however, is sophistication. Perpetrators have specialized knowledge that allows them to commit complex transactions that are often difficult to identify. Law enforcement authorities rarely catch white-collar criminals at the very onset of their activities. The collapse of a business institution may reveal signs of financial irregularities that took place over many years. In addition, the use of computers and electronic financial transactions has complicated the detection and prosecution of white-collar crimes. Though law enforcement may be able to reconstruct electronic records and chains of events, the process is laborious and costly.
organized crime has also added white-collar offenses to its repertoire of illegal activities. The federal government passed the Racketeer Influenced and Corrupt Organization (RICO) Act (18 U.S.C.A. § 1961 et seq.), in 1970 to address these types of crimes. RICO is specifically designed to punish criminal activity by business enterprises controlled by organized crime. racketeering includes a number of discrete criminal offenses, including gambling, bribery, extortion, bankruptcy fraud, mail fraud, securities fraud, prostitution, narcotics trafficking, loan sharking, and murder. The punishment for violating RICO's criminal provisions is extremely harsh. If convicted, a defendant is fined and sentenced to not more than 20 years in prison for each RICO violation. Moreover, the defendant must forfeit any interest, claim against, or property or contractual right over the criminal enterprise, as well as any property that constitutes the racketeering activity or was derived from the racketeering activity. Finally, RICO contains civil provisions that allow a party injured by a RICO defendant to recover damages from the defendant in civil court.
During the late 1990s, a number of corporations manipulated financial information and made improper financial transactions. Accounting firms helped conceal the illegal nature of these actions, which undermined investor confidence in the stock market and corporate governance in general. The corporate scandals that emerged in 2001 involved Enron, WorldCom, and the accounting firm of Arthur Andersen and were of national importance. Congress responded to these elaborate white-collar crimes by enacting the Public Company Accounting Reform and Investor Protection Act, also known as the sarbanes-oxley act (Pub.L. 107-204, 116 Stat. 745, ) The act increased penalties for the white-collar crimes of mail fraud and wire fraud from a maximum of five years to 20 years in prison. It also directed the united states sentencing commission to review and amend its sentencing guidelines regarding white-collar crimes. In addition, the law makes it a crime for corporate officers to falsify financial reports. A conviction could result in a $5 million fine and 10 years in prison. Most importantly, the act created a new crime of securities fraud. A person convicted of this white-collar crime could be sentenced to 25 years in prison.
The Sarbanes-Oxley Act, apart from its substantive provisions, expressed a new recognition of the seriousness of white-collar crime.
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, or White-Collar Crime, 1949
). The great value of the idea was to redress the imbalance in criminology's obsession with crimes of the working class. The concept tends to be used very broadly, to include both activities carried out by employees against their employer (embezzlement, pilfering), and activities undertaken by corporate executives on behalf of the corporation itself (such as violation of anti-trust regulations or stock-market rules). Strictly speaking the latter should more accurately be designated corporate crime.
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white-collar crime, term coined by Edward Sutherland for nonviolent crimes committed by corporations or individuals such as office workers or sales personnel (see white-collar workers) in the course of their business activities. White-collar crimes include embezzlement, false advertising, bribery, unfair competition, tax evasion, and unfair labor practices.
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"crime, white-collar." A Dictionary of Sociology. . Retrieved May 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/dictionaries-thesauruses-pictures-and-press-releases/crime-white-collar