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WHITE COLLAR CRIME IN CONTEMPORARY SOCIETY 4TH ED.

CHAPTER 3

CORPORATE CRIME

Trusted Criminals

Designed by: Jordan Land, M.S.

Historical Development of the Corporation
and Corporate Crime

  • In the Anglo-American tradition, the earliest corporations were churches, towns, guilds and universities

  • Over time, these corporations were recognized as trusts with legal control over certain property

  • These trading corporations played a central role in massively harmful acts
  • Devastation of the Native Americans and the slave trading of Africans

Historical Development of the Corporation
and Corporate Crime

  • The Industrial Revolution gave rise to powerful and wealthy capitalist corporations with relatively little regulation

  • The Robber Barons were involved in every manner of bribery, fraud, stock manipulation, price gouging, exploitation of labor, etc.

  • These corporations were largely invulnerable to legal controls

The Corporation in Modern Society

  • Corporations are widely regarded as the centerpiece of a free-market capitalist economy and as a powerful manifestation of entrepreneurial initiative and creativity
  • Millions of people are employed by corporations and regard them as their providers
  • Corporations
  • Produce products we purchase and consume
  • Sponsor forms of entertainment
  • Important benefactors for charities

The Corporation in Modern Society

  • There is a dark side to most corporations which was recognized by Karl Marx

  • He regarded corporations as a capitalist system that exploits and dehumanizes workers and deprives them of a fair return on their labor

  • The pursuit of profit is the principle rational for the corporation

The Corporation in Modern Society

  • In the 21st century, American corporations characterized as “the new sovereigns”
  • Their pursuit of profit takes precedence over all other considerations
  • Their resources give them great influence over politicians on all levels and play a major role in shaping public policy
  • Power elite have interlocks that enable them to advance their interrelated interests and move quite easily between private and public sector positions

The Corporation in Modern Society

  • Corporations are increasingly controlled by paper entrepreneurs or investors who are principally concerned with short-term profit

  • They have been the driving force behind the intensified wave of corporate takeovers

  • This has led to devastating personal consequences, benefits, salaries, and indirect cost for consumers

A Typology of Corporate Crime

  • There are four approaches that can best categorize the different forms of activities encompassed by the term corporate crime:

Adopt a typology emphasizing the primary victims

Focus on the nature of the harmful activity

Emphasize the size or scope of the corporate entity

Classify corporate crime according to the type of product or service involved

Corporate Violence

  • Corporate violence differs from conventional interpersonal violence in several ways:

It is indirect in the sense that victims are not assaulted by another person

The effects of corporate violence are removed in time from the implementation of the action that caused the harm

Involves a large number of individuals acting collectively, who are responsible for the actions that result in physical injury or death

Is motivated by the desire to maximize corporate overhead

Unsafe Environmental Practices

  • The most common form of corporate violence is the contributions of poisoning the environment
  • Although this crime has received little attention from criminologists
  • The disposal of wastes was little regulated or controlled
  • The lack of proper disposal of wastes contributed to unsanitary living conditions, spread of disease and premature death

Unsafe Environmental Practices

  • The overall harmful consequences of such practices for the health of Americans is evident to may observers
  • Cancer is the only major cause of death that increased in the 20th century
  • Other maladies and serious health problems are: heart disease and lung disease, birth defects and genetic disorders and sterility
  • Much evidence indicates that corporations either knew or should have known of the risks arising from their dumping of toxic wastes

Toxic Waste

  • Love Canal Case:
  • In the 1940s a corporation began dumping huge metal drums filled with toxic chemical wastes
  • Schools and residents were built in that area and were exposed to noxious fumes and surfacing chemicals
  • Eventually, several hundred families were evacuated from the area
  • Hooker Chemical was compelled to pay $20 million to former Love Canal residents

Air Pollution

  • Automobile emissions constitute a significant proportion of the air pollution problem and some cities have generally unhealthful air conditions much of the year
  • For years, car manufacturers resisted the imposition of clean-air standards.
  • 1930 - GM bought out the electric street car and replaced it with buses
  • 1949 - GM and others were convicted of violating antitrust law by conspiring to eliminate the electric streetcar and monopolize the sale of buses

Corporate Violence against Consumers:
Unsafe Products

  • Corporations will inflict harm on consumers when the drive to maximize profits in the marketplace takes precedence over concerns about consumer safety
  • 2008, U.S. Consumer Product Safety Commission issued product recalls for numerous different products found to be potentially dangerous, including:
  • Cordless screwdrivers, children’s hooded sweaters, wooden infant toys, strollers, and indoor lighting fixtures

Food Products

  • The Meat Inspection Act of 1906
  • Food products are inspected according to government standards to protect consumers

  • Evidence indicates bribery of government meat inspectors and deception through the use of dyes and by other means
  • This resulted in the foisting of much unhealthy meat on the American public

Pharmaceutical Products and Medical Devices

  • Pharmaceutical companies can be characterized as “pushers” insofar as they spend millions of dollars on advertising and encourage their sales representatives to use various inducements to persuade physicians to prescribe new drugs and other products

  • The common element in all pharmaceutical product cases was that the corporations put the pursuit of profits ahead of scrupulous concern for the health and safety of their products’ users

Transportation Products and Services

  • Each year some 50,000 people are killed in automobile accidents that are blamed on driver recklessness or error, or on weather and road conditions

  • It has become recognized that design defects in automotive products contribute to accidents and fatalities

  • Despite greater attention to safety features in more recent years, unsafe vehicles still reach the market

Transportation Products and Services

  • Other segments of the transportation industry have been accused in defective-product cases

  • The airline industry has been accused of flying planes with safety defects and of falsifying airplane maintenance records

Corporate Violence against Workers:
Unsafe Working Conditions

  • For most of history, employers were not liable for death, injuries and illnesses suffered by workers as a consequence of workplace conditions
  • According to various sources, work-related accidents and diseases have been the single greatest cause of disability and premature death in the US today
  • There is no single way to compile death and disease statistics
  • Job-related deaths may be underreported or overreported, depending on the definition of “job-related”

Corporate Violence against Workers:
Unsafe Working Conditions

  • In the interest of keeping labor costs low, American corporate manufactures are now carried out in factories located in developing countries that are subject to little regulation and conditions are often hazardous or deadly dangerous

  • Workers recognize that management is mainly concerned with external appearances and efficiency rather than the safety of the production process

Corporate Abuse of Power,
Fraud, and Economic Exploitation

  • Much corporate crime wreaks no violence but has vast political and economic consequences
  • Sutherland focused entirely on corporate fraud that had economic rather than violent consequences
  • He concluded that for large corporations, profits took precedence over patriotism
  • Direct bribery of government officials has long been a common practice of corporations
  • A great deal of corruption is less blatant

Defrauding the Government
and Corporate Tax Evasion

  • Corporations with contracts to provide goods and services to the government have defrauded the government of billions of dollars

  • Citizens and tax payers ultimately foot the bill for these frauds

Defense Contract Fraud

  • Contract frauds are numerous and costly

  • Corporate contractors have charged unreasonable prices, collected tens of millions on cost overruns, falsified test data, etc.

  • Several aspects of defense fraud:
  • Large amounts of money
  • Offenders are major corporations
  • Corporations do not seem to be deterred by publicized prosecutions

Health Care Provider Fraud

  • Hospitals are believed to defraud the government of billions of dollars annually through Medicaid and Medicare programs

  • Criminal prosecutions are complicated and relatively uncommon

  • Health care fraud is best understood in terms of the objective of reaping the largest possible profit and gain taking precedence over all other considerations

Corporate Tax Evasion

  • Major corporations cost U.S. taxpayers huge amounts by evading their fair share of the tax burden
  • Major corporations with net incomes in the hundreds of millions were paying virtually nothing in taxes
  • Following 9/11 attacks, a “stimulus bill” was introduced calling for a repeal of the corporate minimum tax
  • This type of legislation can be seen more as reflective of corporate political clout than as a demonstrably effective way to respond to an economic downturn

Price Fixing

  • This is when industry leaders set inflated prices and supposed competitors adjust their own prices accordingly
  • Price fixing was prohibited by the Sherman Antitrust Act of 1890
  • 1991 - in recognition of the widespread violation of price fixing prohibition, Congress moved to reform the law to make the practice more difficult

Price Gouging and Manipulation

  • Charges of price gouging have also been directed at various industries and corporations when they take advantage of vulnerable classes of consumers
  • Many states prohibit price gouging by law
  • Pharmaceutical industry has long been accused of price gouging with huge markups
  • Price gouging clearly occurs in other industries as well, including the auto-rental, meat, infant formula, and oil sectors

False Advertising & Product Misrepresentation

  • Prosecutions of false advertising had proven difficult under the fraud laws due to the absence of major, highly motivated victims and problems of proving intent and damage
  • With the passage of special laws and the Federal Trade Commission (FTC), action against false advertising was somewhat facilitated
  • The basic response to false advertising has been to require a modification or discontinuation of a misleading advertising campaign, with criminal prosecutions rare

Economic Exploitation of Employees

  • Various corporate efforts to drive down employee wages and benefits have been evident since the early 1970s

  • The driving down of wages was accomplished by decreasing the number of high-wage union jobs and reducing wages of US workers

Corporate Stealing from Employees

  • Thefts from employees clearly violate existing laws
  • Major corporations have been accused of cheating employees out of overtime pay, illegally denying workers their pensions and even extorting money from employees falsely accused of theft
  • Other violations include:
  • Minimum wage laws
  • Failure to make legally ordained social security payments on behalf of their employees
  • Improper use of employee pension funds

Unfair Labor Practices

  • Corporate management has resisted the right of labor to organize, to strike, and to bargain collectively

  • Workers collectively have also lost countless millions by being deprived of adequate and effective representations in negotiations with management

  • In more recent years, a series of laws has rendered such discrimination less common and more vulnerable to legal action

Corporate Surveillance of Employees

  • Another form of corporate crime is the use of intrusive technologies

  • This activity is indeed a form of corporate theft, as it is an infringement on a traditional and important right to privacy

  • From the corporate management perspective, this surveillance is necessary to combat another form of white collar crime:
  • Employee theft

Discounts and Chargeback Frauds

  • Large corporations often have a considerable advantage in their dealings with countless small franchisees and suppliers

  • Saks 5th Ave. department store corporation was investigated on claims that it had imposed improper “chargebacks” on its suppliers
  • Chargebacks are deductions that large departments store chains take to reduce their payments to suppliers on the claim that the merchandise was defective or unwanted

Monopolistic Practices and Theft of Trade Secrets

  • Competitors have historically been victims of unethical and illegal acts by large corporations
  • The Robber Barons used virtually every imaginable means to destroy their competitors, and they were often successful
  • John D. Rockefeller of Standard Oil is the most famous example of a corporation ruthlessly undercutting all competitors; by the end, Rockefeller obtained a virtual monopoly by controlling 95% of the market

Monopolistic Practices and Theft of Trade Secrets

  • Sutherland identified 2 principle methods which 19th century corporations used to annihilate competitors:
  • Reducing their sales and increasing their costs

  • Sutherland also observed that corporate illegalities directed at competitors can take a number of different forms, including:
  • Patent infringement
  • Trademark infringement
  • Copyright infringement

Managerial Accounting Fraud,
Self-Dealing & Strategic Bankruptcy

  • Owners themselves can be victimized by corporate crime

  • The owners are the stockholders and management consists of the executives who run the corporation and typically also own some of its stock

  • Corporate CEOs also benefit disproportionately in mergers and buyout deals with company stakeholders often losing out

Managerial Accounting Fraud,
Self-Dealing & Strategic Bankruptcy

  • Corporate managers may not have complete freedom of action, but they do have significant opportunities for self-dealing
  • Insiders have often defrauded investors and would-be owners through false financial statements, stock price manipulations, and other strategies
  • In the bull market of the 1990s, corporate management felt increasing pressure to produce high levels of profit and growth and keep the company’s stock prices high

Managerial Accounting Fraud,
Self-Dealing & Strategic Bankruptcy

  • The executives involved may have been seeking self-preservation, or they may have been setting up an outright swindle

  • Misstatements of financial data by corporations become quite common, especially by software and “dot com” companies

  • In these frauds, corporate managers collected salaries and bonuses while the stockholders lost large sums due to drastic changes in stock price

Managerial Accounting Fraud,
Self-Dealing & Strategic Bankruptcy

  • Corporations may commit crimes against their creditors by using various strategies to evade payment of debts and obligations

  • In recent years, some major corporations have pursued strategic bankruptcy to avoid meeting certain burdensome financial obligations, including obligations to creditors

Are Universities and Colleges
Corporate Criminals?

  • Some academic institutions are plagued with corruption
  • Admissions, and diplomas awarded through bribery

  • Some universities have huge financial commitments and are engaged in vigorous competition with comparable institutions

  • Various prestigious research institutions have been accused of charging numerous improper items and activities to federal grant programs

Are Universities and Colleges
Corporate Criminals?

  • Institutions of higher learning are also accused of cheating taxpayers by making fraudulent claims in connection with federal student-aid programs
  • Institutions can defraud students by not giving them the quality of education promised
  • In some institutions, undergraduates are taught by overworked, underpaid and poorly supervised graduate students or teaching assistants
  • Institutions have been investigated for price fixing of tuition
  • Athletic programs have been accused of exploiting student athletes by using them for economic gain without attending to their educational needs