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WHITE COLLAR CRIME IN CONTEMPORARY SOCIETY 4TH ED.

CHAPTER 10

POLICING AND REGULATING

WHITE COLLAR CRIME

Trusted Criminals

Designed by: Jordan Land, M.S.

Criminal Justice System Policing:
Law Enforcement

  • Historically, white collar crime has not been a principle concern of law enforcement agencies
  • For many forms of white collar crime, the police have lacked jurisdiction, expertise and resources
  • White collar crime units have been established in some U.S. urban police departments
  • Local police typically do not have the resources and may lack jurisdiction to address complex white collar crime cases

Criminal Justice System Policing:
Law Enforcement

  • The principal training of police personnel is oriented toward conventional crime

  • Police officers are more likely to be attracted to the more dramatic forms of street crime than to white collar crime

  • White collar crime cases are especially likely to require a greater investment of time than typical conventional crime cases
  • With a lower probability of a successful resolution

State and Federal Enforcement Agencies

  • Because of the complex, interjurisdictional character of much white collar crime, federal agencies have played a much larger role in the investigation of these crimes than have local agencies

  • About 2/3 of the states have established white collar crime units or planned to do so

  • With the help of the National White Collar Crime Center, state law enforcement agencies are able to store information in a database for easy access

State and Federal Enforcement Agencies

  • If urban police forces are the principal public policing agency responding to street crime, then federal policing agencies make the most substantial response to white collar crime
  • The principal federal investigative agencies are:
  • The FBI
  • Inspectors General
  • U.S. Postal Inspection Service
  • U.S. Secret Service
  • U.S. Customs Service
  • Internal Revenue Service Criminal Investigation Division

The FBI

  • The FBI grew from a small Justice Department into one of the world’s most highly regarded policing agencies during the reign of J. Edgar Hoover
  • Hoover was not concerned with white collar crime
  • Hoover was concerned with highly visible forms of professional crime
  • Bank robbery and kidnapping, and the activities of alleged subversives
  • Hoover’s successors claimed that they made white collar crime a higher priority

The FBI

  • During the Regan administrations, the FBI was focused on protecting the government and major financial institutions from fraud
  • In the Clinton era, the Whitewater investigation took precedent over white collar crime
  • Then on September 11, 2001, the FBI was shifted to counterterrorism squads leaving fewer to investigate white collar crimes
  • In 2008, the main focus is on investigating financial crimes

The Inspectors General

  • They have been granted authority to conduct audits and investigations of departments or agencies to which they are attached
  • Inspectors general are granted some autonomy and certain powers and are expected to report to the attorney general and Congress any internal wrongdoing that come to their attentions
  • It is not clear that they can root out internal corruption effectively because they are part of the department they are investigating

The U.S. Postal Inspection Service

  • White collar crime is far more likely to involve the use of the U.S. mail than conventional crime

  • The Postal Inspectors are identified as the oldest federal law enforcement agency

  • In 1872, Congress enacted a mail fraud statute in response to an epidemic of mail swindles that were beyond the jurisdictional reach of local prosecutors

The U.S. Postal Inspection Service

  • This agency is charged with maintaining the overall security and integrity of the mail system

  • This agency can neither prosecute frauds nor officially mediate disputes concerning frauds, its investigation alone can deter such schemes

  • It can refer cases for criminal prosecution

The U.S. Secret Service, U.S. Customs Service, and U.S. Marshals Service

  • The Secret Service
  • Investigates white collar crimes involving counterfeiting or forgery of any form of federal currency or warranted financial instrument
  • U.S. Customs
  • Investigates money laundering, falsified import or export documents, illegal product dumping, and foreign corrupt payment
  • U.S. Marshals
  • Assigned both law enforcement and court-related duties
  • Pursue and capture fugitives, engage in pursuit of white collar crime fugitives and also have the responsibility of disposing of seized assets in white collar crime cases

The I.R.S. Criminal Investigation Division

  • The I.R.S. investigates tax frauds or misrepresentations involving corporations, businesses and individuals

  • Tax audits and investigations may precipitate investigations of other types of corporate and occupational crime when they uncover evidence of substantial income that cannot be ascribed to legitimate sources

The I.R.S. Criminal Investigation Division

  • The I.R.S. also claims to have the best white collar crime lab in the country

  • This forensic crime lab has the capability of reconstructing shredded documents, enhancing voices on tapes, and analyzing altered documents, fingerprints, ink, paper and polygraphs

The Regulatory System Response

  • Sutherland recognized that the dominant legal response to crime by businesses was regulatory rather than penal
  • Regulatory enforcement occurs in only a very small percentage of the cases in which it could be applied
  • It has far less of the moral disgrace and stigma associated with the criminal justice system
  • Regulation has roughly been defined as any attempt by the government to control the behavior of citizens, corporations, or sub-governments, but there is no real consensus on its meaning

The Regulatory System Response

  • A distinction is often made between economic regulation (addresses market relations and attempts to ensure stability in the realm) and social regulation (addresses harmful consequences to workers, consumers, and citizens of productive activities)

  • There is no single theory or model of regulations

The Origins and Evolution of Regulation

  • Some enthusiasm for congressional intervention in the marketplace existed in the earliest days of the American republic
  • The Commerce Clause provided a basic point of departure for such regulation

  • During the latter part of the 19th century, various states attempted to regulate other business activities, including insurance agencies and employment practices for women and children

The Origins and Evolution of Regulation

  • Regulatory cycles have occurred throughout U.S. history
  • Progressive era
  • New Deal era
  • Great Society era
  • Reagan - regulation was scaled back
  • Clinton - hoped for more regulatory oversight
  • George W. Bush - favored regulatory agencies
  • Obama - moving toward massive overhaul of the regulatory system

The Creation and Operation of Federal Regulatory Agencies

  • Federal regulatory agencies are created by congressional action
  • Regulatory agencies are typically directed by a commission
  • Its members are appointed by the president and subject to congressional confirmation
  • Regulatory agencies have three basic functions:
  • Rule making
  • Administration
  • Adjudication

The Creation and Operation of Federal Regulatory Agencies

  • Regulatory rule making has been supported on the grounds that it allows for more flexible responses to developing circumstances and often requires specialized scientific or technical knowledge that resides in regulatory agencies

  • In recent years, federal regulatory agencies have issued as many as 7,000 rules and regulations annually, as compared with some 300 public laws enacted annually by Congress

The Creation and Operation of Federal Regulatory Agencies

  • The investigatory process of regulatory agencies typically involves a mixture of reactive and proactive strategies

  • When it is determined that hearings are appropriate, regulatory agencies can act quite informally in many circumstances without observing due process guidelines

  • Administrative agencies can impose some direct sanctions or civil fines

The Regulatory Agency’s Philosophy

  • Regulatory enforcement and decision making styles vary greatly in terms of regulatory philosophy
  • Regulatory officials’ assessments of compliance and noncompliance, and the actions officials taken when they identify violations also vary
  • Many cases are dropped because it is impractical to pursue them further
  • Cases that are pursued may be dealt with by administrative action or civil action, or referral for criminal prosecution

The Regulatory Agency’s Philosophy

  • Regulatory agencies confront a basic choice between emphasizing compliance or deterrence

  • Traditionally, most regulatory personnel have probably thought of themselves less as a police force and more as governmental agents who seek to gain voluntary compliance with regulatory standards

  • Regulatory agencies typically adopt some mixture of cooperative and punitive approaches

The Regulatory Agency’s Philosophy

  • Informality and bargaining take precedence over the strict implementation of legal rules for most regulatory agencies

  • Many interacting factors shape regulatory enforcement styles

  • Some of these factors include:
  • Technical, economic, and legal problems

Criticisms of Regulatory Agencies

  • Regulatory agencies have been criticized as:
  • Too responsive to political agendas
  • Run by appointed bureaucrats with too much power, too little competence, and too little accountability
  • Regulatory agencies are greatly understaffed and underfunded
  • Public pressure for agency action is small relative to that for conventional crime
  • Business interests have lobbied for limitations on these agencies’ powers and budgets

Other Factors in Regulatory Response

  • Yeager (1987) found evidence of a strong structural bias in the regulatory process that favors larger, more powerful corporations

  • This bias exists because the larger corporations have the resources to afford technical and legal experts who can challenge and negotiate with agency experts

  • The larger corporations can also absorb the formidable costs of compliance with regulatory requirements

Food and Drug Administration (FDA)

  • The FDA is part of the Department of Health and Human Services and was created from the:
  • Food and Drug Act of 1906 - mandated public protection from hazardous foods, drugs, cosmetics and medical devices
  • The FDA today regulates, inspects, monitors, tests, and develops guidelines for a wide range of foods, drugs, cosmetics, and medical devices
  • Its field inspectors are authorized to inspect any plant that produces products falling under the agency’s jurisdiction

Federal Trade Commission (FTC)

  • The FTC was created as an independent agency in 1914 as the federal government’s principle weapon against trusts
  • It is also empowered to:
  • Contend with unfair and deceptive business practices, including deceptive advertising, that defraud consumers
  • Issue trade regulation rules
  • Require businesses to produce various forms of information
  • Prevent unfair competition and anticompetitive mergers

The Securities and Exchange Commission (SEC)

  • The SEC was established in 1934 as a government response to the massive stock manipulation and frauds that contributed to the 1929 stock market crash

  • The SEC was given broad responsibilities to:
  • Regulate and police the securities market
  • Serve as a repository and examiner for registration statements
  • Provide information on securities to investors
  • Advise bankruptcy reorganizations (sometimes)
  • Investigate and initiate actions when federal securities laws are violated and frauds are committed

Environmental Protection Agency (EPA)

  • Was established in 1970 as an independent executive branch agency headed by an administrator appointed by the president

  • Established in response to a growing public concern with harm to the environment that rose sharply after a dramatic oil spill in 1969 off the coast of California

  • The EPA has mandated responsibilities to set standards and monitor practices relating to air quality, water quality and the disposal of various forms of hazardous waste

Occupational Safety and Health Administration (OSHA)

  • Was established as a Labor Department agency in 1971
  • It is one of the most controversial federal regulatory agencies
  • OSHA is authorized to develop and enforce procedures and standards for workplace health and safety and to compensate for limitations of alternative remedies such as worker’s compensation, civil tort suits and criminal prosecutions
  • They are also empowered to conduct workplace inspections and issue citations for violations

Consumer Product Safety Commission (CPSC)

  • CPSC was established in 1972 during the height of the consumer movement. Responsibilities:
  • Protecting the public from dangerous products
  • Assisting in the evaluation of products
  • Setting standards
  • Sponsoring investigations of the causes of and means for preventing product-related deaths, illnesses and injuries
  • Monitoring the enforcement of consumer product standards
  • Imposing civil fines
  • Ordering bans on products or demanding redesign

Private Policing

  • Since World War II, private police has grown exponentially
  • Private police can be hired to investigate crimes that public police do not have time to investigate
  • Public police investigations can also be subsidized to private entities
  • Private security industry is a multibillion dollar enterprise
  • Most private security is devoted to the physical protection of a business asset and has nothing to do with white collar crime

Lawyers and Professional Ethics

  • Lawyers are typically thought of principally in terms of their obligation to defend clients against investigations and adjudications
  • Lawyers are prohibited from misrepresenting facts, knowingly offering false evidence or furthering a fraud
  • The ABA rejects proposed rules that would require a lawyer to reveal to legal authorities a client’s acts whenever either substantial financial harm was possible or the lawyer’s services had been used to further some fraud

Lawyers and Professional Ethics

  • Rules that require lawyers to be “stool pigeons” against their clients have been attacked as unfair and harmful
  • If clients know that under some circumstances their lawyer will report them and testify against them, they may withhold information a lawyer needs to mount an effective defense
  • The ABA rules can also be viewed as intended to shield lawyers from liability rather than to protect the broader public from fraudulent activity

Accountants and Auditing Responsibilities

  • Accountants face conflicts in the obligations to clients and as discoverers of fraudulent activities
  • Management sometimes brings in accountants when they suspect embezzlement or internal fraud
  • Forensic accounting has become an increasingly common specialty
  • Accountants are brought into corporations to conduct audits certifying the soundness and accuracy of their financial statements and reports
  • Annual audits are requires by the SEC for all companies that trade on the stock market

Accountants and Auditing Responsibilities

  • The traditional standard has been that auditors are responsible for detecting managerial misrepresentations that would produce misleading financial statements only if such errors are detected by generally accepted accounting principles (GAAP)

Internal Control and Professional Associations

  • The notion of self-regulation is something that generally distinguishes white collar crime from conventional crime
  • Conventional criminals are not typically expected to police or regulate their own illegal conduct

  • Organized crime and crime syndicates may be said to engage in periodic self-policing when they act against fellow criminals who violate their rules

Internal Control and Professional Associations

  • Self-regulation is important because government does not have the resources or expertise to police or regulate fully all the activities of corporations, retail businesses, professionals and legitimate white collar and blue collar entrepreneurs
  • The wave of the corporate scandals in the early 200s clearly demonstrated that many major American corporations are either unable or unwilling to police themselves
  • Corporate compliance increased in the wake of the Sarbanes-Oxley Act in 2002

Self-Regulation in Financial Firms

  • Stock brokerage and investment banking firms have hired compliance officers who are responsible for monitoring the firm’s activities and ensuring that its personnel comply with pertinent laws and regulations

  • Compliance officers occupied a fairly modest status within their firm, but various scandals and investment banking house collapses of the late 1980s and early 1990s inspired a new appreciation of the potential benefits of a strongly backed compliance staff

Self-Regulation and the Professions

  • Even though professional associations such as the Medical Association (AMA) and the ABA have no formal disciplinary powers beyond expulsion from association memberships

  • These associations form their own codes of conduct and evaluate allegations of professional misconduct and are also empowered to revoke licenses and the right to practice

Self-Regulation and the Professions

  • Self-regulation or self-policing has the obvious advantages of economic efficiency and appropriate expertise

  • Businesses and professions have found it advantageous to control themselves
  • But history suggests that this is unlikely to be extensive or effective unless formidable external pressures compel businesses and professions to take this responsibility more seriously