White-Collar Crime

The term "white-collar crime" was first used by sociologist Edwin Sutherland in 1939. It describes a wide variety of financial crimes, from fraud to embezzlement, tax evasion to money laundering. White-collar offenses may also include insurance fraud and insider trading. What sets these crimes apart from, say, "blue-collar crimes" is who commits the crime and what method they use. The scale of such crimes may also distinguish them from other crimes.

This article defines white-collar crime and blue-collar crime. It provides examples of the different types of white-collar crimes, including potential penalties. White-collar crime charges can occur at the federal or state level. Because of the high dollar amounts involved in white-collar crime, these offenses most often proceed as felony crimes.

What Is White-Collar Crime?

Researchers approach white-collar crime from three angles:

• The type of offender (higher socio-economic status)
• The type of crime (economic)
• Organizational culture (an offense of a business or network)

Sometimes, they include corporate crimes like environmental law or health and safety violations.

The Federal Bureau of Investigation (FBI) defines white-collar crime as "illegal acts which are characterized by deceit, concealment, or violation of trust and which are not dependent upon the application or threat of physical force or violence." Oftentimes, business and government professionals commit these crimes for financial gain.

Who commits white-collar crimes? Most are white men from middle-class backgrounds with at least some higher education. They are in their late 30s to 40s. They are often employed, married, and have religious and community affiliations. Most have engaged in less serious criminal activity in the past.

The federal government pursues many criminal cases involving white-collar crime. Federal agencies often have the time, resources, and sophistication to conduct wide-scale investigations into fraud cases. Federal white-collar crimes often result when the financial crime involves interstate commerce or the banking industry. The FBI will investigate computer crimes, racketeering (RICO) offenses, and other financial crimes. The Internal Revenue Service (IRS) investigates tax fraud. The Secret Service and the FBI may investigate cases involving counterfeiting. The Postal Service pursues mail fraud cases.

State and local law enforcement also investigate and pursue white-collar crime. They often take on cases involving fraud that occur within the state or related to a state agency. For example, local prosecutors may bring cases of health care or unemployment benefits fraud against individual defendants. Other common white-collar crimes at the state level may include embezzlement from a local employer, fraud related to worker's compensation, or misuse of credit cards.

Most white-collar crime involves large sums of money. They may also take significant time and resources to investigate. Thus, criminal charges will more likely be felonies rather than misdemeanors.

White-Collar Crime vs. Blue-Collar Crime: What Is the Difference?

The distinction between white-collar crime and blue-collar crime relates to the level of opportunity. White-collar workers, including owners and managers, have different opportunities for theft and other financial crimes than blue-collar workers. Their unlawful conduct is less obvious and harder to track. White-collar offenses most often are non-violent crimes.

In contrast, blue-collar crime involves what many describe as "street crimes." These crimes fit a more individualized offender/victim paradigm. Blue-collar crime is not a legal term. But social scientists use the term to distinguish other crime from white-collar crime. The term "blue-collar" refers to the working or labor class. The term "white-collar" refers to the management or office-worker class.

For example, a "blue-collar" warehouse worker can steal a product off the warehouse floor. A manager can steal a product using legitimate and illegitimate financial transactions. A blue-collar criminal may use force or weapons to commit a theft from a stranger. A white-collar criminal can use fraud or financial schemes to steal from their employer or several investors.

Identifying the victim of a blue-collar or street crime is not difficult. Yet, in white-collar crime, the method and technique of the crime may make a victim less visible. This also may prevent detection by law enforcement. Sometimes, people think of white-collar crimes as "victimless," which is wholly untrue. The impact of white-collar crime often affects diverse stakeholders. This may include everyone who pays for the increased operating costs of a business—investors, employees, and consumers.

Why Do People Turn to White-Collar Crime?

Roomy Khan, writing for Forbes Magazine, offered four theories for why well-off professionals turn to crime. While the employee benefits from fraud and white-collar crime, there is often a business context that encourages such behavior.

1. The company incentivizes crime with the way that it structures jobs.
2. The company has poor business ethics, which contribute to the lax ethics of employees.
3. The employee's peers and managers think unethical behavior is harmless.
4. The company has unrealistic "do what it takes" business expectations.

One defense strategy for those charged with white-collar crime can be blaming the corporate culture for the individual's conduct. The motive itself is not an element of a crime. Yet, issues related to motive may affect a court or jury's decision on the element of criminal intent.

Examples of White-Collar Crime

There are many kinds of white-collar crime, and new types of crime take place all the time. Technology often enables white-collar crime. As technology changes, so do the opportunities for criminal use.

Financial Fraud Cases

• Accounting fraud: This may involve the intentional manipulation and deliberate falsification of business records. The goal can be to cover up losses or make the business look healthier than it is. This can include hiding profits or losses, overstating revenue, and misstating assets or liabilities.

• Bank fraud: Bank fraud crimes can include lying about income or employment to get a credit card, forging checks or using stolen checks, and wire fraud. The victim of the fraud is a bank or financial institution.

• Corporate fraud: Corporate fraud can include accounting fraud as well as other types of deception. It may include misrepresenting products under development or diverting funds from one activity to another. It may include environmental fraud, such as the illegal dumping of toxins.

• Credit card fraud: This crime involves the use of fraud to obtain and use a credit card unlawfully. Identity theft may be part of credit card fraud schemes.

• Healthcare fraud: The most common type of health care fraud is over-billing. This is billing for services not provided or billing for unnecessary services. Victims may include health insurers or taxpayers when cases involve Medicare and Medicaid.

• Insurance fraud: The crime of insurance fraud is committed by individuals or businesses seeking payment from an insurer by using inflated or false claims of losses. It also includes falsifying applications for insurance.

• Mortgage fraud: Mortgage fraud can commonly occur in the property buying or selling process. A buyer may misrepresent their income or savings or down payment source on his mortgage application. An appraiser may misrepresent the value of a piece of real estate to get a kickback. A loan officer may falsify loan paperwork to get someone approved for a loan they cannot afford.

• Securities fraud and commodities fraud: These crimes may occur at the individual or company level. The FBI and the Department of Justice examine these cases. The Securities and Exchange Commission (SEC) can also investigate.

• Insider trading: Someone with inside information about a company trades on that information for personal profit. Insider trading may occur when an executive with confidential information about an upcoming company earnings report acts on that information. They sell off their own stock in the company before the report becomes public and the stock price falls.

• False or misleading statements: By luring investors with false or misleading information in public reports, a company enriches itself. This can be a form of securities fraud. To rise to fraud, those speaking on behalf of the business must know (or reasonably should have known) that the statements were false.

• Tax fraud or tax evasion: Criminal tax evasion involves a person or business attempting to avoid taxes they would otherwise owe. This could take the form of not filing tax returns or filing falsified returns. It could be claiming exemptions for which one does not qualify. It may involve concealing assets or transferring property in an unlawful manner. Tax fraud is not a tax mistake. Like all criminal fraud cases, it requires an intentional act. Under federal law, attempts to evade taxes can result in a felony conviction. An offender may face prison time of up to five years and fines of up to $100,000 ($500,000 for a corporation).

Embezzlement

Embezzlement involves the unlawful taking of money from someone that the offender owes a duty or loyalty. The most common example is a company employee who embezzles money from an employer. Other examples include lawyers who take or misuse client funds and trust fund administrators who self-deal. Sometimes, investment advisors embezzle client funds to invest for themselves.

Many state laws related to embezzlement fall under theft statutes. Some states have specific crimes for various types of embezzlement. For example, in Massachusetts, a person who has a fiduciary duty, such as the trustee of a trust, can face charges when they convert funds in the trust to their own self-serving use or benefit. An offender may face a prison sentence of up to 10 years and a fine of up to $2,000.

Ponzi Schemes

A Ponzi scheme is an investment scam that attracts investors with promises of high-interest returns. The money used to pay investors comes not from business investments but from the money paid into the scheme by newer investors. Early investors make good returns. Late investors make little or nothing.

Disgraced investor Bernie Madoff died in prison while serving a 150-year sentence for defrauding investors. He inflated his earnings numbers to entice more investors to put money into his investment fund. He would then use those funds to pay off earlier investors who wanted to withdraw their funds. When the market cooled, a critical mass of investors pulled their investments. It became clear that Madoff did not have the money to repay everyone. Investors lost billions of dollars.

Pyramid Schemes and Multilevel Marketing

A pyramid scheme is like a Ponzi scheme in that early investors benefit while later investors never recoup their investment. Businesses that use a multi-level marketing strategy are often accused of being pyramid schemes. Some of those businesses have had their legitimacy challenged in court.

Money Laundering

Money laundering is the criminal act of filtering illegal funds or "dirty money" through a series of transactions. The point of the transactions is to make the money appear legitimate ("clean").

Public Corruption

Public corruption by government employees and politicians is one of the FBI's top priorities. Examples include bribery, extortion, bid rigging, collusion, conflicts of interest, and illegal gifts.

Charged With a White-Collar Criminal Offense? An Attorney Can Help

Depending on the charges in question, white-collar crimes can run afoul of state and federal laws. If facing such charges, consider speaking to an experienced white-collar crime defense attorney. A lawyer can explain potential criminal liability and discuss defense strategy. Take a moment and find a criminal defense lawyer near you.