White Collar Crime

The term "white-collar crime" was coined by Edwin Sutherland in 1939. It describes a wide variety of financial crimes, from fraud to embezzlement, tax evasion to money laundering. insurance fraud to insider trading. What sets these crimes apart from, say, "blue-collar crimes" is who is committing the crime, how the crime is committed, and often, the scale of the crime.

This article defines white-collar crime and blue-collar crime and provides examples of different types of white-collar crime. Because of the high dollar amounts involved in white-collar crime, these are charged as felonies.

What Is White-Collar Crime?

When researchers look at white-collar crime, they approach it from three angles: the type of offender (higher socio-economic status), the type of crime (economic), and 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), which investigates a great deal of white-collar crime, defines it 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." These crimes are committed by business and government professionals for financial gain.

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

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

The distinction between white-collar crime and blue-collar crime is really about the level of opportunity. White-collar workers, including owners and managers, have different opportunities for theft than blue-collar workers. Usually, these opportunities are less obvious and harder to track.

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 steal; a white-collar criminal can use fraud or financial schemes.

It is easy to see who has been the victim of a blue-collar crime, but white-collar crimes might be less visible. Sometimes people think of white-collar crimes as "victimless" - which is wholly untrue. The impact of white-collar crime often affects diverse stakeholders, including 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 individually 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.

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: Intentional manipulation and deliberate falsification of business records to cover up losses or to make the business look healthier than it is. This can include hiding profits or losses, overstating revenue, misstating assets or liabilities.

Bank Fraud: Bank fraud crimes range from lying about income or employment to get a credit card, to forging checks or using stolen checks, to 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 be misrepresenting products under development or the diversion of funds from one activity to another. It may include environmental fraud, such as the illegal dumping of toxins.

Credit Card Fraud: This crime includes fraudulently obtaining a credit card as well as fraudulently using a credit card. Identity theft may be part of credit card fraud schemes.

Healthcare Fraud: The most common type of healthcare fraud is over-billing. That is, billing for services not provided or billing for unnecessary services. The victims may include health insurers or the taxpayers through Medicare and Medicaid overbilling.

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

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

Securities Fraud and Commodities Fraud: These frauds can be committed by individuals or at the company level. Not only would the FBI and the Department of Justice examine these cases, but the Securities and Exchange Commission (SEC) would also investigate.

• Insider Trading: Someone with inside information about a company or investment trades on that information for personal profit. An example of insider trading: an executive with confidential information about an upcoming company earnings report sells off personally owned stock in the company before the report is released and the stock price falls.
• False or misleading statements: By luring investors with false or misleading information in public reports, a company enriches itself while committing securities fraud. In order for it to be fraud, however, those speaking on behalf of the business must know (or reasonably should have known) 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 knowingly falsified returns. It could be claiming exemptions for which one does not qualify, or concealing assets, or illegally transferring property. Tax fraud is not a tax mistake. Like all criminal fraud cases, it requires an intentional act.

Embezzlement

Embezzlement is improperly taking money from someone to whom you owe some type of duty. The most common example is a company employee who embezzles money from an employer. Other examples include lawyers who improperly use client funds, trust fund administrators who self-deal, or investment advisors who improperly use client funds to invest for themselves.

Ponzi Schemes

A Ponzi scheme is an investment scam that attracts investors with promises of high-interest returns, fast. The money used to pay investors comes not from business investment, 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 falsely inflated his earnings numbers in order 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 and a critical mass of investors pulled their investments, it became clear that he did not have the money to repay all of his investors. Billions of dollars were lost.

Pyramid Schemes and Multilevel Marketing

A pyramid scheme is similar to 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, and some of those businesses have had their legitimacy challenged in courts.

Money Laundering

Money laundering is the criminal act of filtering illegally obtained ("dirty") money through a series of transactions designed 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. An experienced white-collar defense attorney can explain potential criminal liability and defend you in court. Find a criminal defense lawyer near you.