A brief introduction to corporate crime

Edwin Sutherland the founder of the study of white collar crime in criminology inveighed against his fellow criminologists in the 1930s and 1940s for seeing crime as simply the product of poverty.  Your wealth, power and status may well determing the type of crime you commit but not the fact of criminality itself. Powerful and rich people can be greedy just as much as poor. It's about relative deprivation

However, the concept 'white collar crime is a bit ambiguous. In his (1949) White Collar Crime (New York, Dryden): and previously in 1939 in a presidential address to the American Sociological Association defined white collar crime as "criminal activity by persons of high social status and respectability who use their occupational position as a means to violate the law." He added that it also differed from lower class crime in that the response by the state was often by regulatory and administrative law as much as criminal law

Of course, as critics pointed out, you need to distinguish the context from the person. The question of 'occupational position' e.g. as the employee of a large corporation is separate from the question of 'high social status and respectability'. The poverty stricken shop assistant (on a temporary contract just above the minimum wage) with their hand in the till, might be thought of as white collar crime. But this is not what Sutherland had in mind.

Sutherland's definition of white collar crime needs further clarification in a second aspect. One form of criminal activity involves individuals within companies and other large organisations using their position and status to commit crimes against the organisation, for example to steal money from it. A senior director siphoning off money for their personal use would be an example. On the other hand these individuals may be violating the criminal law in order to advance the interests of the organisation, for example making illegal bribes to customers or selling untested or sub-standard goods.

The Australian criminologist John Braithwaite defined corporate crime as "the conduct of a corporation or employees acting on behalf of a corporation, which is proscribed and punishable by law."  The diagram above  illustrates the environment in which the commercial enterprise operates. In the latter we include any commercial concern from a company manufacturing products or providing services to a bank or other financial institution.

Criminal offenders usually find their targets from their immediate environment. Street thieves and burglars find targets in the streets and communities around them. Professional criminals may go further afield.

If the commercial enterprise is going to commit an offence then the victim will most likely be from among the people and institutions which make up the environment of the company - those  people and institutions with whom it necessarily interacts in the course of normal business activity - and the motives for criminal action will be found amongst the interests which the company has regarding these institutions and individuals in the normal course of business activity. These are fairly easy to list.

Firstly, there are the competitors providing the same product and with an interest in take customers away from the company by providing - or at least appearing to provide - a better product or cheaper price.

Then there is the state which levies taxes on the company but also may assist it by providing subsidies or infrastructural facilities such as road and rail networks. The state is also, through its criminal justice agencies, in a position to regulate and enforce relations between the company and the other entities which make up its environment.

The investors who provide large amounts of finance for the company and who demand a return on their investments out of company profits, may be individuals but also themselves large commercial concerns such as banks, building societies and other companies.

In the UK one of the most well known cases was that of Barlow Clowes. Between October 1983 and May 1988 about 11,000, mainly elderly, small investors entrusted their money to Barlow Clowes International, the vast majority of whom were persuaded  to do so by misrepresentation that their funds would be securely invested in gilts (government bonds). In fact, very little, if any, of that money was invested in gilts. Investors’ moneys were stolen and used to buy houses, farms, yachts, cars, antique furniture, a vineyard and shares in private and public companies. In 1992, after a trial lasting 112 days Peter Clowes got 10 years in prison. This case is still relevant in that it was only in 2011 (7 February 2011) that the case was finally declared closed when HM Treasury announced it had finally recovered £125 million of the £150 million defrauded from investors

In this sort of case, in an attempt to hide what is really going on for as long as possible, the company will use all manner of devices to falsifiy its accounts to give investors the impression that profits are being made and properly reinvested whereas in reality they are being siphoned off elsewhere.

The biggest recent case is that of the New Yorker Bernie Madoff  (photo on the left) . Until his arrest in december 2008 he ran Madoff Securities, founded in 1960. He was arrested and charged with fraud amounting to $65bn.  He pleaded guilty in March 2009 to a Ponzi Scheme (named after Charles Ponzi an American in 1903 - siphon off the investments for your own good and pay 'profits' (and the odd withdrawal to existing investors from subsequent investors. That's okay as long as investors want to leave their money in. But the market meltdown in Autumn 2008 led to massive demands for withdrawals and the scheme collapsed. Madoff is currently serving a 150 year sentence (yes, you read correctly)

One might be mazed that such a massive Ponzi scheme was allowed to continue for such a long time without anyone noticing. Recently (February 2011) in the first public interview since his arrest, Madoff claimed that top banks and other financial institutions in the US knew what was going on!

Then there are the company employees. Wages are a cost and most companies will have an interest in keeping them as low as possible. But they will also have other legal responsibilities to their employees such as Health and Safety, a 'duty of care' and material benefits such as pensions and sickness payments.

Customers are obviously crucial and while there is considerable 'brand loyalty' to certain products or companies, a basic fact of life in competitive capitalism is winning customers away from rival producers of the same product.

Finally, there is the physical environment. This particularly concerns companies whose manufacturing proceses produce waste products. With growing awareness of global warming the relation between the company and its physical environment has become an increasingly important area of media scrutiny as well as state regulation. So these are the potential targets of corporate crime with regard to the definition from John Braithwaite noted above. We can now give a few examples of these various types of corporate crime before moving on to our case study of bribery. These are summarised in the table below

Obviously the table above is rather like the chapter headings for a large textbook on corporate crime.  We can note that the obstacles to the criminalisation of many corporate offenders are twofold.

Firstly, some of the criminal offences are very difficult to detect and gather evidence about. The evidence of tax evasion or the over-pricing of contracts may lie deep in the financial accounts and bank statements of a large corporation. It may require the combined evidence of specialist police officers, forensic accountants and commercial lawyers to gather sufficient evidence to mount a criminal prosecution with a chance of proving beyond reasonable doubt the criminality of the offender. In the UK large commercial frauds are handled by a specialist investigatory body known as the Serious Fraud Office which has access to this type of expertise. In the US such investigations are conducted by the Securities and Exchange Commission Governments in the UK have argued for decades about how to strengthen the criminal justice system to deal with such offences. A major emphasis has been the attempt to dispense with the jury system on the grounds that 'ordinary people' on juries cannot understand many of the complexities of corporate finance. The argument in favour of retention of the jury has been that at the end of the day what the prosecution has to prove beyond reasonable doubt is that someone acted illegally. Having to convince a jury of ordinary people is a good check on a sloppy prosecution case! A judge sitting alone without a jury may become 'battle weary' having hear similar arguments so many times before and thus be insufficiently critical of the prosecution case

A second resource at the disposal of large corporations is often their ability to reframe the incident away from any notion of 'crime' towards alternative ways of looking at what happened such as 'accident'.  Thus one of the largest environmental crimes of the twentieth century remains undoubtedly the leaking of poisonous gas from a faulty storage container at the Union Carbide chemical plant in Bhopal India in 1984. The initial response of the Indian government was to charge the US head of Union Carbide (an American corporation) with criminal negligence and manslaughter. He was rapidly released. The company meanwhile used its considerable leaverage in the media to 'redefine' what had happened as a 'disaster' and 'terrible accident' and use other diversionary tactics such as suspecting 'sabotage' by various Indian radical groups

Finally, and this will be our main example, below the activity undertaken by the corporation might be considered by another very powerful organisation - the state - as of sufficient national importance (e.g. "vital to our national security interests") that it is considered legitimate to overlook its criminal aspects.

But, before moving on to our main example, there is one other element we need to consider, Namely the fact that not all crimes are of the same status.

varieties of crime

This issue might be summed up in the phrase "there are crimes and then there are crimes" That is to say not all acts which violate the criminal law necessarily carry the same connotations of evil and wrong doing. Students of the English and similar systems of jurisprudence and criminal law will be familiar with the distinction between mala in se and mala prohibita. These Latin terms may be roughly translated as 'wrong in itself' and 'wrong because prohibited'. Thus mala in se refers to crimes such as murder or theft which are considered wrong in themselves. The reason they are against the criminal law is because they are morally evil. A criminal law which failed to criminalise such acts would be incoherent and itself degenerate. Mala prohibita, by contrast, refers to acts which are wrong simply because they violate the criminal law. Exceeding the speed limit on a motorway is an example. You can be pulled up by the traffic police and issued with a speeding ticket or prosecuted in a criminal court. The judge will no doubt tell you that driving at such a speed is dangerous not just to yourself but to others around you. But you have not actually harmed anyone. It is the speed violation which is the crime. Parliament passed this law for good reason, to reduce accidents on motorways. But some libertarians - who own fast cars - might argue you should be able to drive at what speed you like. Fast driving is not obviously  wrong as such in the way that murder is. Another example might be smoking or dealing in cannabis. This is against the criminal law and a great deal of police time and resources are devoted to tracking down and arresting the dealers of cannabis and other illegal drugs. But again, libertarians may argue that the state has no business interfering with your right to take drugs. Others might argue the whole issue should be a matter of health policy rather than criminal justice. Most of you will be familiar with these arguments.

Now when we get into the area of business crime - crimes committed by members of commercial corporations acting in their capacities then we - come into a field in which there are many forms of mala prohibita. They include Health and Safety laws, environmental protection laws against dumping toxic waste products in the environment in excess of government degreed norms. In finance and banking, for example, there is a criminal offence known as Insider Trading. It involves the use of priviledged access to knowledge about company performance, before it is known to the general investing public, to sell or buy shares before their price changes to reflect that knowledge.  This practice only became a crime in 1980 before which it was not a crime at all and access to inside information was simply one of the 'perks' that went with a job in key City of London financial institutions. It was made a criminal offence because it was felt that with the expansion of financial dealing actions taken on the basis of such inside information may have a distorting effect on the working of the market in stocks and shares. In other words Insider Trading is a regulatory offence: it is criminalised in order to minimise its occurrence rather than any notion that it is wrong in the sense that theft or fraud are wrong

Another example concerns the bribery of (or paying of 'commissions' to) customers by a company in order to secure the sale of its products. It might be thought that this is not intrinsically criminal. If paying 'under the counter' helps to increase sales why should it be a crime?  The government may decide to pass legislation prohibiting such activities as insider trading or paying commissions not because they are somehow intrinsically wrong but because they impede the smooth functioning of business and markets. In this case the criminal law and criminal justice system is being used as a form of regulation in the interests of efficiency rather than morality as would be the case with murder or theft. That is why the former are sometimes known as regulatory offences.