White Collar Crime - A Comprehensive Research
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Category: Criminal Law
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WHITE COLLAR CRIME: A COMPREHENSIVE RESEARCH
Syed Tauheed, Vidyavardhaka Law College Mysore
ABSTRACT
In this article, the researcher discuss about White collar crime. It includes doctrinal research; It is a crime which is carried out by businessman and government officials, who have a high reputation in society and misuse their power and authority to gain illegal means. It has a major impact in the society, and people will face the consequences of these crimes. It is also called socio-economic crime; it is an internal destruction within, and there is no force to stop it. With these crimes running around the people who are rich and wealthy will be more richer and wealthier, and the poor remains the same.
1. Introduction
The term White collar crime was first established by Edwin Sutherland, an American sociologist, in 1939. It is often used by people who have high status in society and have power and authority in the society, and they misuse their power to gain illegal means. This crime is non-violent in nature, and it is carried out by government officials and business man’s who are financially motivated. These crimes are done by the people because of a lack of regulation of proper law; the main objective of this crime is the concentration of money through illegal means. By this, affects the entire society and makes a large impact on the people; it is also called socio-economic crime.
2. Concepts of White collar crime:1
1. Blue collar crime.
2. Red collar crime.
1 https://corporatefinanceinstitute.com/resources/esg/white-collar-crime/
3. Corporate crime.
4. State -Corporate crime.
5. Organized transactional crime.
6. Occupational crime.
1 Blue collar crime
These crime are basically done by the people of lower socioeconomic classes in the society. These are the people who are directly involved in the crime which was said by another man to do so. It may be violative and sometimes non violative as well violative activities such as murder, sexual assault and robbery. And nonviolative activities contain unlawful gambling drug supply, harming someone else, occupying someone’s property, prostitution, etc. The blue collar crime immensely affects the society and the people in it .It creates a fearful environment in society and kills the piece of living and these crimes may be penalised either by jail or probation Causes for blue collar crime are:
1. Lack of employment opportunity and Education.
2. Peer Pressure and Gang influence
3. Ineffective law Enforcement and Judicial System.
4. Poverty and Economic hardship.
2 Red collar crime
Red collar crime basically means to kill a person who had evidence of any kind of offence, which would lead the owner to detention and prosecution; thus, white collar crime turns into red collar crime. Like a person exposed a fraud to the government. In other words, it is the same as white-collar crime, but the only difference is that it includes a violative act or illegal act such as murder or confinement of a person. It means that if a person gets to know any illegal activity done by the upper class people and when that person is about to expose the upper class people they give to kill that person or confine the person . 2 Causes for Red collar crime are: 1. Fear of punishment 2. Fear of getting Defamed 3. threat of losing the position in job 3.
Corporate crime: Corporate crime means illegal or unprofessional actions committed by an individual or corporation within the corporation, and it helps the corporation in financial gains, such as fake advertisements and false claims. It may involve fraud, embezzlement, Environmental violations, bribery, corruption, and Insider trading. These types of crimes are basically done by the people who have power or control over certain things, which may be as company employees sharing the company’s secrets with other companies in exchange for some amount of money. Or a Judge changing his decision over the accused because of the accused party has paid a large amount of money to the judge to save the accuse. These types of crimes are called corporate crimes. 3 Causes for corporate crime are: 1. Maximum profit in short times 2. Lack of accountability
3. Peer pressure from society and family
4 State-Corporate crime
These are the crimes which are done by the corporation and the state (government) for the benefits of both the firms. In this the state and the corporation has the financial relationship among themselves. Such has Government corruption, and Statesponsored economic crime. It refers to socially harmful actions caused by the interaction of
2 Sutherland E.H (1949) – White collar crime New York. Holt, Rinechart Winston
3 Ramaswamy.V (2011) – White collar crime Pg no 254 www.indiatoday.in
state policies and corporate behaviour. These offences are deemed detrimental to society even if local criminal jurisdictions may not necessarily classify them as crimes. Examples include financial fraud involving state and corporate entities, human rights abuses enabled by state-business cooperation, and environmental pollution committed by corporations with state consent. It differs from state crime (crimes perpetrated by government agencies), political crime (crimes against the state), and corporate crime (deviance within a firm).
5 Organized transactional crime
It means that illegal activities carried out by organised network or group for financial gain through illegal transactions. Such as human trafficking, Arms smuggling, drugs-related crime, and money laundering. Transnational organized crime (TOC) involves illegal activities like drug and human trafficking, gun smuggling, money laundering, and cybercrime. 4 TOC is a global issue that costs billions of dollars annually and severely threatens human rights, security, and peace. It also hinders progress in areas like the economy, society, culture, politics, and civil society worldwide. Common examples include gun trafficking, fake goods, wildlife and cultural property smuggling, migrant smuggling, drug trafficking, human trafficking, and certain types of cybercrime. TOC constantly evolves, adapting to new markets and creating new criminal activities.
Due to its global scope and complex networks, it is difficult to fight against. Causes for Transactional organized crime are
1. poverty and inequality
2. corruption
3. geographical factor
4 https://www.investopedia.com https://vizagcitypolice.gov.in
6 Occupational crime
These crimes are only done under the period of employment. It basically means that illegal transfer of documents to others for money. It’s like an imposter in the crew; he is known as occupational crime. A few examples are insider trading and workplace fraud. This crime creates dishonesty and disloyalty among the employer and the owner of the company 5 Causes for occupational crime are
1. Greediness of money
2. Intent to fraud the company.
3 White collar crimes may include
1. Tax Evasion
2. Wage theft
3. Fraud
4. Bribery
5. Insider trading
6. Labour racketeering
7. Ponzi schemes
8. Embezzlement
9. Money laundering
10. Identity theft
11. Forgery
5 https://www.investopedia.com
https://vizagcitypolice.gov.in
1 Tax Evasion
The unlawful practice of purposefully avoiding paying taxes by lying to or hiding information from tax officials is known as tax evasion. It differs from tax avoidance, which is the lawful reduction of tax obligations through calculated planning. Fraudulent practices including underreporting income, exaggerating deductions, or concealing funds in offshore accounts are common examples of tax evasion. In the well-known case of R v. Curtis (2005), the defendant was found guilty of filing fake tax returns in order to avoid paying a substantial sum of taxes. The case demonstrated that if there is a clear purpose to defraud the tax authorities, even small inaccuracies or omissions might result in criminal culpability. 6 A small business owner who underreports their income to the tax authorities in an effort to lower their tax liability may be engaging in tax evasion.
Consider a restaurant owner, for example, who only declares $350,000 of income on their tax return despite having $500,000 in sales annually. The owner may do this by purposefully omitting cash transactions or by exaggerating costs like as supplies or inventory. The business owner consequently pays a lot less in taxes than they are required to.
2 Wage theft
Underpayment, denial of overtime, withholding tips, or misclassifying workers to avoid paying minimum wage or overtime are all examples of wage theft, which happens when employers fail to provide workers with the income or benefits to which they are legally entitled. Workers are exploited and denied their just recompense by this unlawful conduct. Perez v. K & K Family, Inc. (2015) is a wellknown case in the field of wage theft, wherein workers sued their employer for underreporting their hours worked and failed to pay overtime. The workers were awarded back pay, damages, and legal fees after the court determined that the company had knowingly broken labor regulations. 7 Example for Wage theft Imagine an individual who works as a cashier at a retail establishment and receives 2 per hour, but the employer does not compensate them for overtime. The employee typically works from 9 a. m.
to 5 p. m. , but on multiple times, they are requested to remain late to assist with closing the store, which means they put in an extra two hours of labor beyond their normal shift. Labor law states that if a person works
6 Benson, M. L and Simpson S.S (2015) – White collar crime, https://corporatefinanceinstitute.com
7 Kramer. F and Hagan J (2003) – Academy journal
more than 40 hours in a week, they shall be paid overtime at a rate that is 1.5 times their usual hourly salary, which in this example is 8 per hour. However, the employer consistently fails to repay the worker for the additional 10 hours of overtime, paying them only the standard 2 per hour.
3 Fraud
Fraud is the intentional deceiving of another person for one's own financial or personal benefit, frequently with the victim suffering as a result. It can happen in a number of situations, including identity theft, insurance fraud, and financial fraud. Intentional misrepresentation, the victim's reliance on that misrepresentation, and the resulting losses are the fundamental components of fraud. R v. King (1994) is a wellknown fraud case where the defendant was found guilty of defrauding multiple people by posing as a licensed financial advisor and taking substantial sums of money through fictitious investments. King was given a significant prison sentence after the court determined that he had purposefully misled victims about his qualifications and the validity of his investment plans.
8 Example for fraud Imagine a person named John who advertises online as a competent contractor providing home repair services. He persuades Jane, a homeowner, that her roof requires substantial repair, stating a 0,000 price. John requests that Jane pay half of the total cost for materials and labor up front. However, after collecting the down payment, John disappears, failing to show up for work and not accepting Jane's calls. In this scenario, John has committed fraud by deliberately misrepresenting his qualifications and intentions in order to trick Jane into giving him money.
4 Bribery
Bribery is the act of providing, donating, receiving, or soliciting something of value in order to influence the behavior of someone in a position of authority, typically to gain a favorable outcome or to circumvent legal or ethical norms. Bribery is a crime under most legal systems because it undermines justice, transparency, and trust in both the private and public sectors. R v. Milroy (2008) is a prominent example of bribery, in which a police officer was found guilty of collecting bribes in exchange for informing a drug dealer about planned police
8 Chaudhuri S (2015) – White collar crime
operations. The officer was condemned to prison, and the case demonstrated how authority figures can destroy public trust by abusing their position for personal benefit. Example for bribery Imagine a construction company owner, Sarah, who is bidding for a lucrative project to build a new highway. She learns that a government official, Mr. Jones, is in charge of awarding the contract and that the competition for the project is fierce. To increase her chances of winning the bid, Sarah offers Mr. Jones a cash bribe of $50,000, disguised as a "consulting fee," in exchange for guaranteeing that her company will receive the contract.
5 Insider trading
Insider trading is the purchase or sale of securities by someone with access to substantial, non-public information about the company. This activity is considered prohibited when knowledge is utilized to acquire an unfair advantage since it affects market fairness and investor trust. SEC v. Texas Gulf Sulphur Co. (1968) is a landmark case addressing insider trading, in which the court ruled that company insiders who possessed non-public information about mineral discoveries traded on this knowledge before it was made public, violating Section 10(b) of the Securities Exchange Act of 1934. The court's ruling emphasized how crucial it is for business insiders to reveal critical information or hold off on trading until it is made public9.
Example for Insider training Insider trading occurs when a senior executive of a pharmaceutical business knows that a new drug is soon to be authorized by the FDA. This is deemed material, non-public information since it is expected to cause the company's stock price to rise once made public. If the executive buys company stock before the FDA approval is announced, seeking to profit from the price increase, this is considered criminal insider trading.
6 Labour racketeering
Labor racketeering is the manipulation and exploitation of labour unions by organized crime for financial gain or influence. This often includes actions such as embezzling union funds, extorting employers, or utilizing union resources to facilitate unlawful activity. United States v. International
9 Ravichandran R (2011) – Academy journal
Brotherhood of Teamsters (IBT) is a significant case in the history of labour racketeering, in which the United States government filed a civil suit against the Teamsters union for its extensive ties to organized crime, which had infiltrated union leadership and influenced decisions for corrupt purposes.10 The court's judgment resulted in federal oversight and union changes to eliminate organized criminal influence, making it one of the most significant interventions against labour racketeering. Example for Labour racketeering Consider a construction company that needs union labourers to finish a huge project. The crime-controlled union officials may threaten to strike or postpone work unless the employer pays them a "labour peace" fee. This enables the crime group to profit from the construction company while giving no further benefits to the workers or union members.
7 Ponzi schemes
A Ponzi scheme is a sort of financial fraud in which returns to earlier investors are paid using new investors' capital rather than the operation's earnings. This model relies on a continual infusion of new capital to maintain the illusion of profitability, and it will inevitably collapse if the flow of new money slows or ceases. Bernard Madoff, who was convicted in the United States v. Madoff (2009) case, is linked with one of the most infamous Ponzi schemes ever. Madoff, a well-known financier, orchestrated a scheme that robbed investors of an estimated $65 billion over several decades by promising constant, high returns on what he claimed 12were profitable investments.
However, he used money from new investors to pay returns to existing ones, without generating any profit 11 Example for Ponzi scheme A classic form of a Ponzi scheme is when a financial adviser promises investors extremely large returns, such as 20% per year. The adviser entices new investors with similar promises, then uses their funds to pay "returns" to previous investors, making the scheme appear legitimate. However, no genuine beneficial investments are made; rather, returns are simply paid from the influx of fresh investor monies. The arrangement will continue as long as additional money comes in. However,
10 Piquero A.R and Weisburd (2009) – Academy journal www.nw3c.org
11 www.thehindu.com
when the flow of new investors slows or ceases, the scheme fails since there is no genuine revenue or investment that generates true profits.
8 Embezzlement
Embezzlement is the act of intentionally taking funds or property entrusted to another person, usually in a professional or employment situation, for personal gain. This act differs from stealing in that the embezzler had legitimate possession of the property before converting it for personal gain. Moore v. United States (1895) is a seminal decision in embezzlement law, in which the Supreme Court declared that a US postal worker who misappropriated postal monies committed embezzlement because he had a fiduciary duty to manage these assets for the government and breached this trust. The court emphasized that embezzlement is a crime that entails a breach of trust, making it punishable even if the accused has legitimate access to the property.
Example for Embezzlement If a company's accountant is in charge of maintaining corporate accounts and processing financial transactions, this would be considered embezzlement. Assume this accountant starts transferring modest amounts of corporate money into their personal bank account, hoping that it goes unreported. The accountant may disguise these transfers as legitimate expenses or alter financial documents to conceal the crime. Despite having lawful access to company funds, diverting them for personal gain is prohibited and constitutes embezzlement.
9 Money laundering
Money laundering is the process of concealing the origins of unlawfully obtained monies by putting them through sophisticated financial transactions that make the money appear genuine. This method typically consists of three stages: placement (introducing illicit funds into the financial system), layering (performing several transactions to conceal the source), and integration (putting laundered money back into the economy as "clean" monies). One notable decision in this area is United States v. Santos (2008), in which the Supreme Court ruled on the definition of "proceeds" under the Money Laundering Control Act of
1986. The Court determined that "proceeds" meant only net gains from illicit
operations, not gross receipts. This interpretation initially limited money laundering charges by requiring proof that the laundered amounts were profit rather than total revenue.12 Example for Money laundering Money laundering occurs when a drug trafficker makes a big sum of money from illegal drug sales. Because depositing significant sums of unexplained cash could arouse suspicion, the trafficker may establish a front business, such as a car wash or a restaurant, where cash transactions are routine and can blend in with legal revenue. The trafficker then blends the unlawful monies with the company's regular earnings, making it impossible for authorities to determine the money's illegal origin. This "cleaned" money can subsequently be placed in banks, invested, or used to buy assets without raising any suspicion.
10 Identity theft
Identity theft is the unlawful use of another person's personal information, such as Social Security numbers, credit card details, or bank account information, to conduct fraud or theft. This crime can result in severe financial loss and harm to the victim's credit and reputation. In15 United States v. Toney (1997), the defendant was found guilty of identity theft after using stolen credit card information to make fraudulent purchases. The court determined that the defendant's acts were a clear violation of federal law, specifically the Identity Theft and Assumption 13Deterrence Act of 1998, which made identity theft a federal offense. This Act made it illegal to deliberately use another person's personal identifying information with the aim to commit a crime, such as fraud or theft.
Example for identity theft An example of identity theft is when someone obtains another person's personal information, such as their Social Security number or bank account information, and uses it to open credit card accounts in their name. For example, a criminal could gain this information through phishing emails or by stealing a wallet, and then use it to apply for loans, make major purchases, or remove funds from the victim's accounts. The thief may incur debt on the victim's credit cards, leaving them to cope with the consequences, such as ruined credit scores and the inconvenience of resolving fraudulent charges.
12 https://www.tookitaki.com
13 www.economictimes.indiatimes.com
11 Forgery
Forgery is defined as purposefully altering, producing, or using a document, signature, or other thing with the aim to deceive or defraud. It usually entails the falsification of documents like cheques, contracts, or identity. Forgery is a serious crime that erodes trust in legal and financial transactions. People v. McCoy (2010) is a famous case in forgery law, in which the defendant was convicted of fabricating documents to alter property titles with the intent to steal the property from its rightful owners. The court determined that the defendant's activities in making fraudulent property documents were a blatant breach of forgery legislation and caused serious harm to the plaintiffs. 14 Example for Forgery Forgery occurs when someone steals a blank check from another person's wallet and writes a fake amount on it while signing the victim's name to make it appear authentic.
The forger may then cash the check or use it to make a transaction, all with the goal of defrauding the bank or business receiving the payment.
4. WHY WHITE COLLAR CRIMES ARE INCREASING? 15
Greediness of money • Easy earning • Superior in the society
FAMOUS CASE LAWS FOR WHITE COLLAR CRIME Harshad Mehta Scam Case The Harshad Mehta Scam, also known as the Indian Stock Exchange Scam of 1992, is one of the most famous financial frauds in Indian history. Harshad Mehta, a trader, exploited banking system flaws using a practice known as "circular trading". He used large amounts of money borrowed from banks to manipulate the Bombay Stock Exchange (BSE) by inflating the prices of certain stocks, mainly in the financial sector and financial aspects. Mehta used rising stock prices to make more money, which he used to manipulate the markets. When the scam was finally exposed, the BSE Sensex fell more than 570 points in a single day, leading to a massive fall in the stock market. The fallout from this
14 www.thehindu.com
15 White collar crime – Payne,Brian k.
fraud rocked India's financial system and led to major changes in banking and stock market regulations. Harshad Mehta was charged with multiple counts of forgery, fraud and conspiracy. He fought the law for years before his death in 2001. The fraud exposed the vulnerabilities of India's financial system and prompted calls for reforms to prevent something like this from happening in the future. 16 Satyam scandal17 The Satyam scandal, a watershed moment in Indian corporate history, began in 2009 when Ramalinga Raju, chairman of Satyam Computer Services, admitted to a massive fraud. In a surprise announcement, Raju said the company's financial statements have grown systematically over the years, with virtual assets and cash balances approaching . 5 billion. Financial markets were jolted by the revelations, which sent Satyam's share price and investor confidence plummeting.
The Indian government quickly stepped in and created a new organization to stabilize the company and ensure its continuity. Ramalinga Raju and other key executives were later punished, including arrested and imprisoned, for theirfraudulent activities18. The Satyam scandal highlighted the importance of corporate governance and transparency in the Indian business environment and prompted regulatory reforms to prevent such incidents and restore investor confidence. Saradha chit fund The Saradha Chit Fund scandal, which took place in 2013, was one of India's worst financial frauds and particularly affected West Bengal. The Saradha Group, led by Sudipto Sen, operated a network of companies to lure investors with promises of funding through financial financing schemes. But the truth came out when the group collapsed, leaving many investors bankrupt.
The investigation revealed a widespread Ponzi scheme in which funds received from new investors were used to pay returns to existing investors. The fallout from the fraud sparked mass protests and raised serious questions about regulatory oversight of India's financial sector. Sudipto Sen and his associates faced legal sanctions, including charges of fraud and money laundering. The Saradha chit fund scandal is a stark
16 https://blog.pleaders.in
17 The Enron Scandal – https://www.nu.edu/blog.com
18 White Collar Crime Indian and Abroad – DR MANJU KOOLWAL
reminder of the dangers posed by unscrupulous financial schemes and highlights the urgent need for strong governance mechanisms to protect investors' interests.19
4. 2G scam
The 2G scam, a watershed moment in Indian politics and government, emerged in 2008 when irregularities emerged in the distribution of licenses by the then Telecom Ministry A. Raja for 2G spectrum licences. The scandal centred on allegations of corruption, patronage and the low cost of hurricane licenses, which cost the Treasury dearly. The implementation of the first clear licensing process, caused public and political outrage. Subsequent investigations by government agencies, including the CBI and the CAG, revealed gross laxity and financial irregularities in the distribution of cyclones. Prominent people, including A. Raja, were accused of graft and corruption. Nevertheless, a separate court cleared him of all charges notwithstanding the initial trial because there was insufficient evidence.
Despite the legal fallout, the 2G scam has exposed weaknesses in the regulatory system, regulatory oversight and policy implementation, and the urgent need for transparency, accountability and reform of India's regulatory and legal framework. 20 Conclusion: The conclusion about white collar crime involved non-violent, financially motivated offences typically committed by individuals business, or Government professional. It involves various from of fraud, embezzlement, insider trading, and cybercrime. The frequency and effect of white collar crime on people and economy are important factors to consider. Such acts can result in enormous financial damages that impact the public, investors, and enterprises. Because white collar crime involved complex financial transaction and sophisticated methods used by offenders .
it frequently remains unreported or presence difficulties for law enforcement to prosecute. despite the serious repercussions of crime. Combatting white collar crimes requires a comprehensive and co-operative strategy involving the govt, law enforcement and corporation. Societies can attempt to prevent the effects of white collar crimes by putting these solutions into practice.
19 https://www.britainnica.com
20 https://blog.finology.in/Legal-news/white-collar-crime