Michael L Benson. 21st Century Criminology: A Reference Handbook. Editor: J Mitchell Miller. 2009. Sage Publications.
White-collar crime is a generic term that refers to a broad range of illegal acts committed by seemingly respectable people in business settings as part of their occupational roles. There are many different types of white-collar crime, ranging from antitrust offenses to environmental violations to health care frauds and beyond. These types of crime are important because they impose enormous financial, physical, and social harms on individuals, communities, and society in general. Because of their special characteristics and the techniques by which they are committed, they pose significant problems for law enforcement and regulatory agencies interested in controlling them. Evidence suggests that white-collar crime is pervasive, widespread, and growing.
This chapter begins with a brief discussion of the history of the concept of white-collar crime in the discipline of criminology. The nature and extent of the harms imposed by white-collar crime are then detailed. Next, the characteristics and techniques of white-collar offending are described, and the problems that these features create for societal efforts to reduce white-collar crime are outlined. This section is followed by a summary of some of the major forms of white-collar crime. Finally, the chapter concludes by identifying recent social and economic developments that are likely to ensure that white-collar crime will maintain its status as a major social problem well into the future.
Definition and Costs of White-Collar Crime
The phrase “white-collar crime” was coined by the eminent American sociologist Edwin H. Sutherland, in the late 1930s. At the time that Sutherland was writing, most criminologists thought that crime was concentrated among the urban poor and caused by the disadvantages and pathologies associated with poverty. Sutherland disagreed and argued strenuously that respectable people from the upper social classes committed a great deal of harmful criminal acts in the course of their occupations and in the furtherance of their economic and business interests. According to Sutherland (1949), upper-class criminality was ignored by the government and the general public because the perpetrators did not fit the common stereotype of the criminal. His work was aimed at reforming criminological theory by bringing this neglected form of criminality into the realm of scientific and public discourse.
There are two main approaches to defining white-collar crime: offender-based versus offense-based. Sutherland (1940) defined white-collar crime as a crime committed by a person of respectability and high social status in the course of his occupation. This definition is the most well-known and influential example of what has been called the offender-based approach to defining white-collar crime. Offender-based definitions emphasize as an essential characteristic of white-collar crime the high social status, power, and respectability of the actor. Another approach to defining white-collar crime focuses more on the characteristics of the offense rather than the actor. The most well-known offense-based definition was proposed by Herbert Edelhertz in 1970. Edelhertz defined white-collar crime as an illegal act or series of illegal acts committed by nonphysical means and by concealment or guile to obtain money or property, to avoid the payment or loss of money or property, or to obtain business or personal advantage. For offense-based definitions, what distinguishes white-collar crimes from other types of crime is the manner in which they are committed rather than the characteristics of the person who commits them.
Regardless of how it is defined, white-collar crime is widely acknowledged to cause tremendous financial, physical, and social harms. The amount of money lost to white-collar crime annually is impossible to establish with any precision, but it clearly exceeds the losses due to ordinary street crime. For example, according to the Federal Bureau of Investigation (FBI, 2007), in 2006 traditional property crimes such as larceny, burglary, auto theft, and robbery accounted for an estimated $17.6 billion in losses. By comparison, the FBI estimates annual losses due to white-collar crime at $300 billion.
Although typically thought of as a financial crime, certain types of white-collar crime can have physical effects as well. These include violations of workplace safety laws, the manufacture and distribution of unsafe consumer products, and violation of environmental laws and regulations. Between 1982 and 2002, over 2,000 American workers died as a result of willful violations of safety laws by employers. It is estimated that hundreds of thousands more are injured by such violations. The victims of occupationally related diseases also run into the hundreds of thousands annually. In addition, consumers suffer physically as a result of dangerous products, including most notably toys, food, pharmaceuticals, and medical equipment. The exact number of deaths and injuries caused by dangerous or defective products that can be attributed to lawbreaking by corporations is impossible to determine with any precision. Nevertheless, criminal cases involving some of the largest and most well-known corporations in the world occur regularly. In addition, the physical effects of white-collar crime extend beyond workers and consumers to society in general in the form of violations of environmental protection laws.
Like ordinary street crime, white-collar crime also has social or moral costs that extend beyond its affects on individual victims. Many scholars believe that white-collar crime damages the moral climate in society by undermining people’s faith in the legitimacy and fairness of business and government. White-collar crime is thought to create distrust and to undermine public confidence in the morality of big business. By disregarding the rules of free and open competition, business organizations that engage in white-collar crime gain unfair advantage over their lawabiding competitors. The ability of the market to reduce the costs of goods and services and to improve efficiency through competition is thereby threatened. Thus, white-collar criminal behavior harms the American economy and free enterprise system. The moral and social costs of white-collar crime may extend to political institutions. White-collar crime scholars from Sutherland on have speculated that publicity about white-collar crimes committed by big businesses can delegitimate the government, especially when it appears that corporations and their executives receive special treatment in the justice system. Finally, publicity about white-collar crime also may serve as a justification for other sorts of crime and deviance.
Characteristics and Techniques of White-Collar Crime
White-collar crime can be found in all types of businesses, industries, occupations, and professions. Hence, it comes in a large variety of forms and styles. All white-collar crimes, however, share certain characteristics and are committed using particular techniques. These characteristics and techniques distinguish white-collar crimes from most forms of traditional street crime. Three characteristics of white-collar crime are particularly important: (1) The offender has legitimate access to the target or victim of the crime on the basis of an occupational position; (2) the offender is spatially separated from the victim; and (3) the offender’s actions have a superficial appearance of legality.
Legitimate access means that white-collar offenders do not have to solve a problem that most predatory offenders confront—the problem of getting close to the target. For example, before a burglar can steal something from a home, he or she must first gain access to the home by somehow entering it. This is usually done by using force to break in a door or window. Breaking in creates additional risk of exposure for the offender. White-collar offenders, on the other hand, are not exposed to this additional risk because their occupational roles give them legitimate access to the targets of their crimes. For example, because of their occupational positions, bank employees have legitimate access to other people’s money and can embezzle it without breaking into their homes or physically confronting them on the street. Similarly, in many other forms of white-collar crime such as securities violations, antitrust violations, and health care frauds, the perpetrators take advantage of their occupational roles to get access to the targets of their crime.
In many white-collar crimes, the offenders never directly confront or come in contact with their victims. Rather, they are spatially separated from victims. Consider, for example, the antitrust violation of price fixing. Illegal price fixing occurs when competitors in an industry get together and collude to set prices for their products or services, as opposed to having prices determined by free and open competition in the marketplace. The victims of price fixing often are members of the general public, who have to pay more for goods and services than they would if prices were set by competition. The victims are never contacted directly by the perpetrators.
Perhaps the most troublesome aspect of white-collar crime is the superficial appearance of legitimacy. When a burglar breaks into a home, or an auto thief steals a vehicle, or any of the other traditional street crimes occurs, the fact that a crime has occurred is obvious. The offender’s actions leave visible traces of the crime (e.g., the broken door and missing television), and the offender’s actions can clearly be recognized as illegal by observers. In the case of the vast majority of white-collar crimes, however, the offender’s actions are not obviously illegal. Indeed, at first glance they look entirely legitimate, and the fact that a crime may have occurred is not obvious. For example, a common form of health care fraud engaged in by physicians is billing insurance providers for services that were not rendered to patients. To commit the crime, the physician simply submits a form to the insurance provider, often either the federal Medicare or Medicaid program, in which he or she claims to have administered some service to a patient that in reality was never provided. If the fraudulent claim is not detected and the physician is paid by the insurance provider, then the crime of health care fraud has occurred. Since literally millions of such forms are submitted legally every day, on the surface nothing is obviously out of the ordinary or untoward about the physician’s actions. Indeed, the physician’s behavior looks perfectly normal and legitimate.
The Problem of Controlling White-Collar Crime
Taken together, the characteristics of white-collar crime—legitimate access, spatial separation, and appearance of legitimacy—raise special problems for its control by the criminal justice system. The most notable problem is that of detection. Most ordinary street crimes are detected by their victims, who can then report the incident to the police. However, in the case of white-collar crime, victims may be wholly unaware that they have been victimized. Hence, no crime may ever be reported to the police. Because discovery is problematic, it is difficult to estimate the magnitude of the white-collar crime problem and hence to make decisions regarding how to allocate resources toward its control.
A second control problem raised by white-collar crime involves assigning responsibility for the offense. Many white-collar crimes occur in organizational or corporate settings and are the result of collective actions taken by groups of people. In these cases, it is often difficult to identify the individual or individuals who should be held accountable for the illegal activity. Because it may not be clear who is responsible for a particular offense, prosecutors often are reluctant to bring such cases to trial.
Related to the problems of detection and accountability is the difficulty of securing convictions in court. Because white-collar crimes are often complex and embedded in legitimate business routines, it can be difficult for prosecutors to prove beyond a reasonable doubt that an individual is guilty of an offense. The major obstacle is proving that the offender knowingly intended to violate the law. For example, in the health care fraud example discussed above, the physician submits a fraudulent claim for reimbursement for services rendered. Even if it can be shown that the claim is not accurate, the physician may still be able to argue successfully in court that he or she did not intend to submit a false claim. Rather, the fraudulent claim was simply a mistake or accident and not an intentional act. The denial of criminal intent is a very common feature of white-collar trials.
Convictions are also difficult to secure in white-collar cases, because the defendants typically have access to strong defense counsel. Unlike ordinary street offenders, white-collar offenders often can afford to hire the very best defense lawyers. White-collar defense attorneys work hard to control the prosecutor’s access to information and evidence related to the alleged crime. For example, to demonstrate that a crime has occurred in a business setting, prosecutors often need access to company records and files. Defense attorneys can file motions and objections to attempts by prosecutors to secure search warrants. Although these motions are not always successful, they can make the prosecutor’s job more difficult and time consuming. The strategy of information control can make it difficult for prosecutors to build successful cases in court.
For the reasons discussed above, investigating and prosecuting white-collar crime cases is often very expensive and time consuming. These constraints limit the effectiveness of the criminal justice system as a means of controlling white-collar crime. Local law enforcement agencies have multiple and competing demands on their time and resources. They are under constant pressure to respond to gang-related, drug, and violent crimes. Not surprisingly, in this context, white-collar crimes are considered less important, and accordingly given lower priority when decisions are made regarding which cases to pursue. Although state and federal law enforcement agencies do not suffer from the same resource constraints as local agencies, they too are limited in their ability to respond to white-collar crime.
Criminal justice agencies operate under legal constraints that can make it difficult to use the criminal law successfully against white-collar offenders. Legal constraints refer to features of the law that make it more or less difficult for law enforcers to use. For example, the standard of proof in criminal court is very high, as the defendant’s guilt must be proved beyond a reasonable doubt. Because of their complexity, proving guilt beyond a reasonable doubt in white-collar cases is often difficult. Other legal constraints such as the right to be free from unreasonable searches and seizures and the privilege against self-incrimination also complicate the efforts of law enforcers to bring the guilty to justice.
For all of the reasons outlined above, most scholars agree that while the criminal justice system is an important component of white-collar crime control, it should not be the first line of defense. Rather, regulatory controls are considered to be more effective and efficient. The regulatory system holds three distinct advantages over the criminal justice system as a means of controlling white-collar and corporate crime: (1) specialized expertise, (2) greater investigative powers, and (3) more flexibility and discretion.
When they are established, regulatory agencies are given a mandate to look at problems in specific areas. For example, the Food and Drug Administration (FDA) is supposed to regulate the safety and quality of foods and drugs. The Environmental Protection Agency (EPA) looks after the environment, while the Securities and Exchange Commission (SEC) keeps track of activities in the securities industry. Because regulatory agencies are focused on specific problems and subject areas, agency personnel can develop specialized expertise. This expertise can help them see problems and envision solutions more easily than law enforcement agencies can.
As noted above, the police and other law enforcement investigative agencies operate under strict legal constraints. They typically cannot act until there is evidence that a crime has been committed and that a particular person or organization is involved. Regulatory agencies operate under fewer legal constraints, and in many cases they are given explicit authority to enter premises and to ask for information from business organizations. Hence, in theory, they can learn about potential problems before they happen rather than after the fact, and they can act proactively rather than reactively.
Finally, regulatory agencies also have more flexibility and discretion in the fashioning of their responses to corporate wrongdoing. The criminal justice system is, for the most part, restricted to applying the criminal law as it is enacted by legislative bodies. Regulatory agencies can work with businesses to create innovative solutions to problems.
However, there are disadvantages to overreliance on regulation. A significant problem is agency capture. By design and necessity, regulatory agencies must work closely with regulated industries. Agencies routinely ask for industry input on the development and implementation of rules. Regulatory inspectors also meet regularly with the people they regulate as they go about enforcing the rules. Hence, there is always the possibility that regulatory agencies will be “captured” by the regulated industry and begin to act more in the interests of the industry rather than the interests of the general public.
Another problem with regulation as a means of controlling corporate misbehavior is that the sanctions imposed by regulatory agencies are not nearly as powerful or threatening as those imposed by the criminal justice system. Regulatory agencies can impose large fines on violators. Yet, no matter how big the fine is, it does not carry the social stigma of criminal penalties. Hence, critics of the regulatory system argue that regulation doesn’t really deter wrongdoing. They argue that regulated businesses look at fines and other regulatory penalties as simply a cost of doing business.
Finally, there is the problem of regulatory unreasonableness. In theory, regulatory agencies are supposed to work to protect the public interest and to prevent harmful situations from developing in the first place. For example, it makes sense to establish rules to protect workers and to lower the risk that they will be made ill, injured, or killed on the job. But some agencies become more focused on enforcing the rules and less on preventing problems. If carried to an extreme, this tendency can lead to regulatory unreasonableness, in which the rules are enforced in a narrow-minded and legalistic fashion simply because they are the rules. The broader goal of preventing harm sometimes gets lost in the zeal to enforce the rules.
Types of White-Collar Crime
White-collar crime comes in a variety of forms and can be found in every industry, profession, and occupation. In this section, five major forms of white-collar crime are defined and described: antitrust violations, securities violations, consumer fraud, health care fraud, and environmental offenses.
Antitrust violation can be divided into two broad groups: restrictive trade agreements, and monopolies or monopolistic practices. Restrictive trade agreements involve an illegal agreement or understanding between competitors in an industry to restrict how the industry works. Two examples of restrictive trade agreements are price fixing and market sharing or division. Price fixing refers to agreements between competitors to set prices at a certain level. For example, if milk producers get together and agree among themselves to charge schools a set price for the milk used in school lunch programs, that is price fixing. Market sharing occurs when competitors get together and divide up an area, so that only one of them operates in any one area at a time. For example, two paving contractors might divide up a town so that one takes the east side and the other the west side of town. These sorts of agreements are illegal because they restrain trade. In these examples, the prices for these goods and services (milk and paving) are not being set by open competition in the marketplace, as they should be in a free market economy. Rather, prices are being set by collusion between or among competitors.
Monopolies and monopolistic practices involve unfair attempts to corner a market or to drive out competitors from a marketplace. A monopoly is said to exist if one company controls an entire market, but a company can have monopolistic control even though it has competitors if it controls a large enough share of a market. Microsoft’s Windows operating system, for example, was declared a monopoly even though there are other operating systems available. The other systems have such a small market share and Windows has such a large share that it effectively controls the market.
There are two main techniques of monopolistic practices. The first is to use predatory pricing, which occurs when a company sets a price for its products or services that is economically unfeasible in order to drive competitors out of business. A second technique is for a company to pressure or control other companies that supply or deal with competitors so as to put them at a competitive disadvantage. Microsoft was accused of doing this with computer manufactures. It forced computer manufactures who wanted to preload their machines with the Windows operating system to agree not to install software from some rival companies when selling computers to the public. In effect, this destroyed the market for rival software companies.
A security is evidence of ownership, creditorship, or debt. It is a piece of paper, or an account number, or something that indicates that someone has a financial interest or stake in an economic undertaking. For example, stocks, bonds, shares in a mutual fund, promissory notes, and U.S. government savings bonds are all securities. Publicly traded securities are bought and sold on exchanges, such as the New York Stock Exchange.
There are five major types of security offenses. Misrepresentation involves lying about the value or condition of a security. Stock manipulation occurs when an individual or a group of individuals attempts to artificially manipulate the price of a security. Misappropriation is an offense committed by brokers or other financial advisors who take money that their clients have given them to invest and misappropriate it for their own use. Insider trading is perhaps the most publicized security offense. It arises when people trade on the basis of inside, nonpublic information. It is illegal for insiders to buy or sell stock on the basis of information that is not available to the public. Finally, in an investment scheme, the perpetrator tricks people into investing money in an undertaking or security by falsely promising investors that they will receive a high rate of return on their investment. In reality, the undertaking has little or no chance of paying off, and the perpetrator simply makes off with the investors’ money.
Consumer fraud is one of the most common forms of white-collar crime. It involves the use of deceit or deception in the marketing and selling of goods or services. This offense usually involves the deliberate use of false, deceptive, or misleading statements about the cost, quality, or effectiveness of a product or service. Consumer fraud offenders are drawn from all types of businesses and represent a continuum of size and complexity. Fraud against consumers has been perpetrated by offenders ranging from fly-by-night con artists to major multinational corporations, such as Sears and K-Mart. Fraud also occurs in businesses that fall between these two extremes, including local “legitimate” businesses that may on occasion resort to fraud in order to make extra profit or to avoid going out of business.
The following are seven of the more common forms of consumer fraud:
1. Mislabeled products and misleading advertising. Many consumer products come with labels that purport to tell about the ingredients in a product or about its performance or efficiency—for example, prepared foods, computers, water heaters, furnaces, and a host of other products. One way to sell cheap or shoddy products is to put inaccurate or misleading information on the label to make them seem better or more attractive than they really are. Misleading advertising is another way to influence buying decisions. For example, food manufacturers may make questionable claims about the nutritional or heath value of their products.
2. Real estate fraud. Real estate fraud involves lying or being deceptive about the condition of real property, things such as land, houses, and buildings.
3. Free prize scams. In these types of scams, people are told that they have won a valuable free prize, but in order to collect it they must send in money or make a phone call. The money that is sent in will greatly exceed the value of the prize, or the victim will be charged for the phone call at a rate that greatly exceeds the value of the prize.
4. Bait-and-switch advertising. Popular with “legitimate” retail businesses, this fraud involves advertising some well-known product, such as a TV or major appliance, at a ridiculously low price. However, when consumers come to the store, they are told that the item is sold out or temporarily out of stock and then are steered toward other more expensive products that are available.
5. Repair frauds. Repair frauds typically involve bigticket items such as homes, automobiles, or major appliances (dishwashers, washing machines, furnaces, and the like). The fraud involves either doing unnecessary repairs or doing substandard work and then charging the victim full price.
6. Charity and advocacy frauds. Charity frauds appeal to the emotions. The victims think they are donating money or goods to help a worthy cause, when in reality the money is kept by those who collected it. Advocacy frauds are slightly different in that the offender promises to advocate for the victim with some other governmental body, such as the U.S. Congress or a state legislature. The offender promises to see that the victim’s interests are protected on Capitol Hill or at the state capitol. However, in reality, like charity frauds, little or none of the money is actually used to promote these ends. Rather, it finances the lifestyles of the so-called advocates.
7. Advance-fee swindles. Anytime someone is asked to pay in advance for a service or product, he or she is vulnerable to an advance-fee swindle. Typically, in these swindles someone promises to do something for the victim, but the offender asks the victim to pay first and then the offender never delivers on the promise. Often, the promised service is one where it may be difficult to confirm one way or the other whether the service was provided. For example, advance-fee swindles may involve such services as finding housing, or educational loans, or employment. In these cases, the swindler promises to help the victim find an apartment, or a college loan, or a new job in return for a fee. The victim pays the fee, but does not get what he or she wanted in return. The swindler claims to be working for the victims but really is just taking their money.
Health Care Fraud
Health care fraud involves fraud against health care insurers and government programs such as Medicare and Medicaid. These two programs are particularly ripe for fraud because of their size and complexity. They process literally billions of dollars worth of claims annually. Although the exact cost of health care fraud is unknown, it is estimated to be in the hundreds of billions of dollars per year. Health care fraud can be committed by any person or organization in the health care industry who is involved with the provision of health care services to patients, including physicians, mental health professionals, hospitals, nursing homes, equipment suppliers, and pharmaceutical companies, as well as many others. Because physicians deal most directly with patients, their involvement in fraud is particularly serious. The following are three common forms of health care fraud involving physicians:
1. Unnecessary procedures. Because most people know very little about their bodies and the various problems they can have, they rely on the expertise of physicians. Physicians are supposed to provide treatment based on their best assessment of the patient’s medical needs. Some physicians, however, make decisions based not on the medical needs of patients but rather on their financial goals. Physicians may recommend that patients undergo unnecessary procedures, ranging from relatively simple but unnecessary tests to life-threatening surgery. So-called “Medicaid mills” make a business out of providing unnecessary procedures. These operations often are run in lowincome neighborhoods. A group of unscrupulous doctors sets up a shop and recruits low-income patients—drug addicts, alcoholics, homeless people, and so forth. The patients are paid a small fee, are run through a battery of unnecessary tests, and then the federal government is billed for the cost of the tests.
2. Fee splitting. Most general practitioners cannot handle serious illnesses or medical conditions. When confronted with these types of cases, they often refer patients to specialists. To the extent that referrals are made on the basis of the physician’s medical judgment, that is appropriate. But sometimes, physicians make referrals because they have a financial arrangement with a particular specialist. In return for referring patients to the specialist, the general practitioner gets a kickback in the form of a cut of the specialist’s fee.
3. Fraudulent billing. Probably the most common type of fraud is fraudulent billing. This can be accomplished in a variety of different ways, but basically it involves submitting claims for reimbursement for services that were never really provided. For example, a physician may submit a claim saying that he or she performed some medical service for a patient when the service really was not provided, or when the service that was provided was somehow less than the physician is claiming.
There is no clear, widely accepted definition of the term environmental crime. Implicitly, it is defined as any violations of local, state, or federal “environmental laws.” Environmental laws seek to protect the quality of the air, water, and soil by regulating both harmful additions to the environment (water, air, and soil pollution) and harmful subtractions from the environment (destruction of habitats).
Environmental crime comes in a variety of forms and sizes. Offenders may be homeowners who dump leftover paint into a city sewer system in violation of local ordinances, or they may be multinational corporations that manufacture, ship, and dispose of hazardous materials under conditions that are criminally negligent and morally outrageous.
Because different types of environmental crimes are associated with different industries and businesses, the nature of environmental crime in a community tends to reflect local economic activity. Certain types of environmental crime problems, however, are widespread. A study of local law enforcement responses to environmental crime concluded that illegal waste tire disposal, improper disposal of furniture stripping and electroplating waste, used motor oil disposal, and hazardous wastes dumped into streams and rivers, are found in nearly all communities (Rosoff, Pontell, & Tillman, 2006). Along with these generic forms of environmental crime, some communities suffer unique problems as a result of their particular mix of local industries and businesses. For example, in some rural communities, most of the local environmental problems may be caused by one particular business, such as a tannery or textile manufacturer. The states of Maine and New Jersey both have problems with illegal disposal of hazardous waste, but the type of waste is specific to each state. In Maine, waste cases tend to involve the textile, wood, and fishing industries. In New Jersey, on the other hand, they involve the chemical and petrochemical industries.
In a strictly legal sense, what counts as environmental crime varies a great deal across jurisdictions. Statutory inconsistencies and the lack of uniform codification in state environmental laws pose difficulties for prosecutors and investigators. At the same time, they create opportunities for environmental offenders, who can evade prosecution merely by moving their operations to jurisdictions that are legally more “user-friendly” from the offender’s point of view.
One of the most important types of environmental crime is the illegal disposal of hazardous waste materials. In recent years, research suggests that environmental criminals have become more sophisticated. Rather than simply dumping hazardous waste in some isolated area late at night (often called “midnight dumping”), today’s more sophisticated environmental criminal may forge a waste transportation manifest or bribe public officials to look the other way. Other techniques involve mixing hazardous waste with nonhazardous waste, known as “cocktailing”; mislabeling drums, or disposing of the waste on the generator’s own property. Cocktailing is particularly common in the oil industry when dumping used oil.
Although offenses similar to what is referred to as white-collar crime have been around for centuries, it is likely that white-collar crime will become even more prevalent in the future than it is now or was in the past. Social and technological changes have made white-collar crime opportunities more available to a broader range of people than ever before. The important changes include (a) a rise in white-collar–type jobs, (b) the growth in state largesse, (c) an increase in trust relationships, (d) economic globalization, (e) the revolution in financial services, and (f) the rise of the Internet as a means of communication and business.
In modern postindustrial economies, more people have access to the tools of white-collar crime because they work in offices with forms and files and computers. These paper and electronic documents can be manipulated and altered so as to create a false impression of reality and permit employees to have illegal access to financial and other resources. In addition, more and more white-collar employees find themselves in jobs that are somehow connected to banking or financial services. The potential to engage in fraud is therefore great.
Opportunities to engage in fraud have also been expanded by the growth in programs associated with the welfare state, including Social Security, Medicare, and Medicaid, as well as a host of other less well-known programs such as the Federal Crop Insurance Program. All of these programs distribute enormous amounts of money to literally millions of applicants annually. They all depend on written materials and all are open to the possibility of fraudulent applications.
There is another change in the social organization of work and the economy that has increased opportunities for white-collar crime—the rise in trust relationships involving agents and principals. A trust relationship is one in which someone (called the principal) depends on someone else (called the agent) to manage assets or provide specialized services. For example, contributors to a pension fund are in a trust relationship with the pension fund managers, in that the contributors have to trust that the managers will manage the fund’s assets in a financially prudent manner. Similarly, someone who goes to a doctor is in a trust relationship with the doctor in that the person has to trust that the doctor will treat him or her according to what is in the person’s best medical interests. In the modern world, people increasingly find themselves in trust relationships in which they have to depend on others to do things for them that they cannot do for themselves. Trust relationships raise two main problems for the people who must rely on them. First, it is often difficult for principals to monitor and evaluate agents because of the complexity or hidden nature of the services that agents provide. In effect, principals often do not know whether agents really are doing the right thing for them. Second, agents have their own financial interests that may conflict with those of the principals whom they are supposed to be serving. Taken together, these two features of trust relationships mean that agents often have the motivation and means to take advantage of others.
The increasing number and complexity of politicaleconomic ties that cross national borders have been a boon to white-collar criminals. This globalization of the economy has made it easier for potential offenders to contact victims, orchestrate complex criminal fraud schemes, and avoid detection and punishment by governments. Companies can be set up in one place to victimize individuals, businesses, and governments in other places. For example, some foreign companies have attempted to take advantage of changes in trade regulations in the United States that benefited North American manufacturers. These new regulations followed the passage of the North American Free Trade Agreement (NAFTA). To take advantage of the new regulations, foreign companies would mislabel their products as being manufactured in North America. Opportunities to engage in these sorts of frauds are plentiful today, because most global business transactions are not conducted via face-to-face meetings. Rather, they are conducted by means of telephone, fax, email, and other forms of electronic exchange. All of these impersonal modes of communication create abundant opportunities for fraud and deception.
Since the 1980s, the financial services sector of many national economies, including that of the United States, has exploded in size and democratized in scope. Insurance, consumer credit, mutual funds, and other securities, once available only to the wealthy, are now offered to middle and lower-income individuals. Vast amounts of money flow between individuals and institutions in electronic funds transfers. The temptation and opportunity to engage in fraud are ever present.
Many, if not all, of the social and economic developments outlined above have been made possible as a result of technological changes. The effects of the emergence of the personal computer, network servers, and the Internet as the standard means of information storage, manipulation, and communication can hardly be overstated. Money and information flow faster now than ever before. More and more transactions take place anonymously rather than through face-to-face contact. In this environment, opportunities to engage in fraud and deception abound, and white-collar crime flourishes.