White-Collar Crime and Fraud Investigation

A Convenience Theory Approach

Petter Gottschalk

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000475722
• Edition: 1
• Topic: Business
• Subtopic: Business Law
• Index: Business

This book applies a structural model of convenience theory to suspected crime and a maturity model to investigation reports. Evidence of white-collar convenience themes in each case study is derived from internal investigation reports by fraud examiners.

The study of white-collar offenders has received increased attention in recent years. This book contributes to our understanding of financial crime by privileged individuals in professional settings by identifying convenience themes for offenders. Based on the theory of convenience, the work presents a number of case studies to identify convenience in financial motive, organizational opportunity, and willingness for deviant behavior. Case studies presented are from Austria, Asia, Congo, Denmark, Germany, Norway, Sweden, and the United States.

The book will be of interest to researchers and academics in Law, Criminology, Business, and Sociology. It will also provide a valuable resource for fraud examiners, defense attorneys, police investigators, and prosecutors.

Part I

Theoretical perspectives

1

Characteristics of white-collar offenders

DOI: 10.4324/9781003225768-3

Deviant human resources at high levels in organizations and in professional settings cause white-collar misconduct and crime. White-collar offenders are privileged individuals who abuse their organizational positions for personal or corporate gain (Sutherland, 1983; Walburg, 2020; Wingerde and Lord, 2020). White-collar crime is financial crime committed by individuals in privileged positions in business and public organizations (Sutherland, 1983). White-collar crime is unlawful conduct that elites and the powerful commit without fear of coming into contact with the criminal justice system. White-collar offenders commit and conceal their crimes in professional settings where they have legitimate access to premises, resources, and systems (Benson and Simpson, 2018; Logan, 2015; Logan et al., 2019).

White-collar crime includes all categories of financial crime, such as fraud, corruption, manipulation, and theft (Piquero, 2018). This is the offense-based perspective on white-collar crime (Galvin et al., 2018; Piquero, 2018). White-collar criminals include all individuals who abuse their trusted positions to commit and conceal financial crime. This is the offender-based perspective on white-collar crime.

The offense-based perspective

Offense-based approaches to white-collar crime emphasize the actions and nature of the illegal act as the defining agent (Galvin et al. 2018; Piquero, 2018). For example, white-collar crime is typically a non-violent offense (Berghoff and Spiekermann, 2018). The offense-based tradition is concerned with the criminal act itself, drawing upon legal definitions, motives, and means (Piquero and Schoepfer, 2010). Because status is not included in the definition of offense-based approaches, and status is free to vary independently from the definition in most legislations, an offense-based approach allows measures of status to become external explanatory variables. The offense-based tradition represents a critique against using offender characteristics as part of the definition. For instance, Shapiro (1990: 347) argues that this “confuse[s] acts with actors, norms with breakers, the modus operandi with the operator”.

An argument for the offense-based perspective is that everyone now can commit fraud on the internet, an act that was impossible when Sutherland (1939) first coined the term “white-collar crime” eight decades ago (Geest et al., 2017: 544):

In sharp contrast to the 1940s however, when most financial crimes were out of reach for ordinary people, in modern-day society the opportunity structure for white-collar crime has dramatically changed. The growth of the credit economy, the increase of the service sector, increased urbanization, and the advent of the internet – to name but a few factors – have increasingly democratized the phenomenon of financial crimes and fraud. With the advancement of technology, crimes labeled as “white-collar” do not require employment or specific skills and have increasingly come within range of the poor and disadvantaged who disproportionately came in contact with the criminal justice system then and now.

White-collar criminals commit financial crime where a great variety of options can be found, as illustrated in Figure 1.1. Fraud, theft, manipulation, and corruption are four main categories of financial crime, with a number of subcategories (ACFE, 2008, 2014, 2016).

Figure 1.1 Main categories and subcategories of financial crime

Fraud can be defined as intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right. Fraud is the unlawful and intentional making of a misrepresentation, which causes actual prejudice or which is potentially prejudicial to another. Fraud refers to the intentional misrepresentation of the truth in order to manipulate or deceive a company or individual. Fraud involves creating a misjudgment or maintaining an existing misjudgment to induce somebody to do something that the person or organization otherwise would not do (Elisha et al., 2020). Bank fraud is a typical example. Bank fraud is the criminal offense of knowingly executing a scheme to defraud a financial institution.

Theft can be defined as the illegal taking of another person’s, group’s, or organization’s property without the victim’s consent. For example, identity theft combined with identity fraud is the unlawful use of another’s personal identifying information (Piquero et al., 2021). It involves financial or other personal information stolen with the intent of establishing another person’s identity as the thief’s own. It occurs when someone uses personally identifying information, like name, social security number, date of birth, government passport number, or credit card number, without the owner’s permission, to commit financial crime.

Manipulation can be defined as a means of gaining illegal control or influence over others’ activities, means, and results. For example, bankruptcy crime consists of criminal acts committed in connection with bankruptcy or liquidation proceedings. A person filing for bankruptcy or a business that has gone into liquidation can hide assets after proceedings have been initiated, thereby preventing creditors from collecting on their claims. However, most of the criminal acts are typically committed before bankruptcy/liquidation proceedings are initiated, e.g., the debtor has failed to keep accounts or has unlawfully withdrawn money from the business.

Corruption is defined as the giving, requesting, receiving, or accepting of an improper advantage related to a position, office, or assignment (Ashforth et al., 2008). The improper advantage does not have to be connected to a specific action or to not following through on this action. It will be sufficient if the advantage can be linked to a person’s position, office, or assignment (Artello and Albanese, 2021). An individual or group is guilty of corruption if they accept money or money’s worth for doing something they are under a duty to do anyway, doing something they are under a duty not to do, or exercising a legitimate discretion for improper reason. Corruption is to destroy or pervert the integrity or fidelity of a person in his discharge of duty; it is to induce someone to act dishonestly or unfaithfully; it is to make venal; and it is to bribe. Corruption involves behavior on the part of officials in the public or private sector in which they improperly and unlawfully enrich themselves and/or those close to them, or induce others to do so, by misusing the position in which they are placed. Corruption covers a wide range of illegal activity such as kickbacks, embezzlement, and extortion. Corruption entails “mistreatment of suppliers, customers, or competitors” (Kolthoff, 2020: 434).

The various main categories and subcategories of financial crime imply varying sanctions and penalties around the globe. An example is corruption, where there is demand for a bribe and supply of a bribe. In the United States, the more serious offense is to offer and supply a bribe. In China, the more serious offense is to request and receive a bribe (Wang, 2020). In Norway, the law does not distinguish the extent of seriousness between the bribe giver and the bribe taker, but the courts punish bribe takers more harshly.

The offender-based perspectives

The offender-based definition has its origin in the work of Sutherland (1939), who defined white-collar crime based on the social and occupational status of the offender as a crime committed by a person of respectability and high social status in the course of the offender’s occupation.

This book applies the offender-based rather than the offense-based definition of white-collar crime, which is consistent with Sutherland’s (1939: 2) approach when he introduced the term:

White-collar criminality in business is expressed most frequently in the form of misrepresentation in financial statements of corporations, manipulation in the stock exchange, commercial bribery, bribery of public officials directly or indirectly in order to secure favorable contracts and legislation, misrepresentation in advertising and salesmanship, embezzlement and misapplication of funds, short weights and measures and misgrading of commodities, tax frauds, misapplication of funds in receiverships and bankruptcies. These are what Al Capone called “the legitimate rackets”. These and many others are found in abundance in the business world.

The book applies this definition by emphasizing that the white-collar offender has legitimate access to resources to commit and conceal crime in the course of occupational and professional activity. White-collar crime is committed during the course of legitimate occupational activity, by persons of high and respectable social status for personal or organizational gain. Individual white-collar crime benefits that individual, while corporate white-collar crime benefits the organization more directly than the individuals who committed the offense (Craig and Piquero, 2017). Occupational crime is a frequent label for the former, while corporate crime is a frequent label for the latter.

White-collar crime comprises illegal acts that violate responsibility or public trust for personal or organizational gain. It is one or a series of acts committed by non-physical means and by concealment to obtain money, property, or business or personal advantage (Leasure and Zhang, 2018). The offender has legitimate access, where legitimacy is a generalized perception or assumption that the actions of an individual are desirable, proper, and appropriate within some socially constructed system of norms, roles, and values (Fitzgibbon and Lea, 2018). Legitimacy is an assessment of the appropriateness of an individual’s actions (Bundy and Pfarrer, 2015). The offender has high social status and power and enjoys respectability.

Given the offender-based perspective, the text in this book disagrees with Galvin et al. (2018), who include all kinds of non-violent crime with financial motive. For us, identity theft or credit card abuse in a private context is not white-collar crime. Bank fraud or CEO fraud using the internet in a private context is not white-collar crime. A distinct term like “white-collar crime” can lose meaning if it includes more and more offenders and offenses. While it is certainly true that many wear white collars, everyone knows what the term means in criminology. It is financial crime by members of the elite in society. Those who attempt to stay above the law and feel they are too powerful to fail and too powerful to jail: those are the typical white-collar offenders (Pontell et al., 2014).

This book makes a distinction between occupational crime and corporate crime. Self-interested individuals commit occupational crime in their profession against their employers (e.g., embezzlement or receipt of bribes) and other victims (Shepherd and Button, 2019). Organizational officials commit corporate crime in the larger interests of an organization, such as bribing potential customers, avoiding taxes by evasion, and misrepresenting accounting to get unjustified government subsidies. As argued by Alalehto (2018), an organization does not think or act by itself because it lacks ethical, philosophical, sociological, and psychological properties. Therefore, both occupational crime and corporate crime are committed by individuals.

In corporate crime, individuals such as board members and chief executives serve the benefit of the organization. Of course, individuals may benefit personally as a side effect of the corporate financial crime since the interests of the organization may coincide with the interests of individual members. While a corporation cannot feel, does not have a mind, and does not think, the corporation nevertheless acts and is the actor when executives and others attempt to improve organizational performance in illegal ways (Bundy and Pfarrer, 2015; Scott and Lyman, 1968).

The organizational connection of white-collar offenses is particularly evident when crime is committed on behalf of the business. The organizational anchoring of crime is obvious in corporate offenses as crime takes place within the business and to the benefit of the business (Bradshaw, 2015). While offenders often hide occupational crime individually to enrich themselves by abusing corporate resources (Hansen, 2009; Shepherd and Button, 2019), corporate crime is often hidden by a group of individuals to improve business conditions.

The offender-based white-collar perspective originates from Edwin Sutherland. Sutherland is one of the most cited criminologists in the history of the criminology research field. Sutherland’s work has inspired and motivated a large number of scholars in the field associated with his work. His ideas influence, challenge, and incentivize researchers. Sutherland based his research on white-collar crime on his own differential association theory. This learning theory of deviance focuses on how individuals learn to become criminals. Differential association theory assumes that individuals learn criminal behavior in interaction with other persons. Berghoff and Spiekermann (2018: 290) are among those emphasizing the importance of Sutherland’s work:

The assessment of the offences committed in the corporate world began to change in light of the theories of sociologist and criminologist E...