As one might consider “white collar crime” is not a term coined during the recent financial crisis. Suprisingly or not – it was invented before the Second World War by Edwin H. Sutherland who tried to distinguish offences committed by professionals from violent ‘brute force’ crime that was so widely spread at the time.
White collar crime has been defined in various ways, but all definitions seem to have a common denominator – they refer to activities taken to obtain (in a manner that breaches the accepted norms) own benefits or benefits for one’s business through the individual’s position, often using skills and knowledge. A typical practical example here is overestimation of the financial results by people in managerial positions who thus ‘help’ themselves to meet their goals. In consequence, various bonuses are obtained, people enhance their professional standing and quite frequently, advance up the professional ladder in their organizations.
White collar fraud is characterized by high level of perpetrator’s specialization, close scrutiny and great insight into the company’s operations. In practical terms, fraud is often committed by senior employees who are more than familiar with the company’s internal control procedures. More often than not internal controls are simply circumvented using the power associated with the individual’s position in the hierarchy. Perpetrators tend to claim that the ‘proceeds’ from fraud are considerably higher than the ‘costs’ associated with potential sanctions in case of disclosure; that is why it pays off to breach the rules. Additionally, the approaches followed by corporations when dealing with such fraudsters vary – companies tend to fear bad publicity or the result of proceedings held before the labour court. In consequence, the perception of penalty and sanctions is not strong and may lead to other fraudulent attempts. It is commonly held that white collar crime is not, as a rule, very detrimental to the social interest comparing to more violent offences. However, one needs to keep in mind that it often affects the trading and business life and as a result indirectly workers and consumers.
White collar crimes are characterized by one or more of the elements below, i.e.:
- Seeing a possibility that one’s actions will go unpunished – as the saying goes “a postern door makes the thief”. Typical examples include:
- no sense of control or perceiving controls as ineffective,
- lack of proper reporting and communication mechanisms in respect of breaches of accepted norms within the organization and lack of effective methods of analysing instances of infringements and their consequences,
- introduction of new products and services without considering the risks of fraud;,
- inappropriate distribution of duties or gaps in conspiracy preventing mechanisms, such as rotation within departments or the enterprise.
- Existence of elements that help justify wrongdoings, which occurs when taking advantage of the company resources is accepted or when the perpetrator tries to argue that their fraudulent actions are to compensate for the wrong treatment by the employer.
- Personal and institutional pressures that can originate from the constant pressure to succeed or the necessity to pay off one’s liabilities (e.g. as a result of gambling or spending beyond one’s means).
The law enforcement agencies’ statistics shown in the media and various reports focused on counteracting economic crime, e.g. the report by the Association of Certified Fraud Examiners, corroborate the conclusion that the economic crime is on the rise. It breaches social norms and goes against the law, which means that it adversely affects trading. For that reason counteracting white collar fraud is in the interest of both the employees and the managerial staff representing the micro-community of the workplace.