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The lure of white-collar crime.

WHITE-COLLAR CRIME IS NOT going away. It is highly profitable, relatively risk-free, and almost socially acceptable. Since these crimes will not just disappear, security managers must find new ways to fight back through prevention, investigation, and prosecution.

White-collar crime probably costs U.S. businesses more than $40 billion each year. Statistics are unreliable, however, because many of these crimes are never reported. White-collar crime is also responsible for a significant loss in productivity that is not reflected in the statistics. Disruption is inevitable after a crime has been committed. Therefore, competitiveness is reduced even more than the numbers indicate.

White-collar crimes are those committed without the use or threat of force and without the risk of physical harm to the victim or the criminal. Also, a person who abuses his or her position for personal financial gain is considered a white-collar criminal. An example of this is an attorney who uses his or her influence to convince a person suffering from Alzheimer's disease to include the attorney in the will as a beneficiary.

Motives of white-collar criminals include a drug, gambling, or upscale lifestyle habit; large medical expenses or past-due bills; revenge against an employer; and just plain greed.

White-collar crimes may be perpetrated by the following:

* Individuals against other individuals. Most of these crimes have been committed by people in a position of authority and control, such as family members, attorneys, real estate, and insurance, agents, conservators, and physicians.

* Insiders against their organization. Internal criminals include business partners, office managers, computer programmers, stockbrokers, and senior executive officers.

* External criminals. External criminals include forgers, counterfeiters, computer hackers, industrial spies, and office supply pirates.

Whether internal or external, white-collar criminals' tactics include trickery, deceit, or misrepresentation. Some familiar schemes are customer impersonations, medical and insurance frauds, real estate and banking swindles, and embezzlements. The crimes may involve forged or counterfeit checks, receipts, business records, or other legal documents, or the criminals may be aided by technologies, such as on-line computer terminals, fax machines, and color copiers.

The white-collar criminal is generally a calculating risk taker who weighs the potential risk against the potential profit. If a criminally motivated person believes that the opportunity to make a profit is greater than the potential risk associated with discovery, it is crime time.

The motivation to commit a crime has increased in recent years as reports have revealed the vast wealth accumulated by tax cheaters and crooked savings and loan officers. This motivation is bolstered by the belief that white-collar criminals usually do not get caught. If they do, the punishment is light, and the social stigma is insignificant.

White-collar crime can have a significant financial payoff, but what are the risks?

Identification. The criminal must be identified in order to be prosecuted. In a society where people often do not look at each other while walking on the sidewalk and where recording a driver's license number on a check is more important than identifying the writer, this is usually a minor issue for external criminals. It is a greater issue, however, for internal criminals.

To help identify a criminal, employees should remember to pay equal attention to all details of any internal or external transaction, including the other employees involved, the transacting employee's level of authority, the customer, the setting, the type of identification, and the payment method used.

Apprehension. If the criminal is identified, the local law enforcement agency is usually responsible for conducting the initial investigation. The majority of the nation's police and sheriff's departments are generalist departments; they do not have, nor can they afford, specially trained personnel to handle white-collar crime.

Security managers should plan their investigations as if they are to receive no assistance from local law enforcement. That means conducting a thorough investigation, complete with documentation and followup.

Prosecution. Once a subject is apprehended and the elements of the crime are established, prosecution can begin. The prosecuting agency is usually responsible for conducting these legal proceedings. The majority of the nation's prosecuting agencies, however, are generalist departments also.

Security managers should assist the prosecutor as much as possible by delivering the most complete investigative package possible and ensuring the company is represented in all court-related matters.

Recovery. If the subject is found guilty and convicted, the court can order restitution to the victim. However, prosecutors often do not seek convictions on all counts of a multiple-count case, and the court can only order restitution on counts that result in convictions. Even then, assets must be located, liens must be filed, and property must be seized. Often both internal and external criminals have no recoverable assets.

WHITE-COLLAR CRIME IS BIG BUSINESS, and the nation has allowed this business to grow. Significant segments of entire legitimate and criminal industries have been built around white-collar crime. It generates sizable illegitimate income for a number of external criminals. Consider the following examples:

* The robber who steals a wallet at gunpoint for immediate cash or steals property only to sell it for cash. The victim's checks, credit cards, identification, and household property, however, are not worthless to him or her. The robber or burglar simply re-sells those items to another criminal--a middleman--who then sells them to a third criminal who has the skill to use them to turn a profit.

* A prostitute may sell compromising client information to an extortionist; checks and credit cards to a re-seller; and sensitive business information to an industrial spy.

* The industrial spy who eavesdrops on employees' conversations at their favorite (and habitually frequented) restaurant may have no personal use for the sensitive information the employees discuss but that information may be worth a lot of money to a competitor.

White-collar crime also generates a sizable legitimate income for numerous legitimate businesses and government agencies. If white-collar crime disappeared overnight, the negative impact on the nation's economy would be significant. For example, consider the effect of the elimination of white-collar crime on the following industries:

Criminal justice system. How much of the local, state, and federal budget is dedicated to the investigation, prosecution, defense, and punishment of white-collar criminals? How many police officers, investigators, lawyers, judges, court clerks, probation officers, and jailers owe their livelihoods to white-collar criminals?

Media. How much of the media's time is dedicated to crime reporting, particularly addressing white-collar crime? How much of that reporting glorifies the exploits of white-collar criminals and the way they live?

Insurance and bonding companies. How much of these companies' profits result from the payment of premiums related to appearance bonds, fidelity bonds, and similar insurance coverage?

Internal security personnel and consultants. How many individuals are employed to provide internal security, training, and consulting services to businesses concerned about their exposure to white-collar crime?

The news is filled with reports of white-collar crimes. The savings and loan industry has suffered from fraud and insider abuse; the defense industry has been racked by overcharges and failed product designs; public and private universities have been plagued with overcharges and inappropriate charges for government-sponsored research; the House of Representatives' post office and bank have been misused; major retailers have suffered from huge embezzlement losses; national membership associations have been riddled with pyramid schemes and debt-saddling prior to bankruptcy filing; national nonprofit charitable organizations have had dues and donations converted to political action committees (PACs) and individual use; and securities brokerage firms have suffered through insider trading and other fraudulent practices.

Individuals who commit these crimes have the opportunity to earn a comfortable living. If apprehended and convicted, the criminal faces only a small risk of significant prison time, which may be served in a relatively comfortable minimum security prison. This treatment sends a clear message to anyone who has ever thought of committing a white-collar crime: While society recognizes that certain behavior is not honest, it is more acceptable than other types of crime. This is an extremely dangerous lesson, one that sets the stage for the actions that follow. Have these white-collar criminals become role models?

External white-collar criminals often work within a gang. The most powerful criminals are honored by the members with special privileges not afforded to the rest of the group. Internal white-collar criminals are not so different. They often work within an analogous gang structure, rise to power using comparable tactics, abuse similar privileges, and serve equally as role models.

Executives, managers, business owners, and security personnel often contribute--consciously or unconsciously--to the emergence of white-collar crime in their businesses. Their personal conduct often sets a poor example, and their policies provide the windows of opportunity. They fail to establish effective internal controls, they do not properly document procedures, and they inadequately train employees.

The following is a list of the most prevalent factors contributing to both the internal and external white-collar crime problem:

* Ineffective written policies and procedures governing all aspects of the business

* Inadequate emphasis on loss prevention and operational security

* Ineffective internal controls to identify errors, protect honest employees, and identify suspects

* Inadequate investment in employee training, both in routine operational and loss prevention-specific strategies and tactics

* Lack of a clearly written code of business and professional conduct that establishes a standard for all employees

* Ineffective screening of potential employees, vendors, and customers

* Inappropriate focus on technological methods to reduce losses while simultaneously decreasing the reliance on human skills

* Reluctance to report crimes affecting the business, resulting in an understatement of the problem's scope

* Insufficient emphasis on prosecution of perpetrators

* Inadequate sharing of loss prevention strategies, techniques, and history between similar businesses

A successful defense against white-collar crime begins with a single action by one concerned person. Someone must take a stand against the white-collar criminal and then be able to encourage others to take a stand. White-collar criminals will continue to thrive until industry leaders acknowledge the magnitude of the problem, deem this activity intolerable, and take an active role in prevention and education.

Dana L. Turner is a partner in Security Education Systems in Palo Cedro, California, and a member of ASIS. Richard G. Stephenson is a partner in the law firm of Troughton & Soter in San Francisco, California.
COPYRIGHT 1993 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Fraud
Author:Turner, Dana L.; Stephenson, Richard G.
Publication:Security Management
Date:Feb 1, 1993
Words:1677
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