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White-collar Criminals and the Corporate Culture

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In February 2018, three men blew up a grocery store on Leicester, killing four people so that they could claim £300,000 in insurance payments. They were charged not only with fraud but also murder since they knew that people were still on the premises when the fire was started. The case was an extreme white-collar crime since the main objective of the perpetrators was to gain money from the insurance company fraudulently.

White-collar big fish

White-collar crime is classed as a non-violent financial crime that is usually committed against a company or institution. The offenders abuse their professional status or area of expertise to illegally benefit through methods such as fraud, online scams, bribery, embezzlement, and money laundering.

High-profile cases of white-collar crime have been highlighted in the media, such as the Wells Fargo account fraud scandal in 2016, Bernard Madoff’s Ponzi scheme discovered in 2008, and Enron and WorldCom’s accounting scandals in the 2000s. However, white-collar crimes are rarely on such a scale, are usually difficult to prosecute, and often overlooked or hushed-up by the company involved.

Long arm, short-reach?

In the UK, the police force, including the Serious Fraud Squad, and the Office for Fair Trading is often overstretched with limited resources for dealing with complicated and lower-profile white-collar cases. Also, the legislation around business-related crimes and vicarious liability is complex and often depends on legal solicitors to provide clarity.

Who’s responsible?

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Although legal penalties aim to deter white-collar cases, why do professionals become involved in such crimes in the first place? In a report for Harvard Business Review on the motivation for white-collar crime, nine common causes centered on a corporate environment where the aggressive pursuit of organizational goals, leadership’s laissez-faire attitude to ethics, and the overall belief that individuals were not harmed, dissipated responsibility and encouraged misbehavior.

The report focused on finance professionals, blaming poor incentive structures that encouraged short-term profits for performance-based compensation. Management’s blind-eye to how the increasingly aggressive targets were achieved encouraged an attitude of breaking the rules if necessary and avoid being caught. A good example cited was the illegal use of insider knowledge when stock trading.

This type of corporate environment also promoted the belief that everyone was involved, so to miss out was to lose out. When the Wells Fargo accountancy fraud was investigated, the results showed that a decentralized structure meant leadership was weak. Increased pressure to meet aggressive sales targets was tagged with bigger bonuses and promotion prospects; this led to a warped corporate culture that encouraged; employees to break the rules. Other causes highlighted in the report included moral hazards, such as overclaiming on property insurance and government bailouts, and egotism affecting sound decision-making.

Starting from the Top

The corporate culture is outlined by senior management decisions and then developed and implemented throughout the company. If unethical behavior is seen as harmless or the cost of doing business, the company is making itself vulnerable to being punished both legally and commercially. The company can find itself not only paying fines, but also spending time and funds on clearing up the immediate legal claims, its reputational damage, the impact on profits and staff motivation, and plan for its long-term survival.

The legal framework and tools used to keep up with white-collar crime need constant updating to remain valid and eliminate loopholes. Although governments can strive to minimize the problem, companies also have a responsibility to create an environment that promotes ethical behavior and respect for the law.

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