A nonviolent crime committed for financial gain is known as white-collar crime. “These crimes are distinguished by deception, concealment, or breach of confidence,” according to the FBI, a key agency that investigates these offenses. “To gain or prevent losing money, property, or services, or to secure a personal or business advantage,” is the reason for these crimes. 1
Securities fraud, embezzlement, corporate fraud, and money laundering are examples of white-collar crimes. The Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), and state authorities all prosecute white-collar crime in addition to the FBI.
Understanding White-Collar Crime
Since the term was coined in 1949 by sociologist Edwin Sutherland, who described it as “crime committed by a person of respectability and high social standing in the course of his occupation,” white-collar crime has been associated with the educated and wealthy.
Historically, white-collar employees have been characterized by office employment and management, rather than “having their hands dirty.” Workers in this class differ from blue-collar workers, who used to wear blue shirts and worked in plants, mills, and factories.
The spectrum of white-collar crimes has vastly increased in the decades since, as emerging technologies and new financial products and arrangements have spawned a slew of new offenses. Ivan Boesky, Bernard Ebbers, Michael Milken, and Bernie Madoff are among the high-profile white-collar criminals arrested in recent decades. So-called Nigerian scams, in which fraudulent emails request assistance in sending a large sum of money, are among the most common new white-collar crimes enabled by the internet.
Corporate Fraud
Only crimes committed by an individual for personal gain are included in some definitions of white-collar crime. However, the FBI, for example, describes these crimes as large-scale fraud committed by several people in a corporation or government agency.
In reality, corporate crime is one of the agency’s top compliance priorities. Since it not only causes “huge financial losses to investors,” but it also “has the potential to cause immeasurable harm to the US economy and consumer trust,” according to the report.
Falsification of Financial Information
The majority of corporate fraud cases involve accounting strategies designed to “deceive investors, auditors, and analysts about a corporation’s or business entity’s true financial state.” Financial data, share prices, and other valuation metrics are often manipulated to make a company’s financial output look better than it is.
Credit Suisse, for example, admitted in 2014 to assist U.S. residents in evading taxes by concealing profits from the Internal Revenue Service. The bank decided to pay $2.6 billion in fines.
In 2014, Bank of America admitted to selling billions of mortgage-backed securities (MBS) related to inflated property prices. These loans, which lacked sufficient collateral, were one of the forms of financial misdeeds that contributed to the 2008 financial crisis. Bank of America admitted to misconduct and decided to pay $16.65 billion in penalties.
Self-Dealing
Cases in which one or more employees of a corporation operate to benefit themselves at the detriment of customers or other parties are often classified as corporate fraud. Self-dealing occurs when a fiduciary acts in their own best interests rather than the best interests of their clients in a transaction. It is a conflict of interest and an unethical act that can result in legal action, fines, and job termination for those who commit it. Self-dealing may take several forms, but it usually includes a person profiting — or attempting to profit — from a transaction that is being carried out on behalf of another party. For example, front-running occurs when a broker or other market participant enters into a trade before the market opens. a trade because they have foreknowledge of a large, unpublicized deal that will affect the asset’s price, resulting in a probable financial benefit for the broker That may also happen when a broker or analyst buys or sells stock for their own account before their company makes a buy or sell recommendation to clients.
Insider trading cases are the most well-documented, in which individuals act on or reveal to others non-public knowledge that is likely to impact share prices and other business valuations until it is known. When buying or selling shares based on material nonpublic knowledge, insider trading is illegal and provides the individual with an unfair advantage in terms of benefit. It makes no difference how the material nonpublic information was obtained or whether the individual is a company employee. Let’s say someone hears about nonpublic material details from a family member and tells a friend about it. If the friend uses insider knowledge to make a profit in the stock market, all three parties involved could face legal action.
Other trading-related offenses include fraud in connection with mutual hedge funds, including late-day trading and other market-timing schemes.
Detection and Deterrence
Corporate fraud attracts the largest variety of partners for investigations due to the broad range of crimes and corporate agencies involved. The FBI says it works with the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Industry Regulatory Authority, the Internal Revenue Service, the Department of Labor, the Federal Energy Regulatory Commission, and the United States Postal Inspection Service, as well as other regulatory and law enforcement agencies.
Money Laundering
Money laundering is the practice of concealing cash obtained from illegal activities, such as drug trafficking, as proceeds from legitimate business ventures. The money obtained by illegal activity is deemed “dirty,” and the procedure “launders” it to make it appear “clean.”
Of course, in such situations, the investigation also includes not just money laundering but also the illegal activity from which the money was obtained. Money laundering proceeds come from a variety of sources, including healthcare fraud, human and drug trafficking, public corruption, and terrorism.
Criminals use a dizzying array of strategies to launder money. Among the most common, though, are real estate, precious metals, international trade, and virtual currency such as bitcoin.
Detection and Deterrence
Money laundering investigations are unusually complicated due to the number of measures involved, as well as the often global nature of the many financial transactions. According to the FBI, it regularly coordinates money laundering efforts with federal, state, and local law enforcement agencies, as well as several foreign partners. Anti-money laundering (AML) laws are in place in many businesses, especially those in the finance and banking industries, to detect and prevent money laundering.
Securities and Commodities Fraud
Apart from the aforementioned corporate fraud, which primarily entails falsifying corporate information and using inside information to self-deal, a slew of other crimes includes deceiving would-be investors and customers by misrepresenting the data they use to make decisions.
A person, such as a stockbroker, or an entity, such as a brokerage firm, company, or investment bank, may commit securities fraud. Individuals can commit this form of fraud on their own through schemes such as insider trading. The Enron, Tyco, Adelphia, and WorldCom scandals are all well-known examples of securities fraud.
Investment Fraud
Promises of high rates of return are common in high-yield investment fraud, as are claims of little or no risk. Commodities, stocks, real estate, and other types of investments are all possible.
Ponzi and pyramid schemes usually use funds provided by new investors to pay the guaranteed returns to previous investors who have become entangled in the scheme. Such schemes necessitate the fraudsters continually recruiting new victims to keep the ruse going for as long as possible. When the demands from current investors outnumber the new funds coming in from new recruits, the schemes usually crash. Advance fee schemes may take a more subtle approach, in which the fraudster persuades their victims to advance them small sums of money in exchange for higher returns.
Detection and Deterrence
The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) investigate allegations of securities fraud, mostly in collaboration with the FBI. 1
Scams involving investments may also be investigated by state authorities. Utah, for example, developed the nation’s first online registry for white-collar offenders in 2016 as part of a unique effort to protect its residents. The list includes photos of people who have been convicted of a second-degree or higher fraud-related felony. The state created the registry because Ponzi schemers often target close-knit cultural or religious communities, such as the Salt Lake City-based Church of Jesus Christ of Latter-day Saints.