What is white collar crime?
White collar crimes are nonviolent crimes often characterized by fraud or concealment to obtain or avoid losing money or property, or to obtain personal or business gain. 1
Examples of white-collar crimes include securities fraud, embezzlement, corporate fraud, and money laundering. Entities investigating white-collar crime include the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), the Federal Bureau of Investigation (FBI), and state authorities.
- White collar crime is the crime of fraud or nonviolent concealment to gain or avoid losing money or to obtain personal or business gain.
- Security fraud, embezzlement, corporate fraud, and money laundering are all white-collar crimes.
- The Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), the Federal Bureau of Investigation (FBI) and state authorities investigate white-collar crime.
Understanding White Collar Crime
“White-collar crime” is a term first coined by sociologist Edwin Sutherland in 1949, who defined it as a crime committed by someone honorable and of high social status during his employment. White-collar workers have historically held non-work office positions, while blue-collar workers traditionally wore blue shirts and worked in factories, factories, and factories. Arabic numerals
Notable people convicted of white-collar crimes include Ivan Boesky, Bernard Ebbers, Michael Milken and Bernie Madoff. His crimes include insider trading, accounting scandals, securities fraud, and Ponzi schemes.
New rampant white-collar crimes facilitated by the internet include so-called Nigerian scams, where fraudulent emails ask for help to send large sums of money to criminal networks. Other common white collar crimes include insurance fraud and identity theft.
The Madoff Victims Fund (MVF) distributed more than $3.7 billion to nearly 40,000 victims worldwide in connection with Bernard L. Madoff Investment Securities LLC’s (BLMIS) fraud scheme. 3
The FBI cites large-scale corporate fraud perpetrated by many in companies or government agencies among its top law enforcement priorities. This type of crime inflicts significant financial losses on investors and can damage the U.S. economy and investor confidence.
The company scam brought together the broadest group of partners for investigation, including the FBI, the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Industry Regulatory Authority, Internal Revenue Services, the Department of Labor, the Federal Energy Regulatory Commission, and the U.S. Postal Inspection Service. 1
Falsification of financial information
Most corporate fraud cases involve accounting schemes designed to mislead investors, auditors, and analysts about the actual financial condition of a company or business by manipulating financial data, stock prices, or other measurements to improve a business’s financial performance. 1
In 2014, Credit Suisse pleaded guilty to helping U.S. citizens evade taxes by hiding revenue from the Internal Revenue Service and paying a $2.6 billion fine. Bank of America sold billions of mortgage-backed securities (MBS) associated with properties of increased value without adequate guarantees and agreed to pay $16.65 billion in damages. 45
Self-trading occurs when fiduciaries act in their own interests rather than in the best interests of their clients. Considered a conflict of interest, this illegal activity can lead to litigation, sanctions, and termination of employment for those who do so.
Self-trading includes front-running, when the broker enters a trade with prior knowledge of unadvertised transactions that will affect the price of the asset, resulting in financial returns for the broker. This also happens when a broker or analyst buys or sells shares for your account before recommending buying or selling your company to your clients.
Insider trading occurs when people act or disclose to others unpublished information and are likely to affect the stock price and valuation of the company once it is known. Insider trafficking provides an unfair advantage for people to gain an advantage and no matter how material non-public information is received or whether the person is employed by the company.
Money laundering is accepting cash obtained from illicit activities, such as drug trafficking, and making cash appear as a result of legitimate business activities. Criminals often filter money from crimes such as human and narcotics trafficking, public corruption, and terrorism in a three-step process:
- Placement is the initial entry of the perpetrator’s financial gains into the financial system.
- Stratification separates the perpetrator’s financial income from the source and creates a deliberately complicated audit trail through a series of financial transactions.
- Integration occurs when the offender’s financial product is returned to the offender after “laundering” what appears to be a legitimate source.
Cash-based businesses, such as restaurants owned by criminal organizations, are a common tool for laundering illegal money. Daily cash receipts can be inflated to funnel illegal cash through restaurants and to banks for distribution to owners.
Anti-Money Laundering Act 2020
The Anti-Money Laundering Act of 2020 assists financial institutions in their efforts to comply with their obligations under laws and regulations designed to combat money laundering by targeting foreign and domestic terrorism financing, transnational criminal organizations, the activities of drug trafficking organizations, trafficking in persons and the smuggling of persons;
Securities and commodity fraud
The perpetrators of securities fraud can be individuals, such as stockbrokers, or organizations, such as brokerage firms, corporations, or investment banks, and include crimes such as:
- High-yield investment fraud involves the promise of a high rate of return along with claims of little to no risk in investments such as commodities, securities, and real estate.
- Ponzi schemes and pyramids are fraudulent investment scams that generate returns for previous investors with money taken from subsequent investors.
- Down payment rate schemes involve fraudsters convincing their goal of advancing small amounts of money with the promise of higher returns.
- Broker embezzlement schemes involve illicit and unauthorized actions by brokers to rob their clients directly, usually with a large number of forged documents.
- The “Pump and offload” scheme artificially raises the price of smaller shares in a small over-the-counter market. ” Bomb” involves unwittingly recruiting investors through false or misleading sales practices, public information, or company filings. Once the price target is reached, the actors “throw out” their shares with huge profits and let innocent investors pay the bills. 1
- Late trading is the illegal practice of recording trades executed after hours as if it occurred before a mutual fund calculates its daily net asset value (NAV). Late trading can dilute the value of mutual fund stocks and hurt long-term investors.
What are some well-known securities fraud cases investigated by the FBI?
Examples of securities fraud cases are the Enron, Tyco, Adelphia and WorldCom scandals.
What are the penalties for white collar crimes?
If convicted, a person could be sentenced to county jail, state jail, or federal prison, depending on the severity of the crime. In addition, fines may be imposed, as well as the necessary restitution to the victim.
Who investigates securities fraud?
Allegations of securities fraud are investigated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), often along with the FBI.
State authorities can also investigate investment fraud. In a unique effort to protect its citizens, the state of Utah established the nation’s first online registration for white-collar criminals in which photos of people convicted of fraud-related crimes ranked second degree or higher appear in the registry. 6
What are the anti-money laundering rules used in banking?
Many businesses, especially those involved in finance and banking, have anti-money laundering (AML) rules in place to detect and prevent money laundering. For banks, compliance begins with verifying the identity of a new customer, a process sometimes called Know Your Customer (KYC), and customer due diligence detects money laundering strategies such as dividing large money laundering transactions into smaller ones to circumvent reporting limits and avoid scrutiny.
What is intellectual property theft?
Intellectual property theft is a white-collar crime that robs an individual or their business of ideas, inventions, and creative expressions, known as intellectual property, and may include trade secrets and proprietary products or movies, music, and software.
The Bottom Line
Security fraud, embezzlement, corporate fraud, and money laundering are considered white-collar crimes, traditionally committed by people in corporate or office environments. The SEC, NASD, FBI and state authorities are working together to investigate white collar crimes that are often prosecuted at the federal level. Penalties for committing white-collar crimes include imprisonment, fines, and restitution.