Running Head: ORGANIZED CRIME AND WHITE-COLLAR CRIME

Compare and Contrast Organized Crime and White-collar crime David E. Thomas Organized Crime CRIM 321 Delbert L. Rounds, Ph.D. Edinboro University of Pennsylvania December 28, 2011

ORGANIZED CRIME AND WHITE-COLLAR CRIME

The distinction between organized crime and white-collar crime can be baffling as the many facts between them become blurred. A comparison between these two criminal ventures will include their similarities, their differences, how they are treated differently, why they are treated differently, why they are confusing, as well as their categorical overlap. The term white-collar crime was coined in the 1930s by Edwin Sutherland who defined it as crime committed by a person of respectability and high social status in the course of his occupation (Walsh) while Nolo's Plain-English Law Dictionary defines white-collar crime as a variety of nonviolent financial crimes, generally committed by businesspeople or public officials, involving commercial fraud, consumer fraud, swindles, insider trading on the stock market, embezzlement, bribery, or other dishonest schemes. The major difference between white-collar crime and organized crime is that white-collar criminals are created from the opportunities available to them in companies organized around doing legitimate business. The term itself comes from the fancy button-up dress shirts that people in those professions are generally known to wear. The Federal Bureau of Investigation has opted to approach white-collar crime in terms of the offense. The Bureau has defined white-collar crime as illegal acts which are characterized by those deceit, concealment, or violation of trust and which are not dependent upon the application or threat of physical force or violence. Individuals and organizations commit these acts to obtain money, property, or services; to avoid the payment or loss of money or services; or to secure personal or business advantage. (Barnett 1989). As an alternative to the socio-economic definition, many define white-collar crime based upon the manner in which the crime is committed. In 1981, the United States Department of Justice described white-collar crime as:

ORGANIZED CRIME AND WHITE-COLLAR CRIME [n]onviolent crime for financial gain committed by means of deception by persons whose occupational status is entrepreneurial, professional or semi-

professional and utilizing their special occupational skills and opportunities; also, nonviolent crime for financial gain utilizing deception and committed by anyone having special technical and professional knowledge of business and government, irrespective of the persons occupation. (Bureau of Justice Statistics, 1981). White-collar crimes include such crimes as insider stock market trading, embezzlement, Ponzi schemes, bribery and fraud. Organized crime includes such crimes as racketeering, robbery, theft, drug dealing, assault and trafficking and smuggling of illegal goods and humans for prostitution. The offering of illicit services represents one of the main enterprises of organized crime organizations. Illicit services are those that legitimate businesses do not provide and are proscribed by law. Like illicit services, a second hallmark of organized crime is the provision of illicit goods, which are not available from legitimate businesses (Lyman and Potter, p.17). Members of organized crime members must be accomplished criminals before they enter such groups, which are organized around creating criminal opportunities (Walsh and Ellis). White-collar crimes are distinguished by the manner in which they are carried out. Whereas organized crimes are characterized by the use of force or stealth, white-collar crimes are characterized by planning and deceit. The key difference between the two is: That white-collar criminals try to profit off legitimate businesses in a nonviolent way, while organized crime seeks profits through illegal businesses in a violent way. In addition, white-collar crime can involve one person or a group of individuals. Organized crime usually employs a large number of crime bosses

ORGANIZED CRIME AND WHITE-COLLAR CRIME and members and frequently employs physical intimidation and violence. Unlike organized crime, white-collar crime is not carried out within the framework of illegal activities such as drug trafficking or smuggling. White-collar crime also includes illegal price-fixing (Law Library American Law and Legal Information). There seems to be considerable variation in commitment between the two types of offenders. Many organized criminals evidence a long tradition of criminal involvement, often in the form of racketeering, which is largely unknown to most white-collar offenders. Similarly, organized crime wraps its members in a kind of deviant subculture with a detailed code of conduct, which affects them throughout their lives. White-collar criminals, on the other hand, have typically achieved positions of power and social respectability through conformity and approved forms of achievement. They often come from cultural backgrounds that support

adherence to the law. Hence, most white-collar offenders are probably drawn to criminal activity for the immediate financial rewards it offers, whereas organized criminals are more apt to see crime as a way of life and to condemn the conformist activities of others (Schmalleger, 2006). The organized crime group recognizes a specified purpose over an indefinite period of time and understands that the organization will continue operating beyond the lifetimes of individual members. This group also realizes that leadership will change over time, that its members work to ensure that the group continues, and that members' personal interests are subordinate to those of the group (Lyman and Potter, p.40) whereas white-collar crimes life span is contingent upon the length of involvement of one or more businessmen or public officials. There is not a common trait such as ethnicity, race, criminal background, or common interest in white-collar crime as opposed to organized crime. Likewise, organized crime is structured so that members of the

ORGANIZED CRIME AND WHITE-COLLAR CRIME

group must prove loyalty to the group. In most instances, membership requires a lifetime commitment while white-collar crime lacks a formal structure since it involves one or more individuals working independently of each other without the need to belong to a group. Moreover, white-collar criminals may participate freely and may stop at any time. Parallelisms between organized crime and white-collar crime can help to dissolve the confusion and misconcepts of each other. Just like legitimate corporations, organized crime groups today are actually loose networks of entrepreneurs. In the same fashion as for legitimate enterprises, organized crime exists for one primary purpose: to make a profit (Lyman and Potter, p. 8). Both involve illegal activities through enterprises. An enterprise is a group of associated individuals such as a business partnership, corporation, or union (White-collar and Organized Crime). Contrary to popular public opinion, under- and upper world criminals form close, symbiotic bonds. Public officials are not the pawns of organized crime; they are part of its fabric. In many cases, one cannot operate or profit without the other. (Lyman and Potter p. 57). Organized criminals work together on a continuous basis in illegal enterprises. There is a core group of criminals and a much larger group of individuals who work with them, performing specific tasks and providing specific services, but who are primarily legitimate economic and political actors (Lyman and Potter p. 7). This strong symbiosis helps to explain why white-collar crime should not be considered a sub-category of organized crime. Because organized crime members have no legal way to spend their illicit profits, they must hide as much of their revenue as possible. The ability to penetrate legitimate business gives the organized crime unit both the chance to conceal illicit revenues and an opportunity to hide behind a cloak of legitimacy in the community to avoid the suspicion of citizens and detection by police (Lyman and Potter, p. 17). Without the support and assistance of corrupt government

ORGANIZED CRIME AND WHITE-COLLAR CRIME officials, legitimate businesspeople, and politicians, organized crime as we know it today would cease to exist (Lyman and Potter, p. 3). Organized crime is incredibly opportunistic (Schneider). White-collar crime is monitored and responded to by a variety of criminal, administrative, and regulatory bodies, but very few corporate crooks are ever the recipients of truly meaningful sanctions (Walsh and Ellis, 2007). Although typically the government charges individuals for white-collar crimes, the government has the power to sanction corporations as well for these offenses. The penalties for white-collar offenses include fines, home detention, community confinement, paying the cost of prosecution, forfeitures, restitution, supervised release, and imprisonment. However, sanctions can be lessened if the defendant takes responsibility for the crime and assists the authorities in their investigation (Cornell 2010). Great wealth confers a

certain degree of immunity from prosecution and/or conviction although the Sarbanes-Oxley Act requires company CEOs and chief financial officers to personally vouch for their companies financial disclosures, ensuring that such people can no longer assume a stance of plausible deniability. The Sarbanes-Oxley Act of 2002, sponsored by Paul Sarbanes and Michael Oxley, represents a huge change to federal securities law. It came as a result of the corporate financial scandals involving Enron, WorldCom and Global Crossing. Effective in 2006, all publicly traded companies are required to implement and report internal accounting controls to the SEC for compliance (Sarbanes Oxley 101). Additionally, the Commerce Clause in the U.S. Constitution gives the federal government the authority to regulate white-collar crime, and a number of federal agencies including the FBI, the Internal Revenue Service, the Secret Service, U.S. Customs, the Environmental Protection

ORGANIZED CRIME AND WHITE-COLLAR CRIME Agency, and the Securities and Exchange Commission, participate in the enforcement of federal white-collar crime legislation. In addition, most states employ their own agencies to enforce white-collar crime laws at the state level (Cornell 2010). Law enforcements response to organized crime includes, among others, the Organized Crime Control Act (OCCA), the Bank Secrecy Act (BSA) of 1970 and the Racketeer Influenced and Corrupt Organizations Act (RICO). The (OCCA) prohibits the creation or management of a

gambling organization involving five or more people if it has been in business more than 30 days or accumulates $2,000 in gross revenue in a single day. It also gave grand juries new powers, permitted detention of unmanageable witnesses, and gave the U.S. Attorney General authorization to protect witnesses, both state and federal, and their families. This last measure helped lead to the creation of the witness protection program that provides for around-the-clock protection while witnesses are awaiting court appearances. After testifying, witnesses in the program are provided with new identification documents, employment, housing, and other assistance until they become established. The witness immunity provision allows federal prosecutors to grant lower level members of organized crime groups immunity from prosecution for their own crimes in exchange for testimony incriminating higher-level members (Kelly, Chin and Schatzberg, 1994). The BSA or otherwise known as the Currency and Foreign Transactions Reporting Act requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. Many

ORGANIZED CRIME AND WHITE-COLLAR CRIME banks will no longer sell negotiable instruments when they are purchased with cash, requiring

the purchase to be withdrawn from an account at that institution. (Wikipedia, Bank Secrecy Act). RICO is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization. The RICO Act focuses specifically on racketeering, and it allows for the leaders of a syndicate to be tried for the crimes which they ordered others to do or assisted them, closing a perceived loophole that allowed someone who told a man to, for example, murder, to be exempt from the trial because they did not actually do it. (Wikipedia, Racketeer Influenced and Corrupt Organizations Act). Traditionally, organized crime and white-collar crime have received relatively different levels of sentencing. Possibly, due to lenient judges, white-collar crime received little punishment but now there is new trend change for white-collar criminals. Green co-leader Metiria Turei said there were two rules: "In the end if you're a privileged person you have your privileges taken from you as punishment but if you have no privileges you have your freedom taken from you as punishment, that is not fair, it's not just, but it's been the way of this legal system for many decades." (MediaWorks, 2011). Raj Rajaratnam and Bernard "Bernie" Madoff are examples of the changing treatment by law enforcement officials. Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S. history. In March 2009, Madoff pleaded guilty to 11 federal felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars. On June 29, 2009, he was sentenced to 150 years in prison, the maximum allowed (Wikipedia, Madoff).

ORGANIZED CRIME AND WHITE-COLLAR CRIME Raj Rajaratnam is an American former hedge fund manager and founder of the Galleon Group, a New York-based hedge fund management firm. On October 16, 2009, he was arrested by the FBI on allegations of insider trading, which also caused the Galleon Group to close. He stood trial in U.S. v Rajaratnam (09 Cr. 01184) in the United States District Court for the Southern District of New York, and on May 11, 2011 was found guilty on all 14 counts of conspiracy and securities fraud. On October 13, 2011, Rajaratnam was sentenced to 11 years in prison and fined with a civil penalty of $92.8 million in November 2011 (Wikipedia, Rajaratnam). Steven Andersen from Inside Counsel Magazine states the following: On May 24, 2011, David O. Friedrichs protested a widely held but fundamentally wrongheaded way of thinking about crime, in a letter to the New

York Times. A criminal justice professor at the University of Scranton, Friedrichs insisted in his letter, and in a subsequent article in the Corporate Crime Reporter newsletter, that white-collar crime has further reaching, deeper and more lasting impact than street crime. Although it is far more challenging to measure [whitecollar] crime, he wrote the Times, there are reasons to believe it may not be in decline, and may well be rising. Hes not alone in that opinion. Shortly after his offices sweeping 14-count conviction of Raj Rajaratnam, U.S. Attorney Preet Bharara decried a growing culture of corruption and greed in American business in a speech to financial industry writers. Bharara likened corporationsand not just Wall Streetto drunk drivers that try to stay just under the legal limit, a recipe for inevitable disaster.

ORGANIZED CRIME AND WHITE-COLLAR CRIME These comments reflect two pervasive sentiments: that corporate crime is perceived to be different from other types of crime, and that its bad and getting

10

worse. The first notion seems to be significantly eroding; the second, spreading and both stand in stark contrast to the perspectives of most in-house counsel and compliance officers. After absorbing the legislative responses to the Enron era and the global financial crisis, as well as a decade-long drive toward individual accountability and a global surge in corruption enforcement, corporate counsel routinely assert that the culture of compliance has never been greater. More is asked of companies than ever, and for the most part, they feel they are meeting the challenge. This widening gap in the perception of corporate crime denotes a meaningful watershedone that owes to a variety of social, political and economic influences, and that will have profound future implications for companies and executives alike. There has been a permanent shift in perceptions of white-collar criminals, says Toby Bishop, director of the Deloitte Forensic Center. The focus is on the stain on the collar, not on the color of the collar. In essence, that fundamentally wrongheaded differentiationthe view of white-collar crime as a separate categoryis beginning to blur. In the eyes of prosecutors and the public alike, the privileged notion that business crimes are treated differently is on the wane. The Galleon trial, with its aggressive use of investigation techniques previously associated mostly with drug and mob cases, marks a new era. So too do the sentences white-collar criminals now face.

ORGANIZED CRIME AND WHITE-COLLAR CRIME Bernie Madoff recently lamented the severity of his sentence. Though few

11

may be sympathetic, he does have a point in that 150 yearsand the certainty that he will die in prisonis the type of penalty previously reserved for mobsters and murderers. Corporate criminal activity is now viewed as another form of organized crime, Bishop says. The approaches and techniques used to deal with it are taken from those previously applied to organized criminal groups. Its a real attitude change. We can expect a higher level of more effective and more targeted enforcement on an ongoing basis. Every economic down-cycle brings resentment among the general population at the small number of people who are thought to have either caused or capitalized on the situation. That draws both increasing scrutiny of those people and increased skepticism of their methods. It also inevitably influences the attitudes of prosecutors and jurors. In this case, however, the protracted pace of the recovery provides an additional element. The longer the economy stays mired, the more that scrutiny is sustained, giving amplified enforcement tactics time to take root and become the norm. It also places an ongoing strain on companies that may have barely weathered the initial storm. A long, slow recovery puts businesses and executives under pressure for an extended period during which time it is not unsurprising if a number of people break and commit wrongdoing to accomplish objectives that in better economic times would be much easier to achieve, Bishop says. That, too, creates pressure

ORGANIZED CRIME AND WHITE-COLLAR CRIME on the political establishment to enforce laws and regulations in order to satisfy the needs of their constituents. (Andersen 2011).

12

Both white-collar and organized crime appear to be prevalent in the United States today, and organized and white-collar criminals often share similar goals, such as acquiring wealth and social position, (Schmalleger, 2006). Secrecy and a clear lack of reporting their respective activities help define their relationship.

ORGANIZED CRIME AND WHITE-COLLAR CRIME References Albanese, J. S. (2005). Criminal justice. (3 ed.) Chapter 15. Allyn & Bacon.

13

Anderson, S., August 2011, Inside Counsel Magazine, p. 92, Summit Business Media, Chicago Bank Secrecy Act of 1970. Retrieved December 29, 2011 from http://en.wikipedia.org/wiki/Bank_Secrecy_Act Barnett, C., The Measurement of White-collar crime Using Uniform Crime Reporting (UCR) Data, U.S. Department of Justice, Federal Bureau of Investigation, Criminal Justice Information Services (CJIS) Division (USDOJ, 1989, p. 3.) Bureau of Justice Statistics, United States Department of Justice, Dictionary of Criminal Justice Data Terminology 215 (Second edition, 1981). Cornell University Law School, Legal Information Institute (August 19, 2010). White-collar crime: an Overview. Retrieved December 28, 2011 from http://www.law.cornell.edu/wex/White-collar_crime Goode E., (1994-2008). Deviant Behavior, Chapter 9, Prentice Hall Gottfredson, M.R. and Hirschi, T., (1990). A General Theory of Crime, Standford University Press Kelly, R., Chin, K., Schatzberg, R. (1994). Handbook of Organized Crime in the United States. Santa Barbara, Calif.: Greenwood Publishing Group. Law Library American Law and Legal Information, White-collar and Organized Crime. Retrieved December 28, 2011 from http://law.jrank.org/pages/12381/White-collarOrganized-Crime.html Lyman, M. and Potter, G. (2006). Organized crime. (4th ed.). New Jersey: Prentice Hall.

ORGANIZED CRIME AND WHITE-COLLAR CRIME MediaWorks (2011). White-collar criminals treated differently. Retrieved December 29, 2011 from http://www.3news.co.nz/White%20collar-criminals-treated-differently--Labour/tabid/419/articleID/172785/Default.aspx National Advisory Committee on Criminal Justice Standards and Goals, Report of the the Task Force on Organized Crime \(Washington, DC: U.S. Government Printing Office, 1976), p. 213. National Criminal Intelligence Service (2005), United Kingdom National White-collar crime Center, (1996). Adapted from Proceedings of the Academic Workshop, Morgantown, WV. Nolo's Plain-English Law Dictionary. Retrieved December 28, 2011 from http://www.nolo.com/dictionary/white-collar-crime-term.html Sarbanes Oxley 101. Retrieved December 29, 2011 from http://www.sarbanes-oxley-101.com/ Schmalleger, F. (2006). Criminology today, an integrative introduction. (4 ed.), Chapter 12. Prentice Hall. Schneider, S., CRIM 321 Course Video. Retrieved December 28, 2011 from http://www.aol.com/video/how-organized-crime-evolved/276008539/ Sutherland E., "White-collar Criminality," American Sociological Review, vol. 5 (February, 940), pp. 1-12. Racketeer Influenced and Corrupt Organizations Act. Retrieved December 29, 2011 from http://criminal-law.freeadvice.com/criminal-law/criminal-law/rico-cases.htm Walsh A. and Ellis L., (2007) Criminology: An Interdisciplinary Approach, Chapter 15, Sage Publications

14

ORGANIZED CRIME AND WHITE-COLLAR CRIME Wikipedia, Bank Secrecy Act. Retrieved December 29, 2011 from http://en.wikipedia.org/wiki/Bank_Secrecy_Act Wikipedia, Madoff. Retrieved December 29, 2011 from http://en.wikipedia.org/wiki/Bernard_Madoff Wikipedia, Rajaratnam. Retrieved December 29, 2011 from http://en.wikipedia.org/wiki/Raj_Rajaratnam

15

Wikipedia, Racketeer Influenced and Corrupt Organizations Act. Retrieved December 30, 2011 From http://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizations_Act