White collar crime and corporate fraud

White Collar Crime

Theoretical Perspectives of Criminal Behavior

Three broad theoretical models of criminal behavior have historically prevailed. These models include psychological models of criminality, sociological models of criminality, and biologically -- based models of criminal behavior. Each of these models suggests different ideologies and different methods of control for criminal behavior; however, there is quite a bit of overlap in each one.

Psychological Theories of Criminal Behavior

Psychology is a broad discipline that involves many subcategories. In general psychological theories of criminal behavior share several core fundamental assumptions (Mischel 1968). First, in psychological theories of behavior the primary unit of analysis is the individual. Secondly, psychological theories of behavior typically describe personality as the driving unit of behavior within people. Third, social consensus defines normal standards of behavior. Fourth, criminal behaviors result from aspects of the personality that are either dysfunctional, abnormal, or inappropriate. Criminal behaviors may address certain needs and individuals. And finally, the defective personality processes may have several different causes including biological causes, inappropriate learning, or may represent maladjustment to certain inner conflicts.

Clinical psychologists assume that there is a small subset of psychological criminal types currently defined in the Diagnostic and Statistical Manual for Mental Disorders -- five (American Psychiatric Association [APA] 2013) as antisocial personality disorder. This type of criminal displays deviant behavior or in childhood or adolescence which is associated with a lack of empathy, self-centeredness, and the view that others are merely tools or a means for them to satisfy their needs (APA 2013).

Psychological models also traditionally assumed that forms of punishment or sanctions are generally ineffective in changing behavior as they are not traditionally applied in an effective manner according to operant behavioral principles and the end result of punishment is that the person being punished simply tries to avoid future punishment but does not necessarily change the behavior that led to the punishment (e.g., Skinner 1966). Psychological principles would favor such things as prevention to prevent crime and rehabilitation, retraining, relearning, and other forms of dealing with unwanted behavior as a means to change (e.g. Mathias 1995). Moreover, methods and policies designed to maintain self-awareness in individuals and provide a visible presence of enforcement agents can lead to a decrease in criminality (Diener 1979).

Psychological approaches to crime would also include various theories of learning. These theories have been applied at the group level by sociologists.

Sociologically Based Approaches

Sociological theories and psychological theories of criminal behavior are heavily entwined. There are numerous sociological theories concerning the cause and control of criminal behavior. In general sociological theories of criminality attempt to connect the individual's behavior with broader social structures and cultural variables, discuss how the contradicting factors of these variables interact to lead to criminal behavior, investigate how these structures have historically developed, and view criminal behavior from the standpoint of social constructionism and concentrate on the social causes of criminality.

Durkheim (1897) coined the term anomie to describe a feeling of a lack of being connected to society or feeling that there is a lack of social norms to help them explain suicide and sociologists later used the term to describe the disconnect of the individual and the collective social consciousness. In this viewpoint criminality results as a consequence of the failure to properly socialize persons and/or a consequence of the unequal opportunities between different groups of people (Merton 1968). Society constructs criminality and therefore certain types of activities are labeled criminal; however, this label is often implied unequally between the different groups and if the definition of criminal behavior was taken literal everyone in society would be engaging in some form of criminal behavior (e.g., Schur 1965). Social programs to increase legitimate opportunities for advancement and the payment of goods would therefore eliminate much criminality in society. Programs that socialize children properly while providing support would also reduce criminal behavior. Finally, unlike psychological theories, sociological theories of criminal behavior would advocate for stricter and harsher penalties for more serious crimes. For instance, is well-known that of the many felony criminal acts tried in the courts only a small percentage actually end up going to trial and a small percentage of those go to prison. Imprisonment should include punishment and rehabilitation (Hester and Eglin 1992).

Biological Approaches

Biological theories of behavior have increased in popularity recently. Biological theories of criminality indicate that criminal behaviors result due to some biological flaw in the individual that could be due to either heredity, dysfunctions with neurotransmitters in the brain, or brain abnormalities as result of heredity, trauma, or a developmental issues (Raine 2002). Biological theorists often assume a dogmatic approach to behavior and would endorse stricter penalties and law enforcement techniques to control crime. In addition there are some interventions that are strictly biological that have been used to control behavior such as psychosurgery, chemical methods of control such as chemical castration for sex offenders, and newer techniques such as deep brain stimulation (Burton 2002). Biological theorists would not endorse rehabilitation to the extent that sociological and psychological theorists would due to the notion that these types of behaviors, if biologically-based, would not effectively remit with these methods.

A more holistic and realistic view of criminal behavior would incorporate all three basic theories and recognize the fact that in any individual case certain factors would be more predominant than others. Thus, an overarching theory of criminal behavior would have to take into account all of the above theoretical positions.

White Collar Crime

The criminologist Edwin Sutherland defined white-collar crime as "crime committed by a person of respectability and high social status in the course of his occupation." Sutherland (1983: 9). Later Benson and Mandensen (2007) added the idea that white-collar crime was a type of property crime committed through the use of deception and committed by non- -- physical means. In general, white-collar crime is viewed as a type of nonviolent crime often committed by middle or upper level management and performed as a means to derive financial benefit in professional or commercial circles. The United States Justice Department has concentrated on the notion that white collar offenses are non-violent illegal activities that involve deception, concealment, breach of trust, subterfuge, or illegal circumvention (U.S. Department of Justice 1992). Thus, under that particular definition such things as illegally purchasing prescription medications or pirating illegal copies of movies could qualify as white-collar crime. It is highly unlikely that these types of crimes would be treated the same way as an upper-class businessman who embezzles millions of dollars from a large company. While the United States Justice Department has attempted to remove the notions of economic status from white-collar crime it is probably a good bet that these types of distinctions make a difference in who is charged and punished for so-called white-collar crimes. Thus, by formal distinction the term white-collar crime is a little vague; however, by prosecution it is generally considered to be nonviolent crimes committed against corporations by management level employees.

According to the Cornell University Law School the most frequent types of offenses labeled as white-collar crime include computer and internet fraud, credit card fraud, phone and telemarketing fraud, bankruptcy fraud, healthcare fraud, environmental law violations, insurance fraud, mail fraud, government fraud, tax evasion, financial fraud, securities fraud, insider trading, bribery, kickbacks, counterfeiting, public corruption, money laundering, embezzlement, economic espionage and trade secret theft (Cornell University Law School 2013). However, despite the U.S. Justice Department's attempt to remove the notions of economic status from white-collar crime is clear that many of these offenses are not labeled as white-collar crimes by arresting agencies, thus the actual incidence of so-called white-collar criminal offenses is difficult to estimate. In general, the crime is not considered a white-collar crime unless the offenses committed by someone in a higher social class. The discrepancy between how the same crime is treated by the legal system or by the organization targeted often depends on the social economic status of the perpetrator, the desire of the organization to keep a low profile, how much mileage the press can get out of a story, etc. Therefore, there is potential that so-called "white-collar criminals" are separated from other perpetrators through administrative channels and as a result they are not considered as criminals by themselves by the public or criminologists. In fact, the Federal Bureau of Investigation (FBI 2010) reports that the arrest rates for so-called white-collar crimes are much lower than the arrest rates for property or other crimes. Despite the difficulty with actually deciding what constitutes a white-collar crime and who can actually commit one there have been numerous studies on the characteristics of individuals who have committed crimes that fall under the rubric of the term "white-collar crime." One way to better understand white-collar crime and proposed solutions is to briefly summarize these findings.

Psychological Profiles of White-Collar Criminals

Even though white-collar crimes are conceptually different than non-white-collar crimes and the perpetrators of white-collar crimes are generally different from other types of criminals in terms of their education, social economic status, and professional achievements. The research has indicated that this group still may think and have attitudes about crime that are similar to non-white-collar criminals (Samenow 2010). A common misperception is that these types of offenses are out of character for those who perpetrate them (Brody, Melendy, and Perri 2012) but people who make these conclusions often lack information about the perpetrator and the criminal's thinking (Samenow 2010).

One personality variable that continually surfaces in studies that assess white-collar criminals is the personality variable of narcissism (Perri 2011). Narcissistic behavior is a construct that defines how individuals perceive themselves and others. Narcissists typically display a pervasive pattern of entitlement, grandiose thinking, a need for admiration, exploiting others when pursuing goals, and the lack of empathy for others. One could argue that effective managers and leaders need such traits; however, the type of narcissistic behavior observed in many white-collar criminals is far beyond the type of confidence needed as a leader or manager.

Closely aligned with narcissism is the notion that white-collar criminals score high on measures of psychopathic behavior (in DSM -- 5 terms of this would be antisocial personality disordered behavior; Mathieu et al. 2012). These individuals typically are narcissistic, have a history of breaking the rules or of past criminal actions, set their own levels of morality, and are very opportunistic (Hakkanen-Nyholm and Nyholm 2012). Unlike the blatant narcissist individuals with antisocial personality disorder traits tend to be very sociable and charming. They tend to be able to overtly hide their motivations and pray on their perceived weaknesses of others. Such individuals are adept at using deceit and manipulation in achieving their end goals which are typically performed at the expense of others. These individuals are only concerned with meeting their own needs and often feel very little remorse for anyone who they use or they hurt in the pursuit of their goals (Hakkanen-Nyholm and Nyholm 2012). Thus, the majority the research on the psychological correlates of white-collar criminals suggests that they have a strong tendency towards antisocial personality disorder type behavior even if they do not meet the formal criteria for this disorder. Unlike antisocial personality disordered individuals who commit other types of crimes those who commit white-collar crimes typically are not impulsive. In addition, the research indicates that there may be some frank characterological differences in the traits of male and female white-collar criminals (Ragatz and Fremouw 2010). It is unclear if these differences represent the fact that males receive significantly higher rates of antisocial personality disorder diagnoses or if they represent real differences in the characters of the two genders who commit white-collar type crimes. Moreover, there are learning and biological foundations to the development of these traits. The learning foundations will be discussed next.

Sociological Theories of Criminal Behavior

Sutherland (1974) proposed the theory of differential association which states that people learn through interaction with other people. Individuals learn the attitudes, methods, and motives for criminal behavior by their association with others. This theory predicts that an individual will engage in criminal behaviors when the balance of definitions for breaking the law exceeds the balance of definitions for abiding by the law (Sutherland 1974). The frequency and intensity of these interactions are crucial for the development of criminal behavior. Thus, according to this theory criminal behavior is learned via an interaction with others. The communication between individuals can be verbal or imitative. The majority of this learning occurs via interpersonal communication with intimate group members (thus the media has less influence). What is actually learned can be the actual techniques for committing a crime or the specific motives, drives, rationalizations, or attitudes that drive behavior. The direction of motives and drives are learned as favorable or unfavorable from definitions of legality and how it applies to a specific context. So contact with criminal patterns or a lack of contact with anti-criminal patterns can fuel criminal behavior. For instance, a young white collar worker may learn through frequent and intense interactions with peers and with admired successful business associates that it is an admirable quality to be able to "do what it takes to get ahead" in business. This learning process is similar to other described processes of learning.

Adding Biological Components

The biological components of white-collar crime would suggest that certain individuals, under the right circumstances, would be more prone to engaging in criminal activities (e.g., white-collar crimes) than other individuals without the same genetic makeup but with similar experiences. Thus, not everyone exposed to the qualifying conditions of differential association will engage in criminal behaviors to the same degree. These principles allow for better understanding as to how to deal with white collar crime.

What Security Managers Can Do to Deal with White-Collar Crime

Prevention and Control

Prevention strategies would appear to be particularly effective in combating the incidence of white-collar crime in an organization given the above descriptions. Manunta (1999) discussed the use of security management systems to maintain security within an organization. To actually designate what constitutes security management is a difficult task. Hollinger and Clark (1983) examined five different control and prevention mechanisms:

1. Company policies. Company policy can be an effective method of control. For example, companies with a strong policy against employee absenteeism tend to experience less absenteeism. Explicit policies strictly governing such things as employee theft, misuse of funds, etc. would have similar effects. In addition, a solid employee educational program regarding what behaviors are acceptable what behaviors are not would have a detrimental effect on white-collar crime (Wells 2011).

2. Selection of personnel. It is important to make an effort to select company personnel that are committed to the organization and conforming to organizational standards.

3. Inventory control can be used to protect against theft and fraud and also for following corporate policies and procedures, detecting waste, and ensuring that proper amounts of inventory are maintained.

4. Security controls such as internal audits, investigations, surveillances, etc. involve both preventive and reactive controls to white-collar crime.

5. Even though the famous behavioral psychologist B.F. Skinner believed that punishment was not the desired method of behavioral, punishment when properly applied (immediate, direct, and inescapable; Skinner 1966) is an effective means of controlling criminal behaviors in an organization. Punishing individuals for violations sets the standard for other individuals to follow.

The security manager is responsible to organize the prevention strategy for the organization and should be able to identify, recognize, and isolate any cases of potential white-collar criminal activities in order to ensure that they are stopped and that future incidences are avoided. Because white-collar crime involves deceit and manipulation they are often very difficult to recognize. Often a major difficulty is determining the exact offense committed rather than identifying the offender (Sparrow 1998).

A particularly difficult challenge for security manager is to determine how legitimate activities of an organization result in potential exploitations by white-collar criminals. Security managers need to remain vigilant and informed. Security managers, given the nature of their work and the information that they use, are not effective in determining areas of corporate criminal offenses, but are suited to control occupational offenses against the organization itself. Security managers are not agents policing corporate policies, but instead can enforce corporate policies and making sure that they are followed by employees (Hearnden and Moore 1999). Security managers can use a number of different methods to maximize their ability to prevent white-collar crime in an organization.

One method is crime pattern analysis (National Criminal Intelligence Service 2000). The major goal is to identify similarities and differences between crimes, predict future trends that require further investigation, and specifying areas for prevention in the future. Crime pattern analysis is an overall approach to understanding in detecting crime in an organization allows the security manager an idea of the general patterns of crime that occur in a specific environment and then to decide how the resources of the organization can be used in dealing with such potential issues. By understanding the framework in which a criminal behavior is initiated and carried out the security manager can take appropriate preventive steps (Coenen 2013).

For example assume that the security manager is concerned with some aspect of fraud occurring within the organization. The first up for the security manager would be to consider all of the above theories and knowledge concerning fraud and establish a fraud risk assessment system. Such a system could identify whether the organization has initiated a process to identify fraud risks. Fraud schemes typically follow a three-step process: the commission of the fraud, concealment of the fraud, and converting non-cash into these into cash (Association of Certified Fraud Examiners 2008). The security manager can cover these categories controlling for fraud by:

1. Preventive controls which are designed to educate employees regarding the red flags of potential fraudulent activities and protect the company's assets from fraud.