[author: Robin Singh]

Derivatives trader Nick Leeson grabbed the headlines in the mid-nineties for all the wrong reasons. The trader, having worked his way to the top at Barings Bank, took over as head of Singapore stock exchange in 1995. By this time, his speculative gambles had resulted in huge losses which he hid in a secret account. The same year also saw the markets plummeting thanks to the earthquake in Japan. Unable to hide the losses anymore, Leeson eventually disappeared from Singapore with losses amounting to $1.4 billion.

In the U.K., as per the Annual Fraud Indicator report based on the Centre for Counter Fraud Studies’ research, the annual fraud cost is as much as £193 billion!

When it comes to crime, humans, as a whole, tend to mainly focus on the violent kind. It’s almost like we don’t see crime as being anything beyond an act of outright violence.

When it comes to crime, humans, as a whole, tend to mainly focus on the violent kind. It’s almost like we don’t see crime as being anything beyond an act of outright violence. Switch on the news, and you’re more likely to hear about a burglary that went wrong or a gang shooting.

But, when it comes to white-collar crime, the majority of society prefers to tune out. But, here’s the thing – white-collar crime is boring and also, complicated. The average person simply has no clue what the crime even is. So, it’s understandable why it’s ignored so much by the masses.

However, this doesn’t change the fact that white-collar crime is probably the strangest of all crimes. Rather, it’s occupied by people, who in most other circumstances, would be looked up to as ideal role models for society.

This is exactly why white-collar crime is fascinating. Why would someone with so much going for them choose to risk it all by breaking the law?

Interestingly, a study by KPMG bought forward was that a large percentage of fraudsters were extroverted (33%), friendly (35%) and highly respected (39%). These personality traits do not seem to be indicators of someone who is prone to fraud but can be when combined with traits like greed and desire for personal gain

Then come in the bigger questions. You see, most of these crimes aren’t always committed by individuals. They are often the result of a nexus that operates within larger organizations. So, figuring out who the perpetrator is can turn out be very challenging. Who can we blame when an organization is made up of thousands of employees?

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If that isn’t enough, you have to come to terms with the fact that there are no clear victims. How do we determine who suffers when a few numbers are "tampered with” on a spreadsheet?

Even if we did identify the perpetrators and the victims, how should we deal with the issue? What kind of punishments can be handed out to the perpetrators of these complex crimes?

Exploring the Illegality of White-Collar Crime

In the book titled “Capital Offences,” Samuel W, Buell, a law professor from Duke University and the Enron case’s lead prosecutor, states that white collar crimes are all about context, and the final judgement rests on the defendant’s awareness of the crime, that is, did she/he knew that her/his actions were illegal?

So, in a way, the prosecutor is also required to play mind reader. Buell also notes that the main defence in such cases has very little to do with the act. Rather, it also has everything to do with the fraudster’s own awareness of the crime. Did he/she know the actions were against the law? For all you know, such actions could very well be standard practices within an industry.

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Determining intention becomes murkier when executives have made their decisions based on the advice of experts. It may seem unfair for someone to go to prison when their actions may very well have been encouraged by a lawyer or an accountant.

Greed and selfishness aren’t crimes; actual crimes are those that cross the lines set by the law.

Prosecution, with regard to white-collar crimes, is complicated further when the so-called criminal action spans an entire enterprise. It becomes extremely difficult to identify where exactly things went wrong. Organisations are made up of many individuals and blaming an organisation is the same as blaming each and every employee.

People at the top of the organisational hierarchy are rarely aware of day-to-day operations and punishing them for the crimes committed by those below them can lead to all kinds of consequences. Or, for that matter, even penalising the organisation as a whole by levying massive fines and sanctions can lead to a negative ripple effect of the economic kind.

The cold, hard truth, according to Buell, is that there are no simple answers to these problems. This is exactly why the government goes after cases that it is sure to win.

The cold, hard truth, according to Buell, is that there are no simple answers to these problems. This is exactly why the government goes after cases that it is sure to win. However, the good news is that federal crime rates have dropped in the past decade or so while the average sentence for white collar crimes has doubled.

Now, the problem with Buell’s observation is that it’s mainly limited to organisational corruption and the problems in fighting it. The bigger question here is about why some individuals engage in white collar crimes in the first place.

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I’ll be exploring the motivating factors of white collar crime over the course of several articles here on the Ethics & Compliance Matters Blog. Please use the comments section below to tell me your thoughts.