By Dr. Jarrod Sadulski
Faculty Member, Criminal Justice
White-collar crime doesn’t commonly get the attention of society as much as other crimes such as human trafficking, but it is still devastating to peoples’ lives. White-collar crimes are typically non-violent crimes, which is probably why they receive less attention.
However, white-collar crime has a high cost. According to the Legal Information Institute, this crime costs the United States about $300 billion each year.
Victims of this type of crime are well aware of the pain that it causes. They may see their company’s finances destroyed, lose their life savings through Ponzi schemes or become the victims of extortion. Other side effects include a loss of public trust in their businesses and personal shame.
What Is White-Collar Crime?
According to Investopedia, white-collar crime occurs for financial gain. It commonly involves deception paired with securities fraud, embezzlement, corporate crime or money laundering. White collar crime is often motivated by greed on the criminal’s part, or it occurs as an attempt to recoup money through fraud.
Some high-profile cases of white-collar crime include Bernie Madoff, Ivan Boesky and Michael Milken. Equally prominent white-collar crimes are Nigerian scams where fraudulent emails and phone calls are used to scam people out of their money.
The Stages of Money Laundering
Money laundering involves concealing the origins of money that was illegally made. For example, illicit drug trafficking profits are commonly laundered.
There are three common stages in money laundering: placement, layering and integration. During the placement stage, criminals place money obtained through illicit means into a financial system, such as offshore banks or cryptocurrency. Another common strategy in money laundering is to take illicit cash and purchase money orders, which can then be deposited into bank accounts.
The layering stage involves helps criminals to distance themselves from their illicit funds by blending the money with legitimate cash. For instance, criminals might use a high volume of small money transfers and combine that with their available cash.
The layering stage makes it difficult for law enforcement and regulatory agencies to detect illicit cash that criminals are laundering. Casinos and foreign currency exchanges are common ways that criminals layer their money with legitimate cash.
Once criminals’ money has gone through enough layering and transactions to prevent it from being recognized as laundered money, the integration stage takes place. The layered cash enters the economy through real estate sales, large purchases such as luxury cars and boats, and other significant investments. Cash-based businesses such as coin laundry businesses, restaurants, and convenience stores may be purchased in the integration stage to facilitate future money laundering operations.
Another common form of white-collar crime is the Ponzi scheme. The Ponzi scheme involves investment fraud; the perpetuator pays current investors with money collected from new, unsuspecting investors. The Ponzi scheme is after Charles Ponzi, a 1920s-era criminal who promised his investors a 50% return on their investments while duping new investors to pay returns to previous investors.
Another common white-collar crime is corporate crime. Corporate crime involves false accounting that misrepresents a company’s financial conditions, insider trading, illegal business transactions to evade regulations and tax violations.
White-Collar Crime Is Often Difficult to Detect
White-collar crime is often difficult to detect because it is perpetuated by business executives and leaders in the financial industry. They often distance themselves through complicated accounting, a front of respectability and other methods from the white-collar crimes they commit. For instance, white-collar criminal Bernie Madoff was a highly trusted Wall Street financier and chairman of the Nasdaq stock market during the early 1990s.
The FBI has an essential role in combating white-collar crime. The FBI partners with other law enforcement and regulatory agencies such as the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
Other people can also have an important role in combating white-collar crime. For example, accountants and other employees can report illicit or suspicious activity that may be related to white-collar crime. Being diligent and reporting violations to the proper authorities can mitigate the risk of getting caught up in this type of crime.