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Chapter 12
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Chapter 12

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  1. Chapter 12 Enterprise Crime: White-Collar Crime, Cyber Crime, and Organized Crime

  2. Enterprise Crime • Crimes of the marketplace • White-collar crime: Illegal activities of people and institutions who profit through legitimate business transactions • Cyber crime: Involves people using instruments of modern technology for criminal purposes • Organized crime: Illegal activities of people and organizations, which profit through illegitimate business enterprise

  3. White Collar Crime • Edwin Sutherland coined the phrase “white collar crime” to describe criminal activities of the rich and powerful • Contemporary definitions of white collar crime include both middle-income persons and corporate titans • Costs of white-collar crime are in the hundreds of billions of dollars and exceed any other type of crime • White-collar crimes both kill people and damage property

  4. Components of White-Collar Crime • Stings and Swindles • A white collar crime in which people use their institutional or business position to bilk people out of their money • Swindlers often target elderly and religious organizations • Religious swindles • Use of religion and creation of fake religious organizations to bilk those out of money (Stelter and Vision Oil Company)

  5. Components of White-Collar Crime • Chiseling • Involves cheating an organization, its consumers, or both on a regular basis • Bogus auto repairs • Professional chiseling: Use their position to chisel clients (doctors and pharmacists) • Securities fraud: Commodity and stock markets deceptions • Churning (repeated unnecessary buying/selling) • front running (placing personal orders ahead of clients) • bucketing (skimming profits) • insider trading ( information giving the trader unfair advantage)

  6. Components of White-Collar Crime • Individual Exploitation of Institutional Position • Individuals’ exploiting their power or position in organizations to take advantage of other people who have an interest in how that power is used. • Occurs when the victim has a clear right to expect a service and offender threatens to withhold service unless an additional payment or bribe is forthcoming.

  7. Components of White-Collar Crime • Influence Peddling and Bribery • Taking of “kickbacks” in return for contracts or favors • Influence peddling in government: acceptance of bribes for favor (Robin HUD and police examples) • Influence peddling in business: payoffs for business contracts (Gulf Oil and Lockheed) • Congress pas the Foreign Corruption Practices Act in 1977 in response to such violations

  8. Components of White-Collar Crime • Embezzlement and Employee Fraud • Blue-collar fraud: Acts of pilferage • Management fraud: • Converting company assets for personal benefit • fraudulently receiving bonuses • fraudulently increasing personal holdings of company stock • manipulating of accounts • concealing unacceptable performance form stockholders

  9. Components of White-Collar Crime • Weblink www.whistleblowers.org/

  10. Components of White-Collar Crime • Client Fraud • Health care fraud: Includes ping-ponging, Medicare/Medicaid frauds, kickbacks and self-referrals • Bank fraud: Includes check kiting, forgery, and illegal transactions • Tax evasion: Tax fraud by deliberately underreporting taxes

  11. Components of White-Collar Crime • Corporate Crime (Organizational Crime) • Actual authority: Occurs when a corporation knowingly gives authority for an employee to act • Apparent authority: Occurs when third party reasonably believes the agent has the authority to act • Illegal restraint of trade and price fixing: Involves a scheme to stifle competition and create a monopoly (Sherman Antitrust Act) • Tying arrangement: Requiring customers to use other services connected to corporation • Group boycotts: Of retail stores not complying with rules or wishes • Price fixing: Conspiracy to set and control prices • Deceptive pricing: Occurs when corporations use incomplete or misleading information to fulfill contracts (defense contractors) • False claims and advertising: Involves unjustified claims about a product (telemarketing) • Worker Safety/Environmental crimes: includes unsafe working conditions and pollution

  12. Causes of White- Collar Crime • Greedy or Needy • Motivations include a need to keep or improve a job, satisfy egos, or keep up with inflation to support a family • Corporate Culture Theory • Involves placing excessive demands on employees • Self-Control View • Quick benefits with minimal effort

  13. White-Collar Law Enforcement Systems • Controlling White-Collar Crime • Compliance strategies: Involve cooperation and self-policing among businesses (SEC and FDA) • Sarbanes-Oxley legislation (SOX) limits nonaudit services that auditing firms can perform publicly • Compliance strategies create marketplace incentives to obey the law and avoid the stigmatization of their crimes • Deterrence strategies: Involve detection and punishing the offenders

  14. White-Collar Law Enforcement Systems • Is the Tide Turning? • Growing evidence that white-collar crime deterrence strategies have become normative • Get-tough approach appears to be affecting all classes of white-collar criminals • U.S. Sentencing Commission increased penalties in April 2001

  15. Internet Crime • Involves the use of computers to illegally take possession of information, resources, or funds • Distributing Sexual Material • Denial of Service Attack • Illegal Copyright Infringement (I.E. warez) • Internet Securities Fraud • Market manipulation: Pump and dump and cyber-smear • Fraudulent offerings of securities • Illegal touting • Identity Theft • Ponzi/Pyramid Schemes • Nondelivery of Goods/Services (I.E. Ebay)

  16. Computer Crimes • Theft of services • Use of computer data for personal gain • Unauthorized use for financial processing • Illegally copying and selling of software • Use of viruses to destroy data

  17. Computer Crimes • Common Techniques • The Trojan horse: reprogramming computers for illicit purposes • The salami slice: dummy account in company records • Super-zapping: bypassing antitheft standards • The logic bomb: secret programs for monitoring a company’s computer system • Impersonation: Unauthorized access to computer systems • Data leakage: Illegally obtaining data in small amounts • Computer virus: Worms intended to disrupt or destroy programs

  18. Controlling Cyber Crime • Counterfeit Access Device and Computer Fraud and Abuse Law (1984) and the National Information Infrastructure Protection Act (NIIPA) 1996 • Controlling Internet Crime • Identity Theft and Assumption Act-1998 • Creation of working groups • Internet Fraud Complaint Center • Private security companies

  19. Organized Crime • Characteristics of Organized Crime • Conspiratorial activity • Economic gain is the primary goal • Not limited to illicit services • Employs predatory tactics • Effective control of its members • Mafia is a stereotype for organized crime • Terrorism is not associated with organized crime

  20. Organized Crime • Activities of Organized Crime • Narcotics distribution • Gambling • Prostitution • Loan-sharking • Pornography • Theft-rings

  21. Organized Crime • The Concept of Organized Crime • Mafia: first organized in Italy/Sicily • Alien Conspiracy Theory: national syndicate of 25 or so Italian-dominated crime families called La Cosa Nostra • Contemporary Organized Crime Groups: include Chicano, Cuban, and Asian racketeers • Eastern European Crime Groups: Include Russian and other groups (i.e. YACS)

  22. Organized Crime • Controlling Organized Crime • In 1970 Congress passed the Organized Crime Control Act (Title IX-RICO) • Influenced and Corrupt Organization Act (RICO) created new categories of offenses: • Deriving income from racketeering • Acquiring an interest or control over an enterprise engaged in interstate or foreign commerce • Conspiring to make income, loans, or conducting business through racketeering means • Enterprise theory of investigation (ETI): model used by the FBI as an investigative tool that focuses on the structure of the criminal enterprise rather than on the criminal acts

  23. Organized Crime • The Future of Organized Crime • Traditional crime syndicates are declining • Age of reining family heads • Lack of skill of younger generation • Active enforcement policies • Changing values in society