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95th congress}
2d Session
COMMITTEE PRINT { No. 16

WHITE COLLAR CRIME: THE PROBLE:M AND

THE FEDERAL RESPONSE

SUBCOMMITTEE ON CRIME
OF THE

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES
NINETY-FIFTH CONGRESS
SECOND SESSION

JUNE 1978

or the use of the Committee on the Judiciary

S. GOVERNMENT PRINTING OFFICID

WASIIINGTON : 1018
 COMMI'ITEE ON THE JUDIOIARY
PETER W. RODINO, JR., New Jetsey, Ohalrnl(1I"
JACK BROOKS, Texas ROBERT McCLORY, Illinois
ROBERT W. KASTENMllJIER, Wisconsin TOM RAILSBACK, Illinois
DON EDWARDS, California CHARLES :m. WIGGINS, California
JOHN CONYERS, JR., Michigan HAMILTON FISH, JR., New York
JOSHUA EILBERG, Pennsylvania M. CALDWELL BUTLER, Virginia
WALTER FLOWERS, Alabama WILLIAM S. COHEN, Maine
JAMES R, MANN, South Carolina - CARLOS J. MOORHEAD, California
JOHN F. SEIBERLING, Ohio JOHN M. ASHBROOK, Ohio
GEORGE E. DANIELSON, California HENRY J. HYDE, Illinois
ROBERT F. DRINAN, Massachusetts THOMAS N. KINDNESS. Ohio
BARBARA JORDAN, Texas HAROLD S. SAWYER, Michigan
ELIZABETH HOLTZMAN, New YGrk
ROMANO L. M.A.ZZOLI. Kentucky
WILLIAM J. HUGHES, New Jersey
SAM B. HALu, JR., Texas
LAMAR GUDGER, North Carolina
HAROLD L. VOLKMER, Missouri
HERBERT E. HARRIS II, Virginia
JIM SANTINI, Nevada
AuLEN E. ERTEL, Pennsylvania
BILLY LEE EVANS, Georgia
ANTHONY C. BEILENSON. California
ALAN A. PAP'l{ER, General OouII3el
GARNER J. CLINE, Staff Dlrectol'
J!'RANKLIN G. POLK, ASBoclate Ooun8cl

SUBCOMMITTEE ON CRIME
JOHN CONYERS, JR., Michigan, Ohairman
ELIZABETH HOLTZMAN, New York JOHN M. ASHBROOK, Ohio
LAMAR GUDGER, North CarOlina TOllf RAILSBA.CK, Illinois
HAROLD L. VOLKMER, Missouri
ALLEN E. ER'l'ElL, Pennsylvania
HAYDEN GREGORY, Ooun8el
STEVEN G. RAll{lN, Oonn8el
SMITH WO,tMLElC DAVIS, Oounael
MATTHEW G. YEAGER, OOll8uzting Orilnillo1ogi8t
ROSCOE STOVALL, AII8/atallt Oounsel
THOMAS N. BOYD, AS80ciate GouIIBel

(II)
 78-72 EPW

WHITE COLLAR CRIME:

THE PROBLEM AND THE FEDERAL
RESPONSE

MIRIAM'SAXON
Analys t in Social Legislation
Education and Public Welfare Division

,Il.pril 19, 1978

CONGRESSIONAL RESEARCH SERVICE
LIBRARY OF CONGRESS

·CCIR§
 The Congressional Research Service works exclusively for
the Congress, conducting resear.ch, analyzing legislation, and
providing information at the request of Committees, Mem~
bers and their staffs.

The Service makes such research available, without partisan

bias, in many fonus including studies, reports, compilations,
digests, and background briefings. Upon request, the CRS
assists Committees in analyzing legislative proposals and
issues, and in assessing the possible effect" '1f these. proposals
and their alternatives. The Service's senior specialists and sub-
ject analysts are also available for personal consultations in
their respective fields of expertise.

(IV)
 TABLE OF CONTENTS

EXECUTIVE SUMMARY
Introduction

I. Nature and Scope of White Collar Crime 1

A. Definitions
B. Economic and Social Costs 7

C. Extent of the Problem 12

D. Increased Concern 15

II. Federal Efforts to Combat White Collar Crime 17

A. Federal Jurisdiction 17
B. Congressional ActiQn in Combating White Collar Crime 18
C. Action by the Executive Branch: Enforcement and Prosecution 20

D. Problems in Detection, Investigation, and Prosecution of White

Collar Crime ................................................ 29

IH. Sentencing Issues 44

IV. Reform Proposals 51

APPENDIX: Theoretical Perspectives on the Causes of White Collar Crime

and Its Relationship to Street Crime ••••••••••••••••••••••• 57

(V)
 EXECUTIVE SUMMARY

Since the term was first used in 1939 by sociologist Edwin Sutherland,

nUmerous attempts have been made to describe what is meant by "white collar

crime." There is no general agreement on anyone definition. Basically the

definitions fall into three groups, according to where the most emphasis is

placed: (1) on the characteristics of the offender; (2) on the characteris-

tics of the crime itself; or (3) on the means employed to commit the illegal

act. Despite their differences, all the proposed definitions suggest that a

white collar crime is an illegal act which is committed in the context of a

lawful occupation, involves a breach of trust, does not rely on physical

force, and haa money, property, or pover as the primary goals.

Recent studies have emphasized the seriousness of the white collar crime

problem, in term. of both economic and social costs. The most widely accepted

eatimates place the monetary cost of white collar crime in excess of $40 bil-

lion annually, and although research in the area is scarce, some argue that

these type. of crimes cause even more severe damage by destroying the public's

faith in our legsl, social, and political institutions.

There are indications that public concern about white collar crime has in-

creased in recent years. This public interest has been reflected in Congres-

sional and executive action to control white collar crime by improving avail-

able enforcement tools and increasing the potenti~l sentences for convicted

white collar crime defendants.

(VI)
 An area of particular controversy involvep what type of aentence is appro-

priate for a white collar criminal. Some argue that prosecution and conviction

are enough punishment in themselves, while others maintain that such offenders

should be sentenced to imprisonment because of the seriousness of their crime,

or for the purpose of deterring others.

Numerous research groups, .ncluding a special cOllm)ittee of the American

Bar Association and a Ralph Nader research group, have suggested reform mea-

sures covering all aspects of white collar crime. These recommendations, for
example, call for increased coordination between jurisdictions and among en-

forcement agencies in order to improve investigatory effo~ta, increased staff

and funding resources, and more adequate sentllncing procedures for white col-

lar crime offenders.

 WRITE COLLAR CRIME: THE PROBLEM AND THE FEDERAL RESPONSE

There are growing indications that the category of crime generally referred

to as "white coUar crime" is a major problem in America today. Increasing at-

tention recently has been directed toward the problems of ~hite collar crime in
terms of congressional interest, attempts by government agencies to improve en-

forcement efforts, and research efforts by various private and public groups.

This paper attempts to define the problem of white collar crime, examine

the Federal enforcement efforts to control these crimes, and analyze the various

theoretical explanations for these crimes. since in n:.cenr. years Congress has
expressed an intere&t in many types of offenses that fall under the label of

"white collar crimr, n this analysis focuses on the general characteri9tica of

these types of crimea rather than on a specific eet of white collar crimes,

such as antitrust violations.

I. The Nature and Scope of White Collar Crime

A. Definitions

It is difficult precisely to define ""hite collar crime," in part because

it is a social category or concept, similar to "juvenile delinquency," rather

than a legal ~oncept. Thus, same acts that might fall within the category

"white collar crime" are violations of regulatory statutes and not of criminal

law ~~, and although same regulatory statutes carry criminal penalties,

there is no set of statutes labelled "white collar crimes." Therefore, unlike

the clear definitions of what constitutes auto theft or rape, there is no legal

definition, as part of the traditional criminal code. for white collar crime.
(1)

28-141 0 - 78 - 2
 2

Hany experts have attempted to define "white collar crime." In general all

the definitions that have been proposed since the term was first used in 1939,

by sociologist Edwin H. Sutherland, can be divided into three different types:

(1) thoDe using the characteristics of the offender as the definitional basis

(e.g., "a white collar criminal is someone of high social standing who commits

Q crime"); (2) t.hose definitions based on the characteristics of the crime com-

mitted (e.g., "a white collar crime is an illegal act committed in the course

of one's business or professional activity"); and (3) those definitions using

the means by which the crime was committed as the descriptive base (e.g., "an

illegal act committed through intentional deceit, misrepresentation, or breach

of trust").
Sutherland, the originator of this term, defined white collar crime as "a
crime committed by a person of respectability and high social status in the
1/
course of his occupation." - He maintained that such crimes involve a "viola-
2/
ti.on of delegated or implied trust," - in one form or another.

The definition most commonly used by government officials is that provided

by Herbert Edelhertz in his pamphlet, The Nature, Impact, and Prosecution ~~

White Collar Crime. In this paper Edelhertz attempts to shed some light on the
complexity of this problem and the F"qeral response to it. His definition of

white collar crime io:

Sutherland, Edwin H. White Collar crime. New York, Holt, Rinehart, and
Winston (1949] p. 9.

1/ Cohen, Albert, et al., eds. .~e Sutherland Papers. Social Science Series
No. 15. Bloomington, Ind., Indiana University Publications (1956]
p. 49.
 3

an illegal act or series of illegal acts committed

by nonphysical means and by concealment or guile,
to obtain money or property, to avoid the payment
or loss of money or property. or to obtain busi-
ness or personal advantage. If
However, it might be noted that although "committed by nonphysical [non-
violent 1 means," white collar crimes can have physical [violent 1 results. Ex-

amples include an industrial plant that knowingly allows carcinogenic wastes to

pollute a w~ter supply, or the MER/29 case of a pharmaceutical corporation that

knowingly sold an anti-cholesterol d·:ug that subjected at least 5,000 people to

if
such serious side effect, as cataracts and hair loss. As Deputy Attorney

General-designate Benjamin CiviJetti has emphasized, the frequent use of th~

phrase "non-violent" in defining whi te collar crime is not to describe the sev-
erity of the public impact of such acts but to denote their method of commis-
1,/
sion. Or, as Gilbert Geis has stated, "corporate criminals deal death not
6/
deliberately but through inadvertence, omission, and indifference." - Edelhertz

has further specifically broken down white collar crime into such elements as

If .Edelhertz, Herbert. The Nature, Impact, and Prosecution of White Collar

Crime Washington, National Institute of Law Enforcement and Criminal
Just.~c, for sale by the Supt. of Docs., U.S. Govt. print. Off., 1970.
p. 3.

if Gibbons, Don C. Crime and Punishment: A Study ~n Social Attitudes. Social

Forces, v. 47, June 1969: 392.

Civiletti, Benjamin R. In a speech to the International Association of Chiefs

of Police, October 5, 1977. pp. 3-4.

Geis, Gilbert. Criminal Penalties for Corporate Criminals. Criminal Law Bul-
letin, v. 8, Aug. 1972: 386.
 4

intent to commit a wrongful act, disguise of this intent, reliance on a victim's

ignorance or carelessness, and concealment of the crime through creation of a

deceptive transactional facade, paying off the victim, or some similar action. 7-'
A study group within the Department of Justice developed a working defini-

tion of white collar crime which is similar to the definition provided by Edel-

hertz (p. CRS-3).

Economic crime constitutes any non-violent criminal ac-

tivity which principally involves traditional notions of
deceit, deception, concealment, manipUlation, breach of
trust, subterfuge or illegal circumvention. ~/

This definition was modified somewhat by the American Bar Association's

Committee on Economic Offenses in its recent publication of recommendations on

whi te cottar crime. Their report, entitled "Economic Offenses," contains the

following definition:

An economic offense is any non-violent ,I' illegal ac-

tivity which principally involves deceit, mlsrepre-
sentation, concealment, manipulation, breach of trust,
subterfuge, or illegal circumvention.**

*"Non-violent" refers to the means by which the crime

is committed. It is not intended to describe the harm
that is caused to the victim, which is frequently ex-
cessively violent in that it may involve the loss of
one's home, life savings, or quite literally all of
one's property. In addition, particularly in those
many instances of economic crime in which hundreds or
thousands of people are affected, the harm to society
can frequently be described as violent.

7-' Edelhertz, op. cit., p. 12.

~/ American Bar Association. Section of Criminal Justice. Committee on Eco-

nomic Offenses. Economic Offenses. Washington, American Bar Associ-
ation, March 1977, p. 16.
 5

(2) Crimes in the course of their occupations by those oper~

ating inside businesses, Government, or other establish-
ments, or in a professional capacity, in violation of
their duty of loyalty and fidelity to employer or client
(hereinafter referred to as "abuses of trust").

(3) Crimes incidental to and in furtherance of business opera-

tions, but not the central purpose of such business oper-
ations (hereinafter referred to as "business crimes").

(4) White collar crime as a business, or as the central ac-

tivity of the business (hereinafter referred to as "con
games"). g/ --
Another definition is that of sociologist Ronald L. Akers:

occupational crime (white collar crime) is defined here

as violation of legal norms governing lawful occupation-
al endeavors durlng the course of practicing the occupa-
tion. The reference to norms governing the occupation
is meant to exclude violations of the usual criminal law,
such as arson, murder, and assault, while on the job, un-
less the law applied to the occupational behavior -- for
example, theft or embe~zlement of funds. The reference
to lawful occupations is meant to exclude the activities
of those whose entire job is illegal, such as prostitutes,
can men, professional forgers, thieves, and organized
criminals. J!!I
He further argues that whit" coUar crime is "real" crime because these 'ire

"acts which are defined as socially injurious and for which punishment is pro-

vided. They differ from the other crimes chiefly in the way many of them are

handled that is I by enforcement boards, commissions, depnrtment~, or other

15/
government agencies rather than by regular criminal courts." -

gl Edelhertz, op. cit., pp. 19-20.

l!!! Akers, Ronald L. Deviant Behavior: A Social Learning Approach. Belmont,

Calif., Wads~orth Publishing Co. [1973] p. 179.

12./ Ibid., p. 178.

 6

"'*Among the offenses included in "illegal circumvention"

are auto repair fraud, bait and switch schemes, land
fraud, home improvement fraud, and job opportunity
schemes. 2)
It should be noted that the Committee changed the word "criminal" to "illegal"

in order to include "conduct and behavior in which civil remedies might prove
.!.Q/
to be a more appropriate ••- as well as effective -- remedy."
11/
From another viewpoint, both sociologist Donald Cressey -- and Mark Green,

an associate of Ralph Nader, define whi te collar crime as corrorate crime ("crime

in the suites" a8 Nader terms it, as opposed to "crime in the streets lf ) . Green'

differentiates between white collar crimes committed by an individual (e.g., em-

bezzlement) and those committed in the corporation's name, and he divides corpo-

rate crime into four subcategories: commercial bribery, antitrust crimes (e.g.,
price-fixing or preuatory monopolization), product safety and health crimes (e.g.,

polll.tion, manufacturing a dangerous product), and financial crimes (e.g., se-

12/
curities fraud). --
Edelhertz, on the other hand, roposes the following categorization:

(1) Crimes by perso?s ?perat,.lg on an individual, ad hoc basis,

for personal ga1n 1n a IJ nbusiness context (hereinafter re-
ferred to as "personal crimes ll ) .

2) Ibid., pp. 17-18.

10/ Ibid., p. 17.

u.s. Conf;ress. House of Representatives. Committee on the Judiciary. Sub-

committee on Crime. New Directions for Federal Involvement in Crime
Control. (Committee Print) Washington, U.S. Govt. Print. Off., 1977.
p. 67.

12/ White Collar Justi~e: A BNA Special Report on White Collar Crime. Washing-
ton, Bureau of National Affairs, A~ril 13, 1977, p. 2.
 7

All of these somewhat disparate definitions of what acts should be label leu

as "whi te collar crime" are based on several similar concepts. These concepts or

common elements of most white collar crime definitions can be summarized as fol-

lows:

crime3 committed in the course of (or the context of)

one's lawful occupation (e.g., a bank employee who
embezzles funds while carrying out his normal, legal
bank d .... ties);

a violation of trust;

a lack of physical force to accomplish the crime;

money, property, or power and prestige as the pri-

mary goals of the crime;

definite intent to commit the illegal act; and

an attempt to conceal the crime (usually by passing

it off as a normal, legal business transaction or by
using one's power and resources to prevent its de-
tection or prosecution).

Some examples of the types of crimes generally categorized as "white collar

crime" are: consumer fraud, illegal competition, price fixing, deceptive prac-

tices, embezzlement, check and credit card fraud, tax evasion, bankruptcy fraud,

corporate bribery, kickbacks, payoffs, bait and switch frauds, computer crime,

pilferage, insurance fraud (including arson for profit), securities fraud, polit-

ical corruption, and fraud against the government (e.g, Medicaid fraud or fraud

related to some other government-funded program).

B. Economic and Social Costs

since so little data exist, any estimate of the cost of white collar crime

can only be a "ball park figure" and must be dependent upon broad assumptions.

However, it may be useful to review several attempts to assess the 9tate of the

problem.
 8

In 1974 the U.S. Chamber of Commerce estimated that the short-term, direct

cost of ~hite collar crimes to the U.S. economy is no less than $40 billion an-
~/
nually. This estimate does not include antitrust violations such as price-

fixing, which would greatly increase this economic cost figure, and it excludes

the non-financial consequences of white collar crimes which violate health and

safety standards. The breakdown provided, in billions of dollars, was:

Bankruptcy Fraud $ 0.08

Bribery, Kickbacks, and Payoffs 3.00

Computer-Related Crime 0.10

Consumer Fraud, Illegal Competition,

Deceptive Practices (excluding
price-fixing and industrial espi-
onage) 21.00

Consumer victims: $ 5.5

Business victims: 3.5
Government revenue loss: 12.0

Credit Card and Check Fraud 1.10

Credit Card: 0.1

Check: 1.0

Embezzlement and Pilferage 7.00

Embezzlement (Cash,
goods, services): 3.0
Pilferage: 4.0

~/ Chamber of Commerce of the United States of America. A Handbook on White

Collar Crime: Everyone's Problem, Everyone's Loss. Washington, 1974,
p. 5.
 9

Insurance Fraud 2.00

Insurer victims: 1.5

Policyholder victims: 0.5
Receiving Stolen Property 3.50

Securities Thefts and Frauds 4.00

TOTAL " $41.78

111

The Chamber of Commerce notes that the yearly cost of embezzlement and pilferage

alone "reportedly exceeds by several billion dollars the losses sustained through-
18/
out the nation from burglary and robbery." -

According to an LEAA-funded study by the American Management Associations'

Crimes Against Business Project, nonviolent crimes against business firms cost

$30-$40 billion per year. The AHA study indicates the following breakdown:

Employee pilferage $5-$10 billion

Commercial bribery and kickbacks $3.5-$10 billion
securities theft and fraud $5 bi Ilion

Embezzlement $4 billion

Burglary and vandalism $2.5 billion each

Shoplifting and insurance fraud $2 billion each

Credit card fraud $0.5 million

Q/ Ibid., p. 6. The total exceeds the $40 bUlion estimate cited by the U.S.
Chamber of Commerce because thes" ca~'.gories are not mutually exclu-
sive (e.g., a part of the embezt:le!!l~nt figure is also included in the
computer-related crime estimate).

Ibid., p. 4.

28-14l 0 - 78 - 3
 10

The 1977 report indicates that there is some overlapping of some of these cate-

gorieu, and that the $30-40 billion total figure does not include the costs of

a~le8ed bribery and overseas payoffs by some U.S. corporations. The study also
atates that perhapo 15 percent of the retail costs of U.S. goods is due to such
buliness crimea and that as many as one in five "business failures" may be the
19/
result of business-related crimes. --

In 1976 the Joint Economic Committee (JEC) of the United States Congress

eltimated that ~hite collar crime coots the economy $44 billion a year. The JEC

furthor ostimated that the coats of crimes against property, such as breaking and
20/
ant.ring or robbery, only coat $/, billion annually. -- In comparison, the Food

and Dru8 Adminiotration (FDA) has conservatively estimated that nearly $500 mil-
lion is opcnt each year on ~10rthles8 or misrepresented drugs and therapeutic de-
21/
viccs alana. -- And ten years ago the Antitrust Division of the Justice De-

parteent estimated that $35-40 billion ~as affected each year by violations of
22/
the Sherman Act.

12./ crimes Against Business. Recommendations for Demonstration, Research and

Related Programs Designed to R~duce and Control Non-Violent Crimes
Against Business. Washington, American Management Associations,
Dec. I, 1977. 88 p. As reported in Halverson, Guy. Businessmen
Seek Action Against Crime. Christian Science Monitor, Feb. I, 1978:
11.

20/ U.S. Congress. Joint Economic Committee. i.\e Cost of Crime in 1976. Wash-
ington, U.S. Govt. Print. Off., 1976. 8 p. This $44 billion figure
~as obtained by mUltiplying the 1974 Chamber of Commerce estimate by
the inflation rate 1974-1976, inclusive.
Magnu,on, Warren G., and Jean Carper. The Dark Side of the Marketplace.
En~le~ood Cliffs, N.J., Prentice Hall, 1968. Cited in Hills, Stuart
L. Crime, Power, and Morality: Th~ Criminal Law Process in the
United States. Scranton, Chandler Publishing Co. [1971] p. 168.

22/ AQlrican Bar Aosociation, op. cit., p. 31.

• ~------,.------ ~

11

Both Gilbert Geis and Herbert Edelhertz, among others, have noted that

perhaps even more damaging than the monetary costs to society of white col-

lar crimes are the broader social consequences of crimes and illegal actions

committed by individuals of high social standing and responsibility. During

the period when ex-Governor Marvin Mandel waS being tried for political cor-

ruption, a public information ad was being aired on television in which Man-

del warned the "crooks" that the State of Maryland intended to be tough in en-

forcing and prosecuting the law and thus to control [street] crime within the

State. Similarly, President Nixon was involved in the Watergate cover-up ~t

the same time that he called for increased "law and order." It has been argued

that such actions b, individuals who publicly denounce violent crimes, while

allegedly committing white collar crimes, contribute to an erosion of public

confidence in our legal system, and that the American social and economic sys-

tem is undermined when some of our political and economic leaders disregard
23/
the laws they advocate for others. Such violations create cynicism and an
attitude of "if others are doing it, I will too." For instance, Geis has stated

that tax authorities believe that after exposure of former President Nixon's
24/
tax deceits, false renorting of taxes increased dramatically. And although

See President's Commission on Law Enforcement and Administration of Justice.

Task Force Report: Crime and Its Impact -- An Assessment. [Washing-
ton, U.S. Govt. Print. Off., 1967] p. 104; Geis, op. cit., p. 378;
Morgenthau, Robert W. Equal Justice and the Problem of White Collar
Crime. The Conference Board Record, Aug. 1969: 18, 20; Ogren, Robert
W. The Effectiveness of the Criminal Sanction in Fraud and Corruption
Cases: Losing the Battle Against White Collar Crime. American crilJi-
nal Law Review, v. 11, Nov. 1973: 960.

24/ Geis, Gilbert. White Collar Crime: It Pays. Washington Post, Sept. 16,
1977: 11.
----------------------

12

research in this area is scarce, it has been argued that such destruction of

faith in our legal system promotes an atmosphere of lawlessness, leading to

25/
more crime. Furthermore, deceptive and fraudulent practices by some busi-

nessmen tend to force others to engage in similar practices in order to remain

competitive, aud thus the credibility of the commercial market is threatened.

As Gilbert Geis has stated:

It can be argued, convincingly I think, that social power

and prestige carry heavier demands for social responsi-
bility, and that failure of corporation executives to
obey the law repr"sellt s an even more serious problem than
equivalent failure by persons less well-situated in the
social structure. ~/

C. Extent of the Problem

There is no single, centralized compilation of white collar crime statis-

tics similar to the statistics on street crime compiled by the FBI in its annual
J:J.j
Uniform Crime Reports. Such statistics as are available are generally 10-

cated in relatively inaccessible reports of the various regulatory agencies

(e.g., the annual reports of the Internal Revenue Service or Securities and Ex-

change Commission). The report of the American Bar Association's Committee on

Economic Offenses concludes that the Federal Government lacks both the necessary

mechanisms to measure accurately its own efforts against white collar crime and

25/ For further information on the relationship between white collar crime and
street crime, see the Appendix (p. CRS-57).

~/ r,eis, Criminal Penalties for Corporate Criminals, op. cit., pp. 380-381.

121 The Uniform Crime Reports do include arrest data on forgery, embezzlement,
and fraud but the most accurate data reported, in terms of reflecting
the true incidences of crime, are "crimes known to the police" which
only include the seven "indexed crimes" of murder, rape, assault, rob-
bery, larceny-theft, burglary, and motor vehicle theft.
 -------------------------
13

to assess the impact or such offenses on the country as a whole. This report

further concludes that the Federal Government has collected little data in this

crime area, and the data which have been gathered are of "questionable validity"

because there are "no uniform standards for collecting economic crime data as
28/
among the relevant agencies."

However, some research has indicated that white collar crimes are not rare

occurrences in the business world. The first major study, and still the most

comprehensive study, of corporate crimes was conducted by Edwin Sutherland in the

1940's. In his study Sutherland was concerned with seventy of the largest and

most influential corporations in the United States. By examining official case

reports and newspaper accounts, he discovered that everyone of the seventy cor-

porations had been charged with more thsn one illegal act, snd that on the aver-

age these corporations were cited fourteen times by a court or official regula-

tory agency for viOlations of law. Of the total 980 separate violations he dis-

covered, 307 were for restraint of trade, 222 for patent infringement, 158 for
29/
unfair labor practices, 97 for false advertising, and 66 for illegal rebates.

Marshall Clinard, in a study of World War II blackmarket violations, found

that about one out of every 15 of the three million businesses had been punished

for major violations of price regulations. Additional evidence suggested that

the total number of law violations was actually much larger than the officia11y
30/
imposed sanctions indicated.

28/ American Bar Association, op. cit., p. 5.

29/ Sutherland, op. cit., p. 272.

30/ Clinard, Marshall B. The Black Market: A Study of White Collnr Crime.
New York, Holt, Rinehart, and Winston, 1952. 392 p.
 14

In a report filed May 12, 1976, with the Senate Banking Committee, the

Securities and Exchange Commission (SEC) reported that 95 companies had ad-

mit ted making or had been formally charged with making payments of question-

able legality to foreign officials. According to the SEC report, 19 of the

95 companies stat~d
that the discontinuation of such payments would not af-
31/
fect their total profit or overall business.

These are among the few systematic studies of the extent of white c~l-

lar criminality. However, there have been several surveys indicating a ~os-
32/
sible decline in ethical business practices. -- Although these are not crimi-

nal acts or statute violations, Edelhertz and others have argued that unethical

practices invite white collar crime. As Edelhertz states:

The boundaries of the permissible and the impermissible

are not drawn with precision, and perhaps they should
not be. But as a consequence substantial loopholes
persist, permitting the commission of crimes or acts in-
consistent with policy limits set by our society. 33/

Many corporate officials have insisted that antitrust laws are extremely

complex and thus it is easy unwittingly to violate the law. They also protest

that such disclosures as described above imply that all businessmen are corrupt.

l!,1 Sobel, Lester A., cd. Corruption in Business. New York, Facts on File,
Inc. [1977J pp. 150-151.

E/ See Baumhart, Raymond C. How Ethical are Businessmen? Harvard Business Re-
view, v. 39, July-Aug. 1961: 6. This survey indicated that almost
half of the respondents would agree that the American business execu-
tive tends to ignore the ethical laws applicable to his work because
he is "preoccupied chiefly with gains." Also, see White Collar Jus-
tice, op. cit., p. 3 for information on other surveys.

21/ Edelhertz, op. cit., p. 6.

 15

As Treasury Secrecary W. Michael Blumenthal, while still president of the Bendix

Corporation, statad in the May 25, 1975 issue of the New York 'times, "if the mis-

behavior of n large corporation makes news, that is because the majority of large

corporations do not misbehave." Rut he goes on to state that although this is

true, it misses the point in that to rush to the defense of business in general

whenever some abuse is discovered tends "i.l the public mind" only to associate

business with the abuse in question. For if businessmen are "ethically strong

and morally clean," they should be the first to denounce illegal and un"thical
prnctices that far more than our critics in the media -- threaten the survival
U
34/
of the £ree~enterprise system." -

D. Increased Concern

Although these research studies proclaim the pervasiveness of the "hite

collar crime problem. only recently has the public begun to be aware of the ex-
tent and seriousness of occupational crimes. The final report of the 1967 Pres-

ident's Commission on Law Enforcement and Administration of Justice, a major

study of the U.S. crime problem and the Federal ):esponse to it, stated that "the

public tendo to be indifferent to business crime or even to sympathize with the

35/
offenders when they have been caught." - This public indifference was re-
fleeted by the Crime Commiscion itself in that only two pages of its final report

34/ Quoted in Sobel, Lester A., ed., op. cit., p. 2.

35/ President's Commission on Law Enforcement and Administration of Justice.

The Challenge of Crime in a Free Society. {Washington, for sale by
the Supt. of Docs., U.S. Govt. Print. Off., 1967) p. 48.
--------------~~--- --

16

were devoted to white collar crime and only one chapter on this crime category

was provided in the detailed task force report assessing crime and its impact,

because "of limited time and resources."

However, recent evidence indicates that ten years later public concern

has increased. Preliminary results from a survey conducted in the summer of

1977 by Dr. Marvin Wolfgang, Director of the Center for Studies in Criminology

and Criminal Law at the University of Pennsylvania, indicate that white collar
~/
crime is a major concern of many people. This study, intended to develop

an index of crime severity, was based on a random survey of over 8,000 house-

holds. Wolfgang's preliminary analyses show that such white collar crimes as

factory pollution ("A factory knowingly gets rid of its waste in a way that

pollutes the water supply of a city."), corporate bribery of a legislator or

government official, political corruption ("A county court judge takes a bribe

to give a light sentence in a criminal case."), and fraud against a government

program ("A doctor cheats on claims he makes to a Federal health insural'.ce

plan for patient services. He gains $10,000.") are considered serious crimes

by the general public. Such crimes are often viewed as being as serious as

robbery resulting in physical harm, aggravated assault, and kidnapping, and

more serious than theft of over $1,000.

Such findings, even though preliminary in nature, do suggest that the

general public is becoming increasingly concerned with the problems of white

collar crime.

36/ From unpublished data supplied by Dr. Wolfgang.

 17

II. Federal Efforts to Combat White Collar Crime

This section includes both an analysis of recent action taken by Congress

and the executive branch in improving the Federal enforcement efforts against

white collar crime and a description of the problems encountered by the Federal

Government in combating these types of crimes, including jurisdictional prob-

lems and difficulties in the detection, investigation, and prosecution of such

cases.

A. Federal Jurisdiction

The Federal Government's role in combating street crimes such as murder,

rape, or burglary is limited because these types of crimes are most commonly

violations of State laws and thus the responsibility of State and local govern-

ments. However, this is less frequently the case with regard to white collar

crimes, which often involve violations of Federal laws or regulations or in-

volve crime schemes which cut across several jurisdictional boundaries. Thus,

with these types of crimes the Federal Government has a significant law enforce-
ment role.

In The Nature, Impact and Prosecution of White Collar Crime, Edelhertz ex-
plains the complexities of "white collar" violations which fall within the Fed-

eral jurisdiction. First, he points out that Federal jurisdiction must be

based on violations of specific Federal statutes, such as antitrust violations,

tax violations, consumer or mail or securities fraud, frauds against Federal

Government programs and procurement, water and air pollution violations, food

20-141 O· 70 - 4
 18

and drug violations, or violations of ~lection laws. In terms of authority to

prosecute, only the Department of Justice, operating mainly through U.S. At-

torney., has this authority although inve"tigative jurisdiction is more wide-

spread. Nearly every Government agency or department (HEW, Treasury, Labor,

etc.) has some responsibility for criminal investigations in the area of

white collar crime. And even more &pecific investigatory and referral respon-

sibilities are held by certain independent agencies, such as the Securities

and Exchange commission, the Vetersns Administration, the Federal Communica-

tions Commission, the Federal Trade Commission, the Board of Governoro of the
Yederal Reserve System, the Environmental Protection Agency, the Federal De-

posit Insurance Corporation, and the General Services Administration.

Edelhertz attempts to clarify the relationships among the agencies, crim-

inal courts and civil courts by pointing to some examples. For instance, FBI
or SEC investigations may result in civil proceedings either following or in

lieu of criminal prosecution". And similarly an investigation by the Depart-

ment of Defense or the General Services-Administration may result in a con-

tract termination, repayment of allocated funds, or a deduction from a subse-

37/
quent grant, rather than either criminal or civil proceedings. ---

B. Congressional Action in Combating White Collar Crime

Increased public concern sbout white collar crime, as evidenced by Wolf-

gang's study, has been reflected in recent years in increased congressional

action against these types of crimes. For instance, the Antitrust Procedures

1I/ Edelhertz, op. cit., pp. 21-22.

 19

and Penalties Act of 1974 (P.L. 93-528; 88 Stat. 1706) amended the Sherman Anti-
trust Act to raise violations of this Act from a misdemeanor to a felony. punish-

able by up to three yaars in prison and by a $100.000 fine for 'individuals and

a $1 million fine for corporations.

In the 94th Congress, the Antitrust Parens Patriae Act (P.L. 94-435; 90
~I
Stat. 1383) gave the Antitrust Division of the Justice Department greater
ci',il investigative power, required corporations to provide advance warning for
significant mergers and acquisition of secu~ities or assets of any other corpo-
ration, and permitted State attorneys general to bring civil actions to recover

treble damages as parens patriae on behalf of a State's consumers who have been

injured by any violation of the Sherman Act.

Also, the 94th Congress passed the Crime Control Act of 1976 (P.L. 94-503;
90 Stat. 2407), amending Title I of the Omnibus Crime Control and Safe Streets
Act of 1968 (establishing the Law Enforcement Assistance Administration); this
legislation included a provision authorizing the Attorney General "to provide
assistance and make grants to the States ••• to improve the antitrust enforce-
ment capabilicy of such State."

More recently, during the first session of the 95th Con~ress. two major
laws concerning white-collar types of crimes were enacted: ~,L. 95-213 (91

Stat. 1494; S. 305), which prohibits the bribery of foreign officials by any
domestic concern, and P.L. 95-142 (91 Stat. 1175; H.R. 3), yhich increases the

Also known as the Antitrust Civil Process Act Amendment or the Antitrust
Improvements Act (Hart-Scott-Rodino). the parens patriae portion of
this act has been severely limited in application by the Supreme
Court decision in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).
 20

penalties for defrauding the Medicare or Medicaid programs and requires the Sec-

retary of HEW to suspend any physician or practitioner from participation in

either of these programs if he has been convicted of a criminal offense relating

to involvement in any such programs.

Other bills have been introduced in the 95th Congress to make it a crime

to use a United States owned or operated computer for fraudulent or illegal pur-

poses (S. 1766/H.R. 8421) and to protect consumers from deceptive practices such

as false advertising (B.R. 1882, B.R. 4471, B.a. 9980). Also, the Congress is

proceeding in the consideration of the Criminal Code Reform Act of 1977 (S. 1437/

B.R. 6869), the penalty structure of which would provide potentially greater de-

terrents for white collar crimes.

Among the congressional agencies researching this area, the General Account-

ing Office (GAO) is conducting a lengthy study of fraud against the Federal Gov-

ernment and whether Federal agencies are equipped to handle fraudulent schemes

against their programs. The GAO is also currently initiating an analysis of

bank fraud and embezzlement, including a survey of pr~ventive measures used by

banks, of the adequacy of FBI investigations of such crimes, and of the way

such offenses are handled by prosecuting officials.

C. Action by the Executive Branch: Enforcement and Prosecution

In analyzing the executive branch attempts to improve the Federal enforce-

ment effrrts against white collar crime, it appears that the Federal record is

not consistent -- that is, significant improvements have been made in some areas
 21

by some Federal agencies, but such improvements are not necessar~ly across-the-

board accomplishments. However, as discussed previously, statistics in this

area are scarce and often misleading; therefore it is difficult to summarize

the improvements which have actually resulted from such actions.

Nevertheless, the Federal Government has been criticized in recent years

for its failure to effectively enforce the laws against white collar crime.

Part of this failure is argued to be due to the distinctive nature of white

collar criminality (i.e., the low visibility of such crimes and the fact that

harm is not readily apparent). It has also been argued that some of this

failure is due to political pressures on the executive branch from powerful

39/
and influential business leaders. However, many observers have stressed

that some Federal enforcement efforts are unsuccessful not from a lack of en-

forcement zeal but because the Federal agencies involved in controlling busi-

ness and professional crimes are not given the financial resources necessary
40/
to effectively combat these crimes. ---

39/ Stuart Hills states that: "In myriad ways, white-collar offenders uti-
lize their status attributes, resources, and power to reward legal
authorities for selective nonenforcement of the law and threaten
intolerable stress and strain for law enforcement bureaucracies
that might attempt to do otherwise." See Crime, Power, and Moral-
ity: The Criminal Law Process in the United States. Scranton,
Chandler Publishing Co. [1971] p. 176.

40/ However, one attorney/professor, August Bequai, has recently argued that
the problem is not one of "manpower and resources, but rather of
structure and leadership." He maintains that the very structure of
the Federal agencies "confines their options, and forces them to uti-
lize noneffective vehicles to deal with a serious and growing prob-
lem." See White Collar Plea Bargaining, Trial Magazine, v. 13,
July 1977: 39.
 22

An analysis of the Federal enforcement effort against economic (white col-

lar) crimes, conducted by the Committee on Economic Offenses of the American

Bar Association, led to the conclusion by the Committee members that the Federal

effort against such crimes is "underfunded, ur~irected, and uncoordinated, and

is in need of the development of priorities." Furthermore, the Committee found

that "for the most part, within the Federal agencies with direct responsibility

in the economic crime offenses area, available resources are unequal to the task
41/
of combatting economic crime." - However, the Committee provides no standards

for measuring the adequacy of available funds lind staff resources (i.e., how

much money and manpower would be needed to mount a responsible attack on economic

crime) •

The Committee also found that in cases where "seemingly adequate" resources

exist, these re80urce~

are "poorly deployed, underuti.lized, or frustrated by
42/
juriSdictional considerations. - Directly related to such inefficient, ineffec-

live enforcement efforts are two problems noted by the Committee. First, the Com-

mitlee's report emphasizes that because there are no uniform data on the inci-

dences of white collar crimes, it is virtually impossible accurately to compare

and evaluate the effectiveness of the efforts of the various enforcement agencies.

The report states that the Federal Government bas no "uniform codification of

economic crime offenses," so not all the Federal agencies even consider the same
!!:i/
violations to be economic crimes. Second, the ABA report argues that there is

~/ American Bar Association, op. cit., p. 6.

42/ Ibid., pp. 6-7.

43/ Ibid., p. 5.
 23

a problem in that the various agencies with enforcement responsibilities report

to several different congressional committees, and thus there is no centralized

congressional oversight responsibility for. ti,e F~dernl effort to control white

collar crime. In somewhat stYonger language, the Committee's report notes that:

Accountability to the Congress from both the Federal en-

forcement agencies and the program agencies is exceed-
ingly weak. There is Some reaSon to believe tilUt if t.be
public ~ere awnre of the extent of economic crime viola-
tions in the program agencies which remain unaffected by
the enforcement agencies, it would reflect badly on the
agencies and on the official s charged with the responsi-
bilities within those agencies to prevent or detect vio-
lations of law. 44/
In looking more closely at the Federal enforcement efforts, it is necessary
first to analyze what the executive departments have done recently to improve

their enforcement efforts, and then second to analyze the problems specifically

relating to the detection, investigation, and prosecution of white collar crimes.

The Law Enforcement Division of the Securities and Exchange Commission (SEC),

under the direction ~f SLanley Sporkin, has b~en noted by several observers (the
Federal Bar Association, among other,,) as having provided major contributions to
the control of illegal and ur:fair secur;ties practices. The following are SEC
45/
statistics for injunctive accions and criminal referrals for fiscal years
!!il
1972-1976.

Ibid., p. 8.

The most common procedure employed by the SEC is to seek an injunction

against a corporation because the SEC does not have the authority to
impose civil fines or penalties as do other administraCive agencies.

46/ American Bar Association, op. cit., p. 20.

 24

Injunctive Actions

47/
Fiscal Year Cases Instituted Injunctions Ordered Defendants Enjoined

1972 119 113 511

1973 178 145 654

1974 148 289 613

1975 174 453 749

1976 158 435 722

Criminal Referrals

Number of Cases
Re ferred to the Number of 48/ Defendants
Fiscal Year Justice Dept. Indictments Indicted Convictions

1972 38 28 67 75

1973 49 40 178 83

1974 67 40 169 81

1975 88 53 199 116

1976 114 23 ll8 97

The number of cases instituted by the SEC in a particular fiscal year and
the number of injunctions ordered (and defendants enjoined) differ
considerably because the injunctions ordered by the court may be for
cases instituted by the SEC in previous years.

48/ The number of cases referred and the number of indictments do not neces-
sarily coincide because one case may result in several indictments
or it may take the referral of several cases to obtain one indict-
ment.
 - ---------------------------------

25

The growing number of referrals to the Justice Department for criminal

prosecution reflects, in part, the early warning system developed several years

ago by the SEC and the Justice Department which provides for greater cooperation

between the t~o agencies and apprises the Justice Department at an early stage

of the Commission's enforcement actions.

Within the Justice Department, the Antitrust Division is devoting more of

its resources to criminal prosecutions and has recently increased its emphasis
49/
on price-fixing. -- The following statistics indicate the growth of the Anti-

trust Division's budget and the increasing number of cases handled by the Divi-
SO/
sion.

Apprupriations for Enforcement of Antitrust,

Consumer Protection and Kindred Laws

Appropriations
Fiscal Year (in thousands of $)

1974 $ 14,591

1975 17,666
1976* 27,488

1977 25,376

1978 (estimate) 31,148

1979 (estimate) 36,377
*Includcs transition quarter.

49/ Baker, Donald I. (Former Assistant Attorney General, Antitrust Division).

Price-fixers, Beware! Across the Board, v. 14, Feb. 1977: 37-39,
41-43; address by Attorney General Griffin Bell to the Harvard Law
Review, March 19, 1977.

SO/ From the Budget of the United States Government: Appendix, for fiscal
years 1976-1979.

2B-141 0 - 78 - 5
---------------

26

Actual Caseloads

Fiscal Year Cases Filed Cases Terminated

1974 1,385 1,473

1975 1,526 1,547

1976* 1,578 1.598

1977 1,823 1,987

1978 (estimate) 1,600 1,690

*Includes transition quarter.

Also, within the Justice Department there is a new section, the Public In-

tegrity Section of the Criminal Division, which was created in January of 1976

by former Assistant Attorney General Richard Thornburgh to investigate complaints

and accusations of corruption by public officials (i.e., all elected representa-

tives and all officials of government at the Federal, State, and local levels).

The Federal Bureau of Investigation (FBI), in its fiscal 1975 report, dis-

closed that its investigations of white collar types of offenses have increased

more than 25 percent since fiscal year 1971. The following are FBI figures for
~/
the number of white collar crime convictions based on FBI investigations:

~/ u.S. Congress. House of Representatives. Committee on Appropriations.

Subcommittee on the Departments of State, Justice, and Commerce, the
Judiciary, and Related Agencies. Departments of State, Justice, and
Commerce. the Judiciary, and Related Agencies Appropriations for 1978.
Part 5 -- Department of Justice. Hearings, 95th Congress, 1st session.
March 11, 1977. Washington, u.S. Govt. Print. Off., 1977. p. 667.
 27

Fiscal Year Number of Convictions

1972 2,380

1973 2,711

1974 3,201

1975 3,753

1976 4,610

This improvement is in part due to the Bureau's new program, called the "Quality

Over Quantity Program," which puts the investigation of these types of crimes as

a high enforcement priority. Under this program, the FBI has emphasized the re-

cruitment of "special agent accountants" (SAAs) to handle complex white collar

crime investigations. In 1976, 177 of these SAAs were hired, thus making the
52/
total number of SAAs greater than SOu. Also, the FBI has increased its pub-

lie education and prevention efforts in this area of crime control.

In addition, under former Attorney General Edward Levi, a White Collar Crime

Committee, composed of representatives of all the Federal agencies concerned with

white collar crime (e.g., Justice Department, Commerce Department, Treasury De-

partment), was established to attempt to coordinate the Federal efforts against

white collar crime. This Committee, headed by former Deputy Attorney General

Harold Tyler, adopted several internal proposals, but no formal, written report

on its accomplishments or recommendations was adopted or issued by the Committee.

Attorney General Griffin Bell has indicated an interest in reorganizing this cOm-

mittee; however the current ststus of this new committee is uncertain at this

time.

52/ Ibid.
 28

In terms of other executive branch activity in this area, there have been

several federally funded projects to increase enforcement efforts against white

collar crime. The Law Enforcement Assistance Administration (LEAA) has provided

Federal funds to the National District Attorneys Association's Economic Crime

Project, an ongoing effort to coordinate the prosecutions of white collar types

of crimes at the State level. This project, involving 62 district attorneys,

aims to control multi-jurisdictional frauds, set priorities for more efficient

use of limited manpower and resources, and increase public awareness of the

problems of economic crimes. As of August 31, 1976, the efforts of participa-

ting district attorneys had resulted in 2,149 convictions of economic offenders,

~/
1,177 of which were felony convictions.

Alao, more research funds, both public and private, are being directed at

projects studying the causes and prevention of white collar crime. For example,

reportedly the Ford Foundation has recently offered several grants for research

on issues specifically relating to white collar crime, and Yale professor Stanton

Wheeler has received LEAA funds to begin five studies covering such topics as

how white collar crimes are prosecuted in the courts and the problem of trans-

national bribery. Also, with an LEAA grant, the Battelle Law and Justice Study

Center in Seattle in 1977 established a National Center on White Collar Crime

under the direction of Herbert Edelhertz, former head of the F,'aud Division of

the Justice Department.

53/ American Ber Association, op. cit., p. 38.

 29

D. Problems in Detection, Investigation, and Prosecution of White Collar

Crime

All of the preceding discussions have pointed to efforts by the executive

agencies to improve their enforcement efforts. However, to fully understand

the problems encountered by Federal departments having the responsibility to

combat white collar crime, it is helpful to analyze some specific problems re-

lating to the enforcement of such crimes. First, in terms of detection, it has

been noted that many white collar crimes go undiscovered because they are not

reported to law enforcement officials. Frequently, the victim of a white col-

lar crime such as an intricate price-fixing scheme may not even be aware that

he has been victimized, and thus there may be no complainant who draws the at-

tention of the police to the crime. And to further complicate the matter, SOme

victims, such as those of a consumer fraud, may realize that they have been vic-

timized but may feel that no action will be taken even if a complaint is filed.

Such factors add to the general lack of reliable statistics on the incidences

of white collar crime.

Law enforcement officials also have difficulty in detecting white collar

crimes because the techniques employed by a businessman or a professional per-

son for illegal purposes are often the same methods used in ordinary work.

Many white co'lar crimes may be concealed within a complex commercial transac-

tion and therefore have the appearance of normal business transactions. The

appearance of normal business activities can make it difficult to prove crimi-

nai intent, and in cases where it is necessary to demonstrate such intent, this

might discourage prosecution. Also, many white collar crimes are not easily
 30

detected because they are based on acts of omission, rather than the blatant

commission of a crime. That is, instead of robbing a bank with a gun, a

white collar criminal such as a tax evader may simply fail to mention some

income when he reports his taxes.

The law enforcement detection problems may also be related to American

cultural values and the distribution of power and status in American society.

It is argued that not only is the corporate executive less likely to fall un-

der suspicion of criminal behavior than is a "street kid," but also that an

influential community leader has the means at his disposal to prevent the de-

tection of his criminal activity. In looking at the relationship of American

cultural values and white collar crime, Stuart Hills states that:

a society in which profit-oriented private business has

been the prevailing institutional pattern -- and which
has been partly responsible for the "highest standard
of living in the world" -- resists viewing violations
of laws regulating business enterprise as deserving of
the same degree of serious concern as are conventional
crimes. 54/

Added to these detection problems are significant problems relating to the

investigation of white collar crimes. The investigation of these types of of-

fenses is extremely time-consuming. Such crimes as massive fraud or price-

fixing schemes often require months and even years of tedious research in order

to unravel all the transactions involved (sometimes referred to as "following

the paper trail"). These investigations can also be very technical, and thus

54/ Hills, op. cit., p. 187.

 31

55/
necessitate numerous investigators with specialized skills such as accounting.

Also, as noted by Robert W. Ogren, Assistant U.S. Attorney for the District of

Columbia, investigators trained in street c~ime investigations are accustomed

to short investigations and fast arrests because the typical street crime is

readily visible. However, with white collar crime investigations they must ad-

just to slow, painstaking investigations which require patience and thorough-

2§../
ness.

The great expenditure of time and staff resources to develop one case

against a "hite -collar criminal means th"t such investigations are expensive,

and many agencies with these law enforcement powers complain that they are un-

derstaffed and on comparatively low budgets. This is generally argued to be

one of the most severe liabilities impeding an increased attack on white collar

crimes. For example, the Fraud Division of the U.S. Department of Justice has

45 staff attorneys to prosecute all Federal fraud crimes which include many
57/
widespread offenses on the scale of the Equity Funding case. -- In terms of

For additional discussion of these problems, see former U.S. Attorney

Jonathan Goldstein's comments in U.S. Congress. House of Represen-
tatives. Committee on the Judiciary. Subcommittee on Crime. New
Directions for Federal Involvement in Crime Control, op. cit.,
pp. 73-75.

Ogren, op. cit., p. 969.

On April 2, 1973, the SEC charged Equity Funding Corporation of America

with engaging in a fraud involving at least 56,000 non-existent
insurance policies, forged bonds and death certificates and $120
million in non-existent assets. According to the Wall Street Jour-
nal, which broke the story, this case Was "one of the biggest scan-
dals in the history of the insurance industry," and it resulted in
prison sentences for several top Equity executives. For further
information, see Soble, Ronald L., and Robert E. Dallas. The Im-
possible Dream; the Equity Funding Story: The Fraud of the Century.
New York, Signet Book [1975] 273 p.
 32

the complaints of inadequate funding for investigatory efforts, the entire

1976 budget authority of the Justice Department's Antitrust Division, em-

powered to enforce the ant.itrust and consumer protecti.on laws, was approxi-

mately $28 million. Accordi.ng t.o the 1975 Senate report on the Antitrust

Enforcement Authorization Act of 1975 (Senate Report No. 94-498),

••• Acting Assistant Attorney General Bruce B. Wilson ad-

vised that the cost to the Division of litigating just
one case -- the giant IBM monopolization case -- thus
far cost the Antitrust Division "slightly less than $4
million." Transcripts and travel in fiscal 1975 for
the IBM case alone amounted to $500,000 •••• Because
of inadequate resources, in the IBM litigat.ion the
Division had to Use FBI agent.s to cover depositions. 2!}j

Furthermore, the ABA Committee on Economic Offenses reports that, accord-

ing to testimony before the Committee by a Justice Department official, ~ne of

th .. most difficult problems facing the Antitrust Division is keeping good at-

torneys to try the antitrust cases brought by the Government. The Government

salary structure, especially when compared to the private sector fees for ex-

perienced antitrust attorneys, results in a large turllover among the Antitrust

Diviaion's Btaff attorneys. The Committ.ee notes that this disparity in sala-

ries is particularly serious since the Government antitrust prosecutor is often

~/ U.S. Congress. Senate. Committee on the Judiciary and the Committee on

Commerce. Antitrust Enforcement Authorization Act of 1975; report
together with minority views to accompany S. 1136. Washington, U.S.
Govt. Print. Off., 1975. (94th Congress, 1st session. Senate Re-
port no. 94-498) p. 4.
 33

59/
arguing a case against a highly skilled, well-trained defense att~rney.

Such analyses have led some experts to view antitrust enforcement as merely a

ritualistic exercise, or as one writer has described it, a "ceremonial obser-

60/
vance of the American belief in competition."

However, this situation may be improving. According to a recent press

release, the Department of Justice bUdget request tor fiscal year 1979 includes

an increase of over three million dollars (7.2 percent) and 57 positions (6.2
percent) for the Antitrust Division. Also, an additional $7.3 million (6.3

percent) and 70 new positions (1.9 percent) have been requested for the U.S.
Attorneys in order to, among other things, handle the increasing volume of

white collar crime cases. the total Justice Department request for fiscal

year 1979 repreoents only a 3.8 percent budgetary increase and a 2.1 percent
increase in the number of total positions.

It has been argued by Government officials and private reoearchers thar.

another factor hampering investigative efforts at t~~ the Federal lp.vel is

the number of law enforcement and regulatory units trying to control white
collar crime. It is argued that because there are so many enforcement agen-

eies, there is a great deal of overlap and needless duplication of effort.

The following two examples illustrate how such enforcement duplication can

occur: (1) there are three separate investigatory and auditing agencies
amollg the Federal banking agencies, and their jurisdictional responsibilities

are a function of the bank charter, not the location of the bank, the type of

59/ American Bar Association, op. cit •• p. 32.

60/ Lundberg, Ferdinand. The Rich and the Super-Rich: A Study in the Power
of Money Today. New York, Lyle Stuart, 1968. p. 124.
--------- -- - - - - - - - - - - - -

34

21../
bank business conducted, or the type of depositor; (2) a case involving de-

ceptive practices which are subject to regulation by the Federal Trade Commis-

sion may also tall within the enforcement domain of the Post Office because such

£lcts may also be criminal violations under chemail f-.\udstatutes.Soit is

possible for several ag •• "cies to be investigating the same case without being

aware of the work of the other agency, due to a lack of adequate coordination

among the agencies involved.

The report of the American Bar Association's Committee on Economic Offenses

states that insufficient res(.~rces at the Federal level have forced the Federal

enforcement agencies to be extremely selective in the types of cases they in-

vestigate, and although selective law enforcement is generally recognized as

legitimate, when there is no coordination among the Federal agencies, "the le-
62/
gitimacy of the procedure gi"es way to undirected and unguided enforcement."

Furthermore, the Justice Department is the only Federal law enforcement agency

empowered to prosecute criminal violations, yet it often lacks the specialized

expertise of other agencies (e.g., the IRS or SEC). Therefore, in some cases

the Justice Department staff may lack the necessary specialization and knowl-

edge to complete the investigation of criminal cases referred to them by a reg-

ulatory agency. In light of these problems, the ABA Committee on Economic 0f-

fenses, and others, recommend that coordination between the various agencies

and the Department of Justice be expanded.

21/

21../ American Bar Association, op. cit., pp. 6-7.

62/ Ibid., p. 10.

g/ Ibid.
 35

In 1977 a manual for law enforcement agencies, entitled The Investigation

of White Collar Crime, was prepared by the Battelle Law and Justice Study Center.

This project was directed by Herbert Edelhertz and funded by a grant from the

Law Enforcement Assistance Adminstration (LEAA). The report describes addi-

tional factors which inhibit the investigation process in white collar crime

cases. These factors are based on two types of rationalizations which the man-

ual says are used frequently by law enforcement agencies to av~id dealing with

white collar crime. The first type of rationalization is related to subject

matter and usually results from a lack of a clear understanding of the agency

mission. Some examples cited are: (1) such investigations are more properly

private disputes and only appropriate for private civil litigation; (2) such

crimes are disputes for which other remedies appear to be available, such as

consUmer mediation agencies or Better Business Bureaus; or (3) "we have no

jurisdiction." The second type of rationalization is related to "victim

charact~r." Under such rationalizations the victim is regarded as the party

at fault, either due to his gullibility or greed, or because the victim is

only interested in getting his own money back and presumably will not continue

to cooperate during the investigation or prosecution. However, the report

notes that such factors may apply to all victims of crime, yet such factors
64/
are rarely used as rationalizations for inaction in other crime areas. --

64/ EdelherCz, Herbert, and others. The Investigation of wr.ite Collar Crime:
A Manual for Law Enforcement Agencies. [Washington, Law Enforcement
Assistance Administration, for sale by the Supt. of Docs.] 1977.
pp. 8-10.
 36

The third enforcement proble,u, in addition to the problems relating to the

detection and investigation of white collar criMes, involves the prosecution of

these crimes. As noted previously, many white collar types of statute viola-

tions fall under the jurisdiction of Federal regulatory agen~ies and not just the

criminal courts. Consequently, there is no across-the-board consistency in how

a business or professional offense is handled. Many administrative agencies,

upon finding violations of their regulatory laws, order the violator to abandon

an improper practice by issuing a "cease and desist" order, or suspend the vio-

lator's license, or issue a formal warning to the accused corporation, rather

than referring the case to the Justice Department for criminal prosecution.

However, it is argued that many administrative cease and desist orders or ad-

ministrative warnings are viewed by corporations as a mere slap ~n the wrist or

just one of the annoying hazards of doing business. Cease and desist orders

are issued even in cases involving large-scale corporate swindles. Furthermore,

when white collar offenses are not handled by a criminal court, the admonition

of these offenders is removed from the public eye.

The Committee on Economic Offenses of the American Bar Association has made

several ot..5crvations on the current prosecution of white collar crime CBses and

it has proposed remedial actions. One conclusion reached by the Committee was

that effective prosecution in this are' ,ecessitates both a national policy of

enforcement and increased Federal and Stu.e cooperation. The Committee has sug-

gested that State attorneys general, local district attorneys, and the Justice De-

partment "should actively encourage the establishment of Federal-State Law Enforce-

ment Committees in every state," noting that eighteen such committees currently
 37

65/
exist. In addition, the Committee's report states that insufficient re-

sources at the Federal level have forced the Federal enforcement agencies to

be extremely selective in the types of cases they investigate, snd the priori-

ties used by the Federal agencies in selecting cases to investigate are not

necessarily the same prosecution priorities established by the Department of

Justice. Furthermore, the Departmant of Justice has limited manpower assigned

to the prosecution of white collar crimes, and these limitations should be

understood by those agencies which refer criminal prosecutions to the Depart-

ment. Therefore expanded coordination between the various agencies and the De-
66/
partment of Justice is proposed by the Committee.

In a similar vein, August Bequai, a Washington D.C. attorney snd law pro-

fessor at American University, notes that inherent in the present structure of

Federal law enforcement are problems in coordination because the Federal regu-

latory agencie~ are empowered with only civil jurisdiction, and the Justice

Department handles all cases involving criminal violations. Among ather things,

Bequai staees that the U.S. Attorneys, Which prosecute the cases referred to

them by the Justice Department, based on referrals by a regulatory agency,

rarely have specialists on their staffs, so they are dependent on the agencies,

which do possess the requisite resources and expertise, for assistance. How-

ever, Be quai says that agency attorneys assigner. to aid a U.S. Attorney are

frequently treated as second-class assistants. Rarely are they designated as

temporary Assistant U.S. Attorneys and allowed to aiti in the actual prosecution

211 American Bar Association, op. cit., p. iO.

211 lbid.
 38

of the case in court. Thus, they receive no status or recognition in prosecu-

ting the case. And as Bequai notes, if the c~urt case is successful, the U.S.

Attorney receives the credit and recognition, but if the case is won by the de-
67/
fense, the agency often gets the blame.

Therefore, many Federal agencies would rather bring their own civil cases,

and according to Bequai, they may even delay making a referral to the Justice

Department until they have brought their own action first. Thus he argues that

this situation results in civil cases taking precedent over criminal caseo so

that in most instances, civil action is the end of the line. Once the agency

has its "notch," it is hesitant to refer a matter to the Department of Justice,

and even if the matter is referred, years have often passed, witnesses may be

dead or gone and memories may have faded, the result being that the Justice De-
2!/
partment is reluctant to prosecute. In order to correct this, Bequai sug-

gests that either the agencies be given direct criminal jurisdiction or the

Justice Department be given personnel with the specialization and knowledge es-

sential for the prosecution of white collar crime cases.

Another recommendation for improving white collar crime prosecutions which

has been suggested by the ABA Committee on Economic Offenses is that there be

an increase in "pretrial, reciprocal discovery," i.e., pretrial disclosure of

evidence between the defense and the prosecution in 'l'hite collar crime cases

in order to expedite trials. The Federal Rules of Criminal Procedure currently

do not provide for extensive pretrial discovery in criminal cases such as is now

![!../ Bequai, August, op. cit., p. 41.

2!/ Ibid.
 39

allowed in civil cases. The Committee report states that an enhanced discovery

procedure probably would result in the obtaining of pleas in many more white

collar cases, as well as many more stipulations in those cases which do go to

69/
trial. Since many white collar crime cases require great commitments of time

and resources by the prosecution, the courts, and the defense, some trials of

this type may become a test of the parties' perseverance and stamina. The Com-

mittee argues that lengthy trials mean that it is not probable that a cross-

section of the community will be selected as jurors and that the ability of

many defendants to defend themselves decreases due to the expense involved.

However, the Committee notes that the Federal Speedy Trial Act, by the time it

is fully implemented, will require that a defendant be brought to trial within

100 days after his arrest, which in Some complex white collar crime cases may

not allow adequate time for case development if courts do not grant extensions
70/
to either side.

Another area of controversy relating to prosecution is the type of plea

white collar offenders are allowed to enter before the court in criminal pro-

ceedings. All defendants, whether accused of a white collar crime or any

other crime, have three options: to plead guilty, not guilty, or nolo ~­

tendre. Frequently a white collar offender is allowed to enter this t.hird

type uf plea, a ~ contendre or "no contest" plea, which although theoreti-

cally the same as a guilty plea, d.oes not force the offender to admit his

American Bar Association, op. cit., p. 10. However, the report does not
address the constitutionality of such a recommendation or why it
would be fair to provide increased pretrial discovery only for white
collar crime trials, and not for all criminal trials.

70/ Ibid., pp. 67-68.

 40

guilt. As one indication of how frequently nolo pleas are accepted by the

courts in white collar crime cases, the Legal Procedures Unit of the Justice

Departmer.t's Antitrust Division has provided the following figures for the

termination of criminal antitrust cases by the acceptance of ~ pleas for

fiscal years 1976 and 1977:

Total Cases Number Settled by

Fiscal Year Terminated Nolo Contendre Plea Percent

1976 35 26 74

Transition Quarter 100

1977 24 15 63

One of the problems with widespread use of nolo contendre pleas is that

unlike a guilty plea, a nolo plea cannot be used as evidence against the de-

fendant in any other proceeding. Thus the victims of a white collar offense

cannot use the plea as proof of guilt by the defendant in any subsequent
71/
civil litigation to recover their losses. -- Also, prosecutors argue that

apparently some judges tend to subtly differentiate between a ~ plea and

a guilty plea in that more lenient treatment is given to those who plead
E/
nolo contendre.

l!/ Under the Federal Rules of Criminal Procedure a person convicted subse-
quent to a nolo contendre plea can be forced to answer questions
about his offense in court, but under the Federal Rules of Evidence
a nolo plea cannot be used against him in another criminal or civil
proceeding, unless provided by an Act of Congress. Thus, this sit-
uation could be changed legislatively.

E/ White Collar Justice, op. cit., p. 12.

 41

Despite these p~oblems with the use of nolo contendre pleas, it is not

certain that they should be eliminated or even greatly curtailed. If de fen-

dants are not pe~itted to enter nolo pleas, a good nwube~ of them might insist

On pleading not guilty and going to trial. The ~esu1t could be a great inc~ease

in the workload of already ove~burdened cou~ts and prosecutors.

The use of consent decrees to handle white collar offenses is also an area

of cont~oversy. A consent dec~ee is a formal, written ag~eement in which wrong-

doing is neither admitted nor denied but the party simply agrees to abide by the

law in the future and not violate any statutes specifically delineated in the

dec~ee. Thus the case is settled out of court and there is no trial, although

the te~s of the agreement must be signed by a judge and are incorporated into

a fo~a1 court document. Therefore, if the agreement is violated, the offender

can be held in contempt of court, and sentenced accordingly. Howeve~, objec-

tions have been expressed to the f~ct that the provisions of the consent decree

are worked out in private and that, unlike the situation of ~ contendre

pleas, a party agreeing to a consent decree does not have to appear in court at

all. Furthermo~e, there is objection to the fact that the court has no voice

in the negotiations.

Consent decrees appear to be used frequently. The Antitrust Division of

the U.S. Department of Justice has provided the Congressional Research Service

with the following statistics on the percentage of antitrust cases settled by

73/
consent decrees in the past six years. -- Even though there is no pattern in-

dicated by these statistics, percentages consistently range from 75 to 90 per-

cent, and the average is 82 percent.

11/ Figures provided by the Legal Procedures Unit of the Antitrust Division,
U.S. Department of Justice.
 42

Percentage of Antitrust Cases Settled by Consent Decree

Fiscal Year Percent

1972 76
1973 80

1974 81

1975 77
1976 90
I
Transition Quarter 63 I

.1
1977 88 I
According to the "Report of the Securities and Exchange Commission on Draft

Recommendations Presented to the Administrative Conference of the United States

Concerning Consent Decree Settlements" (December 7, 1976), the approximate per-

centage of civil canes before the SEC which are settled by consent decree is 0

percent.

The Antitrust Procedures and Penalties Act of 1974 (P.L. 93-528; 88 Stat.

1706) provides that any consent judgment, and any written comments or responses

to the consent decree, must be filed with the appropriate Federal district court

and published in the ~ Register at least 60 days prior to the effective

dat~ of the judgment. At the same time, a competitive impact statement must also

be publi8hed desrribing, among other things, what practices or events gave rise

to the ullaged violation of the antitrust laws and what remedies are available

to potential plaintiffs damaged by the alleged violation should the consent pro-

poaal be entered. Also, a summary of the terms of the proposed consent decree,

a summary of the competitive impact statement, and a list of the materials and

doc~ents 3vailable for public comment and where such information in available
 43

for public inspection must be published for seven days in the newspapers of the
district in which the case has been filed, in the District of Columbia, and

other districts as directed by the court. Furthermore, before signing the con-

sent decree, the court is required to determine that such a judgment is in t.he

public interest. However, neither these proceedings nor the competitive impact

statement are admissible against a defendant in any subsequent proceeding brought

against him under the antitrust laws.

In 1976 a committee of the Administrative Conference of the United States

(ACUS) recommended that the consent decree settlement procedures followed by

the Antitrust Division and the Equal Employment Opportunity Commission be re-

vised to provide for even greater public participation in consent decree pro-

cedures. The committee proposed that all settlement agreements should be made

available for public comment prior to submission of any propoaed decree to the

Federal court. Although enthusiastically supported by the Georgetown University

Law Center's Institute for Public Interest Representation, this recommendation

was strongly opposed by the Antitrust Division, which argued that sufficient

public participation is provided by the Antitrust Procedures and Penaltic. Act

(APPA) and that this proposal would create more problems than it would supposedly

cure. Joe Sims, Deputy Assistant Attorney General, Antitrust Division, aloo

stated that the Division did not agree with the ACuS committee's argument that

little guidance is given to the court by the APpA for determining whether a
74/
proposed decree is in the public interest. -- According to 8 Bureau of National

Affairs (BNA) report (October 26, 1976), the U.S, Chamber of Commerce, among

others, slso opposed the recommendaticns on the grounds thnt it would seriously

Mr. Sims' comments on the proposed reform are contained in D letter to the
Chairmsn of the Administrative Conference, October 4, 1976.
 44

inhibit the ability of a responsible government agency "to conduct the public's

business in the public interest." Pending further study, the Administrative

Conference has withdrawn its proposal from active consideration.

III. Sentencing Issues

There are two schools of thought on what type of sentence white collar

defendants should receive if convicted of a criminal offense. One side main-

tains that offenders of high social status are punished sufficiently by the op-

probrium brought upon them and their families by their criminal conviction. The

conviction itself is all that is necessary, it is argued, and at the most these

offenders should only receive a suspended sentence or a brief period of proba-

tion or community service, or pay a nominal fine. In support of this position,

it is argued further that professional persons found guilty of criminal viola-

tions are frequently barred from practicing their vocations by their legal, med-

ical, or accounting associations, and that such offenders are not likely to re-

peat their crimes. This position is advanced by many judges at both the State

and Federal level. For example, Charles B. Renfrew, Federal district judge in

San Francisco, in 1974 sentenced several convicted price-fixers to making

speeches to civic groups about the evils of their type of illegal activity in

lieu of sentencing them to imprisonment for their crimes. He argued that such

public confessions not only were enough punishment for these men, but that such

• sentence had significant deterrent value. Another Federal judge, Carl A.

Muecke, senlenced dairy executives guilty of price-fixing to serve food in

charity dining rooms, and he ordered their companies to contribute free milk

to charity instead of paying a stiff fine. Judge Muecke stated his belief that
 ----- ---------------

45

such punishment, in addition to serving a deterrent effect, also provided resti-

tution to the community, which would not have been the case if imprisonment and
75/
fines had been the sentences he handed down. Judge Warren J. Ferguson, U.S.

District Judge in Los Angeles, summarized the opinion of many of his colleagues

when he stated:

When I sentence, I sentence based on what I feel are the

needs of the individual, and the needs of society based
on the conduct of that individual. All people don't need
to be sent to prison. For white collar criminals, the mere
fact of prosecution, pleading guilty -- the psychological
trauma of that -- is punishment enough. They've received
the full benefit of punishment. 76/

Many of those who adhere to this position feel that the most effective de-

terrent is not necessarily prison, but prosecution. Judge Muecke has argued

that there are not enough white collar crime cases brought before any court to

justify prosecutors in saying that people commit these crimes because they do
JJj
not get long prison sentences.

Attorney Arthur Liman has summarized this position by stating that:

Courts must therefore resist demands for prison sentences

in all white-collar cases. Jail sentences are frequently
appropriate, even if only for ahort terms. But not al-
ways. General deterrence is only one consideration. Fair-
ness, hard to define and impossible to measure, is a more
important one. ~I

~I White Collar Justice, op. cit., pp. 5-7, 10.

].i/ Ibid., p. 11.

]]./ Ibid., p. 12.

~I Liman, Arthur L. The Paper Label Sentences: Critiques. The Yale Law
Journal, v. 86, March 1977: 635.
 46

lJ..I
On the other hand, many criminologists and government officials argue
that prison sentences are the most effective deterrents of individual offenders,
801
and are also necessary in order to deter other white collar criminals. It

is further argued that fines, at their current levels, do not constitute mean-

ingful punishment for the corporation or wealthy corporate executive and they
81/
do not provide deterrence for others tempted to commit similar acts. --

The ABA Committee on Economic Offenses recognized the importance of so-

called "social sentences" of the type employed by Judges Muecke and Renfrew,
but concluded that the most effective punishment for this type of offender is

incarceration. The Committee did not propose the elimination of fines cr res-
titution to victims "where possible and appropriate," however, it concluded

that imprisonment of such offenders results in equal justice, in addition to

82/
special and general deterrence. To illustrate the leniency of sentences
imposed on Some economic crime offenders, -the Committee report noted that its

lJ../ Gilbert Geis, Donald Cressey, former Deputy Attorney General Harold Tyler,
Robert Ogren, and others.

However, on the issue of deterrence, note the following written by Assist-

ant U.S. Attorney Robert Ogren (see Ogren, op. cit., pp. 960-961):
the concept of "special deterrence" is of little practical use in dis-
cussing contemporary handling of white collar crime. Special deter-
rence refers to the effect punishment has on the recidivism rates of
the punished. llowever, white collar cri.e prosecutions are so infre-
quent that there has been little need to consider the recidivism prob-
lem •••• [In terms of general deterrence). the vast majority of citi-
zens require little in the way of A serious threat to prevent them
from engaging in white collar cri.es. Either they lack the opportun-
ity. capacity, need, or desire to coasit tbose offenses.

Edelhertz, The Nature, Impact and Prosecution of White-Collar Crime, op.

cit., p. 60.

American Bar Association, op. cit., p. 12.

 47

members were informed of a 1971 bank failure, involving $60 million, which re-

suIted in a three-year probation and $5,000 fine to the official who was di-
83/
rectly responsible.
Ten years ago, a task force of the 1967 Crime Commission stated that jail
sentences. even ones of short duration .• "would constitute particularly nignifi-

cant deterrents for white collar crime." The report stated that such prison

terma may be the only adequate way "to symbolize society's condemnation of the

behavior in question, particularly where it is not on its face brutal or repul-

sive," and that incarceration may be t.he only available sanction that can ade-
84/
quately deter others. Howeve~, the Commission warned that whereas such

sanctions may serve to educate the pUblic about the seriousne 3S of an illegal

action that is not "on its face abhorrent," ehe indiscriminat·t use of severe

snnctions "in arells where public opinion has "at cryat~Ui"ed may seriou!;ly
85/
weaken the condemnatory effect of the criminal law." -

Tnone who argue for increased punishm~nt for white collar defendants al-

so contend that the traditional concepts of "recidivist" and "first offender"

do not apply to white collar criminals because the typical white collar crime

(price-fixing, embezzlement, insurance fraud. etc.) is a continuing crime and

shotlld be treated as a mUltiple offense.

Ibid., p. 36.
President' B Commission on Law Enforcement and Adntinistration of Justice.
Task Force Report Crime and Its Impact: An ABBe"Sment, op. cit.,
p. 105.

~/ Ibid •• p. 108.
-------------------

48

Fi.nally, suppor~ers of this school of thought base some of their arguments

on the concept of "just deserts." The theory is that white collar criminals

are more culpable than ordinary street criminals because their crimes cause

severe physical and fiscal harm to a large number of people. Also, it is main-

tained that positions of social power and prestige, held by many corporate of-

fenders, carry heavier dp~ands for social responsibility. The combination of

these two factors mep~.s that white collar offenders deserve to be treated harshly

by the sentencing judge. In the interest of justice and fairness, they certainly

should not be given more leniency than street criminals. In rather strong lan-

guage, Gilbert Geis has stated that:

The failure of law enforcement agencies, administrative

Loards, prosecutors, and judges to press for and to in-
flict heavy penalties, particularly jailor prison sen-
tences, on corporate criminals often represents a class
prejudice so evident that it leads citizens to question
the fairness and the integrity of our system of jus-
tice. 86/

Two recent st ... dies have pointed to the sentencing disparities between "crime

in the streets" and "crime in the suites." The U.S. Attorney's Office for the

Southern District of New York studied all sentences imposed in Manhattan for 645

convicted offenders during the period of May 1, 1972 through October 31, 1972.

86/ Geis, Criminal Penalties for Corporate Criminals, op. cit., p. 378.
 49

The resulCs demonstraced thac white collar criminals "as a general rule" re-

ceived more lenient sentences than did individuals convicted of common "street
87/
crimes." - More specifically, the results indicated that white collar de-

fendants had a 36 percent chance of going to prison, whereas individuals con-

vic ted of non-violent common ("street H ) crimes had a 53 percent chance of being

imprisoned, and those convicted of violent street crimes had an 80 percent

chance of being incarcerated. Also, the study showed that the average prison

sentence in the Southern District of New York was 18 months for bank embezzle-
I.
I
ment and 69 months for bank robbery, and 11 months for bribery and 18 months

for interstate theft. The chances of being sentenced to a prison term on a

national average is 20 percent for bank embezzlement, 89 percent for bank rob-
88/
bery, 27 percent for bribery, and 42 percent <or interstate theft.

Another study, by Edward Browder, a Federal prison inmate convicted of in-

terstate transportation of stolen securities, analyzed the sentences received by

138 white collar offenders and showed that these convicted offenders were treated

leniently. Of those offenders who were sentenced to imprisonment, the average

87/ White Collar Justice, op. cit., pp. 7, 10-11. However, Assista~t U.S. At-
torney Robert Ogren (see Ogren, op. cit., p. 964) has noted that this
"light sentence characteristic is in part a function of the possible
sentencing options." He states that many of the Federal statutes out-
lawing white-collar types of offenses, such as bribery, mail fraud, tax
evasion, and securi"ies fraud, provide for penalties of no greater than
five years in prison.

Seymour, Whitney North, Jr., former U.S. Attorney, Southern District of New
York. Social and Ethical Considerations in Assessing White Collar Crime.
American Criminal Law Review, v. II, Nov. 4, 1973: 826-829.

i.
 89/
prison term impoaed was 2.8 years, whereas, according to U.S. Bureau of Pris-

ons figures, the average prison term for robbery was 134 months (11.2 years) for
90/
the comparable period (FY 1972). --

Congress is now considering the Criminal Code Reform Act of 1977 (S. 1437/

H.R. 6869), legislation which, if enacted, would widen the sentencing options

available in white collar crime cases. The authorized maximum prison sentences
~
for most white collar crimes would nat be changed significantly; however,

the fine limits would be increased sharply aver those available under current

law for these types of crimes. The maximum fines for organizations would be

greatly increased to: $500,000 for a felony, $100,000 for a misdemeanor, and
·1
$10,000 for an infraction. For an individual, the maximum fine would be

$100,000 for a felony and $10,00 for a mis~emeanor. The proposed code also

would permit an alternative fine of double the monetary gain of the defendant

or double the losa caused to the victim, whichever is greater. This is a gen-

eral provision affecting all types of offend~rs, but it could be especially Use-

ful against white collar offenders engaged in f,audulent schemes. In addition,

89/ White Collar Justice, op. cit., pp. 7, 10-11.

901 u.s. Bureau of Prisons. Statistical Reports: Fiscal Year 1974 [Washing-
ton, U.S. nepartment of Justice, Federal Bureau of Prisons, 1974)
p. 23.

~/ Some bribery, tax evasion, and theft offenses would be classified as C

felonies, but most white collar crimes would be D or E felonies or
misdemeanors, thus carrying maximum prison terms comparable to those
under current law. S. 1437, as passed by the Senate, provides a max-
imum penalty of 10 years for a class C felony, five years for a class
D felony, two years for a clasG E felony, and onc year for a class A
misdemeanor. Under H.R. 6869, a class C felony would carry a 12 year
maximum prison term; B class D felony, a six year maximum; a class E
felony, a three year maximum; and a class A misdemeanor, a one year
maximum penalty.
 51

the proposed Code would provide for improved methods for the collection of

fines by allowing recourse to the Internal Revenue Service statutes so that a

lien could be placed on a defendant's property if he attempts to avoid payment

92/
of the court-ordered fine. Finally, this legislation would authorize the

sentencing judge to require the perpetrators of frauds or other deceptive prac-

tices to give notice of their conviction to their victims so that civil damage

claims could be filed, and it would authorize the judge to order a convicted de-

fendant to make restitution to this victim.

IV. Reform Proposals

Many researchers of the problems involved in controlling white collar crime

have suggested reform measures. Some of the most comprehensive recommendations

have been made recently in the 1977 report of the American Bar Aspociation's

Committee on Economic Offenses, entitled "Economic Offenses." The ABA committee

project was funded by the Law Enforcement Assistance Administration (LEAA) and

the committee was composed of representatives of all elements of the criminal

justice system, including judges, prosecutors, defense counsels, and academi-

cians and others with expertise in this area. This committee, in the process

of conducting its investigation of this problem, heard testimony from represen-

tatives of all the major Federal departments involved in the enforcement of Fed-

era 1 statutes and regulations on economic offenses. The ten major recommenda-
22/
tions resulting from this study are:

Gainer, Ronald L. Statement before the Subcommittee on Criminal Law and

Procedures of the Senate Committee on the Judiciary concerning the
sentencing provisions of S. 1437, the proposed revision of the Fed-
eral Criminal Code. June 20, 1977. pp. 24-25.

93/ Americart Bar Association, op. cit., pp. 5-15.

 52

(1) The Federal government should collect data from all Federal agencies

having jurisdiction in the detection, investigation, or prosecution of economic

crime offenses. After such a data collection system is established, appropriate

consideration should be given to the implementation of a "case-weighing system

" 94/
in which predetermined factors as to the importance of cases can be counted.

(2) The Congress should undertake an evaluation of the Federal effort

against economic crime and it should review the enforcement priorities for the

detection, investigation, and prosecution of such crimes.

(3) All Federal and all State agencies with either a law enforcem~nt or
22./
law inspection function should be required to issue annual compliance reports.

(4) All future Federal social programs, excluding r~venue-sharing funds,

should be designed so as to diminish the probability of abuse and specifically

to recognize the potential for fraud within the program.

(5) Both recruitment and manpower training should become priority items

for every agency with economic crime enforcement responsibility. Included in

this proposal are:

(8) the establishment of experienced white collar crime

prosecution specialists in every U.S. Attorney's office and in
every local district attorney's office;

94/ Ibid., p. 5. On this point, the report states that the Justice Department
is planning for the initial implementation of such data collection in
that when cases are referred to the Department, Federal agencies are
to complete a form including information on the amount of provable
loss, amount of suspected loss, the number of identified or suspected
victims, the number of defendants, etc.

22./ The report mentions that one witness testifying before the Committee said
that if an agency has no compliance reporting function, it is neither
serious about enforcing the law nor serious about "developing a con-
stituency" for resources that may be needed. (p. 7l .

II;
 53

(b) a direct exchange of personnel between the Department of

Justice and other Federal agencies so that these employees will ac-
quire knowledge in a particular program area;

(c) an increase in the salaries of experienced prosecutors

in the white collar crime area in order to retain them in con-
tinued Federal service; and

(d) the recruitment of trained auditors in all agencies with

program responsibilities.

(6) Such projects as the Economic Crime Project should receive continued

and substantial funding and the Law Enforcement Assistance Administration should

consider economic crime as a major factor in crime in the U.S. This considera-

tion should be a factor in the LEAA's discretionary grant fund priorities.

(7) The pilot project in San Diego, under which an assistant U.S. Attor-

ney is also an assistant district attorney, and vice versa, should be expanded

to other jurisdictions. Also, joint investigations, similar to the Strike Force

concept, may be needed between Federal and local agencies and between the Fraud

Division of the Justice Department and the SEC.

(8) Pretrial, reciprocal discovery in economic crime cases should he in-

creased. (See pp. CRS-38-39)

(9) A greater emphasis should be placed on punishing economic crime of-

fenders following their convictions.

(10) The American Bar Association should have a continuing committee on

economic crime within the Section of Criminal Justice because the most effec-

tive crime prevention tool is public education.

 54

Various other groups have proposed additional reforms for controlling white

collar crime. One such group is the Corporate Accountability Research Group, a

Ralph Nader associate, which has proposed a Federal Chartering Act whereby the

sanctions against corporate crime would be greatly increased and there would be
~/
more checks and balances on corporate management. A bill was introduced dur-

ing the 94th Congress to establish Federal corporate chartering, but no action

was taken on this bill and a similar bill has not been introduced in the 95th

rongress.

It has been argued that Federal incorporation is not necessary as corpora-

tions are already Federally controlled through the regulation of stock by the

Securities and Exchange Commission and through control exercised by the Inter-

state Commerce Commission. Also, it is possible that the States, which collect

revenue from incorporation, would oppose giving up State incorporation. However,

the Corporate Accountability Research Group asserts that State chartering is a

"costly anachronism" that does not force corporations to account for their ac-

tions, and they claim this is documented by the alleged current corporate crime

wave.

In 1971 the National Commission on Reform of Federal Criminal Laws (the

Brown Commission) suggested in its final report that disqualification from and

forfeiture of Federal office and disqualification from holding a job in a cor-

poration or similar organization should be available sentencing alternatives

Nader, Ralph, Mark Green, and Joel Seligman. Constitutionalizing the Cor-
poration: The Case for the Federal Chartering of Giant Corporations.
Washington, Corporate Accountability Research Group, 1976. 592 p.
 55

for the courts to use against pu~lic officials or corporate managers or of-

ficers. Specifically, the Bro~n Commission proposed that, at the sentencing

judge's discretion, a defendant found guilty of treason or other crimes af-

fecting national security, bribery or similar crimes of illegal influence or

betrayal of office, unla~ful acts under color of law, or felonious theft or

fraud could be disqualified from holding any Federal position for up to five

years. Forfeiture of any Federal office at the time of the conviction would

be at the discretion of the judge unless the crime was treason, bribery, or a

crime relating to national security, for which forfeiture of office would be

mendatory. Furthermore, the Commission recommended that any corporate offi-

cial convicted of an offense committed in the course of his occupation could

be disqualified from holding a similar position in the same or any other orga-

nization for up to five years. if the court determined that it would be "dang-

erous" to entrust such a defendant with his former duties.

Other reform recommendations that have been made by various experts and

research groups are:

increased publicity of the extent of white collar crime
and the harm it causes, and a major educational effort
on these problems, aimed at jUdges, prosecutors, in-
vestigators, and legislators;

legislation allowing injured parties to sue for damages

by using cease and desist orders or consent decrees as
prima facie evidence of illegal business practices;

reduced acceptance by judges of nolo contendre pleas so

that guilty pleas may be used ~y victims to recover their
losses, or if the defendant pleads 'lot guilty, the facts
of the case can be presented in court;
 56

more research into the interrelationships between

white collar and other crime, especially the rela-
tionship between white collar crime and organized
crime activity (e.g., the infiltration of organized
crime into legitimate business);

a revision of the fraud and corruption statutes to

provide for the possibility of significantly in-
creased prison sentences and fines in serious and
aggravated white collar crime cases;

more research and planning on the need for resources

to combat newly emerging types of white collar crimes
(e.g., computer crime); and

greatly increased fines for corporat~ons, such as

those proposed by the criminal code reform legisla-
tion, so that if a corporation is found guilty of an
illegal act, the punishment will be ~ignificant and
not easily written off as a small business expense.

This wide array of proposed solutions makes obvious the fact that the prob-

lem of white collar crime is a complex one covering a v~riety of illegal and

criminal acts which pose difficult problems for Federal enforcement agencies.

However, as this paper has shown, in the past several years increasing atten-

tion has been directed toward the special problems of controlling these types

of crimes. It would appear thst the Federal effort to combat white collar

crime will continue to improve.

----------------- ----~~-~-- -~-

 57

API'ENDlX
THEORETICAL PERSPECTIVES ON THE CAUSES OF WHITE COLLAR
CRIME AND ITS RELATIONSHIP TO STREET CRIME

There are three major criminological theories which attempt to provide

a causal explanation of crime and Which are applicable to both white collar

crime and "ordinary" street crime. These are control theory, learning theory,

and conflict theory. In this appendix a brief description is provided of the

basic propositio~s contained in these criminological theories, as well as the

propositions of an applicable political science theory called organizational

theory. Next, these theories will be analyzed in terms of their implications

for policy toward white collar crime -- assuming each theory were accepted a8

explaining the caUSes of white collar crime. Finally, arguments will be ana-

lyzed that assert that white collar crime and street crime are related, in

that widespread white collar crime purportedly leads to mOre street crime.

Control Theory

Most of the criminological theories take conformity as the norm and con-

centrate on explaining deviant behavior. However, control theory assumes that

deviancy is normal and it is conformity that is problematic. Under this theory,

people are seen as amoral creatures who quickly discover that deviance often

may result in faster, easier goal attainment than conformity. Therefore, under

the appropriate circumstances, anyone would commit criminal, unethical, or so-

cially unacceptable acts if they thought they would benefit from such acts and

that they could get away with such behavior.

 58

The control theorist does not ask why a (white collar) criminal does wha~

he does, but why all people with similar opportunities do not commit such acts.

This theory attempts to answer the question posed by Thomas Hobbes, "Why do men

obey the rules of society?" Or, as Travis Hirschi states it:

The question "Why do they do it?" is simply not the ques-

tion the theory is designed to answer. The question is,
"Why don't we do it?" There is much evidence that we
would if we dared. 1/
There are two leading forms of control theory, one proposed by Walter Reck-
2/ ~
leBO (known as "cont.ainment theory") - and another described by Travis Hirschi.

Briefly, Reckless described individuals as being "contained", or restrained from

carrying out their antisocial urges, by two factora: (1) social pressures to

obey the norms or rules of one's group (ou.ter containment) and (2) self-control,

or conscience, resulting from internalization of society's rules through social-

ization processes (inner containment). Hirschi, on the other hand, points to

four elements of an individual's bond to society which, i': weakened, result· in

deviant behavior: (1) affective attachments to other individuals and social

objects; (2) commitment to society's means of goal achievement or performance

standards; (3) involvement in conventional activities which keep the individual

too busy to be deviant; and (4) belief in the validity of society's rules.

1/ Hirschi, Travis. Causes of Delinquency. Berkeley, Univ. of Calif. Press

[1969] p. 34.

Reckless, Walter. The Crime Problem. New York, Appleton-Century-Crofts

[1973] 718 p.

1/ Hirachi, op. cit., 309 p.

 59

It has been argued that the propositions of control theories aid in explain-

ing white-collar types of crimes by asserting that anyone will be tempted to em-

bezzle funds, carry out a fraudulent scheme, or bribe a government official if

there are no "controls" on his behavior and if there is little risk of being

caught. When corporate crimes are widely accepted within the business world

(refer to the previous discussion of the extent of white collar crime, p. CRS-

12), neither inner nor outer containment, to use Reckless' terminology, serves

to inhibit an individual's urge to get more money or power. Also, it is argued

that society does not increase the external controls on such behavior when many

white collar crimes are not discovered or prosecuted or when those offenders

who are apprehended and convicted are not punished.

If control theory provides an accurate explanation for the existence of

white coll~r crime as well as other crimes, then there are several resultant
policy implications for effective control of these types of illegal acts.

However, one expert, Gwynn Nettler, has argued that control propositions do not
4/
indicate popular, or easy, political solutions. -

Under control theory, the most effective and realistic methods of control-
ling the antisocial inclinations which lead people to commit white collar crimes

might be:

Nettler states that this is because if the control hypothesis is correct,

"the usual welfare recommendations. commendable as they may be in
their own right, do not address themselves directly to reducing crime.
It cannot be said that guaranteeing everyone a minimum income or re-
distributing wealth will reduce crime." Nettler, Gwynn. Explaining
Crime. New York, McGraw-Hill [1974J p. 247.
 60

improvements in the social education process through

which conduct and its justification (beliefs) are ac-
quired -- for instance, more money allocated to the
improvement of schools, and increased emphasis on re-
ligious training, moral education and the central role
of the family in a moral society;

preventive measures, such as technological adaptations

to prevent illegal manipulation of a computer or ac-
counting controls to reduce the opportunities for
theft;

education programs within corporat.ions to teach employ-

ees that "borrowing is stealing" (i.e., that such acts
cannot be rationalized away);

increased prosecution of white collar crime offenders

so others will realize that they too could get caught;
and

increased punishments for white collar offenses so that

such crimes are not regarded as worth the risk. i/

Learning Theory

The key assumption of learning theory, in all its forms, is thut criminal

behavior is learned behavior, and not simply some inherited predisposition.

This learning process applies to both the techniques used in committing the
crime and the motives for cOtml_'tting it.
2../
Learning theory in its earliest form, as proposed by Edwin Sutherland,

is known as differential association theory. Sutherland stated that "criminal

behavior [including tec~niques and motives, rationalizations, and attitudes] is

Both thic last policy suggestion and the preceding one would be specific-
ally applicable to Hirschi's emphasis on the significance of attach-
ment to others and commitment to conforming activities because a crim-
inal conviction could result in loss of one's job and shame for one's
family and friends, two things a white collar offender would most fear.

2../ Sutherland, Edwin H., and Donald R. Cressey. Criminology. 9th edition.
Philadelphia, Lippincott [1974] 658 p.
 61

learned in interaction with other persons in II process of cOlll1llunication." The

specific direction of an individual's motives and attitudes "is learned from
definitions of the legal codes aa favorable or unfavorable," A person becomes
a criminal due to "an exceS8 of definitiona favorable to violation of law over
II
definitions unfavorable to vio1.ation of law." Thua, l1\ost members of complex
societies are subject to a continual competition between definitions of aitua-
tions which justify illegal acts and definitions which legi~imize a law in the
individual's mind so that he is not prone to break it.

Learning theory in its more recent form builds on Sutherland's theory of

differential association snd Skinnerian psychological theories of operant con-
ditioning. According to this form of learning theory, an individual learns
criminal behavior, usually from his peers, through a series of positive and
negative reinforcements which support and encourage, or negate, his behavior.
One of the leading proponents of this theory, Ronald Akers, maintains that:
occupational behavior in general ia normally learned
behavior which is sustained through social and eco-
nomic reinforcement •••• IThe] criminal aspects of oc-
cupational behavior can be undc'/'stood in the same way.
Occupational encumbents learn criminal behavior nnd
definitions [justifying this behavior] from others in
similsr positions. In addition to whatever social
support they get from these others, the major source
of reinforcement for their criminal behavior is eco-
nomic. !I

II Ibid., p. 7'5.

!I Akers, Ronald L. Deviant Behavior: A Social Learning Approach. Belmont,

Calif •• Wadsworth Publ. CO. I1973) p. 183. It has been noted that
such an analysis might also apply as an e~planation of the criminal
and unethical acdvities of the functionals in the Watergate scandah-.

I.
 62

Donald Cressey has also argued in favor of this learning perspective and

presented the proposition that just a. there are "criminal neighborhoods" in

whLch delinquents are likely to learn delinquent behavior, there are also

"corporate neighborhoods" in which members of corporations learn to be deviant.

As he atates in a recent article:

Henry McKay ••• has shown that, even in high delin-

quency areas, alternative educational processes are in
operation, so that a child may be educated in either
"conventional" or crimina 1 means of achieving success.
Certainly this generali1.ation holds for the corporate
world as well as for the neighborhood. Diffusion of
the ideologies and techniques of restraint of trade
leads to restraint of trade, and diffusion of ideolo-
gies and techniques of larceny lellds to larceny. 2./
If learning theory provides an accurate explanation of the causes of white

collar crime, then the following might be some resulting policy implications.

Note that some of the possible policy implications from cont~ol theory might

also result from the assumptions of learning theory.

The economic reinforcements of white collar crime

should be removed. For instance, the sanctions
against ~any corporate offenses should be increased
and the applicable laws strictly enforced to make
it unprofitable for a company to allow pollution
to continue or to risk bribing officials or engag-
ing in price-fixing.

Negative reinforcements resulting from tncreased

prosecution and punishment of white collar of-
fenders should be applied so these offenders do
not receive social P·.I.t"t'~a't from others I

2./ Cressey, Donald R. Restraint of Trade, Recidivism, and Delinquent Neigh-

borhoods. In Short, James F., Jr., ed. Delinquency, Crime and So-
ciety. Chicago, Univ. of Chicago Press [1976] pp. 209-210. For an
example of how a criminal corporate "neighborhood" can operate and
social learning of criminal behavior result, s~e Gilbert Geis' ac-
count of the heavy electrical equipment antitrust cases. {Geis,
Gilbert, ed. White-Collar Crime. New York, Free Press [1977] pp.
117-132.)
 63

Convicted white collar offenders in positions of

responsibility should not be allowed to resume
their positions of power ill a corporation, govern-
ment, or a profession. This would also eliminate
any positive reinforcements for criminal behavior
(e.g., power and prestige).

Just as with control theory, the social education

process should be improved through better schools,
more religious training, etc., so that socially
acceptable behavior is learned at an early age.
Also, companies should provide economic and social
incentives for employees who attend on-the-job ed-
ucational programs which teach employees that em-
bezzlement, pilferage, etc., are crimes.

Conflict Theory

This third criminological theory is the most controversial of the three,

aa much of the writings of conflict theorists is based on Marxist class-

conflict propositions and the power elite idea presented in the 1950s by Boci-
~I
ologist c. Wright Mills.

This theory, as currently devaloped by such criminologists as Richard

QI
Quinney and William Chambliss, is based on ideas similar to those presented

in a statement by Donald Cressey:

If one takes diminished price competition as an index

of socialism, then it is correct to say that America
has developed a system of socialism for the rich, while
retaining a ByBtb~ of free competition for the poor.

101 Mills, C. Wright. The Power Elite. New York, Oxford Univ. Preas, 1956.
423 p.

QI See Quinney, Richard. The Social Reality of Crime. Boston, Little,

Brown and Co. [1970] 339 p.; Quinney, Richerd. Critique of Legal
Order: Crime Control in Capitalist Society. Boston. Little, Brown
and Co. [1~741 206 p.; and Chambliss, William, and Milton Mankoff.
Whose Law? Whose Order? New York, John Wiley and Sons [19761 256 p.
 64

Ghetto dwellers, hehaving like the capitalists they are

told to be, compete with each other for bread; corpora-
tion executives, behaving like the socialists they say
they deplore, make illegal arrangements for restraining
trade. In the process, both commit crimes. ll/

Theorists arguing from a conflict perspective use economic and historical

methods of analysis to support their propositions that corporate officials con-

trol the U.S. economy (Le., that free enterprise is a myth) and that these ex-

ecutives'have a strong interest in maintaining the economic and socisl ~

~. As Richard Quinney states it, the powerful group's interests usually con-

flict with the interests of the subordinate groups; yet the ruling class is

able to make laws Dnd define the social values which protect their interests,
]1./
usually at the expenst! of the lower class. In the eyes of the conflict

theorists, this explains why our prisons are mainly filled with people from

the lower class; why most of our laws are to protect private property even

though most property is under the ownership of the upper classes; and why

most upper-clsss types of crimes, such as corporate offenses, are either not

against the law or if they are against the law, the offenders are rarely pros-

ecuted.

According to conflict hypotheses, economic elites will do anything per-

ceived as necessary to maintain their position of power and wealth -- that is,

they will bribe government officials, provide illegal payoffs, engage in all

forms of fraud and deceit, and commit any other criminal or unethical act in
order to achieve their ends.

ll/ Cressey, op. ciL, p. 215.

]1./ Quinney, The Social Reality of Criru~, op. cit.

11
 65

If it is assumed that conflict theory best explains the causes of white

collar crime, then the possible policy implications are extremely broad, polit-

ically unpopular, and difficult to accomplish as they would necessitate drastic

changes in our current political and economic system. Although conflict theory

is congenial to revoluntionaries who use it to translate the label "convict" to

"political prisoner," it also might be useful in thinking about the cost of ap-

plying the criminal law to various categories of socially unacceptable behavior.

Some of the policy changes that appear to be suggested by conflict theory

are:

A cost-benefit analysis should be done on criminal-

izing or decriminalizing certain forms of immoral,
devia~t, unhealthy, or dangerous behavior. In
other words, the conflict theorists would increase
the criminalization of white collar crimes, which
are argued to be more s2rious and dangerous than
such crimes as petty theft, and decriminalize rela-
tively harmless, "moral terpitude" crimes such as
marijuana possession or prostitution, in order to
equalize the punishment of criminal acts among the
socioeconomic classes and to place the emphasis on
the most serious threats to our s~ciety, as they
perceive thoae threats.

The giant corporations should be broken up so that

the wealth and power in the United States will not
be controlled by a small group of individuals.

Existing laws should be enforced to ensure that the

democratic method of lIone man, one vote," not Hone
dollar," prevails and elected officials represent
the wishes of all citizens, not just those with
money and power.

-----~----------------
 66

Organizational Theory

Finally, there is a genersl political science theory that appears to shed

some light on the causes of white collar criminality. This is organizational

theory, which examines the nature and structure of complex organizations and

bureaucracies to det':lrmine why they function as they do and how they affect

the people they employ. According to this theory, an organization, once

established, tends to take on a life of its own and the individuals who work

for the organization will do anything necessary to protect and defend it.

Once formed, organizations acquire their own needs, and these needs sometimes
l!1.1
become the masters of the organization. Or, as one expert has stated, or-

ganizations can become institutionalized.

They take on a distinctive character; they become

prized in and of themselves, not merely for the
goods or services they grind out. People build
their lives around them, identify with them, be-
come dependent upon them. 111

According to this perspective, a collection of individuals with separate

goals can be transformed into a working organization that exists apart from its

members and shapes their behavior. Mere membership in such a corporate organi-

zation means that an individual may be pressured into a position of committing

a crime in the name of, or for, the corporation or bureaucracy or institution.

l!1.1 See Etzioni, Amitai. Modern Organizations. Englewood Cliffs, N.J.,

Prentice-Hall [1964] pp. 5-19.

111 Perrow, Charles. Complex Organizations: A Critical Essay. Glenview,

Ill., Scott, Foresman and Co. [1972] p. 190.
 67

Also, ideological identification with the organization may mean that an in-

dividual who attempts to point out any illegal or unethical activity by the

organization will be suppressed by other members. Furthermore, as Peter Blsu

and Marshall Meyer have pointed out,

although many members of an organization may be aware

of certain problems and deficiencies, each may think
that all others are satisfied with existing arrange-
ments, and this state of pluralistic ignorance ••• pre- l§!
vents the information from becoming official knowledge.

"
Organizational theory does not describe such selfish, individual white

collar crimes as embezzlement of funds or pilferage (crimes against the com-

I, pany), but it does help explain why otherwise law-abiding citizens viII en-
gage in criminal or unethical practices to make profits for "the corporation"

or the government group.

The policy implications of organizational theory might be:

the development of democratic methods of controlling

organizations and bureaucracies, such as placing or-
dinary citizens, to represent the interests of con-
sumers, on corporate boards of directors;
increased Federal regulation of organizations to serve
as external controls and counteract any pressures on
organization members to commit illegal acts; 111

decentralization of corporations and rotation of top

officials to keep the organization from becoming too
institutionalized; 1&1 and

~ Blau, Peter M., and MarshalL W. Meyer. Bureaucracy in Modern Society.

2d ed. New York, Random House [1971] p. 54.

111 Note the similarity of this policy implication and the policy changes
suggested by both control and learning theories.

1&1 As Chester Barnard has stated (The Functions of the Executive. Cambridge,
Mass., Harvard Univ. Press, 1960. p. 215): "Executive work is not
that ~ the organization, but the specialized work of maintaining the
organization in operation." [Emphasis in the original.]
 68

increased public disclosure of the internal opera-

tions of organizations and any corporate expansions
and divestitures in order to make organizational op-
erations less secretive and obscure.

Possible Relationships between White Collar Crime and Street Crime

Several criminologists lave hypothesized that there is some connection

between white collar crime aad street crime. Don Gibbons, in his book, Chang-

ing the Lawbreaker: The Treatment of Delinquents and Criminals, stated that:

It is not unlikely that the existence of white-collar

criminality, along with differential handling of the
individuals involved in it, provides run-of-the-mill
offenders with powerful rationalizations for their own
conduct. The latter can argue that "evp.ryone is
crooked" and that they are the "little fish" who 'ate
the victims of a corrupt and hypocritical society. In
the same way, some rather obvious problems for treat-
ment of conventional offenders may arise from their
perception of widespread illegality among individuals
of comfortable economic standing. Although definitive
evidence on this matter is lacking, it is possible to
gather up an abundance of statements by articulate
criminals and delinquents in which these individuals
allude to the facts of white-collar crime as one basis
for their grievances against "society." )}if

Robert M. Morgenthau, former u.S. Attorney for the Southern District of

New York and now the ,District Attorney for New York County, agrees with Gib-

bons' idea that white collar crime tends to foster street crime. He argues

that there is a double relationship between the crimes of the poor and white

collar crimes. First, it is the poor who are usually the victims ~f white

lJ...f Gibbons, Don C. Changing the Lawbreaker: The Treatment of Delinquents

and Criminals. Englewood Cliffs, N.J., Prentice-Hall (1965) p. 271.
 69

collar crimes and "may at times violently react against it." Second, if the

affluent disregard the law, Morgenthau states that the poor will follow their
20/ '
leadership.

Sic,ilarly, the 1967 Crime Commission stated that it is reasonable to as-

sume that when prestigious companies and respected community leaders break the

law, they" set an example for other businesses and influence individuals, par-

ticularly young people, to commit other kinds of crime on the ground that every-
21/
one is taking what he can get." -

The individuale who point to evidence of a disparity between the treatment

of white-collar, high-status offenders and the treatment of street criminals

(frequently members of low-income groups and racial minorities), maintain that

a diminution of this discrepancy possibly would lead to a decrease in the in-

cidences of street crime, and would definitely lead to mO~e respect for the

American system of justice. As Morgenthau summarizes:

prosecution of white-collar criminals demonstrates
the evenhandedness of the law. Without that, we'll
have no faith in our law-enforcement system, and with-
out faith ve'll just have more crime everywhere. 22/

However, there have been few formal research studies into the relationship be-

tween white collar crime and street crime •. So propositions asserting a strong

interrelationship between such crimes can only be inferred at this time.

Morgenthau, Robert M. Equal Justice and the Problem of White Collar Crime.
The Conference Board Record, Aug. 1969: 17.

President I S commission on Law Enforcement and Administration of .Justice.

The Challenge of Crime in a Free Society. Washington, U.S. Govt.
Print. Off., 1967. p. 48.

22/ Quoted in Harris, Richard. Crime in New York. New Yorker, v. 53, Sept. 26,
1977: 76.
o
!'.