White-collar crime in the eyes of US courts

The term white-collar crime represents a non-violent crime usually involving cheating or dishonesty in commercial matters and includes fraud, embezzlement and insider trading. It is a crime committed by a person of respectability and high social status in the course of his occupation.

The most common white-collar offenses include: anti-trust violations, bankruptcy, fraud, bribery, computer and internet fraud, counterfeiting, credit card fraud, bribery, economic espionage, theft of trade secrets, embezzlement, environmental law violations, financial institution fraud, government fraud, healthcare fraud, insider trading, insurance fraud, intellectual property theft, kickbacks, mail fraud, money laundering, securities fraud, tax evasion, phone and telemarketing fraud and public corruption. The experience suggests that many white-collar crimes are difficult to prosecute since the perpetrators use sophisticated means to conceal their activities through a series of complex transactions. Whistleblowers1 are particularly helpful, because they report internal wrongdoing that may be invisible outside the company. There has been a steady increase2 in whistleblowing.3

The white-collar crimes lead to disequilibrium in the market economy as the offences provide opportunities for unearned enrichment. These crimes cause cheating and fraud. In the United States, both state and federal legislation enumerate the activities that constitute white-collar criminal offenses.4

The responsible corporate office doctrine in this regard is an important consideration. The said doctrine creates a presumption that a high-ranking corporate officer is aware of his or her corporation’s wrongdoing. As the prosecutor does not need to prove that the officer had actual knowledge of the crime, a corporate officer could be found guilty of a crime he or she had no knowledge of. This doctrine was established in two US Supreme Court cases namely, United States v. Dotterweich,5 and United States v. Park.6

Any defence available to non-white-collar defendants in criminal court is also available to those accused of white-collar crimes. Additionally, the US Supreme Court also considered the following arguments:

— In cases of bribery charges, individuals or organisations facing white-collar criminal charges plead the defence of entrapment. For instance, in United States v. Williams,7 one of the cases arising from “Operation Abscam,” Senator Harrison Williams attempted unsuccessfully to argue that the government induced him into accepting a bribe.

— In cases of real property fraud, some individuals challenged the proximate cause element of the offense. In Robers v. United States,8 for example, Robers argued that he caused no harm because the real estate market crash would have lowered property values regardless of Robers’s involvement. The Supreme Court rejected Robers’s argument, holding that foreseeable market fluctuations do not sever proximate causation.

— In cases of financial institutions fraud, individuals have argued that a conviction requires the prosecutor to prove that the individual had the intent to defraud a specific financial institution. The Supreme Court rejected this argument in Loughrin v. United States,9 holding that financial institution fraud requires proof of only two elements: (1) intent to obtain bank property; and (2) obtain bank property by means of false or fraudulent pretences, representations, or promises.

— In cases of mail fraud, individuals have argued that a person is only injured by misrepresentation if the person receives the false document. In other words, an individual is not responsible for harming the third parties by his mail fraud. The Supreme Court rejected this argument in Bridge v. Phoenix Bond & Indem. Co,10 holding that parties who harmed collaterally by the misrepresentation are also entitled to recover.

— In cases of wire fraud involving foreign countries, individuals have challenged their convictions on grounds that the conviction violated the common law revenue rule, which forbids courts from enforcing tax laws of foreign countries. In Pasquantino v. United States,11 however, the Supreme Court upheld Pasquantino’s conviction, holding that fraud involving foreign countries fell within the US wire fraud statute.

From what has been stated above, and to sum up, it is evident that in order to successfully punish a white-collar offender, particularly in corporate environment, the prosecution in the US has to prove that offender had the actual knowledge of happenings and the plea of entrapment is generally not accepted by the courts. In cases of fraud, the intent to defraud on the part of offender is the most crucial element in such dealings, and it may be noted, the collateral damages caused by the misrepresentation of offender are also recoverable. The provisions of wire fraud statute extend court’s jurisdiction even to extra-territorial events.

(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi)

1. An employee who reports employer wrongdoing to a government or law enforcement agency.

2. According to Federal Bureau of Investigation (FBI) white collar crimes in USA is estimated to cost the state more than 300 billion dollars.

3. In 2015, the US Securities and Exchange Commission received 3,923 tips reporting corruption, bribes, and other white-collar crimes.

4. The Commerce Clause of the US Constitution gives the federal government the authority to regulate white-collar crime, and a number of federal agencies, such as the FBI, the Internal Revenue Service, the US Secret Service, US Customs, the Environmental Protection Agency, and the Securities and Exchange Commission, participate in the enforcement of federal white-collar crime legislation. In addition, most states employ their own agencies to enforce white-collar crime laws at the state level.

5. In United States v. Dotterweich, the government prosecuted Dotterweich, the president and general manager of Buffalo Pharmaceutical Company, for violating the Federal Food, Drug, and Cosmetic Act by shipping poor quality pharmaceuticals. The government provided no evidence that Dotterweich himself was responsible for the shipment, instead prosecuting the president for failing to prevent his company from committing a serious public welfare offense. The Supreme Court permitted Dotterweich to be convicted on this theory, convicting him for “doing nothing.” 320 US 277 (1943)

6. Park, a president of a large national food store chain, was convicted for failing to end a rodent infestation in a food warehouse that his corporation owned. On appeal, Park defended himself by claiming to have delegated responsibility over such infestations to trusted members of his corporation, such that Park himself thought that the problem was taken care of. In United States v. Park, the Supreme Court rejected Park’s defence and upheld his conviction. The Supreme Court held Park responsible because he assumed a position of authority in a business enterprise that directly affected public health and welfare. 421 US 658 (1975)

7. 705 F.2d 603 (2nd Cir. 1983).

8. 134 S. Ct. 1854 (2014).

9. 134 S. Ct. 2384 (2014).

10. 553 US 639 (2008).

11. 544 US 349 (2005).