In contemporary society, corporate crime has attracted a lot of interest from different groups that are concerned that the vice is becoming widely spread since corporations are not ready to adhere to the laws, policies, and regulations that govern how they operate in their respective industries. Corporate crime is an admission that corporations are culpable of committing crimes just like individuals. Hence, this situation brings the concept of criminal liability to the definition of such crimes. This paper presents a literature review on corporate crime. Specifically, it seeks to show the various impacts that such a crime has on individuals and society in addition to the strategies that have been established to combat it. Finally, it offers an opinion on the issue concerning the aforementioned strategies and ways of curbing crime.
Although research has been done on the subject of crime, it is surprising that very few researchers have gone ahead to investigate the area of corporate crime. According to Henry, Rosoff, and Tillman, corporate crime, which is also referred to as white-collar crime, denotes crimes that are committed by a corporate entity or an individual who is representing the interests of the corporate entity1. Although this area of criminology has attracted limited interest as compared to other areas such as street crime, Johnson and Holub confirm how corporate crime is more likely to affect ordinary citizens than any other form of crime such as murder or theft2.
According to a study by National White Collar Crime (2005), as presented by Johnson and Holub, 47% of US households and 36% of individuals experienced at least one form of victimization in the previous year as a result of white-collar crimes while 63% of individuals reported having been victims of white-collar crime during their lifetime3. Such statistical findings are an awakening call that corporate crime is a widespread issue that has serious consequences on society. Hence, it deserves more action of addressing it.
Unlike other areas of criminology, white-collar crime is a highly understudied area where many studies have only focused on street crime. Many studies that exist in criminology focus on the origin and prevention of street crime while neglecting an equally or more important area of study, namely corporate crime4. As such, it is common for white-collar crimes to go unpunished or even to be ignored. This situation has already set a bad precedence for future efforts of curbing the problem.
Different statutes have been put in place to address the issue of corporate crime. For instance, for a long time, there was a problem and challenge in the judicial system in terms of the definition of corporate entities, which are a creation of the state as individuals and hence capable of committing such crimes5. Under the common law, corporations were treated as separate and artificial individuals who had their distinct legal identity and separate property ownership capabilities.
They were handled differently by their shareholders. However, when asked to apply criminal law on a corporate ‘person’, judges found the analogy strained6. With the increased pressure from lobby groups and other consumer interest groups that were demanding corporate social responsibility in the 1950s, corporate crime became more pronounced, hence attracting the need for proper legislation that could address issues that existed in the previous laws and policies7.
Historically, addressing corporate crime has represented law enforcers and judicial officers with different legal challenges that are mainly due to inconsistencies in the legal structures of the time. Was a corporate entity liable for moral blameworthiness that could be punishable by law? Was a law-abiding corporation liable for criminal actions that were committed by its agents that acted beyond their authorized powers? Was the law requiring the presence of the accused in the legal presence Act as deterrence to efforts of deploying criminal proceedings against a corporate entity?
Until the 19th century, judicial officers faced the challenge of putting criminal proceedings successfully against corporate entities since they lacked the physical form that was required by law for proceedings against a ‘person’8. In the 19th century, courts started circumnavigating some of the challenges by claiming that corporations, as beneficiaries of criminal activities, were liable for the costs of such criminal activities9.
This situation marked a shift from a theory of punishment, which was common during the time, to a theory of deterrence10. Courts advanced deterrence rationale by asserting that it was easier to punish a corporate entity as a whole, rather than individuals who at times remained anonymous or whose level of culpability in the crime could not be ascertained as Croall reveals11. Currently, the main rule focuses on corporate liability where a corporation is liable for crimes committed by its officers when they act within their scope of employment and at least to benefit the corporation. However, it is also accepted that many agents act to benefit themselves.
Therefore, a doctrine of benefiting the corporation has been relaxed to make it unnecessary for the employee to benefit the corporation for shared liability or mutual crime to be proven. According to Shover and Wright, this situation consequently shows that a corporate entity can be held liable for the criminal actions of its agents, regardless of their position in the hierarchy of the organization or their intention12.
The Impact of Corporate Crime on the Society and Individuals
Even though corporate crime receives less attention than it is required, its impact on society is widespread and more consequential than other crimes. The reason why corporate crime has more impact than other crimes is partly due to the costs that are incurred and partly due to the ripple effects that such crimes can have on the business and individuals. According to Khanna, the cost of corporate crimes exceeds that of all thefts, arsons, burglaries, and robbery put together13.
For instance, while the costs of burglary and robbery were reported at USD$3.8 billion in 2003, the overheads of white-collar crime were estimated to exceed several hundred billion dollars14. Further, other indirect costs of corporate crimes such as price-fixing, pollution, and faulty products among other crimes have been estimated to exceed USD$3 trillion. Such high costs can spell doom to many organizations, which end up closing their businesses. The situation leads to loss of employment and investor money for hundreds of otherwise innocent members of society15. To put the gravity of the cost and consequences of corporate crime on society, it is important to discuss some of the cases that have had serious impacts in the past.
For instance, the damage awarded for Exxon Valdez following the oil spill of 11 million gallons of oil in 1989 was USD$4.5 billion. Further, as Nelken confirms, WorldCom’s 2002 bankruptcy of USD$103.4 billion and Enron’s USD$63.8 billion in 2001 are some of the largest cases in US history, which were followed by many criminal proceedings16. In Enron’s case alone, approximately US$800 million worth of employee pension and investments were lost17. The suffering of such employees is just a tip of what other employees and members of society undergo due to corporate crimes.
Corporate crimes and their consequences go unnoticed for a long due to technical and methodological problems in their detection. Many victims of such crimes are unaware of any harm since they cannot detect the crimes on their own. For instance, in some major frauds, environmental pollution, food adulteration, and other compromises on consumer products, victims are rarely aware of the harm because of such crimes18. However, the consequences of such crimes may be severe since they affect people directly and indirectly. For example, through embezzlement of funds, corporations find themselves with little money to run their affairs smoothly.
In this case, such organizations are forced to take measures of raising funds. This process can include passing the costs to consumers through hiked product prices and/or reducing some important operations. The situation leads to a compromise on the quality of products and services and/or laying off employees whose livelihood depends on the organization19. From the above scenario, it is evident that corporate crimes have serious consequences on individuals and society and hence the need to find ways of eliminating them.
Efforts of Curbing Corporate Crime
Efforts have been put to establish mechanisms that can be deployed to curb corporate crime. One of the major global economic dilemmas is on how to address corporate crimes that seem to be growing in terms of their frequency and impact on society.
They do not compromise any healthy business environment20. Previous efforts, including laws and statutes, have been put in place to address the problem with varying levels of success. In the 1970s and 80s, the US Congress passed many laws and statutes, for instance, the Racketeer Influenced and Corrupt Organizations Act (RICO), which was soon applied for white-collar crimes, although it was first intended for the mafia-related crime. Under the RICO Act, racketeering included misappropriation of finances, corruption, and parcel deceit among other offenses.
The Act made it simple for a country and legal machinery to recognize and impeach crooked businesses and/or to get hold of possessions that were linked to bribery21. Some of the notable cases and people who were prosecuted using this Act include the junk bond investor Michael Milken who was pronounced answerable to deception and/or bond bazaar exploitation22. According to Laufer, in the 21st century, the RICO Act could not address the complexities that arose due to the use of technology and the changing nature of the corporate crime23. In the aftermath of Enron’s case in 2001, congress acted fast and enacted the Sarbanes-Oxley Act (SOX) in 2002 to improve corporate governance, which boosted the relationship and accountability of corporations to their stakeholders.
In my opinion, although the fight against corporate crime has been strongest in the US, the battle is a growing phenomenon in other countries, especially Europe, where countries such as Poland have passed important rulings and statutes to address the vice24. However, the global fight against corporate crime is not easy since different countries have different social and cultural approaches towards such crimes.
For instance, in some West African countries, giving tips to get contracts is a legally accepted aspect, which is in contrast to US law. My opinion is that the method puts US organizations and their executives in awkward positions when soliciting jobs in such countries25. In Russia and India, it is common for government officials to demand bribes. This situation makes it difficult for ‘clean businesses’ to successfully access the countries26. Despite the efforts in place, the fight against corporate crime is a difficult one, which requires well-calculated approaches to address arising issues27.
To fight successfully against white-collar crimes, future legislation needs to find new approaches to help fill the gaps that are present in the existing legislation. For instance, it is evident that despite the enactment of the SOX Act, governments are yet to consent on the best way of punishing white-collar crimes. However, the best approach requires the involvement of all interest groups, which include lobby groups, corporate entities, and the government, to identify legislation and policies that will promote fairness and justice and hence be acceptable to all parties. Without the involvement and engagement of all stakeholders, it is difficult to arrive at policies that will receive less criticism and wide acceptance by all members.
Croall, Hazel. White-Collar Crime: Transnational and Comparative Criminology. Cavendish: Glasshouse Press, 2005.
Henry, Pontell, Stephen Rosoff, and Robert Tillman. Profit Without Honor: White Collar Crime and the Looting of America. Upper Saddle River, NJ: Pearson Prentice Hall, 2007.
Johnson, Jackie, and Mark Holub. “Corporate flight: ‘moving’ offshore to avoid US taxes.” Journal of Financial Crime 10, no. 3 (2003): 246-254.
Khanna, Vikramaditya. “Corporate Criminal Responsibility: What Purpose Does it Serve?” Harvard Law Review 109, no. 7 (1996): 1477.
Laufer, William. “Corporate Liability Risk Shifting and the Paradox of Compliance.” Vanderbilt Law Review 52, no. 1343 (1999): 1361-1363.
Nelken, Darius. White-collar crime: The Oxford Handbook of Criminology. Oxford: Oxford University Press, 2002.
Shover, Neal, and John Wright. Crimes of Privilege: Readings in White-Collar Crime. Oxford: Oxford University Press, 2001.
- Pontell Henry, Stephen Rosoff, and Robert Tillman, Profit Without Honor: White Collar Crime and the Looting of America (Upper Saddle River, NJ: Pearson Prentice Hall, 2007), 63.
- Jackie Johnson, and Mark Holub, “Corporate flight: ‘moving’ offshore to avoid US axes,” Journal of Financial Crime, 2003: 25.
- Ibid, 27.
- Laufer, William, 1363.
- Ibid, 25.
- Nelken, Darius, 213.
- Ibid, 213.
- Nelken, Darius, 132.
- Johnson, Jackie, and Mark Holub, 26.
- Ibid., 23
- Hazel Croall, White Collar Crime: Transnational and Comparative Crmininology (Cavendish: Glasshouse Press, 2005), 17.
- Neal Shover, and John Wright, Crimes of Privilege: Readings in White-Collar Crime, (Oxford: Oxford University Press, 2001), 102.
- Vikramaditya Khanna, “Corporate Criminal Responsibility: What Purpose Does it Serve?” Harvard Law Review 109, no. 7 (1996): 1477.
- Henry, Pontell, Stephen Rosoff, and Robert Tillman, 102.
- Ibid, 103.
- Darius Nelken, White collar crime: The Oxford Handbook of Criminology, (Oxford: Oxford University Press, 2002), 46.
- Ibid, 46.
- Henry, Pontell, Stephen Rosoff, and Robert Tillman, 108.
- Ibid, 108.
- Henry, Pontell, Stephen Rosoff, and Robert Tillman, 109.
- Ibid, 28.
- Croall, 64.
- William Laufer, “Corporate Liability Risk Shifting and the Paradox of Complaince.” Vanderbilt Law Review 52, no. 1343 (1999): 1362.
- Ibid., 65
- Khanna, Vikramaditya, 1477.
- Shover, Neal, and John Wright, 115.
- Ibid, 17.