Definition of White-Collar Crime
The Environment for White-Collar Crime
Characteristics of White-Collar Criminals
The Barings Bank Case – Can One White-Collar Criminal Ruin an Entire Organisation?
Bribery as a White-Collar Crime
Some Examples of White-Collar Crime
Legal Remedies in Turkish Law
White-collar crime is still a common and global problem that negatively affects corporations by damaging trust, profitability, business continuity, reputation, sustainability, and organizational justice. In addition to the risk of losses, companies face huge legal problems and loss of stakeholder support through white-collar crime. In this article white-collar crime is defined, and reactive and proactive measures are discussed through the perspective of risk management. White-collar crime is considered more complex when compared to ordinary crime and is easier to conceal as perpetrators do not use violence and possess a know-how that can only be gained by working in corporations. From a risk management perspective, it is of the utmost importance to introduce tailor-made control systems to detect the opportunities for crime and to protect the company and stakeholders from the losses of white-collar crime with a strategic and holistic risk management approach.
The term white-collar crime was first used in 1939 by Edwin H. Sutherland in his speech "The White-Collar Criminal." Sutherland used the term white-collar criminal to characterize the crimes committed by high-level bureaucrats and professionals such as governors, doctors, judges, managers, and businessmen, using the opportunities and trust ensured by their profession and authority to gain personal benefit. In that sense, he defined white-collar crime generally as "a crime committed by a person of high social status and respectability in the course of his occupation." In an advanced version of Sutherland's definition, today, white-collar crime refers to the crimes committed by senior executives such as CEOs, CFOs, directors, and key managerial employees who work at high levels in a companies and who are entitled to a benefit derived from their mental effort. This is as opposed to the term blue-collar, which generally refers to workers engaged in manual production, who are entitled to a salary for their physical effort.
White-collar crime can be described as non-violent crime targeted for financial benefit by highly educated perpetrators from business or government environments. When mentioning white-collar crime, we deviate from the classic sense of criminal psychology to consider an atypical type of crime. There is a generalization in society that criminals are individuals whose low socioeconomic status pushes them into crime, however, white-collar crime is committed by well-educated, respected people who hold senior positions in companies.
White-collar crime can be triggered by toxic ethics and compliance culture and a lack of tone from the top in corporations. Additionally, personal greed and inefficient control mechanisms can lay the groundwork for this crime. Employees can become more comfortable committing white-collar crime when they have worked at the same company or in the same key position for many years, when trust and organizational justice are weak, and if personal opportunities occur in the high volume of trade relations such as sales and purchases.
A company's control mechanisms consist of accounting and risk controls (the separation of duties and the creation of audit mechanisms), data analytics and up-to-date policies and procedures that define the processes with clear discipline and reward systems, internal compliance approval systems, and reporting. White-collar crime can be prevented by robust quality and monitoring systems that keep management aware of up-to-date information, take lesson-learned analysis from across the industry, and continuously apply self-defence mechanisms. Common red flags in white-collar crime may be seen among employees who aggressively protect their position, refuse to relocate or even take a vacation, maintain a lifestyle that exceeds their current position (salary, benefits, etc.), or suffer frequent mood swings when questioned by auditors. White-collar criminals usually rationalize their behavior and do not accept that they are committing a crime. Instead they believe that they are doing the company a favour, or that they have been treated unfairly, the company deserves it and that they have rightly compensated themselves, or that they have simply borrowed from the company and will rectify the situation in the future. This psychology, combined with the skills of a senior executive with excellent presentation techniques and body language training, actually sets forth a criminal profile that can think and understand at a much more complex level than ordinary criminals, and is resistant to tough interrogation techniques in internal investigations.
White-collar criminals do not use violence. Their purpose is to gain personal financial benefit.They use their professional position and title while committing their crime. They are the employees who work at critical decision-making levels of corporations and public institutions possessing a technical and confidential know-how to carry out the job. They have social reputability, a good education, and high social status.
White collar criminals use technology and the business environment (network) very well, they are ambitious, and tend to move up the career ladder easily.
Barings Bank, a British bank founded in 1762, was the world's second oldest merchant bank. Nick Leeson was seen as the bank's young rising star in the 1990s, quickly climbing through the ranks. In 1994 he was the general manager of the bank's Singapore operations but was still several pay grades below the top executives.
Because of a lack of controls, Leeson was able to make small, unauthorized gambles in the futures arbitrage market, concealing his bad trades in an error account while making inaccurate reports to Barings in London. Specifically, Leeson was given responsibilities ordinarily held by two separate people, allowing him to change the Singapore branch's internal financial reporting system to prevent the bank's head office from receiving the standard daily financial reports. He started with small fraudulent transactions but due to a combination of his greed and overreaching ambition, and Barings' serious lack of operational risk controls, the bank's auditors finally discovered a devastating collapse showing a $1.4 billion debt in 1995.
As a result, Leeson was sentenced for a series of forgeries and misrepresentations made to conceal unauthorized deals while trading on the Singapore Stock Exchange. Leeson's fraudulent transactions led to losses that amounted to twice Barings' available trading capital at the time, forcing the bank to file for insolvency. In 1995 the bank was sold to ING Group for just £1.
The case had a widespread effect on the financial industry and even became the scenario for the 1999 film "Rogue Trader".
Primarily, it is quite common for white-collar employees to use bribery or facilitating payments to achieve their business goals, which can result in loss of reputation and severe penalties for companies.
Anti-bribery is at the centre of the concept of non-corruption, which, in turn, is at the heart of international ethics and compliance management. According to the world economic forum, as of 2018, corruption costs the global economy $3.6 trillion dollars every year. At the end of the 20th century, international bribery scandals had gradually increased, leading a number of states to regulate these crimes with extraterritorial laws.
Chief among these regulations is the US Anti-Bribery and Foreign Corrupt Practices Act (FCPA-1977). This law enables US authorities to impose penalties anywhere in the world with regard to bribery on behalf of a US-affiliated company to non-US officials and employees of government departments, political parties' officials or candidates, international organizations, or their directors. These penalties can reach up to 20 years imprisonment and fines of up to $5 million for individuals and up to $25 million for companies. The UK Bribery Act (UKBA) (2010) takes regulations one step further considering the provision of benefits by foreign public officials, or private persons to public officials, or by private persons to private persons as bribery. Finally, the strictest law adopted in this regard is the Clean Company Act (2014) of Brazil, which does not accept the exemption of facilitation payments in the FCPA or "adequate anti-bribery procedures" in the UKBA as defence tools. According to the relevant law, companies are deemed to be responsible for any actions taken by their employees on their behalf, even if done so against their own consent. Penalties under the act can be up to 20% of a company's previous year's gross income or up to three times the amount obtained through bribery; in addition, a prosecutor has the power to request the dissolution of a company without any obligation to prove it had an illegal purpose.
Forgery of Documents
Trade Secrets Theft
Breach of Competition Law
Breach of Environmental Law
Breach of Capital Markets (Abuse of Information, Marketing Fraud)
First of all, there is no specific definition of white-collar crime in Turkish Law, however, these types of crime are regulated in the Turkish Criminal Code and other similar laws. According to the relevant law, bribery is defined as "providing benefit directly or through intermediaries to a public officer or third party specified by the public officer in order to execute or not to execute a task regarding the performance of official's duties." Such actions carry a penalty of imprisonment from four to twelve years. The same law regulates that if bribery is committed on behalf of a company, security measures will be imposed instead of penalties since the principle of criminal liability of legal entities is not accepted in the Turkish Criminal Code. A company that has been affected by white-collar crime can file a criminal complaint against the perpetrator ensuring that they will stand trial in a criminal case, as well as having any unlawful benefits obtained from their crime confiscated.
Since white-collar crime, in the most basic sense, damages trust between employees and employers, the rule of employment termination under Turkish Labour Law, which states termination must only be considered as a last resort, will not be applicable. An employer will not be expected to maintain a business relationship and can justifiably terminate an employment contract without compensation for any actions that do not comply with the ethics and goodwill rules that are regulated under Article 25 of the Labour Law. In decisions of the Court of Cassation, the absence of proof of an act that could constitute a crime in a criminal complaint made by an employer does not eliminate the existence of the action, and the termination of employment is deemed to be with just cause, since the complaint itself is deemed as serious evidence of a break in trust between an employer and employee.
However, according to the concept of "Termination in Suspicion," that has been integrated into the Turkish legal system from German law, any suspicion must be sufficient to break the trust required for the continuation of a business relationship, must be strongly based on the objective events and facts, and requires an employer to make all reasonable efforts that can be expected to investigate an event. In cases involving these conditions, the Court of Cassation accepts the termination by the employer not as an immediate termination for a justified reason, but as "termination based on valid reasons arising from the qualification of the worker" blocking any reinstatement lawsuits that may be filed. This method of termination may be applied in cases of strong suspicion, especially in internal investigations where a company has made every effort to investigate an incident but cannot obtain sufficient evidence.
Finally, in the Turkish Commercial Code, it is stipulated that shareholders can file a suit for compensation against company directors and managers for damages arising from their transactions. In this context, compensation may also be requested from directors and managers who have damaged a company (lowering the brand value of the company, causing heavy penalties, etc.) with their irregular transactions.
Irregularities that may be the subject of white-collar crime are usually detected during audits or through in-company monitoring and reporting systems. Whistle-blowers, who are primarily encountered in corporate and international companies, report internal irregularities via e-mail and telephone (which also provide the opportunity to hide their identities) and initiate the internal investigation process.
However, the detection of irregularities can bring various problems and uncertainties in general. In some corporations or cultures, high-status professions are often self-regulating, and silencing or protecting wrongdoers rather than punishing them may be a company's primary concern. The penalties imposed on members of professional association's ethics or disciplinary committees may include suspensions, condemnation, temporary or permanent termination of licenses and memberships. Traditional criminal and administrative laws also foresee special procedures and penal provisions for such crimes. Despite this, in order to avoid scandals and complaints that may take place in the media, many companies are content with simply requesting the resignation of employees responsible for irregularities, and may even offer offending employees the chance to leave by agreement to prevent any scandal. Lengthy criminal proceedings and the possible disclosure of trade secrets during a case may persuade companies that it is wiser to remain silent on issues. However, white-collar crime is at least as severe as any other crime, damaging the sense of justice in an institution, and affecting other company employees and society.
White-collar crime that cannot be prevented, even in international companies with stringent global compliance policies, is often used as a shortcut by employees who want to rise quickly in their careers. And while employees gain personal benefits, they may cause irreparable damage to companies. In order to protect themselves, it is imperative that companies develop defence mechanisms against employees who abuse and cause material and moral (loss of reputation) damage.
First of all, in order to prevent white-collar crime that is difficult to detect or includes complex, technical matters, companies should apply tailor-made due diligence practices for selecting the right candidates from the outset, making ethical questions an indispensable element of the interview process. Reference control for a potential employee's ethical practice should also be used effectively during recruitment. Compliance professionals are aware of the fact that building up a company culture and protecting it from toxic employees is of the utmost importance. This is best explained in the famous motto used in compliance jargon: "one rotten apple can spoil the whole barrel".
However, it is also crucial to adopt a zero-tolerance policy against irregularities with top management support (tone at the top) in order to create an internal ethical culture that will minimize white-collar crime within a company. An ethical culture can be fostered within the light of a holistic and effective compliance program and with methods of continuous improvement: sanction & reward systems, comprehensive risk analysis in the company, determination of key people, processes and effective use of audits & controls, holding employees accountable for the processes they follow, and the effective implementation of internal complaints and disciplinary processes. In order to maintain employees' loyalty and create good corporate responsibility, it is essential to ensure that the senior management of a company understand the consequences of the improper actions of their employees. From a risk management perspective, it is of the utmost importance to introduce tailor-made control systems to detect and prevent the opportunities for crime and to protect a company and its stakeholders from the losses of white-collar crime with a strategic and holistic risk management approach.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.