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Chapter 6
White Collar Crime and the Business
Community
Introduction
Chapter Six addresses these questions:
• What is crime and what is criminal procedure?
• What are the distinguishing features of white collar crime?
• Which are the common white collar crimes?
• How can we prevent white collar crime?
• What federal laws are used in the fight against white collar crime?
• What state laws are used in the fight against white collar crime?
• What are the global dimensions of white collar crime?
Chapter Six is significant because it helps managers become aware of what it means to
Achieving Teaching Excellence
Adopting a “No Fault” Policy for Grading Attendance/Preparation/Contribution to Class
Discussions
For those instructors who are willing to reward excellent in-class contributions to
discussions, this section urges them to adopt a “no fault” attendance policy. This attendance
policy also factors in student preparation, and the quality of student contributions to class
discussions.
Instructors get tired of students giving them feedback that said, in essence, “You should not
punish me if I cannot attend class for reasons such as a grandparent’s funeral, job interview, and
so on.” Instructors disliked that feedback because they were never trying to punish anyone;
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Instructors should make sure that their own negligence does not back them into a situation in
which they have no choice but to give students high grades for this component of the course,
even when they might be marginally prepared. How could this happen? Suppose an instructor
starts out a participation policy, which includes a participation sheet and discussion or study
questions. Now, suppose instructors find themselves doing more than their share of the talking,
they do not really know whether students who are signing the participation sheet are prepared
and capable of making contributions to discussions. How do instructors make sure the students
are remaining honest about their preparation? The best solution is to call on students frequently
and randomly. Another idea is to check their preparation by asking them to turn in an answer to
Chapter Overview, Topic Outline, and Discussion Questions
Chapter Overview
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White-collar crimes—crimes committed in a commercial context—occur every day.
Collectively, these crimes often result in millions of dollars of damages. In recent years, as
corporate crimes have become more publicized, people’s attitudes toward corporations and
Topic Outline
I. Crime and Criminal Procedure
A. Crime
B. Criminal Procedure
2. Booking and First Appearance
4. Plea Bargaining
6. Defenses
II. Distinguishing Features of White-Collar Crime
A. The Corporation as Criminal
B. Arguments in Support of Corporate Liability
C. Arguments in Opposition to Corporate Liability
E. Imposition of Liability on Lower-Level Corporate Criminals
F. Factors Encouraging the Commission of White-Collar Crime
G. Sentencing of White-Collar Criminals
III. Common White-Collar Crimes
A. Sekhar v. United States
B. Bribery
C. Violations of Federal Regulations
D. Criminal Fraud
E. Larceny
F. Embezzlement
G. Computer Crimes
1. Destruction of Data
3. Entering of Fraudulent Records or Data into a Computer System
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IV. Prevention of White-Collar Crime
V. Federal Laws Used in the Fight Against White-Collar Crime
A. The Racketeer Influenced and Corrupt Organizations Act (RICO)
VII. State Laws Used in the Fight Against White-Collar Crime
VIII. Global Dimensions of White-Collar Crime
IX. Summary
Discussion Questions for Chapter Six
1. How is criminal procedure different from civil procedure?
Criminal procedure is initiated somewhat differently from civil procedure. Both include
many steps, but criminal procedure emphasizes protecting the defendant’s rights. From
2. How is the burden of production of evidence related to the burden of persuasion?
One relationship is that both are required in criminal cases. Another is that both burdens fall
3. Why might someone say this statement is true: White collar crime does not have a precise
meaning?
4. Why might someone say this statement is true: Liability should be imposed on the
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corporation for the criminal acts committed by employees of the corporation on behalf of the
corporation?
The following arguments may be presented in favor of the statement:
• Imposing liability on a corporation for criminal acts committed by its employees will
result in lower dividends for the shareholders, which will make shareholders take a
more active role in trying to make sure the corporation behaves legally.
• In situations where crime is a crime of omission, the responsibility for performing the
omitted duty is not clearly delegated to any specific party. As the duty rests with no
5. Now evaluate the statement written in question 4.
The following arguments may be presented against corporate liability:
• Imposing fines on corporations is a waste of time and effort because the fines are
6. What factors encourage the commission of white collar crime?
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success
• Linkage of corporate rewards of salary and promotion to accomplishing short-term
goals
• Groupthink
7. Why do street criminals usually receive stiffer penalties than white collar criminals?
The following are some of the reasons for street criminals receiving stiffer penalties than
white collar criminals:
• White collar criminals can often afford superior legal counsel.
8. What kinds of white collar crime are the most common?
9. Explain the relationships between larceny and embezzlement.
Both larceny and embezzlement are common white collar crimes. Larceny is the secretive
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10. What are the best ways to prevent white collar crime?
The following are some of the best ways to prevent white-collar crime:
• One suggestion is to replace state chartering of corporations with federal chartering.
• An even more innovative suggestion, put forward by Christopher Stone, is that each
corporation doing more than a certain amount of business be required to have a
The above ideas and suggestions are all beyond the direct control of most corporate
managers. There are, however, some very practical things that managers can do to reduce
the likelihood that their employees or companies will commit white-collar crimes:
• Have a well-defined company code of ethics that the employees read and sign
11. Explain the relationships between Racketeer Influenced and Corrupt Organizations Act
(RICO) and the False Claims Act.
One relationship between RICO and the False Claims Act is that both are federal laws that
Answers to Critical Thinking about the Law, Case Summaries, and Answers
to Review Questions, Review Problems, and Case Problems
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Suggested Answers to Critical Thinking about the Law Questions
1. This situation involves a clash between efficiency and security. On the one hand, business
managers want efficiency—to minimize costs. The Environmental Protection Agency (EPA)
2. When a young woman commits a robbery, usually only the one victim of the robbery
3. One definition of justice is to treat all humans identically, regardless of class, race, gender,
age, and so on. Hypothetically, the biggest difference between the embezzler and robber is
Case Summary—United States v. Park
United States v. Park is in the book to show a case in which a court was willing to impose
criminal liability on a corporate executive. The case involved a president of a national food-chain
corporation who was charged with violating the Federal Food, Drug, and Cosmetic Act by
Suggested Answers to Critical Thinking about the Law Questions
1. It was very important to the Court that Park had, by reason of his position in the corporation,
responsibility and authority to prevent the inappropriate acts in the first instance, or
2. Dotterweich was significant because it held that corporate officers could be subject to
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Case Summary—Sekhar v. United States
The Comptroller of the State of New York determines the investment purchases made on
behalf of the state pension system. In 2009 the Comptroller considered whether to invest in a
fund managed by FA Technology. Based on its due diligence the General Counsel advised the
Comptroller that such an investment would be unwise. The Comptroller followed this advice.
For the crime of extortion to have occurred, the law requires that the recommendation of the
attorney had to be “property.” Sekhar preferred to have the crime defined as “coercion” to avoid
the more severe penalties attached to extortion. The United States claimed that extortion is a
subset of coercion, specifically coercion involving an economic element. Both the federal district
Case Summary—United States v. Gray
This case is in the book to present an example of what it takes for a conviction under the
mail fraud statute to stick. The appellant, Gray, lost his appeal when he claimed that his
Suggested Answers to Critical Thinking about the Law Questions
1. The mail fraud statue does not require any particular action or belief on the part of the
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2. This decision is consistent with the norm of security—victims of mail fraud know the focus
Answers to Review Questions
6-1. The purpose of criminal law is to punish persons who engage in activities that are
harmful to the public health, safety, or welfare.
6-2. Crimes are generally classified as treason, felony, misdemeanor, or petty crime on the
basis of the seriousness of the offense. Treason is engaging in war against the United
6-3. The basic procedural stages in a criminal prosecution are arrest, booking, first
6-4. One definition of a white collar crime is crime committed by a person of respectability
and high social status over the course of his occupation. Another definition is crimes
committed in a commercial context by members of the professional and managerial class.
6-5. The basic rationale for imposing criminal liability on corporations is that the corporation
6-6. One sentencing alternative is to make the white collar criminal pay a fine rather than go
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Answers to Review Problems
6-7. Matheson could be held liable. He cannot escape liability by announcing the limits of his
6-8. No, the defense was not valid. Generally, corporations are liable for their agents, even
6-9. It depends. In United States v. Park, the court did not have much sympathy for Park
because he was aware of legal violations. Laffal did not know. However, he will still
6-10. Evans, the loan officer, violated the law. His behavior looks like criminal fraud. He has
6-11. Defendant engaged in a specific type of fraud—false pretenses. He misrepresented facts
6-12. Mr. Jones is displaying behavior similar to Mr. McGraw’s behavior in State v. McGraw.
We’d have to look at the relevant state statute for theft. Still, if Mr. Jones is in a state
Answers to Case Problems
6-13. The court ruled that charge 3, disclosure of budget deliberations, was lawful because it is
not protected under the Whistleblower Protection Act. However, the court found in favor
6-14. The appeals court affirmed Kimoto’s conviction by finding him in violation of all counts,
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6-15. The court noted that there might be some merit to the plaintiff’s argument that Bauknecht
violated the Computer Fraud and Abuse Act (CFAA) when he created his master
database and accessed customer lists and other confidential information that were located
6-16. The Supreme Court upheld that lower courts verdict. The court stated that Thompkins
6-17. The court agreed with the plaintiff that the debt owed to him met the requirements of
embezzlement. The court noted the five elements of embezzlement: 1) entrustment; 2) of
property; 3) of another; 4) that is misappropriated; 5) with fraudulent intent. According to
the court, there could be little dispute that the first four elements had been satisfied. The
6-18. Joel Ruben would be guilty of fraud because he deceived the government into thinking
6-19. The Seventh Circuit affirmed the district court’s holding that no allegation of actual or
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it in Skilling,” the court refused to impose an additional requirement that victims of
private honest services fraud suffer tangible harm. The court found that it would be
6-20. The appeals court affirmed the trial court’s decision. Terry continuously embezzled
gasoline over a period of time. The state had provided him with a timeline of when the
6-21. The court ruled against the plaintiff. According to the court, the only allegation
connecting FirstEnergy defendants to the judicial defendants provides that the parties
“formed an agreement to accept past, present and future cash payments as a $150,000+
bribe and a payoff for…improper acts.” The plaintiff’s conclusory allegation failed to
Thinking Critically about Relevant Legal Issues
1. The main argument here is that managers should not be held accountable for the actions of
2. A good piece of information here would be what exactly a manager is. How much influence
The Legal Environment Of Business: A Critical Thinking Approach
does he or she have over a project? What are his or her duties? Because manager is such a
3. Here the author is looking at independence and human nature. It is in one’s nature to make
4. An opposite view would rely on the notion that a manager is in charge of a project. If there
are any problems along the way, they are his or her responsibility. If that responsibility is