Perspectives on the White-Collar Criminal – Take II

Minimizing the risk of white-collar crime requires answers to questions such as:

• What is the profile of a white-collar criminal?

• Can they be identified just by looking at them?

• What is the likelihood of recruiting a white-collar criminal to a position of trust?

To illustrate “patterns in the mindset and motivation of the white-collar criminal,” I will share highlights from reported stories of:

1. a professional thief (Broadway Jones)

2. a convicted fraudster (Sam E. Antar)

3. a corporate serial offender (who we will call Entity#1).

Broadway Jones

A fast-talking, boastful, and articulate Chicago-area grifter was an attractive person who, as far as personal appearance and casual conversation were concerned, could have readily passed as a lawyer, a banker, or a merchant. He had initiative, ingenuity, and abilities which are characteristics of leaders (Sutherland, 1937 - Edwin H. Sutherland introduced the idea of white-collar crime in 1939).

Jones was a professional thief (alias “Chic Conwell”) whose criminal exploits were compiled and published in The Professional Thief (1937). The conversations between Jones and Sutherland convinced Sutherland that professional criminals learn the techniques and attitudes associated with their work from close relationships with other professional criminals.

Sam E. Antar

A convicted fraudster, in a statement to U.S. District Judge, Nicholas H. Politan, before sentencing on May 27, 1994, reportedly said … “From most of my adult life, I was involved in a massive fraud. I’m embarrassed to say that I always knew what I did was wrong.” He reportedly made the following observations:

• Most white-collar criminals are likeable people. They use their personality as a tool. They use your humanity, personality, and good intentions against you.

• White-collar criminals consider your good traits such as goodwill and trust as weaknesses to be exploited.

• People are capable of doing good things while they are involved in criminal acts.

• White-collar crime is a crime of persuasion and gentle and subtle intimidation.

• You can steal more with a smile than you can with a gun.

Antar E. concluded that the only way to reduce white-collar crime is by prevention. We need a comprehensive approach by law enforcement, the accounting profession, education establishments, government, and private industry to effectively deal with the issue of white-collar crime.

Entity#1

Was ranked No. 1 on the Forbes Global 2000 list in March 2007. Great! But how did it get there?

Entity#1 was created by a series of mergers and acquisitions. Under the leadership of a former CEO, whose management style was described as aggressive, hands-on, controlling, profit-driven, and charismatic, it rose to the top by embracing a culture of maximizing profits, sometimes at the expense of ethics.

A former CFO of Entity#1 reportedly said “2004 was not a good year for us. There are places where we have done some things we should not have done. We need to make things right and express our regret. We need to move on and make sure we’re learning from it.”

On its way to becoming No. 1, Entity#1 committed numerous infractions of laws and regulations and has made settlements amounting to millions of dollars (including, SEC Release 2005-39 - US$20M; Release 2005-80 - US$208M; Release 2003-87 - US$120M). Unlike street offenders, the majority of whom must abide by the “three-strikes laws,” corporations like Entity#1 violate the laws, are allowed to pay the fines, (often without accepting responsibility for any wrongdoing), and then are allowed to continue in business as usual.

Since 2004, Entity#1 has changed top leadership three times and has acknowledged that to rebuild its tarnished reputation it must develop a culture of the highest ethics. However, it seems not much has changed as Entity#1 continues to be a corporate serial offender and continues to the fines. Some notable fines include:

• In 2014, Entity#1 settled with the U.S. Department of Justice (DOJ) for US$7 billion in a mortgage probe.

• SEC Release 2018-193, Entity#1 and an affiliate were ordered to pay more than US$12 million for “dark pool misrepresentations.”

• CFTC Release 8599-22, Entity#1 was ordered to pay US$75 million for Recordkeeping and Supervision Failures.

• SEC Release 2022-174, Entity#1 was among 16 Wall Street Firms charged by the SEC. The 16 firms admitted to wrongdoing and agreed to pay penalties totalling more than US$1.1 billion. Entity#1 agreed to pay US$125 million of the US$1.1 billion.

Corporations, like all businesses, are abstract entities, incapable of making moral choices. They have no minds in which to form intentions, no hearts in which to conceive a guilty will, and no bodies that can be imprisoned or corporally punished in response to criminal behaviour. Their actual existence is in the people who work for the organization.

White-collar offenders are usually persons who have abused their position of trust. To be considered for that position of trust, the person’s mental capacity, experience, personality, and character are usually taken into consideration. There is also a correlation between these factors and the effects of age, education, gender, tenure, and income level of the person. This is expected as the more demanding the position, the greater the capacity of the right person required to fill that position.

Sutherland was suspicious of theories that related poverty to crimes. He believed that police statistics were biased when they showed that more crimes occurred in lower-class neighbourhoods. Sutherland’s position is supported by the element of Capability in the Fraud Diamond (Capability here means the position of the fraudster in that organization). White-collar offenders are not usually from lower-class neighbourhoods, as they do not possess the qualification or capability to get positions of power and influence, especially in large organizations.

This situation is evident in Jamaica, where there is significant focus, outrage, and condemnation (and rightly so), regarding violent/ street crimes (murders, extortion, etc.), while no serious efforts seem to have been made to deter white-collar criminals. You may recall the outcomes of white-collar criminal cases such as:

1. Cash Plus boss was arrested in 2008, charged in 2009, and freed of all charges in 2016 due to a lack of evidence.

2. Olint, a Ponzi scheme, was closed by the Financial Services Commission (FSC) in 2006. No arrests were made in Jamaica. However, in 2010/2011 Olint’s boss was sentenced by both the Grand Turks’s Supreme Court and the U.S. District Court in Orlando, Florida, relating to international Ponzi fraud and money laundering scheme.

3. World Wise, an unregulated investment firm, was served with a cease-and-desist order by the FSC in 2008. However, before the order could be actioned, the World Wise boss fled to the USA.

4. In 2021, a former NCB manager pleaded guilty to stealing approximately JM$34 million from NCB’s clients’ accounts. The former manager was sentenced to 7 years and 6 months.

5. In 2020, three former officials of the Manchester Municipal Corporation (MCC) were found guilty for their roles in a scheme used to defraud the MMC of approximately JM $400 million.

These cases highlight the challenges in successfully prosecuting corporations and their owners versus prosecuting lower-level operatives who do not have the capability, power and positions of influence as owners of these corporations tend to have. Were cases 1, 2 and 3 above “too big to jail” within the Jamaican legal system?

On January 22, 2023, a Jamaica Observer article – Fraud Laws Weak – quoted a former head of the Fraud Squad saying “The law is definitely too weak and, oftentimes, the police are frustrated in their efforts to investigate.”

It is safe to say that white-collar crimes are here to stay. The focus should then be to understand the mindset and motivation of people who commit white-collar crimes and the corporate governance and internal control weaknesses that facilitate such crimes by first-time or career fraudsters. A good source for insights and guidance is “Occupational Fraud 2022: A Report To The Nation,” published by the Association of Certified Fraud Examiners – ACFE (https://legacy.acfe.com/report-to-the-nations/2022/).

Stay tuned for Perspectives on the White-Collar Criminal – Take III.

- Joan Brown