IV. Responses to Organizational Illegalities and Crime
A. Regulatory Agencies
The regulatory state took shape in the decades before the dawn of the 20th century and consists of semiautonomous administrative agencies created by legislative bodies to oversee chiefly economic activities by corporate firms. An array of these agencies at all levels of government makes up the first line of oversight of potential organizational criminals. Historically, they are charged with promulgating and enforcing rules for the fair and safe conduct of organizational business in specified areas of activities. To accomplish their legislative charge, agencies employ technical staff to provide expertise, attorneys to draft regulations and pursue penalties in cases of serious or long-standing violations, and inspectors to monitor compliance by organizations. Agencies have considerable discretion in deciding how to exercise oversight and respond to violations.
Criticism of regulatory agencies has focused on their proneness to “capture” by the industries and businesses they are created to regulate. Capture is the tendency of agencies and their personnel over time to adopt the perspectives and agendas of business and to operate in a more cooperative than adversarial fashion in oversight. Decades of research have shown that agencies for the most part are “paper tigers” that spend their time and other resources disproportionately sanctioning small and midsize businesses. Referrals for criminal prosecution are exceedingly rare.
B. Investigation and Prosecution
In the United States, several federal investigative agencies have responsibility for organizational crimes, but the Federal Bureau of Investigation (FBI) investigates most cases of suspected organizational crime. During 2006, it investigated 490 corporate fraud cases resulting in 171 indictments and 124 convictions of corporate criminals. The Environmental Protection Agency’s Criminal Enforcement Program investigates the most significant and egregious violators of environmental laws that pose a significant threat to human health and the environment. Organizations can be targets of criminal investigation and stand as defendants in cases where culpable individuals cannot be identified or where the likely cost of prosecuting successfully those who are is considered prohibitive.
The technical challenges of detecting, investigating, and prosecuting organizational crime are several. Many crimes go unreported, either because victims are unaware when they fall prey or because they prefer not to make public their misfortune. Officials who are made aware of organizational crimes may lack the expertise needed to investigate them adequately. Routinely, task forces composed of personnel from multiple agencies are required. Identifying culpable individuals and establishing criminal intent can be difficult. These are chief among the reasons prosecutors frequently opt for civil prosecution and the lower standard of proof required to sustain a successful outcome. They are also among the reasons why primary responsibility for oversight rests with regulatory agencies and the regulatory process. Official campaigns against white-collar and organizational criminals are uncommon, rarely result in significant escalation of sanctions, are applied to few organizations, and generally are not sustained for long.
When they screen cases of reported white-collar and organizational crime, prosecutors pay attention particularly to the number of victims, the extent of harm to them, and whether there was evidence of multiple offenses. They carefully weigh local economic conditions and interests and sometimes elect not to pursue aggressively crimes committed by businesses for fear of harming employment and the local economy. Likewise, concern for possible economic repercussions occurs on a grander scale in crimes where massive financial losses caused by organizational crime potentially could destabilize important financial institutions or markets. At every level and stage of the oversight process, the potential economic impacts affect the way options are weighed. The same occurs in other English-speaking nations where judges are permitted broad discretion in sentencing.
C. Courts and Sentencing
When organizations are sentenced for committing criminal violations, the range of options available to prosecutors and judges differs somewhat from what is available when individuals are sentenced; incarceration, for example, is not an option, since organizations cannot be confined. In other ways, however, the range of options expands and allows for sentences that either cannot be imposed on individuals or would be illegal or unethical. Other sentencing possibilities available for individuals lack a similar option when organizations are defendants, but functionally equivalent ones can be employed; organizations cannot be put to death as individuals can, but their license to do business can be revoked, and the effect of this for all intents and purposes may in some ways be comparable to death. Organizations can be compelled to change their internal structures in ways that would not be applicable when sentencing individuals; the latter cannot be ordered to develop a conscience, but organizations can be compelled to establish internal compliance units. The federal guidelines used when sentencing convicted organizations or officers permit sentencing judges to weigh as an aggravating factor the absence of an effective compliance and ethics program.
In 1991, the U.S. Sentencing Commission promulgated guidelines for sentencing convicted organizational defendants. The guidelines establish fine ranges meant to deter and punish criminal conduct, require full restitution to compensate victims for any harm, disgorge illegal gains, regulate probationary sentences, and implement forfeiture and other potential statutory penalties. The organizational guidelines apply to all felonies and serious misdemeanors committed by organizational defendants, but their fine provisions are applicable primarily to offenses for which pecuniary loss or harm can be more quantified (e.g., fraud, theft, and tax violations). In 1995, a total of 111 organizations were sentenced in U.S. district courts, and fine provisions were applicable to 83 of the defendants.
Between 2002 and 2007, there were 1,236 corporate fraud convictions in U.S. district courts (Shover & Scoggins, in press). Published tallies of organizational offenses are limited primarily to financial offenses and fraud, and they generally do not report on other types of crime. Environmental crime is a notable example. In the years 1995–2006, the number of organizational defendants sentenced annually in the United States fluctuated from a low of 45 (2006) to a high of 304 (in 2000). Given the extremely large number of organizations, these numbers seem minuscule and inconsequential.
As compared with what is known about the characteristics of individual white-collar offenders, the picture of organizational defendants is much less clear. Data on 601 organizations sentenced in U.S. district courts in 1988 and 1989 show that less than 1% were nonprofit organizations. Closely held companies represented 90.7% of sentenced firms, and 8.2% were publicly traded firms. Fraud and antitrust offenses accounted for 57.2% of all offenses, and environmental offenses comprised 9.3% (Shover & Scoggins, in press). Convicted organizational criminals disproportionately are small and midsize business firms. Apart from the question of whether or not this reflects higher levels of crime in smaller firms, studies in both the United States and other nations suggests that they are more likely than larger businesses to be singled out for investigation and prosecution. As compared with the risks and costs of targeting the large and powerful, criminal convictions or settlements are attained most economically by concentrating efforts on firms less likely to mount vigorous or sustained resistance. For organizations convicted and sentenced for crime in 1988 and 1989, “the typical case [was] a fraud that [resulted in] a loss of approximately $30,000” (Shover & Scoggins, in press). These are hardly crimes of the same sort or magnitude as those committed by Enron and other corporate criminals in the past decade, but they almost certainly are more typical of the larger population of organizational crimes; a substantial if undeterminable proportion is unremarkable, if not mundane.
D. Private Actions: Victims and Informants
As with crime victims generally, citizens and organizations victimized by organizational crime may be unaware of this fact. Because many of these crimes have the look and feel of routine transactions, they may not stand out in victims’ experience. In marked contrast to armed robbery, for example, billing customers for services that were not provided can get lost and remain hidden from victims in lengthy and complex financial statements. Understandably, those unaware of being victimized are in no position to respond to victimization.
The effects of victimization by organizational crime can ripple far beyond its immediate victims to harm others. When organizations dispose of hazardous materials in reckless and criminal fashion, the costs may be increased risk of health problems for innocent parties as well as the financial costs of cleaning up their poisonous legacies. The environmental damage caused by these crimes can make uninhabitable neighborhoods or communities and force the relocation of dozens of families. When victimized by organizational crime, small businesses may be forced into bankruptcy and their employees onto unemployment rolls. Where public bureaucracies are victimized, the larger community of taxpaying citizens may be the ultimate victim. They must pay the fare, for example, when local school districts are charged artificially high prices for products due to price fixing by ostensibly competitive suppliers.
Both individuals and organizations aware that they have been harmed by what they believe are criminal actions by others can pursue civil remedies to recover losses and press for punitive damages. It is impossible to determine from official data on civil litigation how many victims of organizational crime take civil action against organizations on the basis of alleged criminal conduct. Class action lawsuits usually are filed by a large number of parties, all of whom believe they have been harmed by a common offender. Class action suits make it possible for parties who otherwise could not afford litigation to pool their resources, form a class, and pursue redress. They originate in all areas of commercial life, including building and construction products, stocks and securities, drug and medical products, and motor vehicle products. In many class action suits, the cost of litigation exceeds the eventual settlement or court award.
Whistleblowers are citizens who divulge to enforcement agencies or personnel their suspicion or knowledge of wrongdoing in an organization. Some whistleblowers are officers or employees who report actions by their employer, but others are outsiders who learn about or observe suspicious conduct and report it. Internal informants and whistleblowers are one of the most important sources of discovery of crimes that victimize organizations. A global survey (Shover & Scoggins, in press) of more than 5,500 corporations found that law enforcement detected only 4% of crimes in which responding firms were victims of economic offenses perpetrated against them. Of the remaining cases in which companies were victimized, 60% learned from informants and 36% learned by accident. The number of firms that were victimized not by individuals but by organizations is not reported.
In the United States, federal legislation provides that whistleblowers can receive a proportion of any settlement or recoveries in cases where they provide key information. This is meant to spur insiders with knowledge of wrongdoing to come forward and report to authorities. Nearly all of the states also have enacted legislation providing employment protection and monetary rewards for whistleblowers.
Whistleblowers are targets of retaliatory and discriminatory actions by many organizations whose suspicious or illicit actions are reported to outside authorities. Organizational officials typically combat their accusations by questioning their motives and character and painting them as renegades. Faced many times with unwelcome notoriety and the financial costs of legal representation to resist retaliatory actions, the experience of whistleblowing can be extremely disruptive of life, work, and career routines. The toll on physical and emotional health can be devastating. Some organizations do not sit by when subjected to public criticism or rebuke; some use their resources not only to bully but also to retaliate against private citizens and civic groups. When they resist these actions, whistleblowers usually prevail, but the financial and emotional costs can be staggering.