IV. The Problem of Controlling White-Collar Crime
Taken together, the characteristics of white-collar crime— legitimate access, spatial separation, and appearance of legitimacy—raise special problems for its control by the criminal justice system. The most notable problem is that of detection. Most ordinary street crimes are detected by their victims, who can then report the incident to the police. However, in the case of white-collar crime, victims may be wholly unaware that they have been victimized. Hence, no crime may ever be reported to the police. Because discovery is problematic, it is difficult to estimate the magnitude of the white-collar crime problem and hence to make decisions regarding how to allocate resources toward its control.
A second control problem raised by white-collar crime involves assigning responsibility for the offense. Many white-collar crimes occur in organizational or corporate settings and are the result of collective actions taken by groups of people. In these cases, it is often difficult to identify the individual or individuals who should be held accountable for the illegal activity. Because it may not be clear who is responsible for a particular offense, prosecutors often are reluctant to bring such cases to trial.
Related to the problems of detection and accountability is the difficulty of securing convictions in court. Because white-collar crimes are often complex and embedded in legitimate business routines, it can be difficult for prosecutors to prove beyond a reasonable doubt that an individual is guilty of an offense. The major obstacle is proving that the offender knowingly intended to violate the law. For example, in the health care fraud example discussed above, the physician submits a fraudulent claim for reimbursement for services rendered. Even if it can be shown that the claim is not accurate, the physician may still be able to argue successfully in court that he or she did not intend to submit a false claim. Rather, the fraudulent claim was simply a mistake or accident and not an intentional act. The denial of criminal intent is a very common feature of white-collar trials.
Convictions are also difficult to secure in white-collar cases, because the defendants typically have access to strong defense counsel. Unlike ordinary street offenders, white-collar offenders often can afford to hire the very best defense lawyers. White-collar defense attorneys work hard to control the prosecutor’s access to information and evidence related to the alleged crime. For example, to demonstrate that a crime has occurred in a business setting, prosecutors often need access to company records and files. Defense attorneys can file motions and objections to attempts by prosecutors to secure search warrants. Although these motions are not always successful, they can make the prosecutor’s job more difficult and time consuming. The strategy of information control can make it difficult for prosecutors to build successful cases in court.
For the reasons discussed above, investigating and prosecuting white-collar crime cases is often very expensive and time consuming. These constraints limit the effectiveness of the criminal justice system as a means of controlling white-collar crime. Local law enforcement agencies have multiple and competing demands on their time and resources. They are under constant pressure to respond to gang-related, drug, and violent crimes. Not surprisingly, in this context, white-collar crimes are considered less important, and accordingly given lower priority when decisions are made regarding which cases to pursue. Although state and federal law enforcement agencies do not suffer from the same resource constraints as local agencies, they too are limited in their ability to respond to white-collar crime.
Criminal justice agencies operate under legal constraints that can make it difficult to use the criminal law successfully against white-collar offenders. Legal constraints refer to features of the law that make it more or less difficult for law enforcers to use. For example, the standard of proof in criminal court is very high, as the defendant’s guilt must be proved beyond a reasonable doubt. Because of their complexity, proving guilt beyond a reasonable doubt in white-collar cases is often difficult. Other legal constraints such as the right to be free from unreasonable searches and seizures and the privilege against self-incrimination also complicate the efforts of law enforcers to bring the guilty to justice.
For all of the reasons outlined above, most scholars agree that while the criminal justice system is an important component of white-collar crime control, it should not be the first line of defense. Rather, regulatory controls are considered to be more effective and efficient. The regulatory system holds three distinct advantages over the criminal justice system as a means of controlling white-collar and corporate crime: (1) specialized expertise, (2) greater investigative powers, and (3) more flexibility and discretion.
When they are established, regulatory agencies are given a mandate to look at problems in specific areas. For example, the Food and Drug Administration (FDA) is supposed to regulate the safety and quality of foods and drugs. The Environmental Protection Agency (EPA) looks after the environment, while the Securities and Exchange Commission (SEC) keeps track of activities in the securities industry. Because regulatory agencies are focused on specific problems and subject areas, agency personnel can develop specialized expertise. This expertise can help them see problems and envision solutions more easily than law enforcement agencies can.
As noted above, the police and other law enforcement investigative agencies operate under strict legal constraints. They typically cannot act until there is evidence that a crime has been committed and that a particular person or organization is involved. Regulatory agencies operate under fewer legal constraints, and in many cases they are given explicit authority to enter premises and to ask for information from business organizations. Hence, in theory, they can learn about potential problems before they happen rather than after the fact, and they can act proactively rather than reactively.
Finally, regulatory agencies also have more flexibility and discretion in the fashioning of their responses to corporate wrongdoing. The criminal justice system is, for the most part, restricted to applying the criminal law as it is enacted by legislative bodies. Regulatory agencies can work with businesses to create innovative solutions to problems.
However, there are disadvantages to overreliance on regulation. A significant problem is agency capture. By design and necessity, regulatory agencies must work closely with regulated industries. Agencies routinely ask for industry input on the development and implementation of rules. Regulatory inspectors also meet regularly with the people they regulate as they go about enforcing the rules. Hence, there is always the possibility that regulatory agencies will be “captured” by the regulated industry and begin to act more in the interests of the industry rather than the interests of the general public.
Another problem with regulation as a means of controlling corporate misbehavior is that the sanctions imposed by regulatory agencies are not nearly as powerful or threatening as those imposed by the criminal justice system. Regulatory agencies can impose large fines on violators. Yet, no matter how big the fine is, it does not carry the social stigma of criminal penalties. Hence, critics of the regulatory system argue that regulation doesn’t really deter wrongdoing. They argue that regulated businesses look at fines and other regulatory penalties as simply a cost of doing business.
Finally, there is the problem of regulatory unreasonableness. In theory, regulatory agencies are supposed to work to protect the public interest and to prevent harmful situations from developing in the first place. For example, it makes sense to establish rules to protect workers and to lower the risk that they will be made ill, injured, or killed on the job. But some agencies become more focused on enforcing the rules and less on preventing problems. If carried to an extreme, this tendency can lead to regulatory unreasonableness, in which the rules are enforced in a narrow-minded and legalistic fashion simply because they are the rules. The broader goal of preventing harm sometimes gets lost in the zeal to enforce the rules.