write a short paper (2-3 pages) analyzing the Watergate scandal of the early 1970’s.

DAVID O. FRIEDRICHS University of Scranton

Trusted Criminals White Collar Crime in Contemporary Society

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About the Author

David O. Friedrichs is Distinguished Professor of Sociology/Criminal Justice as of 9/09 at the University of Scranton. He was educated at New York University and taught for nine years at City University of New York (Staten Island). In addition to Trusted Criminals, he is the author of Law in Our Lives: An Introduction (Roxbury 2001, 2006) and editor of State Crime, Volumes I and II (Ashgate/Dartmouth 1998). He has published well over 100 journal articles, book chapters, encyclopedia entries, and essays on such topics as the legitimation of legal order, radical/critical criminology, violence, narrative jurisprudence, post- modernism, crimes of states, globalization and crime, and white collar crime. He is also the author of more then 300 published book reviews. He served as editor of the Legal Studies Forum between 1985 and 1989. He has been active with numer- ous professional associations and has chaired or served on the committees of a number of these associations. He currently serves on the editorial boards of eight journals. He has been a visiting professor or guest lecturer at a number of colleges and universities, including Ohio University (as Rufus Putnam Visiting Professor), the University of South Africa, Hebrew University (Israel), and Flinders University (Australia). He has served as president of the White Collar Crime Research Consortium (2002–2004) and received the Lifetime Achievement Award of the Division on Critical Criminology of the American Society of Criminology in 2005.

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Brief Contents

1 The Discovery of White Collar Crime 1

2 Studying White Collar Crime and Assessing Its Costs 34

3 Corporate Crime 60

4 Occupational Crime and Avocational Crime 96

5 Governmental Crime: State Crime and Political White Collar Crime 127

6 State-Corporate Crime, Crimes of Globalization, and Finance Crime 159

7 Enterprise Crime, Contrepreneurial Crime, and Technocrime 192

8 Explaining White Collar Crime Theories and Accounts 219

9 Law and the Social Control of White Collar Crime 250

10 Policing and Regulating White Collar Crime 277

11 Prosecuting, Defending, and Adjudicating White Collar Crime 309

12 Responding to the Challenge of White Collar Crime 345

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Contents

FOREWORD xix

PREFACE xxi

1 The Discovery of White Collar Crime 1 Edwin H. Sutherland and the Discovery of White Collar Crime 2

Box 1.1 E. H. Sutherland: The “Father” of White Collar Crime Studies 3 Box 1.2 The Meaning of White Collar Crime: Some Issues under Debate 5

Defining White Collar Crime 5 A Multistage Approach to Defining White Collar Crime 6 Social Harm and White Collar Crime 8 Trust and White Collar Crime 9 Respectability and White Collar Crime 10 Risk and White Collar Crime 11

Comparing White Collar and Conventional Crime Offenders 13

Age 13 Class 13 Box 1.3 Cross-Cultural and International Dimensions of White Collar Crime 14 Race 15 Gender 16 Other Demographic Variables and Differences 16 Criminal Careers 16

The Social Movement against White Collar Crime 17

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Images of White Collar Crime: The Role of the Media 18 Box 1.4 The National White Collar Crime Center 19

Exposing White Collar Crime 20 Informers and Whistleblowers 20 Box 1.5 The Media as Entertainment: White Collar Crime in Films and on TV 21 Box 1.6 Whistleblower or White Collar Criminal? 23 Muckrakers and Investigative Reporters 25 The Consumer Movement, Public Interest Groups, and Labor Unions 28 Box 1.7 The Internet, Blogs, and White Collar Crime 29 Box 1.8 Ralph Nader and the Consumer Movement 30 The Role of Politicians and Political Institutions 30 Criminal Justice Professionals and Academics (Including Criminologists) 32

Discovering White Collar Crime, in Sum 32

Key Terms 32

Discussion Questions 33

2 Studying White Collar Crime and Assessing Its Costs 34 Underlying Assumptions and Different Perspectives 35

Specific Challenges in the Study of White Collar Crime 35 The Complex Nature of White Collar Crime 36 Gaining Access for Research 36 Obtaining Statistics 36 Obtaining Research Support 37

Research Methods for Studying White Collar Crime 37 Box 2.1 A Case Study: The Revco Medicaid Fraud Case 38

Scholarly Research and White Collar Crime 38 Case Studies 38 Experiments 39 Surveys 40 Box 2.2 Designing a White Collar Crime Survey: Some Challenges 41 Observational Research 41 Secondary Data Analysis and Event History Analysis 41 Archival Data Analysis and Historical Ethnography 42 Content Analysis 43 Comparative Studies of White Collar Crime 43 Students’ Role as Researchers 43 Box 2.3 Public Perception of White Collar Crime: How Serious Is It? 44

Measuring White Collar Crime: How Prevalent Is It? 44 Box 2.4 Conventional Crime and White Collar Crime Rates 46

CONTENTS vii

Victimization Surveys and Self-Report Studies 47 Box 2.5 Measuring Specific Forms of White Collar Crime 48 The Need for Reliable Data 48

The Costs and Consequences of White Collar Crime 49 Direct Costs 49 Indirect Costs 51 Physical Costs 52 Other Costs 52

Victims of White Collar Crime 53 Box 2.6 Women as a Special Class of Victims of White Collar Crime 54 The Role of the Victim 55 Box 2.7 Organizations as Victims of White Collar Crime 56 Specific Forms of Suffering of White Collar Crime Victims 56 Box 2.8 Psychological Consequences of Fraud Victimization 58

Studying White Collar Crime and Assessing Its Costs, in Sum 58

Key Terms 59

Discussion Questions 59

3 Corporate Crime 60 The Historical Development of the Corporation and Corporate Crime 60

The Corporation in Modern Society 61 Box 3.1 “It’s Legal but It Ain’t Right” 63

A Typology of Corporate Crime 64

Corporate Violence 65 Corporate Violence against the Public: Unsafe Environmental Practices 65 Box 3.2 The Exxon Valdez and Prince William Sound 67 Corporate Violence against Consumers: Unsafe Products 68 Box 3.3 Corporate Destruction of a Community 69 Box 3.4 The Ford Pinto Case 72 Corporate Violence against Workers: Unsafe Working Conditions 73 Box 3.5 The Production and Sale of Tobacco: Corporate Crime? 74 Box 3.6 Asbestos and the Manville Corporation 75 Box 3.7 The Film Recovery Systems Case 76

Corporate Abuse of Power, Fraud, and Economic Exploitation 77

Crimes against Citizens and Taxpayers: Defrauding the Government and Corporate Tax Evasion 77 Box 3.8 Halliburton, Vice President Cheney, and Iraq War Contracts 78

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Crimes against Consumers: Price Fixing, Price Gouging, False Advertising, and Misrepresentation of Products 81 Crimes against Employees: Economic Exploitation, Corporate Theft, Unfair Labor Practices, and Surveillance of Employees 83 Box 3.9 The Enron Case and the Devastation of Employee Retirement Accounts 85 Crimes against Franchisees and Suppliers: Discount and Chargeback Frauds 85 Crimes against Competitors: Monopolistic Practices and Theft of Trade Secrets 86 Crimes against Owners and Creditors: Managerial Accounting Fraud, Self-Dealing, and Strategic Bankruptcy 87 Box 3.10 The Case against Microsoft 88 Box 3.11 Adelphia, HealthSouth, WorldCom, and Accounting Fraud 90

Are Universities and Colleges Corporate Criminals? 91 Box 3.12 Student Loan Industry and Fraudulent Conduct 93

Corporate Crime, in Sum 94

Key Terms 94

Discussion Questions 94

4 Occupational Crime and Avocational Crime 96 Crimes by Small Businesses: Retail Crime and Service Fraud 97

Retail Crime 98 Box 4.1 Occupational Crime as Violence: Drug Dilution, Fake Asbestos Removal and Crane Collapses 99 Defrauding Vulnerable People 99 Service Business Fraud 100

Crimes by Professionals: Medical, Legal, Academic, and Religious Crime 101

Medical Crime 102 Legal Crime 105 Box 4.2 Lawyers and the Abuse of Political Power 107 Academic Crime: Professors, Scientists, and Students 107 Box 4.3 Plagiarist or Hate Crime Victim? 108 Box 4.4 Student Loan Officials and Conflicts of Interest 109 Religious Crime 113

Employee Crime 114 Box 4.5 Exorbitant Executive Compensation: Just Reward or Grand Theft? 115 Forms of Employee Theft 116 Box 4.6 Embezzling from Charities and Non-Profit Institutions 117 Employers’ Responses to Employee Theft 117

CONTENTS ix

Box 4.7 Union Leaders Who Steal from Their Union Members 118 Alternative Forms of Employee Crime 118 Some Factors in Employee Theft 119 Box 4.8 Donkeys, Wolfpacks, Vultures, and Hawks: A Typology of Employee Theft 120 Conditions in the Workplace and Employee Crime 120

Avocational Crime and White Collar Crime 121 Income Tax Evasion 121 Box 4.9 Actor Wesley Snipes and a Tax Evasion Case 123 Other Forms of Avocational Crime 124

Occupational and Avocational Crime, in Sum 124

Key Terms 125

Discussion Questions 125

5 Governmental Crime: State Crime and Political White Collar Crime 127

Governmental Crime: Some Basic Terms 129

Governmental Criminality on an Epic Scale 130 The Vietnam War 131 Box 5.1 The Threat of Nuclear War as Crime—and Other Weapons of Mass Destruction 132 U.S. Military Activity in the “New World Order” 132

Forms of State Criminality 133 The Criminal State 133 Box 5.2 The Perception of the United States as a Criminal State, and President George W. Bush as a State Criminal 134 The Repressive State 136 Box 5.3 Suharto and the Looting of Indonesia 138 The Corrupt State 138 State Negligence 139

State-Organized Crime 141 The White House and State-Organized Crime 142 Box 5.4 The Watergate Affair 143 State-Organized Crime and Federal Investigative Agencies 144 Police Crime 146

Political White Collar Crime 147 Political System Corruption 147 Corruption in the Electoral Financing Process 147 Political White Collar Crime in the Executive Branch 148 Box 5.5 The Corrupt Firing of U.S. Prosecutors 151 Political White Collar Crime in the Legislative Branch 153 Political White Collar Crime in the Judicial Branch 154

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Governmental Crime, in Sum 155 Box 5.6 Police Corruption as a Form of “Political” White Collar Crime 156

Key Terms 157

Discussion Questions 158

6 State-Corporate Crime, Crimes of Globalization, and Finance Crime 159 State-Corporate Crime 159

Box 6.1 State-Corporate Crime, Nazi Germany, and the Holocaust 160

Crimes of Globalization 162 Box 6.2 Private Mercenaries and Military Contractors in Iraq; Operation Iraqi Freedom as Theft on a Grand Scale 163 Box 6.3 Economic Hit Men and Crimes of Globalization 164 Box 6.4 Sweatshops in Developing Countries: Criminal Enterprises or Economic Opportunities? 165 The Role of the World Bank in a Global Economy 165 The World Bank and Crimes of Globalization 166 Box 6.5 The Dam at Pak Moon: A Case of Global Crime by Jessica Friedrichs 167

Finance Crime 168 Banking/Thrifts Crime: The Savings and Loan Mess 169 Box 6.6 Frauds and the Collapse of the Subprime Mortgage Loan Market 172 Box 6.7 Investment Banks: Wealth Producers or Large-Scale Fraudsters? 174 Box 6.8 The Charles Keating Case 177 Box 6.9 The BCCI Case 178 Insider Trading 178 Finance Crime and Financial Markets 183 Box 6.10 Short Sellers Who Spread False Rumors: Worse than Inside Traders? 184 Box 6.11 Fraudulent Conduct in the Mutual Funds and Hedge Funds Industries 185 Box 6.12 The Title Insurance Industry and a Rigged Market 189

Hybrid White Collar Crime, in Sum 189

Key Terms 190

Discussion Questions 190

7 Enterprise Crime, Contrepreneurial Crime, and Technocrime 192 Enterprise crime: Organized crime and White Collar Crime 192

The Relation between Governmental Crime and Syndicated Crime 194

CONTENTS xi

Historical Roots of Organized Crime 195 Box 7.1 Joe Valachi of La Cosa Nostra and Carl Kotchian of Lockheed 196 The Relation between Syndicated Crime and White Collar Crime 196 Box 7.2 Arson as a Form of Enterprise Crime 198 Hazardous Waste Disposal 198 The Relation between Syndicated Crime and Finance Crime 198 Box 7.3 From Street Thug to Equity Markets Fraudster 199

Contrepreneurial Crime: Professional Criminals and White Collar Crime 200

Historical Origins of Professional Crime 200 The Relation between Professional Crime and White Collar Crime 200 Box 7.4 Joseph “Yellow Kid” Weil and the Big Con 201 Box 7.5 The Fence 202 Fraudulent Businesses: Swindles, Scams, and Rackets 202 Fraud 202 Box 7.6 Fraud in the World of Art and Antiquities 203 Box 7.7 Advance Fee Frauds 205 Box 7.8 Charity as Fraud 206 Box 7.9 Jordan Belfort and the Stratton Oakmont Penny Stock Fraud 207 Box 7.10 When Fraud Leads to Violence 211

Technocrime, Including Computer Crime 211 Technocrime Defined 212 Computer Crime 212 Box 7.11 Identity Theft as White Collar Crime 214 The Law and Computer Crime 215 The Pursuit of Computer Crime Cases 216 Other Types of Technocrime 216

Enterprise Crime, Contrepreneurial Crime, and Technocrime, in Sum 217

Key Terms 218

Discussion Questions 218

8 Explaining White Collar Crime Theories and Accounts 219 Underlying Assumptions and Points of Departure 220

What Do We Want to Explain? 220

Explaining White Collar Criminality 221 The Biogenetic Explanation 221 Box 8.1 The Demonic Explanation 222

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Psychological Explanations 222 Box 8.2 Mental Illness, Drug Addiction, and Intellectual Aptitude: Factors in White Collar Crime? 225 Sociogenic Explanations 225 Box 8.3 White Collar Delinquency 226

Organizational Criminality and the Crimes of Organizations 226

Organizational Responsibility 226 The Various Dimensions of Organizational Criminality 228 Box 8.4 Is Money the Cause of White Collar Crime? 231

Explaining White Collar Crime: Theories and Perspectives 231 General Theories of Crime and White Collar Crime Theory 231 Box 8.5 Low Self-Control and White Collar Crime 232 Classical Criminology and Rational Choice 233 Alternative Dimensions of Crime and Choice 234 Social Control and Bonds 234 Control Balance and Control Fraud Theories 234 Box 8.6 The Generative Worlds, the Lure, and the Sensual Attractions of White Collar Crime 235 Social Process and Learning 235 Interactionism and Labeling 236 Box 8.7 The “Presentation of Self ” and White Collar Crime 237 Neutralizations, Rationalizations, and Accounts 237

Structural Strain and the Structure of Opportunity 238

Conflict Theory and Criminogenic Societies 239 The Structure of Contemporary Capitalist Society and White Collar Crime 240 Box 8.8 Economic Wilding, Capitalism, and White Collar Crime 241 Radical and Critical Perspectives on White Collar Crime 241 Box 8.9 White Collar Crime in a Postmodern World 242

Explaining Criminalization and White Collar Crime 243

Integrated Theories of White Collar Crime 244 Box 8.10 An Integrated Theoretical Approach to State-Corporate Crime, and Crimes of States 245

An Integrated, Multilevel Approach to Understanding the Subprime Mortgage Loan Frauds 245

The Subprime Mortgage Market Frauds: Applying an Integrated Theoretical Approach 245

Explaining White Collar Crime, in Sum 247

Key Terms 248

Discussion Questions 248

CONTENTS xiii

9 Law and the Social Control of White Collar Crime 250 Social Control and White Collar Crime 250

Formal Law and White Collar Crime 251

The Historical Origins of White Collar Crime Laws 252 Box 9.1 The Carrier’s Case and the Law of Employee Theft 253

Contemporary Legislative Lawmaking and White Collar Crime 254

The Influence of Business on the Lawmaking Process 254 Box 9.2 The Dialectical Perspective on Lawmaking 255 Box 9.3 Bailout Legislation as Save-the-Economy Measures or Save–Wall Street Crooks Measures 256 Box 9.4 The Sarbanes-Oxley Act, and the Backlash Against It 258

Alternative Sources and Forms of Law and Lawmaking 258 The Constitution and Constitutional Law 258 Case Law 259 Executive Lawmaking 260 Administrative Law 261

A Selective Review of Substantive White Collar Crime Lawmaking 262

Antitrust Law 262 Occupational Safety and Health Laws 264 Box 9.5 The Foreign Corrupt Practices Act: Effective Law to Combat Global White Collar Crime—or Economically Harmful and Ineffective Law? 265 Environmental Protection Laws 265 The RICO Law 267 Box 9.6 White Collar Crime Law and the Legal Curriculum 268

Civil and Criminal Law and White Collar Crime 268

Law, Corporations, and the Concept of Criminal Liability 269

Box 9.7 Law Professor Stuart Green and the Moral Theory of White Collar Crime 270 Corporate Criminal Liability 270 Box 9.8 A Comparative Perspective on Corporate Criminal Responsibility 271 Corporate Personhood and Corporate Decision Making 273 Box 9.9 Proposed Colorado Ballot Measure on Corporate Fraud 274

Law and the Social Control of White Collar Crime, in Sum 275

Key Terms 275

Discussion Questions 275

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10 Policing and Regulating White Collar Crime 277 Criminal Justice System Policing: Law Enforcement 277

State and Federal Enforcement Agencies 278 The FBI 279 The Inspectors General 280 The U.S. Postal Inspection Service 281 The U.S. Secret Service, U.S. Customs Service, and U.S. Marshals Service 281 The Internal Revenue Service’s Criminal Investigative Division 282

The Regulatory System Response 283 The Origins and Evolution of Regulation 284 The Creation and Operation of Federal Regulatory Agencies 285 Box 10.1 The Contemporary Debate on Regulation 286 The Regulatory Agency’s Philosophy: Compliance versus Deterrence 287 Criticisms of Regulatory Agencies 289 Other Factors in Regulatory Response 290 Prominent Regulatory Agencies and Their Functions 290 Box 10.2 The Role of Regulation in Relation to the Global Economic Crisis 291 Box 10.3 Agency Capture 292 Box 10.4 The SEC in Recent Years, and the Financial Crisis of 2008 294 Box 10.5 Protecting the Environment: Alternatives to Relying Upon the EPA 296

Private Policing 297 Box 10.6 Forensic Accountants as Fraud Detectives 299

The Role of Lawyers and Accountants in Policing White Collar Crime 299

Lawyers and Professional Ethics 300 Accountants and Auditing Responsibilities 302

Self-Regulation: Internal Controls and Professional Associations 303

Box 10.7 Credit Rating Agencies as a Failed Policing Entity 304 Box 10.8 The Role of Corporate Boards in Self-Regulation 305 Self-Regulation in Financial Firms 305 Self-Regulation and the Professions 306

Policing and Regulating White Collar Crime, in Sum 307

Key Terms 308

Discussion Questions 308

CONTENTS xv

11 Prosecuting, Defending, and Adjudicating White Collar Crime 309 Prosecution at the Local, State, and Federal Levels 310

Local Prosecutors 310 Box 11.1 The Pinto Case: Prosecuting the Ford Motor Company 312 State Attorney Generals 312 Box 11.2 New York Attorney Generals and Wall Street Crime 313 Federal Prosecutors 313 Box 11.3 Deferred Prosecution Agreements and Lawyer–Client Privilege Waivers 315 The Prosecution of Antitrust Cases 316 The Prosecution of Environmental Crime 316 Box 11.4 Prosecutorial Initiatives in Response to the Financial Crisis of 2008 317 Special Prosecutors (Independent Counsel) 318

The Role of the Grand Jury in White Collar Crime Cases 319

Defending White Collar Criminals 319 Box 11.5 “Perp Walks” for White Collar Crime Defendants 320 Box 11.6 To Testify or Not to Testify 322

Adjudicating White Collar Crime: Plea Bargaining and Trial 324

Box 11.7 The Enron Trial of Kenneth Lay and Jeffrey Skilling 325

The Role of the Trial Jury 326 Box 11.8 Punitive Damages, the U.S. Supreme Court, and the Role of Juries 327 Box 11.9 Reversal of Arthur Andersen Conviction Due to Jury Charge by Judge 328

Judges and the Sentencing of White Collar Criminals 328

Sentencing 329 Explaining Disparities in Sentences for White Collar Offenders 330 Sentencing Organizational Offenders 332 Sentencing Guidelines and White Collar Offenders 333

White Collar Criminals in the Correctional System 335 Box 11.10 House Arrest as Punishment 337

Civil Suits 337 Box 11.11 Plaintiffs’ Lawyers as Heroes—and as Villains 339 Box 11.12 The Role of Mediators and Arbitrators in the Settlement of Complaints 340 Citizen Suits and Class Action Suits 341 Collateral Civil Suits 342

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Prosecuting and Adjudicating White Collar Crime, in Sum 343

Key Terms 343

Discussion Questions 343

12 Responding to the Challenge of White Collar Crime 345 Raising Consciousness about White Collar Crime 346

Policy Options for Responding to White Collar Crime 346

Responding to White Collar Crime as a Moral Issue 347 Box 12.1 Do Moral Appeals Work? 348 Business Ethics Courses in the Curriculum 348 Business Ethics within the Business World 349

Securing Compliance and Sanctioning White Collar Crime 350 Box 12.2 Corporate Human Rights Obligations and Corporate Social Responsibility: Promotion of Ethical Corporations—or Simply Good Public Relations? 351

Law and the Coercive Response to White Collar Crime 352 Box 12.3 Shaming as a Response to White Collar Crime 353 Civil Suits and Penalties 353 Compliance versus Punitive Approaches to Corporate Crime 354

Deterrence and White Collar Crime 355 Box 12.4 Retribution and “Just Deserts” for Corporate Crime 356 Box 12.5 “Scared Straight” for Potential White Collar Criminals? 358

Rehabilitation, Probation, and Enforced Self-Regulation 358 Probation 359 Enforced Self-Regulation 359

Fines, Restitution, and Community Service 360 Sentencing Guidelines for Fines 361 Restitution 362 Community Service 362

Occupational Disqualification 362 Box 12.6 Contractual Disqualification for Corporations 363

Incarceration 363

Organizational Reform and Corporate Dissolution 364 Box 12.7 Citizen Works Proposals for Cracking Down on Corporate Crime 365 Box 12.8 Scandinavian Countries’ Initiatives Against White Collar Crime 366

Responding to Residual Forms of White Collar Crime 367

Controlling Governmental Crime 367 Box 12.9 Responding to White Collar Crime Internationally 368

CONTENTS xvii

Structural Transformation as a Response to White Collar Crime 368

Responding to the Challenge of White Collar Crime, in Sum 369

A Concluding Note: Trusted Criminals and White Collar Crime in the 21st Century 370

Key Terms 371

Discussion Questions 371

REFERENCES 372 NAME INDEX 430 SUBJECT INDEX 446

xviii CONTENTS

Foreword

One of the most well-established facts in criminology is the “age–crimecurve,” which holds that younger people commit more crimes than older people and that, as criminally active young people begin to age, their level of criminality begins to wane. The age–crime curve explains a great deal about what we ordinarily think of as the subject matter of criminology: young and sometimes violent males. The age–crime curve explains why it does not surprise us to see our prisons filled with young adults, because we have come to expect that crime is a matter of youth.

And for the most part, this is not a false idea. But when it comes to “white collar” crime, a different notion emerges. For this kind of crime requires access to sources of significant money, especially through business, and it denotes the exis- tence of a foundation of trust that is used to make the crime possible. Neither of these requirements—access and trust—seem to go with youth very well. It may take a few years in the business community to obtain access to the kinds of ac- counts that make really successful white collar crime lucrative, and it takes some years of work to generate the kind of trust that makes white collar crime possible. The people who defrauded so many in the case of Enron were middle-aged, older citizens of repute as were the people from WorldCom who bankrupted that com- pany. They had been active in business for long enough to gain reputations of some significance, and they had the kind of leverage that meant they could move large amounts of cash and credit on the strength of their signature.

White collar crime, then, is different from the kinds of crime that we usually study, for the ordinary rules do not seem to apply so well. Most white collar of- fenders are not kids; they are adults with years of experience in the world that they violate. Most white collar offenders are not poor, but middle class or even affluent. Most white collar criminals are not socially disadvantaged but rather have the enormous social boon that allows them to prey on those who most trust them.

White collar crime is different in another respect. It is not studied with as much fervor as “street crime.” This is curious, because every scholar who writes

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about white collar crime will say that the total financial cost of this kind of crime far exceeds that of street crime; the likelihood of being a victim of white collar crime is far greater than the likelihood of ever being a victim of a serious street crime; and the damage done to people who suffer at the hands of white collar criminals can be every bit as devastating to their quality of life as street crime. For these reasons alone, attaining a better understanding of the problem of white collar crime is an essential task of any student of crime and justice.

As editor of the Wadsworth Contemporary Issues in Crime and Justice Series, I am delighted to announce the publication of the fourth edition of Trusted Criminals: White Collar Crime in Contemporary Society by David O. Friedrichs. White collar crime is a topic that is often neglected or insufficiently discussed in today’s text- books, and this book is a classic examination of the problem.

This book will change the way you think about crime. It will show you how a better understanding of white collar crime will put the problem of street crime in a different perspective, and it will paint a picture of the criminal justice system that will leave you forever as an advocate for better crime prevention of white collar offenses.

Professor Friedrichs is an internationally known scholar who has devoted his career to furthering our understanding of nontraditional crime and its conse- quences. His work has exposed the importance of the costs of white collar crime, the impact of white collar victimizations, and the need for more effective public policy about white collar offenses. In this book, he brings together the most re- cent literature on white collar criminality to inform the reader on this broad topic, with a confidence and comprehensiveness that no other text achieves. The work goes beyond an introduction and becomes an incisive examination of the phenomenon. Those who feel they have a good grounding in this area will find much in this book that is new and challenging; those who are neo- phytes to the topic will be stunned at how much there is to learn.

I commend this book to you. In the study of crime and justice, there is an enormous gap between the everyday material covered by popular news and other media and the dire and overwhelmingly harmful consequences of the “in- visible” white collar criminality known to criminologists. This book will open your eyes and leave you forever informed about a kind of crime that matters far more than is commonly thought.

Todd R.Clear President, American Society of Criminology

xx FOREWORD

Preface

This edition of Trusted Criminals was written and went into production during2008–2009, a period in which the United States was experiencing its greatest economic crisis since the Great Depression. Indeed, a global economic and finan- cial crisis was occurring during this period, a reflection of the increasingly inter- connected character of the world’s economies and financial systems. Although the causes of the economic and financial crises are ultimately complex, there can be no question that white collar crime—broadly defined—played a central role in bringing them about. Wall Street financial institutions that were trusted to oversee trillions of dollars of assets, and enjoyed an eminently respectable status, undertook unwarranted risks with the downside imposed upon investors and tax- payers, with immense social harm as a consequence (the italicized key terms, in relation to white collar crime, are all addressed in Chapter 1). Large-scale finan- cial misrepresentations and fraudulent conduct were directly complicit, then, in an ongoing crisis that has brought about trillions of dollars of losses to investors, taxpayers, homeowners, and retailers, among others. Retirement and savings accounts—including college savings accounts—have been devastated. Millions of people have experienced or faced foreclosure on their homes. An immeasurable amount of anxiety and emotional distress occurs in these circumstances. The cri- sis has also contributed to exposing especially blatant, outright investment frauds involving hundreds of millions of dollars, and in one case, possibly as much as $65 billion. And as another important dimension of the current crises, the failures of our law and the regulatory system to put into place effective legislation, reg- ulations, and enforcement practices that might have at least limited, if not wholly prevented, the large-scale frauds, is also widely recognized now. Altogether, the present economic and financial crisis brings into especially sharp relief the ex- traordinary significance of white collar crime, and its control. This text addresses these topics on many different levels. Much has occurred in the realm of white collar crime and its control since the last edition of this book went into produc- tion in 2005–2006. Accordingly, a new edition of this text seemed warranted.

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Close to 20 years have now passed since I began working on this book. The significance of white collar crime has become ever more clear during these two decades. I have been gratified by the uniformly positive published reviews of this book and by the fact that it has been adopted for use in undergraduate- and graduate-level courses in the United States, Canada, England, Israel, Finland, Russia, and elsewhere. It has been translated into Japanese. And it continues to be widely cited by scholars writing about white collar crime.

The original edition of this book was inspired by several considerations. Although white collar crime is immensely consequential, it has been relatively ne- glected by criminologists and is characterized by much conceptual confusion. When I began working on this text, only two books had been published that could be described as white collar crime texts, and neither of them systematically addressed the range of issues arising in connection with white collar crime and its control. Quite a number of white collar crime textbooks and readers have been published in recent years. However, a number of published reviews have identified this book as exceptionally comprehensive in its coverage, and I believe it remains the single most comprehensive survey of what is known about white collar crime and its control. This book is intended primarily as a text for advanced undergraduate- and graduate-level courses on white collar crime and closely re- lated matters. However, it should be useful to scholars and other parties interested in white collar crime because it endeavors to clarify various conceptual and theo- retical issues and to survey critically a large and unwieldy literature. It also aims to provide a relatively balanced presentation of the many controversies involved in white collar crime.

RAT IONALES FOR STUDYING WHITE

COLLAR CR IME

White collar crime—and more generally, the illegal, unethical, or deviant activ- ity of respectable institutions and individuals—has been relatively neglected in the study of crime and deviance. Traditionally, criminology has focused on “street crime,” not “suite crime.” The sociology of deviance has emphasized the activities of “nuts, sluts, and perverts,” not of corporate executives, physi- cians, and retail store owners, and this relative neglect has been generally re- flected in the media. But one of the guiding premises of this book is that the range of activities that can fall under the heading of white collar crime is more pervasive and more costly to society than are conventional crime and deviance.

The study of white collar crime should obviously be of interest to students planning criminal justice careers and to people already employed in the criminal justice system. In recent years, white collar crime has received more attention from the criminal justice system, and there is reason to believe that this attention will increase in the years to come. As the investigation and prosecution of white collar crime increases, career opportunities for individuals who are well-informed about this type of activity should expand. The prevention of some forms of white collar crime is also a major concern in the private sector, creating career

xxii PREFACE

opportunities in this realm as well. One of the many paradoxical characteristics of white collar crime that will be explored here is that even though much white collar crime is committed within the context of legitimate governmental and business activities, careers combating such crime can be pursued in either the public or private sector.

The study of white collar crime is likely to be of interest to students of the social and behavioral sciences because white collar criminality, as it is defined here, often involves human behavior in its most devious and diabolical forms. This type of activity raises fundamental questions about human nature and re- sponsibility. It forces us to confront the harsh realization that the distinctions be- tween crime and order are not as great as we like to imagine and that those who benefit most from a stable social system often do the most to threaten its well- being. Few areas of human activity reveal more starkly the complex relationship between the productive and the destructive aspects of human nature than does white collar crime. We cannot fully understand our political, economic, and so- cial institutions without attending to white collar crime, and our understanding of human psychology is deepened through the study of white collar criminals.

The law in the white collar realm that confronts prelaw and law students is especially dynamic and complex. The problem of corporate liability poses special difficulties, and the subtle and sometimes arbitrary lines of demarcation between criminal law and civil law are crucial aspects of the study of white collar crime.

A strong argument can be made that a deeper understanding of white collar crime should prove useful and relevant to students in any major. As citizens, em- ployees, employers, and professionals, most of us are likely to be affected more by white collar crime than by any other type of criminal activity. And if we or the people with whom we have the most regular contact become involved in illegal- ities, such activities are quite often going to involve some form of white collar crime.

Finally, if the problem of white collar crime is to be effectively addressed, many ordinary citizens must be aware of the nature of the problem and be will- ing to engage with the forces involved in it. Certainly one objective of this book is to promote this consciousness and engagement.

NEW TO THIS EDIT ION

Much of the original organization of the book is retained, but I have also made a number of significant changes. First and foremost, updates drawing on material published in 2008—and early 2009—have been incorporated throughout the book. Altogether, some 875 new sources are cited in this edition. Many big stories have broken in recent years, including the historically momentous election of President Barack Obama. But as was noted earlier, the on-going financial and economic crisis is surely as big a story as any, and white collar crime is a key di- mension of this story. As this book goes to press, there are ongoing Congressional hearings on the laws and regulations that are now needed to minimize the chances of a recurrence of the broadly diffused forms of wrongdoing that have helped bring about the worst economic crisis since the Great Depression.

PREFACE xxiii

When the last edition of Trusted Criminals went to press the single highest- profile criminal trial of the “corporate scandals” of the 2000s—that of former Enron CEOs Kenneth Lay and Jeffrey Skilling—had not yet concluded. The outcome of that trial, as well as some other noteworthy white collar crime trials of the past couple of years, is addressed in this edition at various points, but especially in Chapter 11.

The previous edition of this book made note of significant fraud in relation to subprime mortgage loans. However, in 2007–2008 this form of fraud—and its especially broad scope—came to be recognized as a central cause of the financial and economic crisis. Accordingly, far more space is devoted to frauds linked with subprime mortgage loans, in Chapter 6 and elsewhere. Major new cases of the whole range of white collar crime that surfaced over the past few years—from unethical or illegal activity in the pharmaceutical industry to new technocrime initiatives—are addressed in Chapters 3 to 7. Of special interest to student readers of this text—accusations of wrongdoing in relation to student college loans—also surfaced during this period, and are addressed in Chapters 3 and 4. The George W. Bush administration, in the final stretch of its eight-year run, was accused of complicity in various forms of wrongdoing—including the corrupt firing of fed- eral prosecutors—and these matters are addressed especially in Chapter 5, as are dramatic new cases of crimes of states, and political white collar crime (e.g., the conviction—subsequently vacated due to prosecutorial misconduct of Alaska Senator Ted Stevens on corruption charges).

This editor addresses new dimensions of massive fraud in the world of high finance which have surfaced during the past few years. Concerns expressed in earlier editions of this book about the potential for more pervasive forms of fraud in the insurance and hedge fund industries have unfortunately been borne out, and are addressed in Chapter 6, in particular. Accounting fraud was discovered at mortgage giant Fannie Mae. These emerging forms of fraud are addressed in Chapter 6.

Criminologists who specialize in white collar crime continue to develop new theoretical approaches and explanations, including the application of control balance theory to white collar crime—and the role of money itself as a “cause” of such crime. These new developments are addressed in Chapter 8.

The Sarbanes-Oxley (SOX) Act was one major, legislative response to the accounting frauds associated with Enron and other corporations. There has been much discussion on the role of inadequate regulation in allowing the financial crisis to occur; about that lack of regulation is addressed here. The response of the business community to Sarbanes-Oxley and various regulatory initiatives is discussed in Chapters 9 and 12.

A shift in prosecutorial practices in response to major forms of corporate crime has taken place during the last few years, and includes the increasing use of deferred prosecutorial agreements. Also, since the last edition of this book was published, high-profile business executives have received lengthy sentences in white collar crime cases; this includes Jeffrey Skilling of Enron, who received a prison sentence of more than 25 years. The controversies that arose in connection with these practices and sentences are addressed in Chapters 11 and 12.

xxiv PREFACE

Calls for more effective responses to corporate crime and white collar crime generally have intensified. Some recent responses, ranging from “Scared Straight” programs for white collar crime to large-scale initiatives against corporate crime in Scandinavia are considered in Chapter 12. A significant level of concern with white collar crime and its control seems likely to expand in the years ahead.

Finally, this new edition of Trusted Criminals features numerous new boxes, including:

■ Whistleblower or White Collar Criminal? ■ The Student Loan Industry and Fraudulent Conduct ■ Plagiarist or Hate Crime Victim? ■ Student Loan Officials and Conflicts of Interest ■ Embezzling from Charities and No-Profitable Institutions ■ Actor Wesley Snipes and a Tax Evasion Case ■ The Corrupt Firing of U.S. Prosecutors ■ Economic Hit Men and Crimes of Globalization ■ Frauds and the Collapse of the Subprime Mortgage Loan Market ■ Short Sellers Who Spread False Rumors: Worse Than Inside Traders? ■ The Title Insurance Industry and a Rigged Market ■ From Street Thug to Equity Market Fraudster ■ Fraud in the World of Art and Antiquities ■ Jordan Belmont and the Stratton Oakmont Penny Stock Fraud ■ Is Money the Cause of White Collar Crime? ■ An Integrated Theoretical Approach to State-Corporate Crime and Crimes

of States ■ Bailout Legislation as Save-the-Economy Measures or Save-the-Wall-Street

Crooks Measures ■ The Foreign Corrupt Practices Act: Effective Law to Combat Global White

Collar Crime—or Economically Harmful and Ineffective Law? ■ Proposed Colorado Ballot Measure on Corporate Fraud ■ The Role of Regulation in Relation to the Global Economic Crisis ■ The SEC in Recent Years and the Financial Crisis of 2008 ■ Credit Rating Agencies as a Failed Policing Entity ■ Deferred Prosecution Agreements and Lawyer–Client Privilege Waivers ■ Prosecutorial Initiatives in Response to the Financial Crisis of 2008 ■ The Enron Trials of Kenneth Lay and Jeffrey Skilling ■ Corporate Human Rights Obligations and Corporate Social Responsibility:

Promotion of Ethical Corporations or Simply Good Public Relations

PREFACE xxv

■ “Scared Straight” for Potential White Collar Criminals? ■ Scandinavian Countries’ Initiatives against White Collar Crime

Many of the existing boxes have been substantially revised and updated, especially the following:

■ Cross-Cultural and International Dimensions of White Collar Crime ■ The Internet, Blogs, and White Collar Crime ■ Conventional Crime and White Collar Crime Rates ■ Women as a Special Class of Victims of White Collar Crime ■ Occupational Crime as Violence: Drug Dilution, Fake Asbestos Removal,

and Crane Collapses ■ Exorbitant Executive Compensation: Just Reward or Grand Theft? ■ The Perception of the United States as a Criminal State, and President

George W. Bush as a State Criminal ■ Private Mercenaries and Military Contractors in Iraq: Operation Iraqi

Freedom as Theft on a Grand Scale ■ Investment Banks: Wealth Producers or Large-Scale Fraudsters? ■ Fraudulent Conduct in the Mutual Funds and Hedge Funds Industries ■ When Fraud Leads to Violence ■ Identity Theft as White Collar Crime ■ White Collar Delinquency ■ Low Self-Control and White Collar Crime ■ The Generative Worlds, the Lure and the Sensual Attractions of White

Collar Crime ■ The Dialectical Perspective on Lawmaking ■ The Sarbanes-Oxley Act and the Backlash Against It ■ The SEC in Recent Years and the Financial Crisis of 2008 ■ The Role of Corporate Boards in Self-Regulation ■ New York Attorney Generals and Wall Street Crime ■ To Testify or Not to Testify ■ Punitive Damages the U.S. Supreme Court and the Role of Juries ■ Plaintiffs Lawyers as Heroes—and Villains ■ The Role of Mediators and Arbitrators in the Settlement of Complaints ■ Shaming as a Response to White Collar Crime ■ Retribution and “Just Rewards” for Corporate Crime ■ Responding to White Collar Crime Internationally

xxvi PREFACE

ORGANIZAT ION

This text provides a systematic survey of white collar crime and its control. It addresses many topics that tend to be either slighted or excluded in other texts on white collar crime. Chapters 1 and 2 address the historical development of the concept of white collar crime; crucial elements of white collar crime—trust, re- spectability, and risk; the role of the media and other agents in shaping our image of white collar crime; those who expose white collar crime, from whistleblowers to investigative reporters to criminologists; the challenges involved and the spe- cific methods used in studying white collar crime; perceptions of white collar crime relative to other types of crime; the measurement of the costs and extent of white collar crime; and the victims of white collar crime.

Chapters 3 through 7 are devoted to systematic surveys of what we know about high-consensus forms of white collar crime, such as corporate crime and occupational crime, and about often-neglected cognate, hybrid, and marginal forms of white collar crime, including governmental crime, state-corporate crime, crimes of globalization, finance crime, technocrime, enterprise crime, contrepreneurial crime, and avocational crime. Two typically neglected and sen- sitive topics—universities and colleges as corporate criminals, and academics as white collar offenders—are covered in two of these chapters.

Chapter 8 offers a comprehensive survey and evaluation of the whole range of theoretical explanations for white collar crime, from demonological to post- modernist and from individualist to structuralist. Chapters 9, 10, and 11 provide a full treatment of the law and other forms of social control of white collar crime; the justice system response to such crime by many different entities, rang- ing from local police to federal regulatory agencies; and the adjudication of white collar crime, including the roles of grand juries, trial juries, prosecutors, defense attorneys, and judges, as well as a discussion of sentencing guidelines. Finally, Chapter 12 offers an exhaustive survey of the many possible responses to white collar crime, from the imposition of fines to the structural transformation of the social order.

SPEC IAL FEATURES OF TH IS TEXT

This text includes numerous boxes illustrating a wide range of white collar crime–related matters. It also includes summaries, lists of key terms with the page numbers on which the terms are defined, and discussion questions at the end of each chapter. In sum, this book explores the conceptual, metaphysical, and methodological issues involved in the study of white collar crime. It delves into the character, causes, and consequences of this type of crime and explores the relationship of white collar crime and elite deviance to other types of illegal and deviant activity. This text examines the response of the law and the justice system to white collar crime and considers the prospects for deterring, prevent- ing, and obliterating white collar crime.

PREFACE xxvii

A NOTE TO INSTRUCTORS

That considerable lack of consensus exists on matters pertaining to white collar crime is reflected by disagreement over usage of the text’s central term: Should it be “white collar crime” or “white-collar crime”? The more common (and, from a strictly grammatical point of view, more correct) usage is “white-collar crime,” but I have omitted the hyphen because it suggests too literal a reading of the term, which is better thought of as a metaphor. Interestingly enough, the seminal work in the field, E. H. Sutherland’s White Collar Crime, did not use this hyphen (although even Sutherland was not completely clear on this matter and used a hyphen in his original 1940 article on white collar crime).

White collar crime is a problem in all contemporary societies. This text uses examples from the United States for most illustrative purposes. Obviously, the specific character of and response to the white collar crime problem varies from nation to nation, but many parallel patterns exist in all countries. References to other countries and societies are made and at least some of the foreign literature on the subject is drawn upon and cited; however, as a practical matter, it is sim- ply not possible to make a systematic, cross-cultural comparison. To date, white collar crime and the justice system response to it are far more fully documented for the American experience than for other countries, although the literature for such countries as Great Britain, Australia, and Canada is now considerable.

White collar crime courses are relatively new additions to the curriculum in most criminology and criminal justice programs, and they are offered under var- ious titles and with a variety of approaches. Some instructors are especially con- cerned with identifying the broad varieties of white collar crime and the different theoretical explanations for them. Other instructors are far more concerned with white collar crime as a problem of social control and with the justice system’s response to it. This text was developed to accommodate the considerable diver- sity of perspectives on making sense of white collar crime. The order of the chapters is reasonably consistent with a conventional criminological approach to crime and criminal justice, but this arrangement inevitably is arbitrary in certain respects. Each chapter was written to stand alone, and thus instructors can ar- range the chapters to suit different approaches. For example, Chapter 9 on law and social control, Chapter 10 on policing and regulating white collar crime, and Chapter 11 on adjudicating white collar crime cases can be assigned first and followed by the substantive chapters on different types of white collar crime. A variety of rearrangements are clearly possible.

A test bank is available to all instructors who adopt this text. Also, a website now contains links to sites relevant to the focus of this book (these links were in Appendix B in the second edition and have been updated).

All authors welcome responses to their work, and I am no exception. I have attempted to produce a book that is clear, accurate, informative, and thorough, but I recognize that some readers may have comments or suggestions. Any comments—positive or negative—and suggestions can be sent to me at David O. Friedrichs, Department of Sociology/Criminal Justice, University of Scranton, PA 18510-4605; e-mail: friedrichsd1@scranton.edu. Comments and

xxviii PREFACE

suggestions will be especially helpful for future editions of this book. Substantial comments and suggestions will be properly acknowledged in any new edition.

ACKNOWLEDGMENTS

The making of this book can be traced back several decades to my interest in crimes of the powerful and privileged in the 1970s. From the early 1980s on, I offered a white collar crime course, and beginning in 1990, I began systematic work on writing this text. Since I sent the original manuscript to the publisher in 1995, I have continued to follow developments relating to white collar crime and its control, and have updated my files. The present edition was written principally during the course of 2008 but drew upon ongoing research from earlier years.

Many different individuals contributed in diverse ways to the making of this book over the course of many years. Perhaps my most basic debt is due to the numerous scholars and journalists whose work is cited throughout this text. I have learned a great deal from their prodigious labors and can only hope I have done justice to their efforts in my discussions of and references to their work.

Among those who have provided me with inspiration, encouragement, ad- vice, materials, or useful feedback in connection with this project are the follow- ing: Anne Alvesalo, Menachem Amir, Richard Ball, Harold Barnett, Gregg Barak, Peter Benekos, Michael Benson, Thomas J. Bernard, William K. Black, Michael Blankenship, Tim Boekhout van Solinge, John Braithwaite, Ronald Burns, Kitty Calavita, Ronald Clarke, Frank Cullen, Mary Dodge, Rob Elias, Rob Faulkner, Marcus Felson, Jurg Gerber, Andrew Goldsmith, Erich Goode, Peter Grabosky, Penny Green, Stuart Green, Neal Gunningham, Maria (Maki) Haberfeld, Frank Hagan, Fiona Haines, Stuart Henry, Stuart Hills, Kristy Holtfreter, Drew Humphries, David Kauzlarich, Ron Kramer, William Laufer, Alfred McClung Lee, Paul Leighton, Michael Levi, Craig Little, Jarret Lovell, Rodnaey Huff, Michael Lynch, Simon Mackenzie, Marinella Marmo, Gary Marx, Rick Matthews, Danielle McGurrin, Jeffrey McIllwain, John McNeill, Marilyn McShane, Robert Meier, Jim Messerschmidt, Dragan Milovanovic, Russell Mokhiber, Chris Mullins, Stephen Muzzatti, David Nelken, Larry Nichols, Nikos Passas, Frank Pearce, Simon Pemberton, Sharon Pickering, Nicole Leeper Piquero, Gary Potter, Gary Reed, Nancy Reichman, Matthew Robinson, Linda Robyn, Debra Ross, Jeffrey Ian Ross, Dawn Rothe, Rick Sarre, Kip Schlegel, David Shichor, Neal Shover, Rashi Shukla, David Simon, Sally Simpson, Alette Smeulers, Liska Snyder, Lizzie Stanley, Andreas Tomaszewski, Steve Tombs, Ted Treibick, Henry Vandenburgh, Diane Vaughan, David Weisburd, Mike Welch, Rob White, Dave Whyte, Frank Williams, John Wozniak, and Peter Yeager. I appreciated the initiative of Carole Garrison of Eastern Kentucky University, Dawn Rothe of Western Michigan University, and Danielle McGurrin of Stonehill College, and Chrys Gabrich of Carlow University in bringing me to their campuses for lectures on white collar crime, which inspired me to refine some of my ideas on the subject. Invitations from Leslie Sebba and David Weisburd to participate in a Hebrew University Conference on Corruption,

PREFACE xxix

from Sharon Pickering and Jude McCulloch to participate in a Prato Transnational Crime Roundtable, from Alette Smeulers and Roelof Haveman to participate in a Maastricht Supranational Crime Conference, from Bill Chambliss and Ray Michalowski to participate in an Onati State Crime Workshop, from David Nelken and Stijn Franken to participate in a Utrecht Comparative Criminology Symposium, and from Carole Garrison to participate in a World Without Borders Symposium, led to experiences that greatly enriched my under- standing of white collar crime, broadly defined. Staff members of the National White Collar Crime Center were supportive during my two-year term (2002– 2004) as president of the White Collar Crime Research Consortium, and I made various helpful contacts in this connection. Larry Nichols of West Virginia University contributed a listing of white collar crime films to the two previous editions of this text. Andreas Tomaszewski produced a fine instructor’s manual/ test bank for the previous edition of this book, and this manual has now been updated by Kietyrn Samuelsen and Rachel Tracewski. I appreciate the fine work of all three of these individuals on this project.

I apologize to others whose names I may have inadvertently omitted here. I am especially grateful to Richard Quinney (Emeritus, Northern Illinois University) and Gilbert Geis (Emeritus, University of California—Irvine) for seminal inspira- tion in terms of my interest in white collar crime and for their encouragement and assistance. As always, I am also indebted to Martin D. Schwartz (Ohio University— Emeritus) for ongoing encouragement, advice, and inspiration. I enjoyed working with Marty on a chapter on white collar crime and low self-control for Erich Goode’s (2008) Out of Control: Assessing the General Theory of Crime, during which time he discovered—perhaps to his surprise—that he knows something about white collar crime.

At the University of Scranton, the Faculty Research Committee, the Faculty Development Committee, and the University Travel Committee provided crucial support in several forms: annual faculty research grants, which enabled me to visit research libraries, acquire essential research materials, and defray numerous pro- duction costs; a sabbatical leave; summer grants at critical stages in the project; and travel grants that allowed me to attend and participate in professional meet- ings, where much current work is discussed and useful exchanges with profes- sional colleagues occur. Since September 2006, my work has been supported by a generous stipend associated with my appointment as Distinguished University Fellow at the University of Scranton. The Office of Research Services has been helpful on a number of matters. The Provost of my university, Harold Baillie, and members of his staff—especially Anne Marie Stamford and Peggy Burke—have contributed to my work through their administration of my Distinguished University Fellow stipend. The former dean of my college, Joseph Dreisbach, and the present dean, Paul Fahey, have been supportive of my work in various ways. Within my own department, several colleagues have been helpful over the years, and I am especially grateful to my present chair, Harry Dammer, also a Cengage Learning author, for various forms of encouragement and support. Bill Parente of Department of Political Science uses a stopwatch to make sure I put in a full day of work, has provided me with copies of the Wall Street Journal and

xxx PREFACE

various useful newspaper clippings, and is always enjoyable company. I am also indebted to various reference librarians at the university’s Weinberg Memorial Library, especially Betsey Moylan, Bonnie Strohl, Kay Lopez, and Kevin Norris, for their assistance. A number of individuals associated with the university’s Computer Service and PC Maintenance Center, including Gus Fernandez, Karl Johns, and Glen Pace, have been helpful in terms of computer hardware and soft- ware problems over the years. My former department secretaries, Judith Lestansky and Jean Hoppel, and my current department secretary, Gemma Davis, have pro- vided efficient assistance on many aspects of this project. Gemma has been helpful in many ways. I have also benefited from feedback from many students I have had in my white collar crime course over the years, and for earlier editions of this book, especially: Josianne Aboutanous, Ingrid Farally, Stuart Frasier, Erica Osuchowski, Marius Stan, James Vadella, and Sarah Youshock. Matthew Gordon, a former student, sent me useful materials. Students in white collar crime classes have completed assignments that were useful in revising this book, with the contributions of the following students especially helpful: Keith Brady, Jenelle Janowicz, Rob Lyons, Jason Mastony, and Sonya Standefer. Jenelle Janowicz assisted me with some tasks while the third edition of this book was in production.

The third edition of Trusted Criminals was completed while I was Visiting Professor of Law at Flinders University in Adelaide, Australia, during a sabbatical in Spring 2006. Professor Mark Israel was the key person who made my Australia sabbatical possible, and I am deeply indebted to him for this. I also appreciate the role of Dean Gary Davis, Marinella Marmo, Andrew Goldsmith, Chris Symes, and Mrs. Sandra Brooks, in providing me with such a wonderful working envi- ronment and an altogether stimulating professional experience. In addition to pre- senting some of my work on white collar crime to the law school faculty, I also appreciated the invitations to present this work to the Department of Sociology, thanks to Sharon Roach Anleu and Mary Holmes; and at the University of South Australia (Rick Sarre and Gigi Foster), the University of Adelaide (Felix Patrikeeff and Karen Rossiter), the University of Melbourne (Fiona Haines and Danielle Tyson), the University of Tasmania (Rob White and Max Travers), and the Australian National University (Peter Grabosky and Jen Wood). I also enjoyed my stimulating conversations with Monash University faculty (Sharon Pickering, Jude McCulloch, and Dean Wilson) and University of New South Wales faculty ( Janet Chan and David Dixon). Australian scholars—including of course one of my generous hosts at ANU, John Braithwaite and his wife, Valerie Braithwaite—have made countless important contributions to the white collar crime scholarship.

I visited many libraries over the course of my research for the four editions of this book. I am grateful to librarians at the NYU Law Library for making that collection accessible to me, and especially to the remarkable Phyllis Schultze of the Criminal Justice/NCCD Library at Rutgers University—Newark for numer- ous forms of assistance on this project. In my mind Phyllis is the premier criminal justice information specialist in the country, and I have appreciated her assistance and friendship for many years.

PREFACE xxxi

Several editors have been involved in this project. Cindy Stormer initiated the original edition of this book at Brooks/Cole, and Peggy Adams, Brian Gore, Shelly Murphy, and Sabra Horne worked on it after criminal justice titles were shifted to Wadsworth. I have enjoyed working with my current editor, Carolyn Henderson Meier.

I am grateful to the various editors and other personnel at Cengage Learning for their encouragement and suggestions. These include Senior Acquisitions Editor Carolyn Henderson Meier, Assistant Editor Meaghan Banks, who also de- veloped this text, and Editorial Assistant John Chell. I would also like to thank the team responsible for making this book available to you: Michelle Williams, Marketing Manager; Tami Strang, Marketing Communications Manager; Jillian Myers, Marketing Coordinator. Finally, I am indebted to Jennie Redwitz, Production Project Manager, for her professionalism and efficiency on past edi- tions, as well as Production Project Manager Lindsay Bethoney in seeing this most recent edition through the production process. Copy editor Cindy Bond has scrupulously reviewed every word of this text and has enhanced its clarity and accuracy in countless ways.

A number of external reviewers for Brooks/Cole and subsequently for Wadsworth provided me with some helpful advice, and I was much heartened by their very favorable and encouraging assessment of my work on this project. Reviewers for the first edition were William Clements (Norwich University), Lee Colwell (University of Arkansas, Little Rock), Jurg Gerber (Sam Houston State University), Richard Janikowski (University of Memphis), Sally Simpson (University of Maryland), and Kip Schlegel (Indiana University—Bloomington). Reviewers for the second edition were J. Price Foster (University of Louisville), John King (Baldwin-Wallace College), Patrick Mueller (Stephen F. Austin State University), Debra Ross (Buffalo State College), Kathleen Sweet (St. Cloud State University), and Henry Vandenburgh (State University of New York, Oswego). Those commenting on the third edition included Loretta Capeheart (Northeastern Illinois University), Christine Corken (Loras College), Michael Gilbert (University of Texas, San Antonio), Collin Lau (Chaminade University of Honolulu), Teelyn Mauney (University of Nebraska, Lincoln), Gerald Smith (University of Northern Iowa), and Henry Vandenburgh (now of Bridgewater State College). Reviewers for the fourth edition were Nancy J. Bode (Metropolitan State University) and Dawn L. Rothe (Old Dominion University). Quite a number of the specific sug- gestions from these reviewers were adopted in the course of writing and revising this book through its four editions.

Finally, various members of my large extended family have been supportive over the years. My father and mother, both now deceased, were always extraor- dinarily supportive and encouraging and an important source of inspiration for my professional work. My daughter Jessica directly inspired my interest in “crimes of globalization,” following her junior year experience in Thailand, and my collaboration with her on an article on this topic, published in Social Justice in 2002, was especially gratifying. Jessica (now on the faculty of Carlow University) and her husband Matt Fagerburg produced my first grandchild while this book was itself in production. My son Bryan, presently working in Alaska,

xxxii PREFACE

has always been a source of pride and encouragement. My wife Jeanne has brought joy into my life over the course of twenty-five years now and has constantly reminded me in so many ways that there is more to life than working on a book. None of the four editions of this book would have been written without her loving support. For that reason, and because she makes our life together so wonderful, this book is once again dedicated to Jeanne, with much love.

PREFACE xxxiii

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1

The Discovery of White Collar Crime

Two investment bankers associated with Bear Stearns were charged in June2008 with nine counts of securities, mail, and wire fraud (Thomas 2008). These two men—who had earned millions of dollars—were accused of having deceived investors in connection with complex securities linked with the sub- prime mortgage market. Their own firm subsequently collapsed as part of the massive financial crisis that intensified through the fall of 2008. During this crisis, other major investment and commercial banks collapsed, a controversial $750 billion taxpayer “bailout” to buy up failed bank investments was passed by Congress, the federal government took over the giant mortgage entities Freddie Mac and Fannie Mae, the stock market experienced historically unprecedented declines, and the global economy itself was in jeopardy. Devastating losses in relation to homes, businesses, jobs, retirement funds, and college savings were widespread. It was clear that fraudulent misrepresentations on many levels were at the center of this crisis. Those who made these fraudulent misrepresentations, and earned huge fortunes doing so, were principally trusted institutions and re- spectable professionals. They do not fit the traditional image of a criminal. But white collar crime is one major dimension of the great financial crisis of our era.

Consider the following list of situations:

■ College student loan companies are investigated for improperly giving gifts to financial aid officials to get on preferred student loan company lists.

■ An asbestos removal company is indicted on charges arising out of its prac- tice of putting many people at risk by faking the asbestos removal.

1

✵

■ A wealthy and famous press baron is sent to prison for stealing millions of dollars from his company.

■ A pharmacist is convicted of diluting cancer drugs to enhance his profits.

■ Huge frauds are alleged in relation to the pur- chase and delivery of billions of dollars of weapons for use in Iraq.

■ A bookkeeper embezzles from her employer to pay her bills.

■ A major pharmaceutical company pleads guilty to deceit in marketing a popular pain-killer.

■ Doctors are accused of accepting bribes to prescribe an anemia medication.

■ A huge conglomerate agrees to pay $3 billion to settle claims of having defrauded its investors.

■ The head of a seaport museum is convicted of defrauding the museum of over $2 million.

■ Insurance companies are accused of defrauding American soldiers heading to Iraq by selling them overpriced policies.

The situations listed here might seem to have little in common. They involve the very powerful and the relatively powerless, large-scale organizations and isolated individuals, enormous sums of money and relatively modest sums, the loss of numerous lives, and incremental, less apparent threats to long-term health. However, these situations have several things in common. First, they do not in- clude the forms of crime that typically come to mind when people think of crime: murder, rape, aggravated assault, burglary, car theft, or larceny. Second, the offenders or offending organizations enjoy a relatively high level of trust and respectabil- ity, at least when compared with organized crime and street criminals. Third, these situations have not

been a traditional focus of the law and the justice system, which have responded to them in various ways. Fourth, they have all been considered forms of white collar crime, according to at least some- one’s conception of that complex term.

The term white collar crime is by now quite fa- miliar to many people; it is also a source of consid- erable confusion. White collar crime can arise in unexpected circumstances. Hurricane Katrina, which wrought much devastation in New Orleans and the Gulf Coast in the fall of 2005, was princi- pally regarded as a “natural catastrophe.” But fol- lowing the hurricane, some engineering experts made allegations of “malfeasance” (or unlawful acts) during construction of the levees that were supposed to protect New Orleans (Schwartz 2005). Some ten thousand children in China died in May 2008 when their schools collapsed during a major earthquake, and aggrieved parents blamed shoddy construction standards (Yardley 2008). And in 2008, evidence surfaced confirming that one of the most famous “accidents” in modern history, the sinking of the Titanic in 1912, may have been caused by the shipping company’s cutting costs by autho- rizing the installation of substandard rivets during the construction of the ship (Broad 2008). Such economically motivated decisions of respectable professionals and reputable companies can be re- garded as a form of white collar crime, even if hur- ricanes, earthquakes, and the sinking of ocean liners are not typically thought of in these terms.

EDWIN H . SUTHERLAND AND

THE DISCOVERY OF WHITE

COLLAR CR IME

Although criminologist Edwin H. Sutherland is generally given credit for introducing the term white collar crime into the literature in 1939, recognition

2 CHAPTER 1

of this type of crime extends well back in history. Records from ancient times include identification of and sanctions against fraud carried out in the context of various types of commercial transac- tions. In the 18th century, Cesare Beccaria (1764) recognized that “the great and rich” committed acts that caused immense public injury, and that had to be kept in check by law (Forti and Visconti 2007). In the 19th century, Karl Marx and Friedrich Engels (1848) insisted that the powerful and the privileged commit “crimes,” loosely defined as consequences of the character of the capitalist economic system and the special status of the privileged within it. The American muckrakers of the early 20th century inveighed against the exploitative crimes of the “robber barons” and their confederates.

Sutherland (see Box 1.1) was apparently most directly inspired by E. A. Ross’s (1907) Sin and Society: An Analysis of Latter Day Iniquity (Geis 2007a). Writing shortly after the turn of the century, Ross, a prominent sociologist of his time, promoted the notion of “the criminaloid”: the businessman who committed exploitative, if not necessarily ille- gal, acts out of an uninhibited desire to maximize profit, all the while hiding behind a facade of respectability and piety. Ross regarded these crim- inaloids as guilty of moral insensibility and held them directly responsible for unnecessary deaths of consumers and workers. At the outset of his book, Ross observed:

The man who picks pockets with a railway rebate, murders with an adulterant instead

B o x 1.1 E. H. Sutherland: The “Father” of White Collar Crime Studies

E. H. Sutherland (1883–1950) is quite commonly regarded as “the most important contributor to American criminology to have appeared to date” (Gibbons 1979: 65). In addition to his seminal contributions to the study of white collar crime, he produced an influential textbook, formulated a major criminological theory (differential association), and published important works on professional crime and laws concerning sexual psychopaths. When Sutherland began publishing in the 1920s, American sociology was especially concerned with promoting its status as a legitimate social science, and it consciously distanced itself from the passionate moral exhortations of earlier sociologists (Geis and Meier 1977). Despite Sutherland’s claim that his work on white collar crime was theoretical and scientific in purpose, his personal sense of outrage at corporate criminality was clearly a strong motivating factor for his efforts. Sutherland did not quarrel with the virtues of an openly competitive entrepreneurial form of capitalism as originally envisioned by Adam Smith. Rather, he was deeply angered by those behaviors and actions of “Big Business” that corrupted and threatened the laudable aspects of the American economic system (Sutherland 1949, 1983). Sutherland’s value system combined a quintessentially American synthesis of entrepreneurial and progressive beliefs with his professional commitment to detached social scientific inquiry.

Sutherland’s interest in white collar crime has been traced back to the 1920s, when he produced the first edition of his celebrated textbook Criminology (1924). His interest appears to have been motivated, in part, by his realization that the conventional criminological theories of his time focused almost exclusively on explaining lower-class criminality and provided little if any guidance for understanding the criminality of middle- and upper-class people (Cohen, Lindesmith, and Schuessler 1956). He came to believe that his theory of differential association, which attributed criminality to a learning process, was precisely the type of general theory that could usefully explain both lower-class and upper-class crime. Then, in 1929, with the crash of the stock market, the country entered a long period of economic distress. With so many Americans barely surviving, the crimes of the rich may well have appeared to be especially insidious. Throughout the 1930s, Sutherland collected data on crime by respectable individuals, especially embezzlers, and refined an emerging conception of white collar crime with his graduate students at Indiana University (Geis 2007a; Geis and Goff 1987). His election as president of the American Sociological Society offered him a unique opportunity to introduce and publicize the concept of white collar crime.

THE D I SCOVERY OF WHITE COLLAR CR IME 3

of a bludgeon, burglarizes with a “rake- off” instead of a jimmy, cheats with a company prospectus instead of a deck of cards, or scuttles his town instead of his ship, does not feel on his brow the brand of a malefactor. (p. 7)

For Ross, the actions of criminaloids were threat- ening to a just and decent capitalist society, which Ross supported. Although his book enjoyed popu- lar acclaim, it did not persuade the sociologists of the day to attend more fully to either criminaloids or white collar crime.

E. H. Sutherland’s landmark American Socio- logical Society presidential address in Philadelphia in December 1939 was entitled “The White Collar Criminal.” In this initial characterization of white collar crime, published the following year in the American Sociological Review, Sutherland alluded to “crime in the upper or white-collar class, composed of respectable or at least respected business and pro- fessional men” (1940: 1). A principal attribute of this type of crime is that it consists of “violation of delegated or implied trust” (Sutherland 1940: 3). Examples of white collar criminality in business included various forms of misrepresentation, ma- nipulation, embezzlement, and bribery. Sutherland suggested that white collar crime was a long- established American tradition, and he provided some evidence of its prevalence, its staggering financial costs, and the special vulnerability of its victims. Sutherland argued for the recognition of white collar crime as “real,” even if convictions by criminal courts were not necessarily involved. He pointed out that the white collar classes have both special influence on the formulation of crimi- nal laws and various means of minimizing the chances of criminal conviction.

During the 1940s, Sutherland undertook a ma- jor study that culminated in the publication of White Collar Crime (1949), his last major contribu- tion before his death in 1950. In this book, Sutherland focused on the 70 largest U.S. manufacturing, mining, and mercantile corpora- tions with respect to the legal decisions (by crimi- nal, civil, or administrative tribunals) against them

concerning allegations of wrongdoing. Each of these corporations had one or more decisions against it, with an average of 14 decisions against each corporation during the course of its existence. However, no more than 16 percent of the decisions against the corporations emanated from the crimi- nal courts. These decisions, in descending order of frequency, included restraint-of-trade violations, infringement of patent and other rights, unfair labor practices, fraudulent advertising, and illegal rebates. These findings led Sutherland to conclude that 97 percent of the corporations, each with two or more adverse decisions, were criminal recidivists.

The main body of Sutherland’s White Collar Crime consists of a systematic exploration of the specific forms of white collar crime committed by major corporations. Sutherland was especially venomous in his characterization of corporate fraud, profiteering, and tax evasion during World War II. He characterized white collar crime as a form of organized crime. Sutherland argued that the crimes committed by corporations were rational, deliber- ate, persistent, and much more extensive than prosecution of them indicated. Victims were often quite impotent to respond effectively to corporate crimes, which were difficult to prove, and corpora- tions were well positioned to “fix” cases against them. Businessmen caught violating the law gener- ally did not suffer a loss of peer status; in fact, busi- nessmen as a group were commonly contemptuous of law, he noted. In their view, if they were technically in violation of certain laws, it was not because they were criminals but because the laws were bad.

The slow pace of development of white collar crime research in the wake of Sutherland’s crucial contributions is somewhat mystifying. On the one hand, criminologists have generally acknowledged that Sutherland’s White Collar Crime was one of the most important contributions to the field of crimi- nology. On the other hand, for a long time this work was seldom cited and rarely emulated (Geis and Goff 1982). In addition to the ongoing concep- tual confusion regarding the term white collar crime, for which Sutherland must assume some responsi- bility, this work can be faulted on other grounds.

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