Understanding White-Collar Crime

Thomas Hedger Crime—particularly violent crime—may be our national obsession. It dominates the news, it’s the subject of popular novels, and it’s all over television, from FX’s The People v. O.J. Simpson to HBO’s The Night Of to Netflix’s Making a Murderer. Our attitude toward white-collar crime is a little different. On the one hand, it fascinates us: Why do well-paid professionals commit it—on their own, with colleagues, or as part of an organization-wide collaboration? On the other hand, it bores us: Complicated financial schemes are difficult to understand, and the perpetrators and victims are often unclear. Who suffers when a company shifts numbers around on a spreadsheet? Who’s to blame when it has thousands of employees and layers of bureaucracy? And even if we can identify those responsible, how should we punish them? Two new books shed light on these and other questions. Exploring the legal issues is Capital Offenses, by Samuel W. Buell, a law professor at Duke University who was a lead prosecutor in the Enron case. Buell starts by pointing out that corporate crime is all about context and that cases may come down to whether those accused knew their actions were illegal—which means prosecutors must try to read minds after the fact. He notes, for example, that the standard defense in a fraud case is not that the fraud didn’t happen; it’s that the fraudster didn’t know he or she was breaking the law—or that, whatever the government may think, the fraudulent behavior is business as usual in that industry. Drawing these fine lines around intention is even trickier when executives rely on expert advisers to help with their decisions. If a lawyer or an accountant tells you that something is legal—even just barely—should you have to go to jail if he’s wrong? Many things that appear greedy or selfish in hindsight are not illegal, and many actual crimes occur when valid business practices edge beyond what the law allows. Prosecution is especially difficult when criminal behavior spans a whole organization. In such cases it’s extremely hard to figure out exactly where the fault lies. (Think of how often the public fails to distinguish between a corporation and the individuals who work for it.) Those high up on the org chart, who bear the most responsibility for the company, may know little about its day-to-day activities. And punishing a large company—through massive fines or by sending its most senior leaders to jail—can destroy it, which has serious economic ripple effects for innocent employees, customers, and communities. There are no easy answers, and Buell notes that the government tends to pursue only those white-collar cases it thinks it can win. Still, we can take solace in this bit of progress: From 1996 to 2011 the average sentence nearly doubled in fraud cases—even as it dropped for federal crimes overall. Whereas Buell’s expertise is in organizational corruption and the difficulty of fighting it, Why They Do It, by Eugene Soltes, a professor at Harvard Business School, focuses squarely on individual perpetrators who have been caught and punished. His book is based on extensive interviews he’s conducted with white-collar criminals, with Soltes seeking to understand how these men (nearly all corporate wrongdoers are male, he notes) went from the C-suite to a prison cell. Over the years, people have offered all sorts of explanations: deviant nature, the “bad apple” theory, physical characteristics, poor self-control, lack of empathy, brain chemistry, psychopathy, peer pressure. Some of these ideas have been discredited; others, Soltes says, are insufficient. But what do the criminals themselves say? If one idea can sum up the results of his research, it’s that white-collar criminals rarely pause to think about the outcomes or potential victims of their decisions. Consider these revealing quotations from his interviews: “I never once thought about the costs versus the rewards” (insider trading); “I know this is going to sound bizarre, but when I was signing the documents, I didn’t think of that as lying” (fraud); and “I never thought about the consequences…because I didn’t think I was doing anything blatantly wrong” (insider trading). To address this striking lack of self-reflection, Soltes delves into the psychology of decision making within organizations, which dovetails nicely with Buell’s work. One consequence of the modern corporation, he writes, is that leaders are removed from shareholders, customers, and the public. This psychological distance can cause executives to lose their way. In example after example, Soltes shows that white-collar crimes tend to result when the “routine unremarkableness” of everyday actions lets them slip through the perpetrators’ moral filters. Business school ethics courses can help, but making tough choices in the classroom is far different from facing them in the real world. The two authors agree that we need better ways to deal with white-collar crime. Soltes’s remedy is to stop illegal behavior before it starts. Given that much of it is committed without criminal intent, he says, the best solution is for executives to surround themselves with people who aren’t afraid to question their decisions. On the legal side, Buell says we need greater corporate transparency and incentives for executives to act in the interests of shareholders. He also calls for better regulations, but emphasizes that they would help only to a point, because corporations pour money into keeping the ones that constrain them from becoming law. And, more to the point, regulations don’t prevent crimes. The real solution, Buell says, is to rethink what corruption looks like, both in business and in politics. After all, campaign contributions that influence policy are among those greedy, selfish acts that aren’t illegal. Until the definition of “legal” is no longer controlled by the people or organizations with the deepest pockets, it’s unlikely that real change will come about.

Understanding White-Collar Crime

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