Ch12 Full Test Bank White-Collar Crime

12

White-Collar Crime

CHAPTER OUTLINE

When most people think of crime, certain crimes usually come to mind: property crime and interpersonal violent crime. These crimes are also typically the focus of the police and courts and, consequently, the media. As a result few people think about white-collar crime, even though it is far more harmful to more people than conventional crime is. This chapter uncovers many of the “hidden” crimes committed by people in corporations and under the guise of business ventures. Inspired by the robber barons of the late 1800s and corporate frauds of the 1920s and 1930s, Sutherland was the first to conceptualize and study white-collar crime: an act committed by a person of respectability and high social status in the course of his occupation. This definition has since been elaborated to include occupational crime, corporate crime, and transnational corporate crimes.

Sutherland’s White Collar Crime (1949) was the first book on the subject. In it Sutherland documented the extent of white-collar crime at the time. For example, three-quarters of all banks violated banking laws. Most of Sutherland’s data concerned corporate offenders; he demonstrated that corporations routinely commit crimes against customers, investors, employees, and even the state. The worst corporate offenders were American Sugar Refining, American Tobacco, Armour, Dupont, General Electric, and General Motors. At the time of his research, every major U.S. corporation had cases pending against them (97 percent of the top 70 corporations had two or more decisions against them). Price-fixing, tax evasion, illegal maintenance of competitive advantage, violations of embargoes and neutrality, and even treason were common offenses. As Sutherland documented, during World War I and II, companies profited handsomely instead of sacrificing their interests for the sake of the country.

12.1 Occupational Crime

Motivated by direct personal gain for the individual doing the crime, occupational crime includes occupational theft and occupational fraud. The former includes employee theft and embezzlement. The latter involves deliberate workplace deception.

Occupational Theft

Occupational theft stems from the traditions of privatized property “rights,” which are actually privileges for a few and barriers for most others. As privatization expanded, the notion of theft emerged as an increasingly important category of crime. A historical tradition of employees was their “right” to “wages-in-kind”—extras to supplement their actual earnings. Accompanying the rise of capitalism, this tradition was eroded and the practice became redefined as employee theft.

1. Employee theft. Employee theft—stealing merchandise or job-related items from one’s workplace—is one of the most pervasive crimes. Seventy-five percent of employees admit to theft on the job. Underpaid employees are induced to steal when they perceive company indifference to their suffering. Different aspects of employee theft result in “inventory shrinkage” and add about 15 percent to the cost of most consumer goods. Employee theft costs $400 billion annually. Most employees who steal from work would not be tagged with a “criminal identity” and are only doing “part-time crime.” In his participant-observation study, Ditton (1977) described three types of employee theft: “fiddling,” “stealing,” and “dealing.” Fiddling is commonly overcharging customers and pocketing the difference, stealing is direct theft from the company itself, and dealing involves secretly distributing the goods at a personal profit without the company’s knowledge. In another classic study, Mars (1983) linked types of employee theft to job types. He distinguished four types of workers, based on job autonomy, isolation, and degree of control of one’s work. Hawks are professionals, executives, and small-business people who find it easy to “bend the rules” on their own behalf. Donkeys, such as line workers, have little autonomy, aren’t isolated, and have little control over their work. Another example is cashiers who undercharge friends and family members or take from the till. Wolves are like donkeys, but their jobs require group effort. Baggage handlers and longshoreman, for example, cooperate by having some workers distract supervisors while others steal. Pilfered goods are then divided among the group. Vultures have considerable autonomy within loosely structured work settings. Truck drivers, for instance, might arrange for a “private delivery” of stolen goods.

2. Embezzlement. Embezzlement involves stealing money from the employer for personal use. It includes “taking from the till,” as well as “manipulating the books.” The most costly embezzling is done by individuals who have greater access to more resources: executives and others with top positions in banking and business. Embezzlement is becoming increasingly computer-mediated, and the average computer crime generates a gain of $500,000. Box 12.1 addresses collective embezzlement, which involves the theft of funds from a savings and loan institution for personal gain, at the expense of the institution and with the approval of management. It is a “crime by the corporation against the corporation” for personal profits of those involved. The savings and loan (S&L) scandal of the 1980s resulted in a total bill between $300 and $500 billion. Seventy to 80 percent of the S&L “failures” involved crime or misconduct. Because the federal government increased the deposit amount the FSLIC would insure to $100,000, U.S. taxpayers were the ultimate victims, as investors were guaranteed they would not lose money. Incredible sums of money were spent on lavish goods, parties, and travel. For example, Erwin (Erv) Hansen, president of Centennial S&L in northern California, was able to spend $130,000 on furniture, buy a penthouse in San Francisco for $773,487, purchase five cars for family members (totaling $90,000), and Rolls Royce for himself ($137,000) using S&L funds. All told, Hansen cost the FSLIC $160 million. Different types of strategies were used to conduct the collective embezzlement. “Land flips,” for example, require the cooperation of two people to flip the money and one corrupt appraiser. Other examples are “nominee loans,” “reciprocal lending,” and “linked financing.” The majority of offenders were male, but of the 27 women involved, half were vice presidents or managers who embezzled an average of $508,000 each. In contrast, Texan Don Dixon cost taxpayers approximately $1.3 billion via nominee loans, and a chain of Wyoming S&Ls engaged in reciprocal lending resulted in a $2.6 million taxpayer loss.

Occupational Fraud

This section discusses two types of occupational fraud committed for direct personal gain in the course of one’s occupation—physician fraud and insider trading.

1. Physician fraud is committed through unnecessary prescriptions, unnecessary surgical procedures (estimated at 2.4 million procedures), and overtreatment of Medicare and Medicaid patients. Unnecessary surgeries cost approximately $4 billion annually and result in 12,000 to 16,000 deaths annually. Another 44,000–88,000 deaths are attributed to hospital negligence. Physicians easily defraud the government when their patients receive Medicare and Medicaid benefits, because the doctors know their claims will be processed regardless of the procedures done for the patients. Such fraud costs $100 billion per year. Quality of medical care is also dependent on the class standing of the patient—wealthy patients receive the “best” care, whereas poor and minority patients receive “slipshod” care. Primary forms of crimes by physicians caught violating Medicaid programs are billing schemes, poor quality of care, illegal distribution of controlled substances, and sex with patients as “therapy” in which the physician received payment for the “office visit.” Psychiatrists are especially prone to these latter abuses.

2. Insider trading occurs when someone uses “inside information” gleaned from her or his workplace position for personal gain in trading stocks. Numerous examples of insider trading are detailed, including cases related to FDA approval of drugs and devices or imminent corporate takeovers. One high-profile case that brought the issue to public attention is Martha Stewart, although she was ultimately convicted for making false statements and obstruction of justice rather than insider trading. Stewart made $230,000 from selling ImClone stock, reportedly based on a tip by her friend and ImClone founder Sam Waksal. Waksal plead guilty after he and his family made about $10 million off insider information related to an imminent FDA delisting of one of his company’s cancer drugs. Other examples include Paul Thayer (LTV Corporation); Thomas Reed (former Reagan aide); Dennis Levine, Ivan Boesky, and Martin Siegal (Drexel Burnham Lambert); Tim Tabor (Kidder Peabody); Scott London (KPMG); Rajat K. Gupta (McKinsey & Company, formerly at Goldman Sachs); and Robert Freeman (head of Goldman Sachs).

Box 12.2 describes Ponzi schemes, named for Italian immigrant Charles Ponzi, who defrauded investors in 1919 and 1920. A Ponzi scheme is a fraud in which initial investments in a nonexistent enterprise receive quick returns using funds generated by subsequent investors. Recent examples include fraudulent drilling rights in Robert Tippet’s HomeStake fraud; and attorney Nikolai Tehin, who used settlement monies from poor immigrants to pay off earlier clients, buy a 73-foot yacht, luxury cars, and an $8 million home. The longest and largest Wall Street fraud is probably Bernard L. Madoff’s 20-year scheme that netted $65 billion.

12.2 Corporate Crime

Corporate crime is defined as (1) “illegal and/or socially injurious acts of intent or indifference (2) that occur for the purpose of furthering the goals of a corporation and (3) that physically and/or economically abuse individuals in the United States and/or abroad.” Corporate crime victimizes large numbers of people around the world and is far more harmful than conventional crimes.

Corporate Violence

Corporate violence against workers, consumers, and the general public is responsible for 30,000 deaths and 3.6 million injuries and cases of disease every year in the United States. Some of these tragedies might be due to error on the part of the worker, but most are related to faulty safety equipment and dangerous conditions provided to workers by management. These figures are most likely underestimates, because they emerge from documentation provided by the companies themselves. One example is the cyanide poisoning of workers at the Film Recovery Systems plant that resulted from the executives’ failure to provide proper safety equipment. Another is McWane, Inc., which, since 1995, has committed 400 safety and 450 environmental violations. Other “silent killers” are asbestos fibers, cotton dust, brown lung, and chemical compounds used in the production of many commodities. Producers of asbestos hid their knowledge of its dangers and did not provide workers with adequate protection, resulting in 100,000 deaths and medical costs estimated at $500 billion. Chemical companies that used vinyl chloride colluded to not disclose known risks of the chemical

As consumers, the public is also victimized by corporate violence when purchasing products that are dangerous—for example, the Dalkon Shield IUD, hazardous toys, nicotine, Firestone 500 steel-belted tires, certain automobiles, and drug therapies such as thalidomide that caused severe birth defects. Ford’s Pinto automobiles could have been fixed for $11 each. Instead, exploding gas tanks resulted in 900 burn deaths and many others who were severely burned. Unsafe products have injured 20 million U.S. citizens, including 110,000 permanent disabilities and 30,000 deaths.

All people are affected by corporate pollution of the air that we breathe, the water we drink and use for cooking, and the food that we eat. Corporations produce 292 million tons of toxic waste every year, and the EPA estimates that a staggering 90 percent of it is improperly dumped. Corporations such as Royal Caribbean cruise lines routinely cover up their activities and hire cadres of lawyers to avoid large settlements and legal problems as a result of their deliberate criminal activity. Dioxin pollution examples include Times Beach (dioxin levels 100 times the safe level), Love Canal (Hooker Chemical company illegally dumped tons of toxic wastes), and Jacksonville—“Dioxinville”—Arkansas (where dioxin levels were 111,000 times the EPA’s danger level in at least 30,000 buried drums of toxic waste). Dow was aware of the dangers of dioxin as early as 1965—before the tragedies at Love Canal, Times Beach, and Jacksonville, Arkansas.

Corporate Theft

Corporate theft, although similar to conventional theft in that it illegally takes property from private individuals, differs because it does not involve face-to-face confrontation as in robbery or deliberate breaking and entering as in burglary. Corporate theft involves deceptive advertising, financial fraud, and price-fixing.

According to the FTC, deceptive advertising is “misleading in a material respect.” Thus an ad can be “false,” so long as it is not also deceptive. (Exaggerated claims are clearly false, but not necessarily deceptive.) Many pharmaceutical companies have claimed that their drugs—over-the-counter or prescriptions—provide relief in ways that have not been demonstrated in clinical trials. Other examples include KFC, NoNonsense pantyhose, Jenny Craig, and the Home Shopping Network.

Financial fraud serves the interest of the corporations. One example of financial fraud is E. F. Hutton and Company, whose officials floated or wrote bad checks to over 400 banks to cover debts the company owed. Hutton was also involved in money laundering, a practice that makes “dirty” criminal money “clean” by hiding the source(s) of the funds. Criminal syndicates clearly profit from money laundering. But so do financial institutions; the large sums from criminal syndicates are used for investments and interest-earning loans. The Enron bankruptcy in 2001 was the start of a “corporate crime wave” involving many different corporations (including Halliburton). As Enron’s fraud was coming to light, the company prohibited employees from withdrawing the company’s rapidly declining stock from their retirement accounts. Meanwhile, 29 executives, including Andrew Fastow, Jeff Skilling, and Kenneth Lay sold $1.1 billion worth of their stock.

Price-fixing is probably the most expensive form of corporate theft. When companies conspire with each other to keep consumer prices artificially high, they all take in higher profits. Recent cases include Archer Daniels Midland (fined $100 million), Hoffman La-Roche and BASF (fined $750 million), Nintendo (fined $147 million), and Bayer (fined $66 million).

12.3 Transnational Corporate Crime

Transnational corporate crime is clearly the worst form of white-collar crime. It involves bribery, corporate dumping, and dangerous working conditions around the world. Large companies (annual sales of $1 billion or more) are responsible for approximately three-quarters of transnational corporate crime. Clinard and Yeager’s (1980) study revealed that “the oil, pharmaceutical, and motor vehicle industries” were the “most likely” to violate the law. Oil, auto, and chemical companies now dominate the top 200 list. The massive size of transnational corporations fuels the danger. By 1975 three-quarters of U.S. corporations with over $100 million in sales used foreign manufacturing. Transnationals then expanded dramatically in the 1990s. Fifty-two of the top 100 economies in the world are transnationals (which means that only 48 countries are in the top 100 world economies). The combined sales of the top 200 corporations combined are far greater than a third of the world’s entire economy. Transnationals are a global phenomenon, but most of their consequences are local—albeit in contexts far removed from the United States.

Bribery

Bribery represents one of the small costs of doing business transnationally and opens the doors to many countries where regulations would prevent companies from doing business. This money enriches Third World government leaders, facilitates transnational corporate profits, and is responsible for serious harms done to millions of people. In response to the enormous volume of bribery, in 1977 Congress enacted the Foreign Corrupt Practices Act. In 2006 Coleman found that 34 TNCs that admitted bribery paid $93.7 million in bribes and garnered $679 billion in sales. Braithwaite (1979) argues that transnational bribery is one of the most destructive and injurious crimes because of its unequal and antidemocratic consequences. He points out that the “whole purpose of business-government bribes is, after all, the inegalitarian purpose of enticing governments to act against the public interest and in the interest of the transnational.” The extra millions paid to transnationals are diverted from impoverished citizens as business shifts from the most efficient to the most corrupt producers.

Dumping

Dumping hazardous or dangerous products—products ruled unfit for use or consumption in the United States—onto other nations is common among transnational corporations. Products include lethal drugs, defective medical devices, known carcinogens, unsafe pesticides and other hazardous chemicals, and contaminated food. For example, Depo-Provera (a banned contraceptive in the United States) was “dumped” onto Third-World countries so that the manufacturer could recoup some of the losses in projected profits after the product was banned. The women in these countries who use the product are subjected to the same health dangers that led to the ban but do not have access to quality health care to remedy their conditions. Yet, the company makes its profit margin to protect its stock on the market. A similar case is the Dalkon Shield—distributed, unsterilized, in Third-World nations after its ban in the United States, affecting tens of thousands of women worldwide. Pesticides such as DDT and other chemicals that are illegal to use in the United States are produced here then dumped on the world market, resulting in food contamination and greater probabilities of disease and death among people ingesting these contaminants. Twenty-five percent of annual pesticide production is products banned in the United States. Box 12.3 concerns the 1984 Union Carbide toxic chemical leak in Bhopal, India. It compares the UCC safety products and precautions in Bhopal to those in a UCC plant in Institute, West Virginia. The December leak of 54,000 pounds of MIC (methyl cyanate) and 26,000 pounds of reactants killed 8,000 Bhopal residents within a week. Between 1985 and 2003 an estimated additional 15,000 died and another 120,000 suffered debilitating illnesses.

Dangerous Working Conditions

Transnational companies search for countries that have few regulations or safety requirements for production of their commodities. This practice often leads to dangerous working conditions, which are responsible for millions of deaths and diseases annually around the world. Mexico’s experience with the maquiladoras zone is a prime example. It is illegal to expose workers to asbestos in the United States, but in Mexico a failure to warn workers that asbestos is present only results in a $45 to $90 fine. Due to increased manufacturing-related chemical pollution in the Mexico, some describe the U.S.-Mexico border as a 2,000-mile Love Canal. It appears that the 1994 North American Free Trade Agreement (NAFTA) has exacerbated this problem. In 1995 alone direct foreign investment rose 64 percent. Since signing the agreement the United States has lost 450,000 jobs. Ten years after implementation 1.5 million Mexican farmers had lost their livelihoods, Mexican migration to both the maquiladoras zone and the United States more than doubled, and toxic dumping increased significantly.

CLASS EXERCISES

1. Split the students into small groups and have them prepare a table with two columns with the labels Conventional Crime and White-Collar Crime and three rows with the labels Human Suffering, Deaths and Injuries, and Economic Loss. Within this table, students should itemize the estimates of damage done by conventional crime and white-collar crime. It is best to keep to estimates of this damage in the United States, on an annual basis (to the extent that this is possible). Students will need to refer back to the chapters on interpersonal violence and property crime to get these estimates. Also, it is best to use the more liberal estimates from the conventional crime chapters, and the more conservative estimates from the white-collar crime chapters (inform students that this is the trend). Their findings should reveal that white-collar crimes account for nearly five times as many deaths and physical injuries as conventional crime, and that white-collar crime costs in the neighborhood of $1 trillion annually, whereas conventional crime costs less than $100 billion annually. To spend $100 billion, a person would have to live 250 years, spending $1 million a day, every day, and there would still be nearly $8 billion leftover, not including interest accumulated on the income. That is the estimated economic cost of conventional crime. White-collar crime accounts for 10 times that much money annually in the United States.

2. Break the class into three groups. Assign each group a type of crime: occupational crime, corporate crime, or transnational corporate crime. Have each group develop a scenario for its assigned type crime. Have each group describe the elements of the crime type to the entire class. The class should then compare and contrast the elements of the three crimes.

3. To demonstrate the extent of corporatization in their everyday lives, have students make a list of the brand names and manufacturing locations of all of the items they use in the course of two days, starting from the time they get up until they go to bed. Urge students to be as thorough as possible, beginning with bed linens, toothbrush, toothpaste, towel, toiletries, light bulbs, clothing, jewelry, food, pens, notebooks, laptops, recreational items, transportation, magazines, fast-food establishments, and so on. Compile the lists noting overlap among the students, manufacturing locations, and parent corporations for products and brands. Point out how, despite the many brand names, only a few corporations account for most of the commodities we use on a daily basis. Next, compare the list of corporations to the corporate offenders noted in the chapter.

4. First have students attempt to document the businesses in a specified radius from the campus that use or produce potentially hazardous materials (e.g., manufacturers, power plants, hospitals). Next have them investigate what safety measures exist to protect the general public from harm in the case of accidents, including local and regional evacuation procedures (if any). Have emergency services been trained for large-scale emergencies? If so, how (e.g., mock victims, disaster scenarios)? Note that in addition to the information itself, students learn a great deal about how difficult it is to gather information about threats to public health.

TEST BANK FOR CHAPTER 12

Multiple-Choice Questions

1. White-collar crime accounts for __________ damage to society than conventional crime.

a. much less

b. about the same amount of

c. a little more

d. much more

2. Occupational crimes are committed by individuals in the course of their occupations for

a. career advancement.

b. personal gain.

c. revenge against the employer.

d. unknown reasons.

3. Corporate crimes are committed by individuals in corporations for

a. career advancement.

b. personal gain.

c. corporate gain.

d. political reasons.

4. Corporate crimes are defined in the textbook as

a. illegal and socially injurious acts of revenge or malevolence that occur for the sole purpose of furthering corporate goals.

b. legal and socially acceptable acts of revenge or malevolence that occur for the sole purpose of furthering corporate goals.

c. legal and socially acceptable acts of intent or indifference that occur for the purpose of furthering corporate goals, and that physically and/or economically abuse individuals in the United States and/or abroad.

d. illegal and/or socially injurious acts of intent or indifference that occur for the purpose of furthering corporate goals, and that physically or economically abuse individuals in the United States and abroad.

5. Transnational corporate crime often results in

a. crimes perpetrated on innocent victims around the world, who then go to the UN for relief.

b. crimes perpetrated on people of other societies, ranging from bribery to export of hazardous products to dangerous working conditions.

c. goods and services being exported from the United States to help those who are victims of transnational corporate crime.

d. visible and easily detected victimization of those who voluntarily buy the corporation’s products.

6. Prior to the rise of industrial capitalism, the traditional rights of peasants were to gather raw materials for personal or family use. With the rise of industrial capitalism, this practice has been reinterpreted as

a. inventory shrinkage.

b. immoral behavior resulting from greed.

c. an enshrined right to “pilfer” a certain amount of goods.

d. employee theft.

7. Employee theft is defined as

a. marketing unknown products obtained from a corporate executive.

b. stealing services from the employer to sell at a profit on the street.

c. stealing merchandise and job-related items from one’s workplace.

d. stealing merchandise and job-related items from a spouse’s workplace.

8. Employee theft accounts for how much annual economic loss?

a. $50 billion

b. $100 billion

c. $150 billion

d. $400 billion

9. Self-report studies indicate that __________ percent of employees admit to some sort of theft from the workplace.

a. 25

b. 50

c. 75

d. 100

10. Ditton refers to employee theft as

a. full-time crime.

b. part-time crime.

c. racially motivated.

d. economically motivated.

11. Ditton’s concept of “part-time crime” refers to

a. individuals who spend more hours and minutes breaking the law than someone involved in full-time crime, but who sees his or her criminal activity as nominal.

b. individuals who spend more hours and minutes breaking the law, but only on special occasions.

c. individuals who spend part of their weekly schedule devoted to criminal activity and the rest of their time to legitimate occupations.

d. none of the above.

12. Part-time employee theft was identified by Ditton as including which of the following?

a. fencing, fiddling, and dealing

b. running, stealing, and fencing

c. stealing, dealing, and running

d. fiddling, stealing, and dealing

13. Fiddling, according to Ditton’s typology, occurs when

a. salespeople undercharge customers for goods and services.

b. salespeople overcharge customers for the goods or services they sell.

c. musical instruments are stolen and sold as “collectible antiques.”

d. electronic equipment is stolen by employees for personal enjoyment.

14. Stealing, according to Ditton’s typology, occurs when

a. a victim of theft steals from the suspected thief.

b. an employee steals from another employee.

c. an employee steals from the company directly.

d. “pilfering rights” have been eliminated.

15. Dealing, according to Ditton’s typology, occurs when there is

a. a cost–benefit analysis that doles out the goods and services for the highest profit.

b. a secret deal on the cost of the item that is not reported for tax purposes.

c. gambling based on card games that determine the owner of the stolen goods.

d. a secret sale of goods for the seller’s and the buyer’s personal gain.

16. Mars’ research on employee theft reveals which four different types of employees?

a. conformists, innovators, retreatists, and rebels

b. hawks, donkeys, wolves, and vultures

c. delinquents, hard-core criminals, animals, and atavists

d. carriers, runners, relays, and fencers

17. According to Mars’ research, the “hawks” are those employees who

a. have little autonomy and lack control over their labor power, but whose work requires significant contact with others.

b. have considerable autonomy but work within a loosely structured setting.

c. have little autonomy, are not isolated from others, and have no control over their labor power.

d. maintain individuality, autonomy, and control over their own labor power, and have infrequent contact with others.

18. According to Mars’ research, the “donkeys” are those employees who

a. have little autonomy and lack control over their labor power, but whose work requires significant contact with others.

b. have considerable autonomy but work within a loosely structured setting.

c. have little autonomy, are not isolated from others, and have no control over their labor power.

d. maintain individuality, autonomy, and control over their own labor power, and have infrequent contact with others.

19. According to Mars’ research, the “wolves” are those employees who

a. have little autonomy and lack control over their labor power, but whose work requires significant contact with others.

b. have considerable autonomy but work within a loosely structured setting.

c. have little autonomy, are not isolated from others, and have no control over their labor power.

d. maintain individuality, autonomy, and control over their own labor power, and have infrequent contact with others.

20. According to Mars’ research, the “vultures” are those employees who

a. have little autonomy and lack control over their labor power, but whose work requires significant contact with others.

b. have considerable autonomy but work within a loosely structured setting.

c. have little autonomy, are not isolated from others, and have no control over their labor power.

d. maintain individuality, autonomy, and control over their own labor power, and have infrequent contact with others.

21. Embezzlement involves the theft of property and resources from the employer for

a. a temporary fix.

b. personal gain.

c. permanent relief.

d. revenge.

22. Embezzlement can involve which of the following?

a. taking from the racks

b. taking from the till

c. manipulating the books

d. both b and c

23. One method of computer-mediated embezzlement is known as

a. hot-dog hawking.

b. baloney blowing.

c. salami slicing.

d. bratwurst baiting.

24. One estimate revealed that the average computer crime of embezzlement nets

a. $500,000.

b. $300,000.

c. $100,000.

d. an amount that is unknown and unknowable.

25. Collective embezzlement is a crime against the corporation committed by

a. the corporate customers.

b. low-level employees.

c. the corporation executives.

d. the taxpayers.

26. The victims of collective embezzlement scams are usually

a. the corporate customers.

b. low-level employees.

c. the corporation executives.

d. the taxpayers.

27. In 1980, the Federal Savings and Loan Insurance Company increased the insurance for secured deposits from __________ to __________, thus paving the way for the S&L scandal.

a. $15,000, $30,000

b. $40,000, $100,000

c. $50,000, $150,000

d. $70,000, $200,000

28. Of the following, which are four types of collective embezzling?

a. Land flips, nominee loans, reciprocal lending, and linked financing.

b. Land loans, nominee flips, reciprocal financing, and linked lending.

c. Rollover accounts, secret IRAs, tax-free savings, and conjoint borrowing.

d. Rollover IRAs, secret accounts, tax-free borrowing, and conjoint savings.

29. What usually occurs in a “land flip”?

a. A deposit is made under the condition that the person making the deposit receives a loan in return, which will be defaulted. The S&L fails, and the taxpayers bail everyone out.

b. A “straw borrower” receives a kickback for having the loan in his or her name, and someone else pockets the money and defaults on the loan.

c. Land is sold by the original owner at market value, and a fraudulent appraisal results in the land being resold for twice the market value, which results in profits for all involved.

d. Executives from different S&Ls make loans to each other.

30. What usually occurs in a “nominee loan”?

a. A deposit is made under the condition that the person making the deposit receives a loan in return, which will be defaulted. The S&L fails, and the taxpayers bail everyone out.

b. A “straw borrower” receives a kickback for having the loan in his or her name, and someone else pockets the money and defaults on the loan.

c. Land is sold by the original owner at market value, and a fraudulent appraisal results in the land being resold for twice the market value, which results in profits for all involved.

d. Executives from different S&Ls make loans to each other.

31. What usually occurs in a “reciprocal lending”?

a. A deposit is made under the condition that the person making the deposit receives a loan in return, which will be defaulted. The S&L fails, and the taxpayers bail everyone out.

b. A “straw borrower” receives a kickback for having the loan in his or her name, and someone else pockets the money and defaults on the loan.

c. Land is sold by the original owner at market value, and a fraudulent appraisal results in the land being resold for twice the market value, which results in profits for all involved.

d. Executives from different S&Ls make loans to each other.

32. What usually occurs in a “linked financing”?

a. A deposit is made under the condition that the person making the deposit receives a loan in return, which will be defaulted. The S&L fails, and the taxpayers bail everyone out.

b. A “straw borrower” receives a kickback for having the loan in his or her name, and someone else pockets the money and defaults on the loan.

c. Land is sold by the original owner at market value, and a fraudulent appraisal results in the land being resold for twice the market value, which results in profits for all involved.

d. Executives from different S&Ls make loans to each other.

33. Physician fraud is a common form of

a. insider trading.

b. occupational fraud.

c. corporate violence.

d. corporate fraud.

34. What is the annual cost of Medicare and Medicaid fraud?

a. $1 million

b. $5 million

c. $4 billion

d. $100 billion

35. Insider trading involves the use of inside information to make a big profit in the

a. stock market.

b. gambling business.

c. pharmaceutical industry.

d. medical profession.

36. Corporate violence includes the following actions, EXCEPT

a. toxic dumping.

b. the failure to provide safety equipment to employees.

c. the sale and marketing of dangerous pharmaceuticals.

d. intentional interpersonal homicide.

37. In the automobile industry, several examples illustrate that it is sometimes cheaper for manufacturers to avoid recalls of their vehicles and

a. arrange to meet the families of those killed in crashes.

b. hire more people to build more vehicles.

c. risk potential lawsuits in cases where people might be injured or killed while riding in these vehicles.

d. go public with the data that demonstrated their vehicles were faulty by design.

38. With the faulty steel-belted radial tires produced and marketed by Firestone, thousands of accidents occurred, forty-one people were killed, and the company was

a. convicted of manslaughter.

b. fined $50,000.

c. never prosecuted.

d. put out of business.

39. Corporations in the United States produce nearly 292 million tons of toxic waste every year and __________ percent of it is improperly disposed—contaminating food, water, and air.

a. 20

b. 40

c. 70

d. 90

40. Corporate theft differs from conventional theft because corporate theft involves

a. no face-to-face interaction, or entering a building illegally.

b. taking property illegally.

c. taking money illegally.

d. direct contact between offender and victim.

41. Advertising products in the United States can be __________, but it cannot be __________, according to the law.

a. hyperbolic, accurate

b. deceptive, false

c. false, deceptive

d. accurate, hyperbolic

42. When Jello advertises that “every kid in America loves Jello brand gelatin,” they are making a

a. deceptive and illegal claim.

b. false, but legal, exaggerated claim.

c. blatantly false and deceptive claim.

d. basically true and accurate claim.

43. Price-fixing occurs when corporations conspire to set prices artificially high on similar products and then

a. deceptively advertise those products.

b. one company offers to “take the fall” for the rest.

c. each company makes more profit as a result.

d. consumers are offered more competitive prices.

44. Large corporations, with annual sales that exceed $1 billion, are responsible for how much transnational corporate crime?

a. 25 percent

b. 50 percent

c. 75 percent

d. 100 percent

45. Transnational corporations consider bribery __________ in the production of commodities around the world.

a. a small cost

b. a significant problem

c. an illegal and immoral act

d. out of bounds

46. Braithwaite argues that bribing government officials by businesses entices governments to

a. line the public coffers with much needed money.

b. provide jobs for their citizens.

c. report bribe offers to law enforcement officials for effective prosecution.

d. act against the public interest and in the interest of the company.

47. How many people were killed in the first week after the Union Carbide chemical leak in Bhopal, India?

a. 500

b. 1,000

c. 4,000

d. 8,000

48. What is the Dalkon Shield?

a. The legal strategy used by the Enron defense team.

b. The $11 piece of metal that could have prevented Pinto gas tanks from exploding.

c. An IUD manufactured by A. H. Robbins that was sold unsterilized in more than 80 countries.

d. The NAFTA clause that results in small fines for companies that fail to inform their workers in Mexico that asbestos is present.

49. Who is Kenneth Lay?

a. The Halliburton executive convicted of bribing Iraqi government officials.

b. An Enron executive who earned $146 million in options trades while Enron employees lost their retirement funds.

c. The architect of Wall Street’s largest and longest investor scheme.

d. The friend of Martha Stewart and founder of ImClone, Inc., who plead guilty to insider trading.

50. What is a Ponzi scheme?

a. The practice of shipping chemicals illegal to sell in the United States to other nations where they are sold.

b. A form of real estate fraud involving kickbacks for loans made to nonexistent buyers.

c. A fraud where initial investors in a nonexistent enterprise receive returns that are paid using funds from later investors.

d. A form of collective embezzlement that uses computers to systematically shift illegal funds among banks and businesses.

True or False Questions

1. _____ “Taking from the till” and “manipulating the books” are examples of collective embezzlement.

2. _____ Psychiatrists are more likely than other specialists to be involved in Medicare and Medicaid fraud.

3. _____ Unnecessary surgeries result in tens of thousands of deaths every year.

4. _____ Corporate violence causes far more deaths than does street crime.

5. _____ Crimes of interpersonal violence result in far more injury and suffering than crimes of corporate violence every year.

6. _____ Price-fixing results in lower prices for consumers and better competition among manufacturers of similar products.

7. _____ Advertising in the United States can be false, but not deceptive, according to the law.

8. _____ Transnational corporate bribery results in thousands of corrupt deals and hundreds of government officials being thrown out of office.

9. _____ Corporate dumping occurs when companies unload their unwanted inventory, for whatever reasons, onto markets illegally.

10. _____ Dangerous working conditions are a result of transnational corporations finding Third-World countries that do not have strict safety regulations, setting up shop, and paying the workers minimally.

11. _____ Price-fixing is probably the most expensive form of corporate theft.

12. _____ The worst corporate offenders are small, regional corporations.

13. _____ Street crime injures more individuals than corporate violence.

14. _____ It is very easy to identify and correct the effects of corporate violence.

15. _____ White-collar crime receives much less attention from the media than conventional crime.

16. _____ Martha Stewart was convicted and served time for insider trading.

17. _____ Since the passage of NAFTA, working conditions have improved in Mexico.

18. _____ Transnational bribery benefits Third-World leaders who nonetheless make it difficult for U.S. transnationals to invest in their countries.

19. _____ Although transnational bribery enriches both foreign leaders and transnational corporate executives, the bribes have very little effect on the overall economy of the foreign country.

Essay Questions

1. Compare and contrast conventional crime and white-collar crime. In addition to addressing at least two similarities and two differences, be sure to explain what conventional and white-collar crime refer to.

Required content: (NOTE: answer must include a & b, and at least two similarities [c-e] and 2 differences [f-h]})

1. Conventional crime refers to interpersonal violent crime and property crime, both of which are often linked to less powerful members of society.
2. White-collar crime refers to crimes committed by powerful people in the course of their occupation.
3. Similarity: conventional and white-collar crime involve theft (illegal takings or property loss).
4. Similarity: conventional and white-collar crime involve violence (physical injury and or death).
5. Similarity: most offenders are males.
6. Difference: white-collar crime results in far more victimization and loss than conventional crime.
7. Difference: victimization is less apparent in white-collar crime because there is no direct confrontation between the offender and victim. In some forms of white-collar crime, the victim is not aware of the victimization.
8. Difference: white-collar criminals—predominantly white, upper-middle class people (“elites” and professionals)—do not fit popular notions of who criminals are.

Additional content:

1. White-collar crime is divided into subtypes.
2. One subtype is occupational crime.
3. One subtype is corporate crime.
4. One subtype is transnational corporate crime.
5. Victims of white-collar crime include workers, customers, and the general public.
6. Whereas much conventional crime is intraracial, white collar is intra- and interracial.
7. Whereas much property crime is intraclass, white-collar crime is intra- and interclass.

2. Write a brief essay that demonstrates your understanding of collective embezzling. What is collective embezzling? How does it differ from traditional embezzling? As part of your answer be sure to identify and briefly describe the spectacular example that led to the concept in the 1990s. Who were the typical victims and perpetrators? What legal changes facilitated the crimes?

Required content:

1. Collective embezzling is a crime against the company that is endorsed and carried out by company management.
2. Traditional embezzlement is also a crime against the company but is committed by employees against the company.
3. The collective embezzlement concept arose from the Savings and Loans (S&L) “failures” of the 1990s.
4. Because the U.S. government bailed out the S&Ls, taxpayers were the victims of the S&L debacle.
5. Legal changes that facilitated the crimes were Reagan era deregulation and the 1980 change in the FSLIC insurance amount, from $40,000 to $100,000 per deposit.

Additional content:

1. Crime and misconduct were crucial in 70–80 percent of the S&L “collapses.”
2. The S&L failures are the largest, most expensive white-collar crime in U.S. history.
3. The S&L failures are estimated to eventually cost the federal government between $300 billion and $500 billion.
4. S&L collective embezzlement strategies include land flips, nominee loans, reciprocal lending, and linked financing.

3. White-collar crime is a large category that contains multiple types of crimes. Illustrate your understanding of the nature of white-collar crime by explaining what it is and identifying and briefly explaining the three major types of white-collar offenses.

Required content:

1. White-collar crime refers to crimes committed by powerful members of society in the course of their occupation.
2. Occupational crime is one of three types of white-collar crime.
3. Occupational crime includes unlawful takings committed on behalf of individuals.
4. Corporate crime is one of three types of white-collar crime.
5. Corporate crime includes injurious acts by corporate entities on behalf of the corporation. The acts benefit the corporation (although individuals also benefit).
6. Transnational corporate crime is one of three types of white-collar crime.
7. Transnational corporate crime is corporate crime committed in a transnational context. The victims are citizens of other countries.

Additional content:

1. Occupational crime includes occupational theft and occupational fraud.
2. Corporate crime includes corporate violence and corporate theft.
3. Transnational corporate crime includes bribery, dumping (e.g., sale of dangerous products outside the U.S.) and unsafe working conditions.
4. Victims of white-collar crime include customers, workers, and the general public.
5. White-collar offenses result in far more injury and loss than conventional crime does.

4. When most people think of violent crime, they only refer to acts of interpersonal violence. However, corporations also engage in violent crimes. Write a brief essay that illustrates your understanding of corporate violence by briefly explaining and illustrating the range of acts that fall under the “corporate violence” rubric.

Required content:

1. Violent corporate crime refers to acts committed by corporations that lead to injury and/or death.
2. Victims of corporate violence include workers, consumers, and the general public.
3. Unsafe working conditions is an example of corporate violence against workers, for example (any one of the following) Film Recovery Systems (inadequate protection against cyanide), McWane Inc. (sewer and water pipe manufacturer), asbestos, brown lung disease among textile workers, and vinyl chloride exposure in chemical companies.
4. Unsafe products is an example of corporate violence against consumer, for example (any one of the following) the Dalkcon Shield, thalidomide, Ford Pinto’s exploding gas tanks, Firestone 500 steel-belted tires (tread separation and blow-outs), defective GM gas tanks in their pick-ups, and tobacco companies hiding the known health hazards of their products.
5. Victimization of the general public in a type of corporate violence. Examples include (any one of the following) Hooker Chemical’s dumping of tons of toxic waste in Love Canal; dioxin waste that was 100 times EPA limits in Times Beach, Missouri; chemical pollution in Jacksonville, Arkansas (“dioxinville”), Louisiana-Pacific Corporation violations of the Clean Air Act; Colonial Pipeline’s oil spill; and Royal Caribbean cruise line’s dumping of oil and hazardous wastes.

Additional content:

1. “Dioxinville” is the worst such crime in the United States
2. Chemical companies colluded to hide the dangers of their products from regulators.
3. Dow Chemical knew about the danger of dioxin at least as early as 1965—before the poisoning of Love Canal, Times Beach, and Jacksonville, Arkansas.
4. The EPA cautiously estimates that air toxins cause 1,700 cancers per year.
5. U.S. corporations produce about 292 million tons of toxic waste per year.
6. The EPA estimates that 90 percent of toxic waste is not disposed of properly.

Additional Sources

Blood and Oil: Military Engagements in the Middle East (2008): Documentary film.

Brown, Phil, and Edwin J. Mikkelsen. 1997. No Safe Place: Toxic Waste, Leukemia, and Community Action. Berkeley: University of California Press.

Erikson, Kai T. 1978. Everything in Its Path: Destruction of Community in the Buffalo Creek Flood. New York: Simon & Schuster.

Erin Brockovich (2000): Drama. The story of a single mother who became a legal assistant and helped expose a power company accused of contaminating the water supply.

The Insider (1999): Drama. Portrays the 60 Minutes television show and big tobacco whistleblower Jeffrey Wigand.

Michalowski, Raymond, and Ronald Kramer. 2006. State-Corporate Crime: Wrong-Doing at the Intersection of Business and Government. New Brunswick, NJ: Rutgers University Press.

Shopper’s Guide to Pesticides, prepared by the Environmental Working Group; available for download at http://www.foodnews.org/.

Silkwood (1983): Drama. The story of Karen Silkwood, a metallurgy worker at a plutonium processing plant who was intentionally contaminated (and potentially murdered) to prevent her from exposing blatant safety violations. She went to meet with a New York Times reporter but never arrived.

The Smartest Guys in the Room (2005): Documentary film about the Enron fraud and bankruptcy.

This American Life (WBEZ-Chicago radio show): TAL has produced a number of excellent programs on the 2008–2009 financial crisis, government regulations, and corporate power (e.g., The Giant Pool of Money, Another Frightening Show about the Economy, and Bad Bank). Listen online or download transcripts at http://www.thisamericanlife.org.economy.aspx (Don’t forget to support your local public radio station!)