White Collar Crime
White-collar crime is defined as fraud committed by government and business professionals. The motivation behind the white-collar crime is often financial and often involves a violation of trust, concealment, or deceit rather than violence. Famous white-collar criminals include: Al Capone for money laundering; Bernie Madoff for $65 billion investment Ponzi scheme; Martha Stewart stock trading; Kenneth Lay, Enron CEO, accounting scandal resulting in loss to stock investors in the billions.
Scams and other white collar crimes devastate families or ruin businesses. The FBI take these types of crime seriously and have a white collar crime division to deal with crimes such as:
- Bank fraud
- Corporate fraud
- Election law violations
- Embezzlement
- Financial institution fraud
- Government fraud
- Health care fraud
- Mass marketing fraud
- Money laundering
- Mortgage fraud
- Public corruption
- Securities and commodities fraud
Generally, the FBI will focus on organized crime activities or interstate or international that require the FBI’s white collar crime division’s resources or expertise.
What Is The FBI’s Priority Amongst White Collar Crimes?
White Collar Crime Priority 1: Corporate Fraud
Corporate fraud is not just a priority in the white collar crime division but across the whole FBI. This is because corporate fraud can cause serious damage to the US economy due to the loss of investor confidence.
Corporate fraud is a white collar crime that involves deceit about the business’s financial condition for financial gain. This may be deceiving tax auditors or investors. The deception happens because of
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- Share price manipulation
- Financial data manipulation
- Fictitious performance indicators
The white collar crimes division of the FBI focuses on the following types of white collar crime:
Falsification of Financial Information
This is hiding profits, losses, or the true financial condition of the company for gain. This may be conducted through:
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- Illicit transactions
- Fraudulent trades
- False accounting
Corporate Insider Self-Dealing
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- Self-dealing tax violations
- Insider trading
- Using corporate property for personal gain
Fraud In an Otherwise Legitimate Mutual Hedge Fund
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- Falsifying net asset values
- Late trading
- Timing the market
Obstructing justice to conceal any of the above crimes is also considered a white collar crime.
To control these white collar crimes, the FBI has partnerships with a number of agencies to help identify and investigate corporate fraud.
White Collar Crime Priority 2: Money Laundering
Money laundering is a white collar crime that allows criminals to make their illegally gotten money seem legitimate. This allows them to reinvest their profits, evade taxes, and avoid prosecution. In some cases, it might also be used to hide wealth.
In order to shut down money laundering, the FBI white collar crime division focuses its efforts on those who facilitate money laundering. Criminals who money launder might get their “dirty profits” from
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- Human trafficking
- Healthcare fraud
- Complex financial crimes
- Corruption
- Terrorism
- Narcotics trafficking
Money laundering has three steps:
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- Placement – the criminal’s profits enter the financial system
- Layering – moving funds internationally to create a complex trail
- Integration – the criminal receives legitimate profits back again
Detecting Money Laundering and Deterring It
Money laundering is one of the most difficult white collar crimes to stamp out as it is always evolving. The FBI works closely with other law enforcement agencies to detect money laundering. They also collaborate with international white collar crime agencies as money laundering often operates cross-border.
White Collar Crime Priority 3: Securities and Commodities Fraud
A white collar crime that is on the rise is securities and commodities fraud because of the increase in investment accounts. Large investment accounts or complex investment vehicles create a higher risk of fraud.
The most common securities and commodities frauds the FBI white collar crime division deal with are:
Investment Fraud
The scammer in these white collar crimes will promise low or no risk investments with large returns, but there is often no investment at all. Many of these scammers will target certain groups that they share an affinity with to build trust in the investment. The trust and often low financial knowledge of the people being scammed means that the scam is not discovered. These types of white collar crimes will wipe out the savings of families, including college funds and retirement accounts. Here are the most common investment fraud white collar crimes.
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- Ponzi schemes – The scammer will have an initial pool of investors who are paid returns when the scammer brings on a new round of investor. A Ponzi scheme will often seem very complex and promise consistent returns. When this white collar crime is complete, the scammers will pack up shop and leave town.
- Pyramid scheme – Sometimes also referred to as MLM or multi-level marking programs; these give participants commissions for recruiting new members. This is one of the most common types of white collar crimes that everyday people will experience. It is also one of the easiest white collar crimes to spot.
- Trading program fraud or prime bank investment fraud – The scammer will claim they have access to a secret trading program endorsed by a well-known financial institution. The documents they give will look official, and often they will claim that they are insured against loss.
- Advance fee fraud – This scam will charge participants a fee in the hope of receiving a large prize. This may be posed in the form of a tax or registration fee, and often the scammers will ask for additional funds. In this white collar crime, “participants” will receive a text message, email, or even letter notifying them that they won a prize.
- Ponzi schemes – The scammer will have an initial pool of investors who are paid returns when the scammer brings on a new round of investor. A Ponzi scheme will often seem very complex and promise consistent returns. When this white collar crime is complete, the scammers will pack up shop and leave town.
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The above types of scams are common white collar crimes targeted at everyday people.
Promissory Note Fraud
Non-existent or little-known companies will issue a promissory note that promises a high return for an investment. The deal boasts little or no risk to get people on board. These promissory notes will not be registered with the Securities and Exchange Commission as required by law.
Commodities Fraud
Commodities fraud is the illegal sale of goods sold on an exchange. The scammer will use high-pressure sales tactics to bring investors on board and falsify documents to pretend they are making trades when they are keeping the money for themselves. In some cases, they may excessively trade to generate commissions for themselves. This is known as churning. Commodities fraud usually include Forex trading or investment in precious metals.
Broker Embezzlement
This type of white collar crime occurs when a broker steals from their clients. They do this by forging documents, conducting unauthorized trades or transfers, doctoring account statements, and other breaches of fiduciary duties.
Market Manipulation
Market manipulation is where a fraudster inflates stock prices to turn a profit. This white collar crime is often referred to as a “pump and dump” where brokers will buy a large number of penny stocks held by their conspirators. This will create a market demand for the stock and push the price up. The conspirators will then sell the stocks at the high price, thus earning a profit before the stock price lowers. Innocent investors will then lose money as the share price drops.
How Does the FBI Deal With White Collar Crimes Like Securities and Commodities Fraud
With the uncertainty of the global economy, the FBI believes that white collar crimes like these will only increase. The FBI collaborates with other law enforcement agencies and task forces to crack down on white collar crimes. They target both corporations and criminal enterprises with their activities.