In this chapter we’ll examine what constitutes a crime and the specifics of several white-collar, or business, crimes. Because this book focuses on business law, these crimes aren’t the type you’d see as the subject of a TV show. Instead, the crimes are nonviolent crimes that involve some form of cheating or fraud. While they aren’t physical crimes like murder or assault, they are equally devastating because they involve people’s money.

In a general sense, a crime is an act that violates a law by harming someone or their property and leads to jail time for the perpetrator. Most crimes require two things: mens rea and actus reus. Mens rea is Latin for “the guilty mind” and reflects the requirement that the lawbreaker knows what he’s doing. However, this does not mean that the person is aware of their guilt, but that they understand and voluntarily make the act.

Actus reus is Latin for “guilty act” and involves the physical actions the alleged criminal takes. The statute may define this as an affirmative action on the part of the lawbreaker: stealing somebody’s car, for example. Or the law may prevent an action: it is a crime to take somebody’s life. Either way, if the actus reus is combined with mens rea, a crime has been committed.

Crimes are classified in two ways. A misdemeanor is one that is punishable by less than one year in jail. Felonies punish the offender with one year or more in jail. It’s important to note that the criminal laws are not standardized. What qualifies as a misdemeanor in one state may be a felony in another.

The term white-collar crime was coined in 1939 and is synonymous with fraud in all its iterations. Today’s scams often use the Internet and other technology to put a new face on old tricks to separate people from their money.

White-collar crime is a costly endeavor. According to the FBI, health care fraud alone has a price tag of $50 billion annually. The fraud can involve anything from a staged car accident to Medicare/Medicaid fraud. Then there’s financial institution fraud, including mortgage fraud and identity theft operations.

In the post Enron, WorldCom, and Adelphia world, corporate executives may be held personally liable for the acts of their subordinates—even if they did not know about or knowingly participate in the crime. In the Sarbanes-Oxley world, Congress has decided that the CEO and CFO or the equivalents are the people best situated to stop the fraud. Thus, they have a higher burden.

Also note that in the business setting multiple individuals can be held responsible for committing the same crime. In the “ordinary” criminal context, only those who directly participated in the crime can be held liable. In the business setting the net can go much broader. For example, the manager can be held liable for the acts of his or her subordinates. To be found liable, the manager must have 1) authorized the conduct, 2) known about the conduct and did nothing, or 3) failed to properly supervise the employee to prevent the criminal conduct.

If found guilty of a criminal violation, corporations can pay huge fines. For example, AIG paid a fine of $1.6 billion to settle state and federal charges that it participated in fraud and bid-rigging and failed to pay into workers’ compensation funds. If an individual employee or officer is found guilty, that person can spend time in jail and/or pay fines. For example, Bernie Ebbers, former CEO of WorldCom, was sentenced to 25 years in jail in 2005 for accounting fraud at that company.

There are several different types of penalties that can be enforced against the defendant. First, the defendant can forfeit any property that was used to commit the crime. Forfeiture is rare in white-collar crimes, but is an option for the court. The more common punishments are fines and jail time. Recently, fines have been adjusted to recognize that what is a significant penalty to an individual may not affect a business. Since the fines are designed to deter criminal behavior this had to be adjusted.

There are also mandatory sentences now for the officers and directors who were in positions of authority at the time of the crime. The U.S. Sentencing Guidelines allow reductions in sentences if the managers were actively engaged in trying to prohibit the crime. Under the November 2003 amendments, the court can take the following factors into consideration when determining sentences:

The effect is to encourage companies to take an active role in the investigation to minimize the amount of the penalty for any wrongdoing. Sarbanes-Oxley has increased the criminal penalties. (For more on Sarbanes-Oxley, refer to Chapter 3.)

One misconception is that the victim of the crime can be compensated for any injury in a criminal proceeding. Any penalties are paid to the government, not the victims. On rare occasions the court may order restitution to the victim of the crime. Usually, though, the only way a victim can be compensated is to pursue a civil case.

A conspiracy is an agreement between two or more people to commit an unlawful act or to use unlawful means to achieve an otherwise lawful result. For example, if competing businessmen agree on a price for a product they both sell, they have conspired to violate the antitrust laws by engaging in price-fixing. In most cases, the crime is the actual agreement. Some statutes will require that some act in support of the agreement be taken before the parties commit conspiracy.

Money laundering occurs when parties knowingly participate in a financial transaction which is designed to hide the origins of those funds. This often occurs with drug money and other profits made from crimes. The Money Laundering and Control Act was amended by the U.S. Patriot Act. The reach of these acts has greatly expanded in many areas. The acts are targeted at controlling bribery, money laundering, and tax evasion.

The acts also cover a broader range of accounts. Those include securities and money market accounts. Banks have additional reporting requirements and must assign one person to follow up on law enforcement information regarding suspicious activity and individuals. It is also clearer that small banks and financial institutions are not exempt from these laws as was thought. To avoid longer sentences if a violation occurs, these institutions should create training programs that teach employees how to identify suspicious customers and transactions.

Bribery occurs when an individual or business gives money, property, or any other benefit to a particular person for the purpose of influencing that person’s actions and judgment in their favor. Giving a bribe is one crime. Receiving a bribe is also a crime. And if a person tries to coerce a person or entity into giving him or her a bribe, that is also a crime.

Let’s say Joe’s Bakery needs a building permit to expand. He’s got the expansion site and contractor lined up, but City Hall is notoriously slow. Joe takes an official with the permitting office to lunch and offers a bribe in exchange for a permit and the official accepts. They have each committed a crime. However, if the official tells Joe the only way to get the permit is to first pay a bribe, only the official has committed a crime unless Joe follows the advice.

A twist on bribery is commercial bribery. It occurs when one company bribes an official at another company to give the first company business or to let that business do something for the second. Let’s say Joe’s Bakery is trying to obtain a lucrative contract from a chain of restaurants. If Joe promises a $1,000 gift to the restaurant’s COO in exchange for the contract, that is a commercial bribe.

Under the Racketeer Influenced and Corrupt Organizations (RICO) Act, the original intent was to prevent organized crime from investing money obtained through racketeering activity into legitimate businesses.

Racketeering is a broadly defined crime. It consists of kidnapping, gambling, murder, arson, and much more. Because racketeering activity is defined so broadly and treble damages are a remedy, the law has been used against legitimate businesses in addition to organized crime. To have RICO apply, the plaintiff or prosecutor must show there is a pattern of racketeering activity. To have a pattern, at least two racketeering activities must be committed within two years.

Under RICO, a guilty defendant can be fined $25,000 and sentenced to up to 20 years in jail. Any property used in the racketeering can also be forfeited. A civil plaintiff may obtain treble damages and attorneys’ fees.

Extortion is the illegal demand by a public officer acting with apparent authority. Blackmail is a demand made by a private official. In both cases the person demanding the money demands it in exchange to either buy his action or prevent him from acting. Blackmail is usually a threat to make something public if not paid.

Counterfeiting occurs when a person knowingly makes a document or coin that looks genuine but is not. Traditionally, this crime applies to the creation of what looks like U.S. money, but has expanded to include foreign securities and foreign bank notes.

Forgery is the crime of fraudulently making or altering an instrument that in turn creates or alters the legal liability of another. The easiest way to think of this is forging a check. By forging a check, the forger acts without authority to create a legal obligation on the part of the account holder and bank to pay money to a third party. It can also occur when the forger signs another’s name with the intent to defraud a third party. Again think of a check … if the payee’s name is forged, the forger obtains funds that are not his or hers while depriving the payee of rightful funds. If a forged check is sent through the stream of commerce with knowledge that it is forged and the intent to defraud, then uttering a forged instrument has occurred.

Perjury is the crime of knowingly giving false testimony in judicial proceedings after swearing to tell the truth. This crime occurs if a witness lies on the stand. But to be prosecuted the person must first swear to tell the truth.

Under Sarbanes-Oxley, obstruction of justice occurs when anyone alters, destroys, conceals, covers up, falsifies, or makes a false entry with intent to impede, obstruct, or influence an investigation of a department or agency of the United States. Sarbanes-Oxley also created a new element of mail and wire fraud, broadening it from the original crime of using the mail or telephone to defraud another. Sarbanes-Oxley requires corporate officers to take extra steps when signing or certifying financial statements. If corporate officers fail to comply with the requirements for financial statement certification or certify financial statements that contain false material information, those officers have committed corporate fraud with stiff penalties and jail time.

Embezzlement occurs when someone fraudulently coverts another’s property or money that has been entrusted to him or her. If an employee takes property or funds for personal use that belong to his or her employer, he or she has embezzled those items. An agent, like a property manager, embezzles when he or she keeps payments from third parties that were intended for the principle.

Here are additional white-collar crimes whose titles explain the crime:

Common law crimes are the more traditional crimes. These crimes involve the use or threat of the use of force. They also cause injuries to people or damage property.

Larceny is the wrongful or fraudulent taking of the personal property of another. A common form of this that affects businesses is shoplifting. Robbery differs from larceny in that a robber uses force or the threat of force to take personal property from another. Burglary occurs when a person breaks and enters the dwelling of another at night with the intent to commit a felony. Though the word dwelling is used, this crime has evolved to include many businesses such as banks and warehouses. Arson is the willful and malicious burning of another’s dwelling.

What about computers? Can someone commit a crime against a computer? Using a computer? Through a computer? Yes to all of those. Crimes against the computer include the theft of hardware and software. It can also be violated when someone hacks into a computer to destroy or alter data. Taking information off a computer without authorization is also a crime. It may be stealing a trade secret, computer trespass, or taking information with intent to harm.

Other crimes include violating copyrights with the aid of the computer by circumventing encryption protections on CDs and DVDs. It is also a crime to use the electronic transfer of funds to steal or defraud another. Even spamming, sending unsolicited e-mails, is against the law.

The broad constitutional protections apply to businesses and individuals. The Fourth and Fifth Amendments provide key protections.

Under the Fourth Amendment protections, businesses have the right to be secure from unreasonable searches and seizures without a warrant. This protection is enforced by the requirement that the government obtain a search warrant before it can search or seize property if the business has a reasonable expectation of privacy. To obtain a warrant, law enforcement must show a judge that there is probable cause that to believe that evidence of the crime is at the location they want to search. Law enforcement must also list the items they are searching for. If the search is improper, any evidence obtained during the search is inadmissible.

There are several exceptions to the warrant requirement. One is that if the item or evidence is in plain view, law enforcement may seize the item. There are no privacy rights attached to something that a person or business leaves in plain view of the public. Officers may enter a building in order to give aid during an ongoing criminal act like a robbery. They can also enter if the person who lives on the property gives permission.

If law enforcement seeks to obtain business records, law enforcement must obtain a search warrant to seize those records. But what if the records are in the control of an agent such as an accountant or attorney? Attorney-client privilege applies to documents an attorney has and their notes of conversations with a client. Where the privilege exists, then the records cannot be seized—even if law enforcement obtains a warrant.

The Fifth Amendment provides constitutional protection against self-incrimination and guarantees due process. It’s not uncommon to hear people who are called in criminal cases to take the Fifth. That means if forced to testify the individual could incriminate themselves of committing a crime. The Fifth Amendment specifically provides individuals protection against forcing them to testify against themselves. They can choose to take the stand in their defense and may end up testifying against themselves under skillful cross-examination, but the government cannot force someone into that position.

The Fifth Amendment due-process protections require that individuals be given certain warnings when in a custodial interrogation. The Miranda warning informs people in police custody or in an interrogation that they have a right to remain silent, anything they say can and will be used against them in a court of law, they are entitled to counsel, and if they can’t afford counsel one will be appointed for them. If law enforcement fails to give this warning, any statements made after the warning should have been given are inadmissible. In addition, any evidence acquired because of the invalid confession or testimony is fruit of the poisonous tree and will not be allowed in at trial either. This is a mechanism designed to deter law enforcement from violating rights with unreasonable searches and seizures.

Finally, the Fifth Amendment due-process rights of an individual must be extended to businesses as well. Those include the rights to be heard, question witnesses, and present evidence. They also include a preliminary hearing or grand jury, arraignment, discovery, and all other steps that lead up to trial as well as full trial rights.