White-Collar Crime And Punishment
The topic “White-Collar Crime and Punishment” is a wide subject requiring volumes to be defined precisely. My attempt is only to bring to the knowledge of the public, business community and legal fraternity, its significance in our society infested with corruption, which is eating every fiber of the society like white ants. I am, therefore, making this humble contribution in a concise form, which amounts to a “bottle a river in a tumbler” of the thesis, treatise/ comments published by distinguished authors and sociologists who have contributed to several books being published since 1949. The principles laid down by these great contributors to the law of criminology have influenced courts in several countries, including principles and guidelines by the famous sociologist Edwin Sutherland followed by John S. Baker Jr. and Hazel Croall.
The concept of “presumption of innocence” in criminal law i.e. the accused is presumed to be innocent until proven guilty beyond reasonable doubt, seems to be the bastion of fairness and the standard of criminal culpability against which the accused is judged to be given a fair trial. In an ideal world with the present notions of criminology, this seems to be the very backbone of criminal jurisprudence prevalent in all civilized societies of the world, against alleged murderers, rapists, thieves and thugs. The question has often arisen, whether the same standard should be applicable to the executives of corporations and people who are at the helm of affairs, not only in the corporate world but in the arena of politics and governance holding public office with immense power and influence. Such are the people who often exercise these extraordinary powers to their own advantage and benefit and at the expense of the masses. It is reasonable to say that the notion of responsibility should not be divorced from such people who hold such powerful public or private offices.
It is crucial to understand that corporate heads exercise the authority given to them for the benefit and profit of shareholders and not for their own advantage and benefit. Similarly, holders of public office exercise such powers on behalf of the people and for the people, not against the people. The intention here is not to opaquely be like Rousseau in concept but to draw attention towards the trust that is placed in the position of such authoritative powers and legitimate benevolent expectations associated with it, as naïve as it may be in practice. The history of the world is marred with incidences where we have seen, in the words of Lord John Emerich Edward Dalberg Acton in motion that, “power tends to corrupt and absolute power corrupts absolutely.”
This famous saying is for want of people’s response to such actions on part of the powerful. In the words of Martin Luther King Jr, “The ultimate tragedy is not the oppression and cruelty by the bad people but the silence over that by the good people.”
In the words of our own Supreme Court, while considering all these factors, in a landmark decision reported as PLD 2010 SC 265,
“Pity the nation that punishes it’s weak and poor but is shy of bringing its high and mighty to book. Pity the nation that clamours for equality before law but has selective justice close to its heart. Pity the nation that thinks from its heart and not from its head. Indeed, pity the nation that does not discern villainy from nobility.”
White-collar crimes, in contradistinction to blue-collar crimes, have no official legal classification as they belong to a general net group of crimes. The term “blue-collar crime” was originally coined to mean those crimes committed by individuals from the working or lower class of the society, who normally wore blue shirts because of the nature of their work. Today blue-collar crimes are typically those crimes that are fueled by passion, rage or other emotions. The process of industrialization encouraged working-class incorporation into the society with greater social nobility achieved during the 20th century. While blue-collar crime is committed in violation of the laws of a country and may be prosecuted and punished according to law, white-collar crimes on the other hand originally referred to those crimes committed by individuals with a higher social status or upper-level occupation that often required them to wear a suit and a white-collared shirt. The term “white-collar” is credited to Upton Sinclair, an American writer, in relation to contemporary clerical, administrative management workers during 1930s though reference to white-collar work appears as early as in 1935. In this day and age, white-collar crimes are those which are generally committed in a business setting and are considered to be non-violent. White-collar crimes are also committed by public office holders and directors of public and private sector corporations. Some people refer to white-collar crimes as “paper crimes”. A few examples of white-collar crimes include wire fraud, forgery, embezzlement, money laundering and more. It was in this scenario that the need arose for sociologists such as Edwin Sutherland and later on John Baker junior, to highlight the requirements for the legal fraternity and the judiciary to consider substituting the age-old criminal law principle of treating a criminal as innocent unless proved guilty beyond a shadow of doubt, by doing away with the principle of presumption of innocence and proof of guilt beyond a shadow of doubt, in the case of white-collar crimes, since the number of white-collar crimes simultaneously increased with the increase in industrialization, international business, trade, modernization of e-commerce and e-banking, etc. They strongly suggested for the white-collar criminals to prove their innocence, since their action, if unpunished, brought serious consequences in the society, increasing corruption, economic chaos, political instability at times, and a strong perception amongst the people that there was one law for the poor being punished for crimes affecting individuals and a different law for the rich, affecting society at large and remaining unpunished.
White-collar criminals include business managers, fund managers and executives committing financial fraud. Individuals can face prison time and steep fines if they are convicted. The state can also pursue financial damages from corporations and banks that commit white-collar crime at an institutional level. One of the most well-known white-collar criminals was Bernard Madoff, who was convicted in 2009 of massive fraud that cost investors $65 billion. Madoff, sentenced to 150 years in prison, ran an elaborate Ponzi scheme, which promised large returns on investments. Corporate white-collar crime usually involves large-scale fraud perpetrated throughout the institution. For instance, in 2014 Credit Suisse pleaded guilty to helping US citizens avoid paying taxes by hiding income from the Internal Revenue Service (IRS). The bank agreed to pay penalties of $2.6 billion. Also in 2014, Bank of America acknowledged that it sold billions in mortgage-backed securities (MBS) tied to properties with inflated values. These loans, which did not have proper collateral, were among the types of financial misdeeds that led to the financial crash of 2008. Bank of America agreed to pay $16.65 billion in damages and admitted to its wrongdoing.
White-collar criminals, whether in business or public office, wield tremendous powers and influence over institutions and people, working therein as facilitators to their crimes. Since the wealth so acquired by such people is ill-gotten, in order to conceal the crimes and the wealth, such persons transfer the ill-gotten wealth in the name of their spouses and children or in foreign banks or in the name of off-shore companies to conceal any evidence and remove all traces of the movement of their wealth from the country of origin.
Many white-collar crimes are especially difficult to prosecute, because perpetrators use sophisticated means to conceal their activities through a series of complex transactions. White-collar crimes, being extraordinary crimes, are the ones that are almost impossible for the prosecution to prove in court. Faced with the situation, many white-collar criminals get away with punishment under the criminal law requiring strict proof of their guilt. Sociologists in many countries have considered the age-old criminal law as a hurdle in prosecuting and punishing white-collar criminals.
Professor Edwin Sutherland, a sociologist who coined the term “white-collar crime”, while disagreeing with certain basic substantive and procedural principles of criminal law, in his landmark book White-Collar Crime published in 1949, dismissed the traditional mens rea (criminal intent) requirement and the presumption of innocence. He suggested that the rule of criminal intent and presumption of innocence are not required in all prosecutions in criminal courts and the number of exceptions authorized by statutes is increasing. Sutherland relied on the claim that both corporate and individual defendants are routinely deprived of the presumption of innocence in criminal proceedings. Often when convinced that a person or class of persons is guilty of white-collar crime, people become impatient with legal niceties. Sutherland and others, who assume the guilt of much of the business world, believe that the ordinary protections of the law also need not apply to persons involved in business.
Another sociologist John S. Baker Jr, w hile considering Edwin Sutherland’s paper on white-collar crime, stated that,“Sutherland’s influence is clearly evident in federal criminal law today.” Many federal offences prosecuted under the label of white-collar crime, rather than true crimes, regularly require no proof of criminal intent. Under misconception of crime, white-collar offender may be sent to prison for harmless mistakes or accidents. He further held that, “The term white-collar crime and its offshoot “organized crimes” reflect a half-century old movement to remaking the definition of crime.”
Conscious of the ongoing struggle to perish white-collar crimes and eradicate consequent corruption in society, a large number of countries persuaded the United Nations to cater to the need, which finally resulted in the UN Convention Against Corruption 2003, to which many countries are signatory. Pakistan too is a signatory to the Convention. A perusal of the Convention indicates that the signatory states have responsibility to develop and implement or maintain effective, coordinated anti-corruption policies; to take measures to prevent money laundering; to take measures for freezing, seizure and confiscation of proceeds of crime derived from offences established in accordance with the Convention, or the property the value of which corresponds to that of such proceeds, property, equipment or other instrumentalities used in or destined for use in offences established in accordance with the Convention, etc. State parties shall consider assisting each other in investigations of and proceedings in civil and administrative matters relating to corruption as well as affording to one another the widest measure of mutual legal assistance in investigations, prosecutions and judicial proceedings in relation to the offences covered by the Convention. Pakistan, as a signatory state, also has to implement this UN Convention by enacting necessary laws to cater to the provisions of the Convention.
In Pakistan too, realization about prosecution and punishment of white-collar criminals came with the promulgation of the National Accountability Bureau (NAB) Ordinance 1999, anti-corruption laws and the previous Ehtisab Act 1997, which primarily catered to white-collar crimes. Under Section 14 of the NAB Ordinance, the presumption of innocence has been done away with and the onus of proof is placed on the accused. Similarly, under Section 4 of the Prevention of Corruption Act 1947, presumption of innocence on part of the accused has been done away with and the burden of proof lies on the accused.
As per Section 5(m) of the NAB Ordinance 1999, “holder of public office” means a person, who:
- has been the President of Pakistan or the Governor of a Province;
- is, or has been the Prime Minister, Senate Chair, Speaker of the National Assembly, Deputy Speaker National Assembly, federal Minister, Minister of State, Attorney General and other law officer appointed under the Central Law Officers Ordinance 1970 (VII of 1970), advisor or consultant to the Prime Minister, Special Assistant to the Prime Minister, federal Parliamentary Secretary, Member of Parliament, Auditor General, political secretary, holds or has held a post or office with the rank or status of a federal Minister or Minister of State, and includes many public office holders in the provinces and local bodies, etc.
In Section 5(o) “person”, unless the context otherwise so requires, includes in case of a company or body corporate, the sponsors, chairperson, chief executive, managing director, elected directors by whatever name called and guarantors of the company or body corporate or anyone exercising direction or control of the affairs of such company or body corporate and in case of any firm, partnership or sole proprietorship, the partners, proprietor or any person having any interest in the said firm, partnership or proprietorship concern or direction or control thereof.
It appears that the scope of NAB Ordinance is wide enough and applies to directors/ chief executive officers in the private/ public sector, corporations as well as partnerships and sole proprietorships, in addition to public office holders, as defined above.
Increase in industrialization and manufacturing of almost all products through modern, technical and sophisticated processes and increase in international trade/ business, e-commerce and e-banking has resulted in a wide range of white-collar criminals in the business world going unpunished for want of compatible training in investigation and prosecution agencies, leaving many white-collar crimes without prosecution and punishment.
It becomes necessary for developing and third world countries to consider upgrading their age-old criminal law to meet the growing need for checking, identifying, prosecuting and punishing white-collar crimes committed in the corporate sector and public offices.
Prosecution and Punishment
In the face of age-old criminal law of Pakistan, identification, investigation, prosecution and punishment are almost impossible with high-profile lawyers being engaged by the accused to defend white-collar criminals challenging the courts’ jurisdiction, constitutional guarantees, fair trial, claim of presumption of innocence and proof of guilt beyond a shadow of doubt.
- Under Section 14 of the NAB Ordinance, the presumption of innocence seems to have been done away with and the onus to prove innocence is on the person accused under Sections 9 and 10 of the Ordinance. Section 14 further empowers to disqualify a person for a period of 10 years for seeking or from being elected, chosen, appointed or nominated as a member or representative of any public body or any statutory or local authority or in the service of Pakistan or any province.
- Section 10 provides punishment to the accused with rigorous imprisonment for a term, which may extend to 14 years and with fine, if the assets and pecuniary resources of such a person are found to be disproportionate to the known sources of his or her income, whether in his or her name or in the name of any of his or her dependents or benamdars.
- The NAB Ordinance seems to have empowered the institution, under Section 9, to investigate an offence against a public office holder or any other person. If satisfied that prima facie a case has been made out, the NAB Chairperson is empowered to refer the matter to the court for prosecution and punishment.
- Section 16 empowers the NAB Chairperson, having regard to the facts and circumstances of the case, to file a reference before any court established anywhere in Pakistan. Similarly, under Section 16-A, the Chair may apply for transfer of the case – in the interest of justice and for protection and safety of witnesses – from any such court to the Supreme Court of Pakistan, or to the High Court of a province, as the case may be, or in the interest of justice try the same under the NAB Ordinance.
- Section 21 empowers the NAB Chair or any officer authorized by the federal government to request a foreign state to do certain acts, in accordance with the law of the state. These acts include asking for evidence taken or documents or other articles produced, obtaining and executing search warrants or other lawful instruments, or authorizing search for things relevant to the investigation or proceedings in Pakistan believed to be located in that state.
- Section 6(ba) of the NAB Ordinance provides that a person shall not be appointed as the NAB Chair, unless that person is a retired Chief Justice or a judge of the Supreme Court or a Chief Justice of a High Court, or a retired officer of the Armed Forces of Pakistan equivalent in the rank of a Lt. General or a retired federal government officer in BPS 22 or equivalent.
Despite the above provisions for appointment of the NAB Chair, in preference to a retired Chief Justice or judge of the Supreme Court or Chief Justice of a High Court, the authorities concerned have usually preferred to appoint a federal government officer, as provided in Section 6(ba)(iii). Since the power of appointment of Chair NAB vests in the federal government and a decision by the Chair against a public office holder or person having high stakes in a public or private sector corporation becomes a subject matter of consideration by the incumbent government, this normally results in non-prosecution or delayed prosecution of the person concerned under the NAB Ordinance. Since the promulgation of the Ordinance to this day, there has hardly been any prosecution/ punishment of a public office holder or an officer with high stakes in a public or private sector corporation.
In light of the above, it becomes essential for lawmakers and courts to consider basic, substantive and procedural principles of criminal law, like the presumption of innocence, to be exceptions in case of white-collar crimes as enunciated by Professor Edwin Sutherland in his landmark book White-Collar Crime published in 1949, dismissing the traditional requirements of mens rea (criminal intent) and the presumption of innocence.
The term “white-collar crime” has expanded even further to include such a wide array of crime that it has become too amorphous for analysis and some sociologists even find Sutherland’s very loose definition as being too restrictive. Thus, white-collar crime has now become a division of organizational crime. One example includes the US Justice Department’s efforts in some countries to force corporations to waive their privilege against self-incrimination as a condition of pleading guilty. This nascent trend is consistent with and sociologically derived from Sutherland’s thesis that white-collar criminals are not entitled to the same constitutional protections afforded to other defendants. Recently and rather remarkably, the US Justice Department espoused an essentially class-based view of the law in requesting that the sentencing commission disallow departures from the sentencing guidelines for “white-collar criminal defendants, who typically have sophisticated counsel”.
The origin of the concept of white-collar crime derives from a socialist, anti-business viewpoint that defines the term by the class of those it stigmatizes. In coining the phrase, Sutherland initiated a political movement within the legal system.
In 1995, Gleeson CJ, the then Chief Justice of New South Wales, drew attention to comments often made about the apparent leniency shown to white-collar offenders (though he did not use that description) in contrast with sentences imposed for violent crimes (R v Hassen Mohammed El-Rashid – unreported, Supreme Court of New South Wales Court of Criminal Appeal, Gleeson CJ, Mahoney and Sperling JJ, 7 April 1995). Gleeson CJ did not deny that there was differential treatment. He explained that the difference was the result of two factors; first, that Parliament had provided lower penalties for white-collar offences and, second, that violent crimes, such as armed robbery for example, were usually far more serious to society. The reason some people believe that white-collar crimes are not serious is not only because of the absence of violence but, I suspect, because of the invisibility of the losses caused, which are usually spread among consumers and shareholders rather than concentrated towards a few victims. The reality is, however, that the cost of white-collar crime is often extremely high, causing many people to suffer greatly.
While retribution is important as a stamp of a society’s disapproval of a particular conduct, the governing principle of “sentencing” in cases of the kind with which we are concerned is general deterrence. The sentence must be exemplary and sufficient so that members of the business community are put on notice that if they break the trust which has been reposed in them, they will receive proper punishment. It is vital not only in the interests of the business community but in the interests of society that leaders of that community act honestly in all their dealings. Any slip from the high standards demanded of directors can put at risk the fortunes of their company and also the fortunes (large or small) of those who invest in them. In extreme cases the misconduct can affect the economy as a whole.
This is where the possibility of disqualification from office can play an important function. It may be accepted that the principal objective to be achieved by a disqualification order is protective: protection of the company and its shareholders against the likelihood of repetition of the offending conduct and protection of the society from misuse of powers by public office holders, which may result in serious consequences for the society. The mistake is to treat this as the sole purpose of a disqualification order. That error has now been exposed. In Rich v Australian Securities and Investments Commission (2004) 50 ACSR 242 the High Court made it clear that a disqualification order can be imposed not only to protect the company’s shareholders against further abuse, but also by way of punishment and, importantly, for general deterrence. The court stated that it was confident that the fear of losing both their position from business life as well as their good reputation, would be an effective deterrent in the case of many directors who were contemplating a dishonest course for gain. Only a few corporate crimes are spontaneous. There is always time to consider the consequences. The risk of a long period of disqualification, for example so long that it will keep the director forever out of public corporate life, may well tip the scales.
There is another aspect of punishment that requires particular attention in this case. The judge mentioned earlier said that they were dealing with white-collar crime. This expression can be traced back to E Sutherland (1949) who defined white-collar crime as, “a crime committed by a person of respectability and high social status in the course of occupation.” It now has a wider scope. Black’s Law Dictionary (8th Ed, 2004) defines white-collar crime as, “[a] non-violent crime [usually] involving cheating or dishonesty in commercial matters. Examples include fraud, embezzlement, bribery, and insider trading.” I have also referred to the widely held view that white-collar offenders are treated lightly.
With the development of criminal law, many decisions have been made by courts in various countries, such as the 1994-98 Mediaset Trial 2, where on the question of personal tax evasion of 7.3 million euros committed in 1994-98 through illicit trade of movie rights between secret fictitious companies, the Italian Supreme Court imposed four-year jail-time and a two-year public office ban on the culprit.
On the abuse of office – The Unipol Case (2005): In February 2012, Milan prosecutors brought charges against Bersulconi for alleged abuse of office connected with the publication of confidential wiretaps by Italian newspaper II Giornale, which was owned by Bersulconi’s brother. In 2005, the publication of the conversation between the then Governor of the bank of Italy, Antonio Fazio, senior management of Unipol and Italian politician, Piero Fassing was a breach of secrecy rules and was seen at the time as an attempt to discredit Bersulconi’s political rivals. These publications also eventually led to the collapse of the proposed takeover of Banca Nationale del Lavoro by Unipol and the resignation of Fazio. On 7th February 2012 at an initial court hearing Bersulconi denied that he had listened to the tapes and ordered their publication. On 7th March 2013 Bersulconi was sentenced to one-year jail-term, but on 31st March 2014 the Milan Court of Appeal acquitted him due to the statute of limitation.
Tax fraud conviction in Mediaset Trial (1988-98): The Mediaset Trial was lodged in April 2005 with indictment of 14 persons including Bersulconi for having committed false accounting, embezzlement in order to mask the payment of substantial black funds committed in 1988-94, and tax fraud equal to more than 62 million euros committed in 1988-98. On 26th October 2012, Bersulconi was sentenced to four years of punishment by an Italian court for tax evasion. Bersulconi and his co-defendants were also ordered to pay a fine of 10 million euros and were banned from holding public office for three years. On 3rd May 2013, the Court of Appeal in Milan confirmed the 4-year punishment and extended the public office ban to five years.
Pakistan must also seriously consider doing away with the age-old concept of criminal law where “the accused is presumed to be innocent until proven guilty beyond reasonable doubt” in cases of white-collar crimes committed by high-profile people, in light of the development taking place in legal systems of various countries and the recognition given by courts to the concept developed by Edwin Sutherland in his book White-Collar Crime effectively suggesting the same, in order to remove the general impression among people of there being different laws for the poor and the elite/ rich.
Keeping in view the present state of affairs in Pakistan, there is a dire need for the legislative body and courts to take immediate measures to ensure strict implementation of existing laws. A legal system needs to evolve, one that protects the society from the enormous consequences of white-collar crimes committed by directors, chief executives of corporations and public office holders.
The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any organization with which he might be associated.