Are White Collar Criminals Poorly Prosecuted?

Introduction 

White collar crimes refer to crimes carried out by the wealthy elite as opposed to normal street crimes associated with low income earning social class (Neubauer and Fradella). The term ‘white collar’ describes carious crime ranging from governmental corruption to crimes against the environment to securities fraud, and crimes against consumers (Neubauer and Fradella). Contrary to other crimes, white collar crimes do not have drama mainly associated with bank robberies and murders. Also, most of the defendants or suspects are respectable, and they may not look like ‘normal criminals' (Neubauer and Fradella). Although government officials and bankers have featured prominently in major newspapers, most of the publicity is not positive. Since 2008, there have been a string of corporate and political scandals in the nation’s financial and political centers. The recent scandals involving President Trump’s allies, Rick Gate and Paul Manafort, is an example of recent scandals (Editorial Board). Although there have been major convictions over the past two decades, the prosecution of white-collar crimes reduced significantly over the past few years because prosecutors face many challenges involving such cases. 

The Reduced Crackdown on White Collar Jobs 

The recent guilty plea by Michael Cohen who has been President Trump’s friend and personal lawyer and the additional guilty plea and guilty conviction of Paul Manafort have drawn attention regarding white collar crimes (Editorial Board, 2018). Cohen admitted to campaign finance violations, fraud, and tax evasion (Editorial Board, 2018). On the other hand, Manafort was convicted was convicted of failure to report foreign financial and bank accounts, bank fraud, and tax fraud. He also pleaded guilty to other federal charges (Editorial Board, 2018). However, it may be fair to assume that it is highly likely that the two crimes would not have come to light if they had not been associated with President Trump (Editorial Board, 2018). 

According to history, the US has not convincingly done a good job regarding the prosecution of white collar crimes (Editorial Board). There are many complaints regarding minimal prosecution of white-collar crimes that dates back several decades. There are stories that Trump's family could have engineered particular tax schemes over several decades (Editorial Board, 2018). Such stories establish that wealthy elite has little fear regarding legal consequences. Since the financial crisis that occurred between 2007 and 2010, there have been serious concerns regarding the prosecution of white collar crimes (Editorial Board, 2018). In 2018, the number of white collar crimes fell to a twenty-year low (Editorial Board, 2018). Between 1998 and 2018, prosecution of white-collar crimes reduced by about 40% (Editorial Board, 2018). 

There are various reasons why the number of white-collar prosecutions have reduced over the past two decades. The main reason is that the Federal Bureau of Investigation (FBI) diverted most of resources and personnel to counter-terrorism and there was little focus on white collar crimes after September 11, 2001 (Editorial Board, 2018). Additionally, the Internal Revenue Service (IRS) has been under continuous assault by Congressional Republicans who have cut its budget and vilified its employees (Editorial Board, 2018). Moreover, the Federal Election Commission has faced serious challenges and has been incapacitated by lawmakers who believe that politics should not be regulated (Editorial Board, 2018). Also, many civil investigations conducted by the Securities and Exchange Commission are often thrown out, and many of them do not develop into serious criminal cases. Attorney General Eric Holder, in 2013, explained to the Congress that he was alarmed that some financial firms had become so big that it became difficult for the courts to prosecute them (Editorial Board). Furthermore, ignorance of climate change by the Trump administrations seems to have encouraged environmental crimes (Editorial Board, 2018). 

Although companies committing white collar crimes have been punished, few people in charge were prosecuted (Editorial Board). Moreover, non-prosecution or deferred prosecution agreements have reduced the implications and risks associated with prosecuting white collar crimes. Between 2001 and 2014, federal prosecutors entered into approximately 306 non-prosecution or deferred prosecution agreements with various large corporates (Editorial Board, 2018). Also, only 104 companies out of the 306 companies where individuals charged with white collar crimes(Editorial Board, 2018). Deputy Attorney General Sally Yates, in 2015, stated that prosecutors find it extremely difficult to find individuals who are accountable (Editorial Board, 2018). She also added that in large financial organizations where roles are frequently diffuse, it becomes quite challenging to identify a particular group of people or individuals who had criminal intent or had prior knowledge that is necessary and essential to establish adequate proof beyond reasonable doubt (Editorial Board, 2018). Moreover, high-level executives are often insulated or protected from daily activities when misconduct occurs (Editorial Board, 2018). 

Regardless of the complexity of large corporates, justice demands that all crimes earn prosecution regardless of an organization’s size and influence. IRS criminal enforcement chief, Don Fort, stated that the agency has 2200 special agents (Editorial Board, 2018). He also adds that the number of special agents has remained unchanged for about five decades regardless of the increase in sophistication of financial crimes and the number of tax filers (Editorial Board, 2018). Additionally, the Department of Justice would not only be required to attract and recruit talented prosecutors but also retain competent and ambitious prosecutors. Furthermore, government agencies would have to find alternative and more efficient ways of enticing whistleblowers (Editorial Board, 2018). There need to be strong financial incentives that will ensure whistleblowers can be convinced to provide valuable evidence necessary to prosecute white collar crimes. 

In as much as the prosecution collects evidence, large corporates can easily assemble a skillful white collar defense bar that can easily challenge competent prosecutors and defend executives (Editorial Board, 2018). Moreover, large corporates have become skillful at shifting liability of white-collar crimes to shareholders. The will to have a serious crackdown on white collar crimes has reduced over the years (Editorial Board, 2018). During the savings and loans scandals in the 1980s, approximately 1000 were prosecuted, and about 100 directors and company officers were convicted and served prison terms (Editorial Board, 2018). However, such a response is not likely to occur in modern-day America. At the current rate, the US may have the fewest public corruption and white-collar prosecutions on record. However, the reduction in public corruption and white collar crimes has not been caused by good behavior from corrupt employees (Rampell, 2018). 

Figure 1 showing the reducing number of white-collar prosecutions (Rampell, 2018). 

According to 2018 projections at the Justice Department in figure 1, 2018 will have the lowest prosecution of white collar crimes. Moreover, it is not just white collar prosecutions that are reducing but also other federal prosecutions such as official corruption as shown in figure 2. 

Figure 2 showing the reducing number of cases regarding official corruption that are prosecuted (Rampell, 2018). 

Similarly, criminal prosecutions referred to the Justice Department by the IRS have also reduced (Rampell, 2018). Such criminal prosecutions include tax-related fraud and other issues such as drug-related crimes (Rampell, 2018). As mentioned earlier, the IRS has been incapacitated because of budget cuts. Since 2010, the IRS has lost about 33% of its enforcement agents because of budget cuts (Rampell, 2018). 

Figure 3 showing the reducing number of IRS referred prosecutions (Rampell, 2018). 

Notable figures 1,2, and 3 do not compare the results with population growth. If the outcomes were compared with population growth, the rapid decline in the number of prosecutions would appear more dismal (Rampell, 2018). The country is on a track to have about 17 federal prosecutions regarding white collar crimes per one million people in 2018 as shown in figure 4 (Rampell, 2018). The current rate is less than half the average prosecution of white-collar crimes that took place in 1986 (Rampell, 2018). 

Figure 4 showing the reducing number of prosecutions regarding white collar crimes per one million people It is important to observe (Rampell, 2018). 

It is essential to note that the reduction of white-collar crimes that are prosecuted took place before President Trump was elected. However, the numbers became significantly low in 2018 because of his focus on other crimes especially immigration-related crimes (Rampell, 2018). Due to President Trump's focus on immigration-related crimes, it has crowded resources that would have been allocated for other kinds of prosecutions and crimes ( Hurtado, 2018) . Additionally, Customs and Border Protection has shifted its focus and resources to immigration offenses from cross-border drug offenders (Rampell, 2018). 

Challenges Faced by Prosecutors 

The primary factor that contributed to the 2008 financial crisis was white collar crimes (Hennings, 2014). All the issues ranging from fraud to embezzlement to insider trading was associated with big corporates. The crimes brought many businesses to their knees, but the implications are still affecting the country several years later (Hennings, 2014). From 2008, prosecutors face significant challenges regarding white collar crimes including: 

Crimes such as Insider Trading Are Difficult to Prove 

The burden of proof regarding crimes such as insider trading falls on the accusers (Hennings). In situations such as the financial crisis, the accusers were the Securities and Exchange Commission (SEC) and the US Justice Department. They had the burden of proof when showing that the parties involve benefited from the financial crimes. Such cases are often dismissed due to lack of proof (Hennings, 2014). In 2014, the US Court of appeal in Manhattan threw a case out regarding the conviction of two former hedge fund managers (Hennings, 2014). Additionally, the appeals courts criticized the government’s policy of ‘doctrinal novelty’ because they prosecuted receivers of information who ware far from information sources within corporates offering advance information about corporate earnings (Hennings, 2014). Furthermore, there is a high risk that a jury could reject the prosecution's charges. Moreover, the Court of Appeals' decision in Manhattan could have a greater effect regarding the amount of evidence required when convicting a suspect for receiving benefits from trading confidential information (Hennings, 2014). 

In future cases, the Department of Justice has to prove beyond reasonable doubt that the tipper received tangible benefits from trading confidential information and that the remote recipients who are far away from the source’s information had knowledge about the benefit (Hennings, 2014). Therefore, the SEC and the Justice Department have a greater burden when proving that there is adequate evidence showing that there was something more than just pure friendship when confidential information was passed along (Hennings, 2014). Although the conviction's reversal did not mean that the government will give up pursuing insider trading cases, it only meant the SEC and the Department of Justice would have a greater task involving such cases (Hennings, 2014). In December 2014, the SEC filed an insider trading case against two Chilean businessmen who had passed information regarding plans by Abbot Laboratories to acquire CFR pharmaceuticals and made a profit of approximately $10.6 million (Hennings, 2014). Moreover, one defendant was a senior executive of CFR Pharmaceuticals. The civil charges against the two men showed that the decisions by the Court of Appeal did not have a direct effect on traditional types of insider trading (Hennings, 2014). 

Prosecuting White Collar Crimes is Time Consuming 

Cases prosecuted within the Federal District Court often take a lot of time because they must undergo ‘full discovery' of evidence (Hennings, 2014). In most situations, it takes years for both sides to investigate, collect, and present evidence against or for a defendant (Fitzpatrick, 2018). Additionally, if the defendant’s lawyers discover that the evidence is against the defendant, they start complaining about where the case was filed (Hennings, 2014). Due to the time-consuming process, the SEC is pushing for more cases regarding insider trading to be heard before in-house administrative law judges instead of federal district courts. On the other hand, defense lawyers have opposed the move because they believe that the SEC may have a ‘home-court' advantage if such cases are heard before in-house administrative judges (Hennings, 2014). 

When a civil suit is filed in federal district courts, each side is given the right to ‘full discovery of information.’ Such processes may prolong the case to several years (Hennings, 2014). The SEC prefers in-house administrative law judges because administrative proceedings take far much less time because they allow limited discovery of information and initial decisions can be made within a year. Notably, there would be no right to a jury regarding whether there was a violation (Hennings, 2014). The first appeal of such cases would be made to SEC commissioners because they authorized the case. Also, the Dodd-Frank act empowered the SEC to pursue such cases in administrative cases to acquire civil penalties due to a violation, an authority that was once reserved for federal judges (Hennings, 2014). The SEC enforcement division’s director, Andrew Ceresney defended the use of administrative proceedings regardless of limited discovery and lack of jury by insisting that the administrative proceedings were fair, proper, and appropriate to respondents (Hennings, 2014). 

The SEC is highly likely to have a home court advantage because courts have upheld using administrative judges when making decisions (Hennings, 2014). Nevertheless, it is highly likely that the white-collar defense bar will oppose the forums by requesting federal judges to overall decisions made by the SEC on the foundation that administrative proceeding may deny defendants some essential rights (Hennings, 2014). If a federal judge blocks administrative forums to decide the case, the issue will be moved to the appeals court or even the Supreme Court so that they can decide where such cases will be heard (Hennings, 2014). 

Legislative Gridlock 

If the national economy is at stake due to particular cases, politics tend to play an essential role in the process. Due to the division among politicians, it will be quite difficult to achieve considerable progress (Fitzpatrick, 2018). There would be many disagreements regarding how the courts should proceed with such crimes, the role of the government in the process, and the type of penalties (Fitzpatrick, 2018). Such resolutions may take years because of the legislative gridlock. Fighting fraud should be an issue that all elected officials should rally around. One of the most preferred tools of approaching the issue is encouraging whistleblowing of organization wrongdoings by increasing monetary rewards (Hennings, 2014). Whistleblowers will play a vital role in the fight against financial crimes. The Congress should enhance programs to reward people who report corporate violations whether the victim is a business, company, or the government (Hennings, 2014). 

The government should improve its fight against white collar crimes because accounting fraud destroyed large corporates such as WorldCom and Enron after there was a rapid economic decline when the internet bubble burst (Hennings, 2014). It is highly likely that as economies recover from the financial crisis, managers will be under pressure to report increasing profit and revenue (Hennings, 2014). Additionally, some corporate managers may be tempted to make some adjustments to financial reports with the hope that the company will improve in the next financial year (Hennings, 2014). 

Counter Argument 

Federal prosecutors are not afraid of white collar crimes as shown by their approach to President trump’s close allies, Rick Gate and Paul Manafort, and the Ral Rajaratnam who managed one of the biggest hedge funds globally (Bourtin, 2017). Moreover, federal prosecutors have approached white collar crimes the same way they approach cases involving violent crime and narcotics (Bourtin, 2017). Although it is believed that Trump's administration has focused in immigration-related offenses only, September 2017 witnessed one of the biggest FCPA settlements when a Swedish telecommunications company paid about $965 million in penalties to the SEC and Justice Department because of bribery related crime (Bourtin, 2017). 

Conclusion 

As discussed in the research paper, the prosecution of white-collar crimes reduced significantly over the past few years because prosecutors face many challenges involving such cases. The main reason is that the Federal Bureau of Investigation (FBI) diverted most of the resources and personnel to counter-terrorism and there was little focus on white collar crimes after September 11, 2001. Moreover, white collar defense bars easily challenge competent prosecutors and defend executives mentioned in financial crime. Moreover, white collar crimes are time-consuming especially insider trading, and it may take several years because of the full discovery of evidence. Although there have been major convictions over the past decade, the number of IRS referred cases has reduced significantly because of budget cuts. It may take several months or years before changes in financial reports by corporate managers come to light. However, the prosecution should pursue more cases because financial crimes were the root cause of the 2008 financial crisis. 

References 

Bourtin, N. (2017). Five myths about white-collar crime. Retrieved from https://www.washingtonpost.com/outlook/five-myths/five-myths-about-white-collar-crime/2017/11/03/5793fb3a-be6e-11e7-97d9-bdab5a0ab381_story.html?utm_term=.cb8a8cbe37c7 

Editorial Board. (2018). White Collar Crimes, More Prosecutions. Retrieved from https://www.bloomberg.com/opinion/articles/2018-10-14/white-collar-crime-more-prosecutions-needed 

Fitzpatrick, J. (2018). Reasons Why White Collar Crimes Are Difficult to Prosecute. Retrieved from http://callonfitz.com/white-collar-crimes-3-reasons-why-they-take-years-to-prosecute/ 

Henning, P. (2014). The Year in White-Collar Crime. Retrieved from https://dealbook.nytimes.com/2014/12/29/the-year-in-white-collar-crime/?_r=0 

Hurtado, P. (2018). White-Collar Prosecutions Fall to 20-Year Low Under Trump. Retrieved from https://www.bloomberg.com/news/articles/2018-05-25/white-collar-prosecutions-fall-to-20-year-low-under-trump 

Neubauer, D. W., & Fradella, H. F. (2018). America's courts and the criminal justice system . Cengage Learning. 

Rampell, C. (2018). How America stopped prosecuting white-collar crime and public corruption, in charts. Retrieved from https://www.washingtonpost.com/news/rampage/wp/2018/08/07/how-america-stopped-prosecuting-white-collar-crime-and-public-corruption-in-charts/?utm_term=.9ed1fea381ca