White Collar Crime

28 June 2006

White Collar Crime: Professional malpractice

Because white collar crime covers such a broad category of behaviours it was decided that a sharper focus was needed. For that reason, professional practice was chosen. This is also in itself very wide-ranging. It could include, for example, medical negligence, police corruption, solicitor dishonesty, musicians' breach of copyright, plagiarism, and the misrepresentation of scientific findings. In the event the seminar focused mainly on financial fraud, largely because this is where some groundwork has been done. This is not to say that there is no research to be done to understand other forms of professional malpractice and means of their detection and prevention: just not much that we were able to tap into.

Attendees came from universities, EPSRC, the Forensic Science Service, government departments, auditing firms and NGOs.

Philip Virgo, from EURIM (European Information Society Group) began the seminar. He addressed four questions:

  • Who would do anything different if there were better evidence on the scale and nature of white collar crime and its economic and social cost?
  • What research is there into the effectiveness and cost of current corporate governance and regulatory regimes?
  • What research, if any, is there into practical experience with the authentication and security of electronic communications and how human beings interact with security regimes?
  • Why do we waste so much time and effort on procedures and technologies that do little or anything to prevent or detect malpractice and so little on that which would?

In relation to the first question, a better grasp of the scale and significance of different types of fraud would be helpful. There are seemingly well-recognised large numbers of small frauds amounting to substantial sums of money (for example music piracy, e-commerce fraud, card fraud), and significant losses for some small firms. Evidently ecommerce fraud fell from 3% to 1.6% of turnover once payments from non-domestic credit cards were no longer accepted. There are also a smaller number of very large frauds. Insider frauds can involve substantial losses and have received less systematic attention.

In relation to the second question, the consequences of Sarbanes-Oxley (American legislation aimed at preventing a recurrence of the Enron debacle) are unclear. At least one view is that the regulatory regimes put in place are costly but would not have been effective. Indeed regulatory regimes may sometimes foster fraud, by creating a cadre who can breach the Chinese walls ordinarily separating functions and by producing 'paralysis by paper chase'.

In relation to the third question, little is known systematically about the way people interact with security regimes and the consequences for breaches in them. This is crucial. There are also technological issues to do with authenticating others' emails, websites and academic papers and with producing emails, websites and academic articles that are open to authentication by others.

In relation to the fourth question, the answer seems to lie in corruption, complacency and the failures of those competent to comment to do so.

Professor Alan Doig from Teeside Business School went on discuss something of what is known about Professional Fraud and Corruption, drawing on his recent book ( Fraud , Cullompton, Devon: Willan). He noted that F raud was said in the 2003 UK Threat Assessment issued by the National Criminal Intelligence Service to be one of the seven most significant threats facing the United Kingdom , though it does not comprise a specific crime. It is believed to account for upwards of half the costs of crime investigated by the police yet takes just five per cent of police time. Police efforts in relation to fraud in turn account for about five per cent of all staff across other private and public sector agencies devote to dealing with fraud. Because of its association with terrorism fraud is climbing the political agenda. Legislation and an interdepartmental review are expressions of this growing concern.

In research terms it is difficult to know exactly the cost, volume and harm of fraud. Methodologies are weak and trajectories unknown with any certainty. There has been little work on attitudes and cultures associated with fraud, which may contribute to any rise in fraud. Government policies, organizational change, shifts in policy agendas, and so on may also be affecting levels of fraud in ways not fully understood.

The proliferation of agendas, the politics of reform and the impact of rights-based law enforcement have resulted in shifts in approach and sanctions. There is a growing emphasis on compliance and non-criminal punishment.

There appear to be a number of issues that government, law enforcement and other agencies need to consider. These also suggest research questions that need to be answered. They include the following:

  • What impact have OECD and UN requirements had on corruption and on UK business working overseas?
  • What is the effect of rights-based jurisprudence on the criminal justice process?
  • Is a national strategy on fraud needed or s hould fraud be treated in different ways according to the ethos of the organization concerned?
  • Should the decline of police resources be reversed?
  • Are jury trials a constraint on effective sanctions through the courts?
  • What effect does the decline of police Economic Crime Units have on the institution's memory in terms of experience and expertise and what does this say about training requirements?
  • Is restitution - recovery of stolen assets - preferable to retribution - imprisonment and how is deterrence measured?
  • Should there be more sharing of information or joined up work and is there a community of interest, or is fraud very much an activity- or product-focused issue?

Professor Susanne Karstedt from Keele University provided a valuable overview of criminologists' interest in white collar crime and out of this and the earlier presentations a set of issues emerged in general discussion:

  • There is a wide range of types of fraud, professional malpractice and types of fraud requiring separate scientific research and policy.
  • There has been rather little research into means of preventing many types of fraud (or other professional malpractice).
  • There has been less research attention to internal as against external fraud, where there is an unmet need.
  • Obstacles to data sharing are hindering fraud-related research and practice.
  • The effect of organizational ethos on fraud and efforts to address it in different settings needs to be examined and understood.
  • There has apparently been some shrinkage in police expertise in responding to fraud.
  • Asset recovery, including a proportion going back to police services, may be affecting the level of attention paid to fraud within police services.

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