White Collar Confusion

How U.S. Government Regulatory Bodies can Reunify their Approach to White Collar Crime 

ELLA MEYER

White-collar crime is a complex problem. Since it’s non-violent in nature compared to street crime, approximately 90% of crimes go unreported and the exact extent and financial impact of white-collar crime is vastly unknown. It is expected that anywhere from $426 billion to $1.7 trillion was lost in 2021 alone, affecting roughly 35% of US businesses and millions of victims. Regulatory government agencies aimed to identify, mitigate, and prevent this loss include the Security Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC), Commodity Futures Trading Commission (CFTC), and the Federal Bureau of Investigation (FBI). Despite various agencies, these regulatory bodies lack a centralized body for oversight and have received mass public outcry for their incompetence. In turn, the already complex nature of white-collar crime is exacerbated when the government’s disarray fails to unite and approach the problem with a fused vision adequately. A current gap in the literature exists in  how exactly these regulatory bodies (under the executive branch and independent in classification) should communicate with each other and approach white-collar crime more efficiently. By prioritizing the protection of marginalized communities, implementing laws and protocols, and establishing innovative preventative tactics, regulatory agencies can agree on underlying aspects to better unite and deter white-collar crime. 

The responsibility of financial regulators is to protect marginalized communities. Marginalized communities - in the context of white-collar crime, those most likely to be unaware, uneducated, or financially vulnerable to predatory efforts of those with corporate or financial power - refers to youth, elders, communities of color, those with working English proficiency, or those with immigration status. Yet, regulators have recently failed to protect these communities as agencies indolently recover from federal COVID-19 shutdowns, allocate limited resources towards more serious (yet fewer) cases, and suffer from bottlenecks in the overall criminal justice process. Consequently, white-collar crime prosecution has declined in recent years despite its undeniable nationwide prevalence. The Transactional Records Access Clearinghouse (TRAC), a method used by the Department of Justice to track reports, concluded only 4,180 prosecution cases occurred in 2022 - a linear decline from the 4,727 in 2021 and less than 4,200 reported in 2020. Yet, business icons like Sam Bankman-Fried, the infamous former CEO of crypto exchange FTX, and Elizabeth Holmes, the now-indicted and former CEO of biotechnology start-up Theranos, still manage to make front-page headlines for embezzling billions of dollars. This trend implies that the perpetrators of white-collar crime still exist, continuing to wreak havoc undetected through means of financial fraud, embezzlement, racketeering, extortion, money laundering, and other methods of white-collar crime. These actions have devastating social implications. Currently, the academic literature base lacks research investigating the direct relationship between white-collar crime and marginalized communities; yet, investigators can predict the probability of someone vulnerable to these crimes based on a lack of financial literacy, lower social and economic status, and overall misunderstanding of the mechanics of complex financial institutions and conglomerates. Typically, these qualities fall upon said marginalized communities - for example, in a recent financial literacy test with six questions, Black Americans could only answer 2.3 questions correctly, and Hispanic Americans could answer 2.6, compared to 3.2 questions answered correctly by Asian and 3.2 by White Americans. This study demonstrates the difference in financial literacy rates across ethnicities and races. By identifying and understanding their role in protecting these victims, regulatory bodies can approach white-collar crime with a more well-rounded understanding of the extent of the problem. 

Although financial regulators are not responsible for increasing financial education or awareness, it is their role to implement laws and protections to safeguard individuals from the threats they - and their entire lineage - are systematically unaware of. Examples of current safeguards include the strict “Know Your Customer” (KYC) protocols implemented by the Financial Action Task Force (FATF). These protocols require banks to gather a client's social security number, date of birth, and other unique identifiers to align with four pillars of KYC: customer acceptance policies and procedures, customer identification and due diligence, risk management, and ongoing monitoring. Besides specific protocols, a myriad of laws exist under the general umbrellas of business and corporate law, discovery reform, federal criminal code reform, fraud and financial services law, and public correction law that protect the well-being of financial crime victims in some way. Under the Federal Trade Commission, the Bureau of Consumer Protection works within many of these spaces to protect consumers. Notable laws implemented by the FTC include the Federal Trade Commission Act, Telemarketing Sale Rule, Identity Theft Act, Fair Credit Reporting Act, and the Clayton Act. In total, the Commission has enforcement or administrative responsibilities of more than 70 laws (Enforcement) aimed to identify, mitigate, and overcome complex challenges in white-collar crime that may go undetected by the average consumer. Regarding a united front, regulatory bodies can expand on these pre-existing laws and implement more provisions in conjunction and coordination with other agencies to act against crime. 

To better prevent and terminate white-collar crime, research from the Association of Certified Fraud Examiners (ACFE) proposes three main tactics. The first tactic involves spreading a culture of integrity. When corporate culture accepts deviant behavior, employees and leaders are more likely to commit white-collar crimes and allow their egos to take over and lead into the “fraud triangle”. According to author Steve Albrecht, the fraud triangle states that “individuals are motivated to commit fraud when three elements come together: one, some kind of perceived pressure; two, some perceived opportunity; and three, some way to rationalize the fraud as not being inconsistent with one’s values”. Shifting corporate culture away from deviance to one of integrity will prevent the fraud triangle from arising. But, because human greed is indisputable, the ACFE proposes a second tactic: clear pathways to the C-Suite of executives and a clear breakdown of management hierarchies. Flushing out the organization’s leadership structure depicts who is responsible for specific actions and holds the convict accountable for their efforts in front of the entire organization. When looking at the typical personality types that commit these crimes - a triad of narcissism, Machiavellianism, and antisocial personality disorder - having to take responsibility for unethical actions is a simple action that would petrify those who commit these crimes and use deception, lies, and money to cover it. The third tactic is routine compliance checks. Consistently adhering to compliance protocols, federal regulations, and state mandates is not only a necessity but a recurring process that needs to be monitored to ensure complacency is not allowing the organization to stray away from the rules. Moving forward, regulatory bodies can continue to encourage these three tactics to be adopted by corporations. 

White-collar crime will always exist in some form. It is vital that regulatory bodies not only fulfill their independent duties but also engage in enhanced multilateral communication to approach the problem on a united front better. By prioritizing the protection of underserved communities, implementing and improving on existing regulations, and establishing innovative preventative tactics to better address the causes, regulatory agencies can establish a common ground to fight white-collar crime. Consequently, regulatory agencies may improve inter-agency communication, deploy regulations with greater urgency, and be more efficient in their collective enforcement efforts. In future research, more questions should be explored, such as the exact causes of disunity across regulatory bodies in approaching white-collar crime, how human resource and public relations departments adhere to a transparent and ethical corporate culture, and what consumer protection laws are the strongest in protecting consumers from victimization. By continuing to research these questions and more into the vast field of white-collar crime, the collective front of analysts, regulators, academics, and officers will have more information to diffuse the confusion surrounding and consequences occurring from white-collar crime.