2. WHITE COLLAR CRIME 2
WHITE COLLAR CRIME A GROWING GLOBAL PROBLEM
SYED OVAIS UR REHMAN
PROF. YOANY BElDARRAIN
ESB BUSINESS SCHOOL
3. WHITE COLLAR CRIME 3
TABLE OF CONTENT
O WHAT IS WHITE COLLAR CRIME................................................................5
TYPES OF WHITE COLLAR CRIME 1.1 ...................................................................................5
THE CASE ANALYSIS OF THE SCANDAL OF ENRON 1.2
REASONS FOR THE ENRON’S FALL 1.2.1 ...............................................................................6
MARK TO MARKET1.2.1.1..........................................................................7
TRUTHFULNESS 1.2.1.2 ..............................................................................7
INTEREST 1.2.1.3 .............................................................................7
WHO WASMORALLYRESPONSIBLE FOR THE ENRON’S BANKRUPTCY 1.2.2? ...................7
IMPACT OF BANKRUPTCY ON THE ECONOMY 1.2.3…… 7
STEPS TAKEN BY JURY TO PREVENT THIS CRIME……………………………………. 8
O CYBER CRIMEA GROWING GLOBAL PROBLEM ....................................9
IDENTITYTHEFT 2.1...........................................................................................................9
THEFT OF SENSITIVE DATA 2.2 ..........................................................................................9
SPAM 2.3...........................................................................................................................9
JP MORGEN CYBER-ATTACK HITS 76 MILLION HOUSEHOLDS 2.4 ....................................10
EBAYUNDER CYBER-ATTACK 2.5...................................................................................11
O NEW EU RULES TO FIGHT CYBERCRIME. .............................................11
EUROPOL 3.1...................................................................................................................12
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Abstract
This paper presents the most growing problem, white collar crime, which has had an adverse
impact on the world’s economy. Particularly banking sector, which is considered to be a back
bone of any country, have been targeted many times and even the military or government
organizations which has undermined the people’s trust on the security and safety features of a
country’s system.
This paper also elucidates what security measures are being taken to combat those crimes and
how to prevent them in the future.
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WHITE COLLAR CRIME A GROWING GLOBAL PROBLEM
White collar crime is referred to as planned, financially motivated and non-violent
corporate crime committed by some professionals and experts who have a position in an
organization that position make easier for them to get access to the sensitive data. These crimes
do not involve any violent or atrocity. In fact perpetrators are able to deceit and have power or
have respectable position in a society prior to the discovery of their deceitful activities. For
mitigation, companies usually hire forensic auditors, watchdog to discover any undesirable
activities. White collar crimes are penalized by huge fines, imprisonment.
Types of White collar crimes.
Tax Evasion:The most severe white collar crime that affects the economic adversely.
Companies manipulate the data to hide the records from tax authorities. They do this deliberately
by disclosing less income, profits or gained than the amount actually earned.
However, we have another term which is called tax avoidance that is a legal form of tax
reduction.
Money laundering: Money laundering is the process of transferring of money
includes drugs transaction that converts the illegal money into the legitimate. This process is so
complex that makes it difficult to get traced.
Insurance fraud: This encompasses the fraudulent insurance schemes which are done
by insurance companies. They receive the insurance premium however when it comes to get
benefit they cannot be found. Sometimes, claimants also involve in creating fictitious situations
that entitles them to get benefit.
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Forgery: The most notorious art to deceit by copying, imitating. The committer alters
the writing or signature or any kind of material alteration to commit fraud.
The list is unexhausted several other types of white collar crimes exist including credit
card fraud, blackmailing, counterfeiting embezzlement, telemarketing fraud and so on.
Throughout the term paper different accounting related scandals are analyzed, evaluated
and what prevention strategies are adapted to mitigate it.
The Case Analysis of the Scandal of Enron:
The Enron scandal, revealed in October 2001 that led to the bankruptcy of the prestigious
American Energy, natural gas, communications and Service Company located in Houston, Texas.
Before, it was declared as bankrupt. Enron had 20,000 employees, having strong financial.
Undoubtedly, it had become the leading company in the USA. But as a result of fraudulent
window dressing with its auditors and lawyers it crumbled so quickly. This scandal is considered
to be the largest financial setback for the energy and gas sector in USA.
Reasons for the Enron’s Fall:
There are numerous reasons for the Enron’s bankruptcy. However the most important are
described below.
Window Dressing: Window dressing refers to the creation of deceptively favorable
impression of something for the appearance only. In Enron case management had manipulated
the accounting figures in order to lure the potential investors and to do so they were assisted by
the auditors.
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Mark to Market:Mark to market is the accounting treatment that is ‘’ the accounting
act of recording the price or value of a security, portfolio or account to reflect its current market
value rather than its book value’’. Enron’s management considered this approach to overestimate
their assets and projected the higher cash inflows in terms of profit. There is no doubt that the
projection of long term profits is overly optimistic.
Truthfulness: The major problem was the lack of true information. Executive
management concealed significant amount of information that would have changed the decision
of the investor if they had been informed in time.
Conflict of Interest: Practically speaking external auditors of any company shall not
have any interest in the company otherwise auditors will not give the independent or reasonable
assurance. Maintaining professional skepticism by the auditors require them not to have any
interest in the company. However, the auditors of Enron, Arthur Andersen, were also the
consultant. That led to the conflict of interest of the auditors and they were also accused in all
fraudulent activities in the Enron.
Who was morally responsible for the Enron’s bankruptcy?
It was the moral responsibility of the Enron’s founder, Kenneth Lay, and CEO, Jeffrey
Skilling, to give the true and fair information to the investors and shareholders but they allowed
the CFO, Andrew Fastow to violated his professional ethics and manipulate the data in order to
pump the stock price.
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Impact of bankruptcy on the Economy:
Indeed, the Enron’s scandal caused massive losses on the stock exchange. It wiped the
pensions of the employees. Citizens lost the confidence on the American’s economic system.
Facts:
1. 20,000 Employees lost their jobs and medical insurance.
2. Top executives were paid bonuses amounting $ 55 million.
3. Employees lost $ 1.2 Million in retirement funds.
4. Retires lost $ 2 Million in pension funds.
5. Citizen’s trust on the American economic system was destroyed.
6. The auditing firm Arthur Anderson lost its accreditation.
Steps taken by Jury to prevent this crime:
To prevent this notorious acts jury took an immediate actions. The founder, Kenneth Lay,
was sentenced to 45 years of prison plus monetary fines. The CEO, Jeffrey Skilling, was charged
for conspiracy, false statement and sentenced for 24 years of prison plus $ 45 million penalty.
The CFO, Andre Fastow, was sentenced to 6 years of prison.
Maintaining ethics should be the first and foremost duty of the management of the
organization. In Enron case this duty was violated. Most respectable person CEO, graduated from
Harvard University, was involved. Audit firm, Arthur Anderson, who signs the audit report to
increase the confidence level of the shareholders, was indicted. (Li, 2010)
Enron’s case is just one of the examples of brutality but perpetrators have number of ways
to hit the organization by manipulating its information system. These days when technology has
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become the most important factor to determine the auspiciousness of any organization. On the
other hand, technology is also used to commit some criminal activities such as cyber-crime.
Cyber Crime: A Growing Global Problem
Cybercrime encompasses any criminal activities dealing with computers and networks
also called hacking. Hacking activities are increasing day by day when we look the cybercrime’s
incident in 2014 it does not seem that data breaches and hacking activities are going to slow
down.
No matter how tight securities measures are enabled some professional hackers always
find their ways to compromise the sensitive data of banks and other organizations.
Usually perpetrators attack through the following ways.
Identity theft: Cybercriminals filch the personal identification of the victim. The purpose of
this crime is to give the person mentally distress. It can be done by purchasing goods and
services, placing advertisement for the victim’s house all these activities are done from victim’s
account.
Theft of Sensitive data: It can be done by stealing credit card data, trade documents, buyers
list or maybe stealing of employees’ data. The repercussion of this kind of crime can be so high
including both public image and financial losses.
Spam: Span is the sending of series of messages that the recipient would not otherwise choose
to receive them. Now we see how different spam messages are planned to achieve specific
purpose.
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Scam Type Criminal Activities
Advertisement Buy fake-/-non-existent goods, often
medication
Investment Invest into non-existent/fraudulently valued
companies and pump and dump schemes
Employment Pay upfront administration fees for a falsely
promised service and/or become a
money mule
Friend in need Send money to a friend in need whose email,
twitter or social network account has
been hacked
Charity Contribution to an unregistered charity
Phishing Disclose exploitable information, such as
credentials e.g. banking scam,
tax scam, raffles
(Singleton, Oct 2013)
The most brutal cyber-attacks that have been taken place when we were only half way
through the 2014.
Recent Cyber-attack cases:
JP Morgencyber-attack hits 76 million Households:
JP Morgan chases & comes one of the largest and leading financial bank in the U.S, was
hacked by the sophisticated hackers. It was reported that 76 million households have been
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attacked 7 million of small businesses impacted with this brutal attack includes customer’s
names, email address, phone numbers.
However, the bank revealed there is no evidence that the compromised account
information of the affected customers had been stolen. It also added that no unusual customer
fraud related to the affected customers and small businesses had been noticed.
So far perpetrators have not been identified but this massive cyber-attack has awakened
the largest organization since JP Morgan is considered to have the good hacking detection
program but even they got hacked. (CNBC, 2014)
EBayunder Cyber-attack:
EBay, the largest auction service website, had urged its customers to change the log in
data after a hacking attack. EBay reported that the customers date might have been stolen
therefore customers are being requested to change their date. It was also revealed that there was
no evidence that the financial or credit card service had been hacked since PayPal, the payment
service of EBay, is encrypted and was not attacked. (Kelion, Sept 2014)
New EU Rules to Fight Cybercrime.
Cybercrime has become the most challenging area for the organization. Most of the blue
chip organizations have already invested the huge amount to protect against it. However, there
should be some concrete rules and regulations that applicable to the whole Europe.
Recently, EU directive has implemented the new policy to combat against white collar
crime specifically cybercrime. The sole purpose of this policy is to penalize the perpetrators and
ensure the prevention measures.
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The policy is that EU counties would have to implement the imprisonment for not less
than 3 years against illegitimate accessing of information system. Besides penalty of 3 years for
using ‘botnets’ that is establishing remote control over a significant number of computers by
infecting them with malicious software. (New EU rules to fight cybercrime)
Europol:
Europol is the European Union’s law enforcement agency whose main goal is to achieve a
safer Europe for the benefit of all EU citizens. In order to achieve it it evaluates and assesses
serious international crime and terrorism.
Rigorous efforts have been made by the Europol to halt the sophisticated and organized
crime activities. Recently Europol has established the independent liaison department called
European Cybercrime Center (EC3). The European Cybercrime Centre will provide
governments, businesses and citizens throughout the Union with the tools to tackle cybercrime.
Building on Europol's proven track record and unique expertise in this area, and with the support
of the Member States, other EU bodies, international partners, and the private sector, the
European Cybercrime Centre will make the EU smarter, faster and stronger in its fight against
cybercrime. (Europol)
The Cybersecurity EnhancementAct:
In April 2013, a bill was passed to enhance the cybersecurity act that would escalate the security
to the federal networks and information systems. The suggested investing more on the research
and development of new cybersecurity measures and how people should be trained to combat
against it.
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Bibliography
CNBC. (2014). CyberSecurity. Von http://www.cnbc.com/id/102049505#.
Europol. (kein Datum). Europol. Von https://www.europol.europa.eu/content/europol-interpol-
cybercrime-conference-steps-policing-cyberspace
Kelion, D. L. (Sept 2014). eBay under pressure as hacks continue. Von
http://www.bbc.com/news/technology-29310042
Li, Y. (2010). International Journal of Business and Management. Von
http://ccsenet.org/journal/index.php/ijbm/article/viewFile/7627/5855 abgerufen
New EU rules to fight cybercrime. (kein Datum). Von European Commission:
http://ec.europa.eu/commission_2010-
2014/malmstrom/news/archives/2013/07/20130704_en.htm
Singleton, T. (Oct 2013). THE TOP 5 Cyber Crimes. AICPA. Von
http://www.aicpa.org/interestareas/forensicandvaluation/resources/electronicdataanalysis/
downloadabledocuments/top-5-cybercrimes.pdf
