Free Term Paper on Corporate Crime

Corporate CrimeThe focus on, study of, and prosecution for corporate crime is a relatively new phenomenon—one that has recently gained wide public attention. For criminologists, “corporate crime” refers to acts in violation of the law that are committed by businesses, corporations, or individuals within those entities. Corporate crime is also closely associated with white-collar crime, organized crime, and state–corporate crime. Although most of us do not think of businesses, corporations, or presidents and CEOs of companies when we think of criminals, corporate and white-collar offenses actually cause more deaths, physical injury, and property loss than the Uniform Crime Report’s eight serious index offenses together (Kappeler, Blumberg, and Potter 2000).

Outline

I. Introduction

II. Corporate Crime Typologies

III. Historical Background

IV. The Nature of a Corporation

V. The Corporation Today

VI. Laws and Legal Origins of Corporate Crimes

VII. Recent Legislation

A. Sarbanes-Oxley Act

B. Criminal Antitrust Penalty Enhancement and Reform Act

VIII. Types of Corporate Crime

A. Fraud, Tax Evasion, and Economic Exploitation

B. Price Fixing, Price Gouging, and False Advertising

C. Corporate Theft, Exploitation, and Unfair Labor Practices

D. Unsafe Environmental Practices

E. Unsafe Consumer Products

F. Unsafe Working Conditions

IX. Conclusion: The Study of Corporate Crime

Introduction

Since the beginning of the 21st century, we have observed unparalleled levels of corporate malfeasance and financial wrongdoing. The economic crisis of 2008–2009 highlighted the extraordinary risks Wall Street investment banks had been taking with other people’s money. Federal and state officials investigating possible illicit activities by these banks (Goldman Sachs, among them) focused on counterinvestments made by the banks’ own top executives against faulty investment products (derivatives) they were selling to their clients, as well as on the likelihood that the banks hid risks from the rating agencies that evaluate financial products for consumers. Several years earlier, the bankruptcies of WorldCom and Enron raised public ire about the legitimacy of reported corporate profits. Xerox, for example, doctored its books to show $1.4 billion more in profits than was actually there, and WorldCom itself overstated its profits to the tune of $3.8 billion. The top-level officers in these companies have also been accused and convicted of wrongdoing. Some top executives have enjoyed the rewards of the sales of their companies’ stocks prior to filing for bankruptcy and have been charged with fraud in the process. Scott Sullivan of WorldCom made $35 million this way; Kenny Harrison and Kenneth Lay of Enron made $75 million and $220 million, respectively, from the sales of company shares; and Gary Winnik of Global Crossing made $500 million in the two years before his company went bankrupt (“Corporate America’s Woes, Continued” 2002). The accounting firms in charge of these companies’ books were also implicated in many of the scandals. Three accounting firms—Arthur Andersen LLP, KPMG, and Ernst and Young—were all charged with violations, and Andersen was forced out of business because of it.

Companies and their employees have traditionally been able to safeguard themselves from government inquiries, the media, and shareholders because of the authority and influence they have over the information they release about company transactions. These companies are complex organizations to the extent that they can engage in shady business dealings while at the same time keeping some employees inside the corporation, and many shareholders outside of the corporation, blind to this devious corporate conduct (Simon 2006). Criminal actions of this nature continue because of the benefits the corporations enjoy and the minimal risks of being caught and punished for wrongdoing (Gray, Frieder, and Clark 2005). Others, however, have suffered some punishment; former Tyco CEO Dennis Kozlowski was sentenced to 8 to 25 years for misappropriating $400 million of the company’s money. John and Tim Rigas are currently serving 15 and 20 years respectively for fraud and conspiracy related to their company, Adelphia. Ex-Enron CFO Andrew Fastow received a 6-year prison term for his role in the company’s wrongdoing. Even Martha Stewart served 5 months in prison for obstructing justice in the investigation of her sale of ImClone stock.

The costs of corporate crime are beyond compare, totaling more than the combined price of all other crime plus the cost of operating the criminal justice system (Simon 2006). Actual costs are hard to gauge; however, research undertaken by Congress estimates the price of corporate crime at roughly $200 billion annually (Coleman 1985). Couple this with the fact that penalties are rarely imposed (or, if they are imposed, are not severe enough to guarantee compliance in the future), and it becomes obvious why corporate malfeasance continues.

Corporate Crime Typologies

It is necessary to distinguish between corporate and white-collar crime. The latter offenses are those “socially injurious and blameworthy acts committed by individuals or groups of individuals who occupy decision-making positions in corporations and businesses, and which are committed for their own personal gain against the business, and corporations that employ them” (Frank and Lynch 1992, 17). In other words, white-collar crimes are largely individual crimes benefitting the perpetrator or perpetrators. The case of Bernard Madoff , who ran the largest Ponzi scheme in U.S. history without the knowledge of others in his firm, is a recent example of white-collar crime. Corporate crimes, on the other hand, are those “socially injurious and blameworthy acts, legal or illegal, that cause financial, physical, or environmental harm, committed by corporations and businesses against their workers, the general public, the environment, other corporations and businesses, the government, or other countries” (Frank and Lynch 1992, 17).

This entry focuses on corporate crime. Such crime, at least for present purposes, encompasses those acts that are beneficial not for the individuals inside the corporation but instead for the corporation itself. Some overlap with white-collar offenses does exist, however, considering that the individuals who engage in these behaviors and represent the corporations are usually in a position to benefit from the illegal actions they undertake. Likewise, the line between organizational crime and corporate crime is indistinct, since criminals can often start corporations with the intention of committing crime or laundering their earnings from crime. This entry focuses mainly on the corporations themselves and provides more limited coverage of the individuals in the corporations.

Historical Background

Corporations have been in existence since the time of the Romans (Geis 1988). During this time, corporations existed in order to set up and control such legal entities as universities, churches, and associations. The king, in other words, gave corporate status to these entities, essentially granting them the ability to have legislative and judicial powers over themselves (Clinard and Yeager 1980). The East India Company is probably the first entity with such recognized corporate powers. Established in 1602, it is said to have been the first multinational corporation that issued stocks (Mason 1968). In the four centuries following the genesis of the East India Company, the corporation developed and its characteristics took shape. Legally speaking, a corporation had the following characteristics: “it was a body chartered or recognized by the state; it had the right to hold property for a common purpose; it had the right to sue and be sued in a common name; and its existence extended beyond the life of its members” (Clinard and Yeager 1980, 22). Corporations of the 17th and 18th centuries engaged in many egregious acts. Using and trading African Americans as slaves and destroying Native American culture are two glaring examples (Sale 1990).

The Industrial Revolution and expanding enterprise in the 18th and early 19th centuries produced very wealthy and influential capitalist corporations. These effectively avoided regulation and control even though they engaged in such activities as fraud, price gouging, labor exploitation, manipulation of stocks, and maintaining unsafe work environments (Myers 1907; Clinard and Yeager 1980). The genesis of corporations in America was similar; such entities as towns, churches, associations, and universities became trusts with certain legal powers and authority. Colonial Americans disliked many of the British corporations that were ruling the American colonies. The Revolutionary War was fought in part to rid the colonies of British monopolistic rule. After the signing of the Declaration of Independence, Adam Smith ([1776] 1998) stated that the idea that corporations were needed for the betterment of government was unfounded. For the next 100 years, corporate charters, and therefore control over corporations and trusts, was rigid. Public opposition was fi erce, and very few charters were approved; even when they were approved, legislatures limited the number of years they could last. At the expiration date, the corporation would be terminated and its shareholders would enjoy the division of assets. The colonists wanted to be free from the exploitation they suffered under British rule. After the Revolutionary War, the Founding Fathers were nervous about the power of corporations. Through various legal means, they limited the role of corporations in society solely for business purposes. Corporations could not interfere in other aspects of society. Several conditions were set forth regarding the establishment and activities of corporations: Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly for violating laws. Corporations could engage only in activities necessary to fulfill their chartered purpose. Corporations could not own stock in other corporations or own any property that was not essential to fulfilling their chartered purpose. Corporations were often terminated if they exceeded their authority or caused public harm. Owners and managers were responsible for criminal acts committed on the job. Corporations could not make any political or charitable contributions or spend money to influence lawmaking (Reclaim Democracy 2004).

The nature of corporations changed in Britain in 1844, with the passage of the UK Joint Stock Companies Act, which essentially allowed a corporation to define itself and its purpose. Investors in a corporation could now collect funds for a specified purpose. Control over corporations at this point moved from being a responsibility of the government to one of the courts. Limited liability was awarded to shareholders in 1855, meaning that the assets of individuals in the corporation would be protected from any bad behavior in which the corporation might engage. A landmark U.S. court decision in 1866 in the case of Santa Clara County v. Southern Pac. R. Co. (1886) granted corporate personhood, which meant that corporations could now enjoy many of the rights and responsibilities of individuals. These rights included ownership of property, signing of binding contracts, and payment of taxes.

Several court cases would come to shape the idea of the corporation in the early formation of the republic. In the case of The Rev. John Bracken v. the Visitors of William and Mary College, the central issue was whether or not the charter grant of William and Mary College could be altered. The court decided that the corporation (the college) could indeed make changes—in other words, reorganize the curriculum and faculty— and that this would not violate the original charter.

The U.S. Supreme Court heard arguments on a similar matter in 1818. In the case of Dartmouth College v. Woodward (1819), Chief Justice John Marshall, the very same man who had argued in favor of the changes to the charter of William and Mary College, had to decide whether the state of New Hampshire could rewrite the charter of Dartmouth College, thereby intervening in its academic operations. Justice Marshall, writing for the majority, declared that it most certainly could not.

Less than 10 years later, the Supreme Court decision in the case of Society for the Propagation of the Gospel in Foreign Parts v. Town of Pawlet (1830) expanded the rights of corporations to be similar to those of natural persons.

During the Industrial Revolution, the United States was rapidly expanding both economically and geographically. Production and manufacturing swelled, as did international trade. In order to protect themselves from competition, large manufacturing businesses became corporations. These corporations began to take over not only the business world but also U.S. courts, politicians, and society (Brown 2003). Corporations soon tried to unchain the fetters that controlled their business dealings. It should not come as a surprise that corporations were granted personhood through the rulings of many of these court cases: the justices of the Supreme Court had loyalty to the propertied class.

The Nature of a Corporation

A corporation is a legal entity comprising persons but one that in some ways exists apart from those persons. It is this separation that gives corporations distinctive authority and control over its practices. The most important aspects of incorporation include the ideas of limited liability and perpetual lifetime. Limited liability gives members of a corporation limited personal liability for the debts and actions of the corporation. The key benefits of limited liability include the following:

  1. A corporation has separate legal entity and distinction from its shareholders and directors, which means that both the directors and the company have completely separate rights and existences.
  2. The liability of shareholders is limited to the amount unpaid on any shares issued to them.
  3. Shareholders cannot be personally liable for the debts of the company.
  4. Creditors can look to the company for payment, which can only be settled out of the company’s assets; thus generally, the personal assets of the shareholders and directors are protected.
  5. The company’s name is protected by law; no one else is allowed to use it in that jurisdiction.
  6. Suppliers and customers can have a sense of confidence in a business (Benefits of a Limited Company 2006).

Perpetual lifetime is also important to a corporation because it means that its structure and assets are permitted to exist past the lifetime of its members. These features give corporations tremendous power and ability in the business world. Individuals who own shares of stock in a corporation are called shareholders; nonprofit organizations do not have shareholders. Usually, a corporation will have a board of directors overseeing operations for the shareholders and administering the interests of the corporation. If a corporation were to dissolve, the members would share in its assets, but only those assets that remained after creditors were paid. Again though, through limited liability, members can be held responsible only for the amount of shares they had in the corporation.

The Corporation Today

Corporations today are looked at in both a positive and negative light. They are seen as the heart of capitalist and free-market economies and an outgrowth of the entrepreneurial nature of U.S. society. However, they are also seen as the mechanism by which exploitation of the people in the labor market exists. David O. Friedrichs (1996) best describes what corporations mean for society today:

Many people hold corporations in high esteem. Millions of people are employed by corporations and regard them as their providers. Many young people aspire to become corporate employees. Corporations produce the seemingly endless range of products we purchase and consume, and they sponsor many of the forms of entertainment (especially television) we enjoy. They are also principal sponsors of pioneering research in many fields and a crucial element in national defense. Corporations are important benefactors of a large number of charities, public events, institutions of higher learning, and scientific enterprises. And of course the major corporations in particular, with their large resources, are quite adept at reminding us of their positive contributions to our way of life. (67)

Indeed, the corporation of the 21st century has its interests in profits and growth. The large corporations of today are vast and have enormous wealth. Yearly profits from U.S. corporations were estimated some years ago to be about $500 billion annually (Korten 1999), a figure that has only increased since. The cost of industry to U.S. taxpayers, however, is easily more than $2.5 trillion per year (Estes 1996). Corporate exploitation of the citizenry and the workforce in society is not a shock, given the fact that profits are the main objective of the corporation. Stockholders and managers alike have a general interest in maximizing profits at the expense of others. Since corporate management usually holds a hefty share of the company’s stock, managers tend to proceed with their own interests in mind, thereby augmenting their own wealth while common stockholders and workers consume the costs.

Corporate America is also well positioned to advance its interests through political corruption. Because of their abundant resources, corporations can have enormous influence on the polity and the outlining of public policy. The people at the top of corporations, the government, and the military all have connections to one another that allow them to advance common interests. If it is hard to believe that the American political system could be bought, consider that corporate donations to both political parties account for over 70 percent of their fund-raising contributions (Greidner 1991). Corporations have also been able to hide most of the political influence they enjoy and remain free from liability because the government has deregulated control over many of the industries that these corporations control.

The corporations of today have also been able to gain increasing control over key economic and political institutions because of mergers. The large corporations are conglomerates, meaning that they have gobbled up smaller companies and multiple industries, becoming producers of a wide array of products. These mergers and takeovers have led to corporations being able to cross-subsidize, meaning that they can sustain one business with the profits from another. Conglomerates have increased in size, number, and market share owing to multibillion-dollar mergers occurring in the 1980s. An outcome of these mergers has been the ability of these companies to expand their businesses geographically to the point where they now compete in the global marketplace and have widespread foreign and domestic assets. The increasing globalization of the world marketplace has allowed corporations to further violate laws in the name of profit without taking responsibility for their actions. By becoming multinational, corporations can, for example, violate the antitrust laws of a country in which they do business while obeying the antitrust laws of their own country.

Although Third World countries and the citizens who inhabit them do enjoy some advantages from globalized economic business, they too pay a penalty in terms of workforce abuses. As the global marketplace expands, the wrongdoings of these multinational corporations are likely to become more pronounced (Friedrichs 1996).

Laws and Legal Origins of Corporate Crimes

Although images of crime and criminals today have increasingly included the actions of business executives and members of the upper class, this has not always been the case. Corporations historically have been able to avoid prosecution because of the limited liability they have written into their charters. It has also been difficult to bring charges against an entity because of a lack of a body to punish and because the populace finds it difficult to grasp the idea that corporations, which are not persons, could offend. Nevertheless, there has been a rapid rise in the criminal liability that corporations can be accountable for under various laws concerning securities, antitrust violations, and the environment. Charges against corporate offending are normally levied against individuals in the corporation; however, the corporation itself can be held responsible and sanctioned for certain offenses. At both the federal and state levels, legislation has been promulgated against corporate criminal offenses. The U.S. Constitution, under its commerce clause, allows the control of corporate offenses by the federal government. Numerous federal agencies also play a part in enforcing this legislation. Such agencies as the Internal Revenue Service, the Environmental Protection Agency, the Federal Bureau of Investigation, the Secret Service, the Securities and Exchange Commission, and others attempt to control and regulate corporate activity.

Early notions of liability held that a corporation could not have criminal charges applied to it. Holding a corporation liable was difficult for a number of reasons (Khanna 1996). First, corporations are fictional entities, not individuals. Second, there are moral problems in proving that a corporation is capable of formulating criminal intent. Th ird, courts had trouble making corporations criminally responsible for acts not listed in their charters. Finally, difficulty stemmed from criminal procedural rules that the accused be brought into court. In the United States, two doctrines have been of primary use in holding corporations criminally responsible: the Model Penal Code, section 2.07, which makes the corporation responsible for the behaviors of leaders in the organization, and respondiat superior, which holds the employer responsible for the criminal acts of its employees. Even though these two doctrines are in place, many prosecutors fail to act against corporations because the shareholders, not the corporate elite, will suffer most from any punishment a corporation receives. The Supreme Court applied the respondiat superior doctrine initially in the case of New York Central & Hudson River Railroad v. United States, where the company was not applying mandated shipping rates to all customers equally. The Supreme Court decided that this action violated the Elkins Act, and the corporation was subject to penalties under that act.

Other courts have also made similar rulings under the respondiat superior doctrine; however, critics have pointed out that the doctrine is better suited for civil torts than criminal liability. Section 2.01 of the Model Penal Code ameliorates this criticism because it enforces liability for the actions of corporate employees. Today, there are only two instances when corporations cannot be held liable for criminal actions: if the corporation is incapable of committing the crime (these would involve such acts as arson) or where there is no fine attached as punishment for the action. The Model Penal Code outlines three categories of corporate offenses. The first requires mens rea, or a guilty mind, and traditionally comprises individual offenses, including embezzlement and fraud. Corporations may be charged in these cases if “the offense was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent acting in behalf of the corporation within the scope of his office or employment” (Model Penal Code § 2.07 [1] [c]). The second category of offenses includes such acts as collusion calling for mens rea that can be committed by corporations. Corporations can be punished for these offenses if, during the scope of employment, an agent acted to benefit the corporation. Under § 2.07 (5) of the Model Penal Code, however, the corporation may not be punished if “the defendant proves by a preponderance of evidence that the high managerial agent having supervisory responsibility over the subject matter of the offense employed due diligence to prevent its commission.” The third category covers the strict liability crimes. Under the Model Penal Code, and on the basis of the respondeat superior rule, corporations can be held liable consistent with strict liability principles; in other words, there is no need to show intent to benefit a corporation.

The case of New York Central & Hudson River Railroad v. United States provides the framework for the idea that a corporation can be held liable for the deeds of agents acting in the capacity of their jobs. The notion of agents acting within their employment capacity is important in charging liability to the corporation. Other components of imputing liability are that employees have the authority to carry out the behavior in question. This authority “attaches when a corporation knowingly and intentionally authorizes an employee to act on its behalf ” (Viano and Arnold 2006, 314). The government also has to show that the individual whose actions are in question does indeed have a relationship to the agency (United States v. Bainbridge Management 2002). The concept of acting within the scope of an agent’s authority has generally been determined in different ways with regard to federal and state control. Federally, corporate criminal liability can be imputed based on the responsibilities of the agent, not his or her rank (In re Hellenic 2001). The goal of the government is to impute liability on the corporation through an action of an employee.

At the state level, some states have limited assigning criminal liability only to those in a high managerial position. For instance, 18 Pa. C.S.A. § 307 states that liability may be imputed if “the commission of the offense was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent acting in behalf of the corporation within the scope of his office or employment.” Other states have applied liability through judicial precedent (North Dakota v. Smokey’s Steakhouse, Inc. 1991). Further, others have been able to impute liability in cases even where high-level management disapproved of the employee’s actions (New Hampshire v. Zeta Chi Fraternity 1997; Ohio v. Black on Black Crime, Inc. 1999). However, corporate criminal liability will not be imposed unless the actor behaved in a manner deliberately intended to benefiti the corporation. This can be the case even if, for instance, the corporation did not actually benefit. The corporation would not be criminally liable where the employee’s behaviors were counter to the benefit of the corporation (Standard Oil Company of Texas v. United States 1962).

Recent Legislation

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002, also called the Public Company Accounting Reform and Investor Protection Act of 2002, was enacted in response to a number of questionable business practices by major corporations (Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, 116 Stat. 804 [2002])—specifically, the Enron, WorldCom, and Tyco debacles, which caused a deterioration in the trust of the accounting and reporting practices of these companies. Included in this legislation were increases in punishments under the White Collar Crime Penalty Enhancement Act. The penalty increases included longer prison sentences for those found guilty of certain Employee Retirement Income Security Act (ERISA) infractions. In addition, falsely certifying Securities and Exchange Commission (SEC) reports became criminal under the Sarbanes-Oxley Act. In all, nearly a dozen sections are included in the act, obligating certain accountabilities of corporate officials and mandating penalties for their violation. The act also set up the Public Company Accounting Oversight Board, whose charge it is to regulate, inspect, and discipline accounting firms. Major provisions of the Sarbanes-Oxley Act include

  1. Obligation for public companies to assess and give details of the efficiency of their fiscal reporting
  2. Requirement that CEOs and CFOs certify their fiscal reports
  3. Increased penalties, both civil and criminal, for security law infringement
  4. Stipulation that no personal loans can be given to any executive officer
  5. Requirement of independent auditing committees for companies registered on stock exchanges
  6. Guarantee of back pay and compensatory damages, and protection of employees who act as whistleblowers

Criminal Antitrust Penalty Enhancement and Reform Act

Legislation against antitrust violations is not new. The Sherman Antitrust Act was promulgated in 1890 to place a limit on monopolistic practices. Although this act was, for the most part, unenforced for the last 100 years, President George W. Bush signed the Criminal Antitrust Penalty Enhancement and Reform Act in 2004. This act essentially raised the upper limit penalties in cases of corporate crime to $1 million and 10 years imprisonment for convicted individuals and $100 million fines for corporations found guilty of antitrust violations. Corporations and their agents may now face severe penalties if convicted.

Types of Corporate Crime

As stated earlier in this chapter, corporate crime involves injurious acts that result in physical, environmental, and financial harms, committed by entities for their own benefit (Frank and Lynch 1992). Although there is overlap with white-collar crime, occupational crime, and other types of crime, corporate crime encompasses those behaviors that are engaged in by a corporation for its benefit. Corporate crime can result in political and economic consequences as well as physical harm, injury, and death to persons. Friedrichs (1996) sets forth a comprehensive list of corporate offenses that includes fraud, tax evasion, price fixing, price gouging, false advertising, unfair labor practices, theft, monopolistic practices, toxic waste dumping, pollution, unsafe working conditions, and death.

Fraud, Tax Evasion, and Economic Exploitation

Fraud, tax evasion, and economic exploitation have serious consequences for society and the citizenry because they allow corporations to raise their profits, lessen their tax burdens, and at the same time underpay their employees. Fraud covers violations of the Internal Revenue Code and involves corporations defrauding the government and taxpayers, usually through contractual agreements they hold with the government.

The war in Iraq that began in 2003 provided numerous instances, in an attempt to make a larger profit, of companies overcharging the U.S. government—and ultimately taxpayers—for services rendered. A report by Congress shows that the Department of Defense had 149 contracts in Iraq with 77 different companies that were worth approximately $42 billion; this report also shows that, according to government auditors, Halliburton, the largest contractor in Iraq, and its subsidiaries, namely Kellogg, Brown, and Root, submitted questionable bills in the amount of $1.4 billion (U.S. Senate Democratic Policy Committee 2005). Testimony from former Halliburton employees revealed that the company charged the U.S. government $45 for cases of soda, $100 to clean 15-pound bags of laundry, and $1,000 for video players; it also torched and abandoned numerous $85,000 trucks instead of making the minor repairs the trucks needed.

Other examples of fraud include (1) the effort to clean up the damage to the Gulf Coast caused by Hurricane Katrina, where a report to Congress identifies 19 government contracts worth about $8.75 billion that overcharged, wasted, or otherwise mismanaged the money received from the government), and (2) the health care industry, where, for example, in July 2006, Tenet Healthcare agreed to pay back $900 million to the federal government for violations of Medicare billing (although the company is alleged to have stolen $1.9 billion).

Recently, Congress and the Securities and Exchange Commission (SEC) investigated the actions of the Wall Street investment firm Goldman Sachs in the lead-up to the 2008–2009 financial crises. Goldman was alleged to have sold high-risk or faulty investment products (specifically, a kind of mortgage-backed security) while at the same time hedging its bets that the products would fail in the market, thus allowing the firm to profit at investors’ expense. There were also allegations that Goldman (and others) deceived the rating agencies that assist consumers in evaluating investment products. By July 2010, Goldman had decided to settle the case with the SEC—for the sum of $500 million. A week later, Congress passed, and President Barack Obama signed, the Dodd- Frank Wall Street Reform and Consumer Protection Act, a law aimed at restricting the kinds of practices that caused Goldman to be investigated.

Price Fixing, Price Gouging, and False Advertising

With price fixing, companies that are supposed to be competitors collude to manipulate the cost of items, keeping them artificially high and thereby maximizing profits. Archer Daniels Midland (ADM), among other companies, was convicted of price fixing commodities used in common processed foods. The company paid a $100 million antitrust fine. Similarly, Hoff man-La Roche, a vitamin company, was fined $500 million for attempting to fix the price of some vitamins worldwide, and several music industry firms have been accused of fleecing consumers to the tune of $480 million in CD overpricing (Simon 2006).

Price gouging involves taking advantage of consumers who are at risk, raising prices during times of scarcity of products, or charging the highest price possible because of monopolies, manipulation of the market, or biases in the law. U.S. corporations have long been accused of taking advantage of the poor. “Many food chains find that it costs 2 or 3 percent more to operate in poor neighborhoods, yet low-income consumers pay between 5 and 10 percent more for their groceries than those living in middle-income areas” (Simon 2006, 12). During times of scarcity of products, price gouging is frequent. In 2004, the southeastern coast of the United States was hit by a number of hurricanes. In the aftermath of the storms, the Florida Department of Agriculture and Consumer Services received more than 3,000 complaints of price gouging by hotels, gas stations, and other retail service providers (Simon 2006).

False advertising is nothing new, either. Consumers in the United States have been deceived into purchasing billions of dollars of products or services that never lived up to their claims. Food products giving false nutritional values and products claiming certain utility through false demonstrations are examples of false or deceptive advertising. Before reforms were enacted in 2009, credit card companies routinely promoted cards with no fees in bold print and, in small type, hid additional costs and contradictory information, including calculations of interest for new purchases.

Corporate Theft, Exploitation, and Unfair Labor Practices

A typical scenario of white-collar offending involves employees stealing from their employers, but the opposite is sometimes also true. Examples are companies that bilk employees out of proper overtime pay, violate minimum wage laws, fail to make Social Security payments, or use employee pension funds improperly. Not allowing labor to unionize, strike, or collectively bargain are three examples of unfair labor practices. The result is a loss of millions of dollars by employees who cannot negotiate or who are passed over for promotion on the basis of race, ethnicity, gender, or age. One of the largest alleged exploiters of labor in the United States is Wal-Mart. The allegations of wrongdoing against Wal-Mart are numerous and varied (Buckley and Daniel 2003). Charges of unfair labor practices make up most of the charges filed against the company, although there have also been reports of violations of health coverage among Wal-Mart employees (Bernhardt, Chaddha, and McGrath 2005).

Unsafe Environmental Practices

The most prevalent form of corporate crime may be pollution. Corporations account for a large share of environmental violations. As of 2010, corporations were manufacturing more toxic waste than ever, in excess of 600 pounds per person annually, and improper disposal of this deadly waste occurs in about 90 percent of cases (Friedrichs 1996). The detrimental consequences of this are obvious: about 25 percent of U.S. residents will get cancer in their lifetimes, and a study by Cornell University finds that roughly 40 percent of deaths worldwide can be attributed to environmental pollutants (Segelken 2006). Pollution has also been linked to health problems other than cancer—things like birth defects, heart and lung disease, and sterility (Brownstein 1981). The Exxon Valdez oil spill in 1989 and the BP–Deepwater Horizon spill in 2010 are two of the worst cases of environmental pollution in world history. In 1991, Exxon pleaded guilty to criminal charges and paid a $100 million fine, followed three years later by payment of $5 billion in punitive damages. In the case of BP–Deepwater Horizon, investigations were ongoing as of mid-2010; but even in the early stages questions were raised about the readiness and safety status of key pieces of equipment used by the company in extracting oil from the Gulf of Mexico.

Unsafe Consumer Products

Again, corporations may not intend to harm consumers, but their desires to maximize profits often lead them to cut corners when it comes to product safety. Everything from the food we eat, to the medicines we take, to the vehicles we drive, to any of the products we use on a daily basis can be dangerous to our health and well-being. According to the Consumer Product Safety Commission (2003), whose charge it is to protect the public from unreasonable risks of serious injury or death, injuries, deaths, and property damage from consumer product incidents cost us more than $700 billion annually. Deaths occurring from unsafe products or product-related accidents are alleged to number 70,000 annually (Consumer Product Safety Commission 2003). Although the FDA promulgates the regulation and proper labeling of food products, corporations seem to lure us into eating unhealthy and mislabeled foods that may, because of processing, lead to many preventable diseases.

Consumer products imported into the United States from foreign companies have fueled a number of recent safety warnings. According to Schmidt (2007), roughly 25,000 shipments of food arrive in the United States each day from over 100 countries; the FDA inspects about 1 percent of these imported foods, down from 8 percent in 1992. The U.S. Department of Agriculture, on the other hand, inspects about 16 percent of imported meats and poultry, but about 80 percent of the U.S. food supply is the responsibility of the FDA (Schmidt 2007). The Centers for Disease Control and Prevention (CDC) estimates that there are 5,000 deaths and 76 million illnesses caused by unsafe food in the United States annually (Schmidt 2007). Funding for FDA food safety has increased in recent years, but it is still not adequate.

Recently, the pharmaceutical industry has been one of the main culprits in much of the unsafe manufacturing and distribution of products that have a variety of adverse consequences for users, one of which is death. The pharmaceutical industry had profits of $35.9 billion in 2002, which accounted for half of the profits of all the Fortune 500 companies in that same year (Public Citizen’s Congress Watch 2003). Despite these profits and the exorbitant salaries received by the CEOs of these companies, the nation is not necessarily healthier because of the behaviors of some corporations in this industry. When pregnant women used the drug thalidomide in the 1960s, many of their babies were born with severe defects; this was an early example of the harmful effects that unregulated and untested drugs can have. Dow Corning provides another example of a corporation that did not conduct adequate testing or divulge the potential harmful effects of the silicone breast implant, one of its products, before putting it on the market. More recently, Vioxx and Bextra, two drugs used for treating arthritis and pain, were found to increase the risk of heart attack or stroke, and the drug Prozac and similar antidepressants were found to be linked to higher rates of suicide among youth. Women who took hormone replacement drugs (to relieve symptoms of menopause) were discovered to be at risk of developing breast cancer (Mintzes 2006).

The Consumer Product Safety Commission is responsible for overseeing over 15,000 products for the public’s protection. More than 800 persons die annually from materials that are not protected against fl ammability, and another 800 perish and 18,000 are injured from unsafe equipment (Consumer Product Safety Commission 2003). The bottom line is that these corporations are more worried about their profits than the health and safety of the consumers who purchase them. Even with tougher laws, increased prosecution, heftier fines, and negative publicity, these companies have been unaffected and continue to be the most profitable corporations in the nation.

Unsafe Working Conditions

In 2003, the Bureau of Labor Statistics, a division of the U.S. Department of Labor, reported 4.4 million work-related illnesses and injuries (Reiman 2007). According to Reiman (2007), “Much or most of this carnage is the consequence of the refusal of management to pay for safety measures, of government to enforce safety, and sometimes of management’s willful defi ance of existing law” (82). Although accurate statistics are hard to come by, deaths caused by inhalation of asbestos—and the fatalities from unsafe conditions in the chemical, mining, and textile industries throughout our history—speak volumes about the numbers of persons who have died prematurely due to unsafe work environments.

Conclusion: The Study of Corporate Crime

Why is it important to study corporate crime? The primary reasons for doing so, and doing more of it, are as follows:

  1. There is still debate about whether current research and theorizing about crime can extend to white-collar and corporate criminals.
  2. There has been a lack of focus on enforcement of these crimes.
  3. With an increase in globalization of companies, there will be more opportunities to offend unless laws against corporate criminal liability are further formalized.
  4. Despite increased pressure to punish corporate criminals, little funding has been allocated to the control and prevention of white-collar and corporate offending by comparison with that dedicated to street crime.
  5. Because many large corporations have made headlines owing to their engagement in egregious behavior, the public has shown a renewed interest in the subject of corporate crime.
  6. The impact of corporate offending regarding death and monetary loss amounts to a far greater detriment to society than all eight Uniform Crime Reports index offenses (i.e., homicide/manslaughter, robbery, rape, assault, burglary, larceny/ theft, motor vehicle theft, and arson) added together.
  7. If we can increase the public’s appreciation of the seriousness of corporate offending, the result may be increased pressure on the legislature and criminal justice system to give higher priority to the enforcement of laws against these offenses.

 

Richard D. Hartley and Michael Shally-Jensen

 

Legal Citations:

  1. Dartmouth College v. Woodward, 17 U.S. 518 (1819).
  2. In re Hellenic, 252 F.3d 391 (2001).
  3. New Hampshire v. Zeta Chi Fraternity 696 A.2d 530 (1997).
  4. North Dakota v. Smokey’s Steakhouse, Inc. 478 N.W. 2d 361(1991).
  5. Ohio v. Black on Black Crime, Inc. 736 N.E. 2d 962 (1999).
  6. Santa Clara County v. Southern Pac. R. Co. 118 U.S. 394 (1886).
  7. Society for the Propagation of the Gospel in Foreign Parts v. Town of Pawlet, 29 U.S. 480 (1830).
  8. Standard Oil Company of Texas v. United States 307 F. 2d 120 (1962).
  9. United States v. Bainbridge Management, No. 01 CR 469–1, 6 (2002).

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