Guest Post: How White Collar Crime Became The "Business Model" Of Corporate/State America

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

How White Collar Crime Became the "Business Model" of Corporate/State America

Today and tomorrow we publish an important essay by C.D., a correspondent in law enforcement.

White collar crime is now the "business model" of Corporate/State America. The Status Quo does not just incentivize pathological behavior, it is itself a pathological system. CHS

Let's start by identifying the different types of white collar crime (WCC). One is WCC involving individuals against companies (e.g. theft of property from a company) and the government (e.g. Medicare fraud) and the other is WCC of individuals within companies (e.g. MBS debacle) and the government (e.g. taking bribes to favor contractors) against people in our society.

The latter is typically punished and prosecuted less frequently or not as severely than the former for different reasons, one of which is the bias to protect the institution and sweep things under the rug. For instance, a person is allowed to resign, but they're not prosecuted, so that bad press doesn't come down on the institution or the supervisors of the criminal actor.

The last type of WCC is person against person (e.g. credit card number thefts) outside of any business or government entity. This last type is usually the domain of organized crime in its typical sense (i.e. the Mob, Mafia, etc.), but organized crime can also be part of the other categories, which is why they are pursued relentlessly by law enforcement agencies. However, some people may not include organized crime in the definition of WCC.

The difference between these types of WCC is who the crimes are committed against. If you commit a crime against the government, a business, especially a big business, or the moneyed classes, you're screwed (typically). For example, Madoff was prosecuted quickly and punished severely, because he largely ripped off rich people.

However, many of his victims were not victims in the truest sense, because they knew he was running a scam. They were just hoping that some other sucker was going to take the fall and not them. Many of the investors knew Madoff's returns were impossible in the absence of fraud. Contrast that with the bankers who, via their politically connected banks, ripped off numerous pension funds and homeowners through various scams and none of them have been prosecuted.

White collar crime is prevented first and foremost by adequate controls/procedures/policies within a company that are enforced by management and the board (That's assuming that they are not the origin of the criminal behavior). Companies do not often prioritize risk controls, because their focus is on making money and providing a service/making a good.

When an organization becomes extremely large, it is very difficult to adequately manage it to prevent problems (I find it funny that big CEOs often say they need their huge payouts because of all of their responsibility, but when something goes wrong, the come up with all sorts of excuses that remove the blame from themselves).

The next thing is implementing a well-thought out regulatory scheme that has an adequate number of competent regulators that are free to do their job with a minimal amount of political interference. The last thing needed is a criminal justice system that prosecutes and punishes white collar criminals as harshly as they do blue collar criminals.

In the case of crimes within the government, there are also needs to be adequate controls. Indeed, WCC in government is probably the most pernicious, as the actors can use the power of the government to cover up their crimes and prevent prosecution. The old adage, "Who guards the guardians?", comes to mind.

There are a number of cultural and governmental impediments to prosecuting WCCs. One of which is the corrupting influence of money to neuter regulations and to co-opt politically appointed regulators and prosecutors.

Another is perception. Wealth in our country is equated with royalty or a high station in society, so people have a hard time seeing the white collar criminal as the deviant that he is. People have a hard time wanting to punish someone who looks nice, has nice clothes, drives a nice car, lives in a good neighborhood, went to a prestigious school, belongs to exclusive clubs, etc. vs. someone who does not have those things. If you're poor in this country, that's almost a crime in and of itself to some people.

Conversely, rich people have all sorts of credibility, whether its deserved or not. Why should I listen to an actor about a topic that's not related to acting? Sure, he may have some interesting things to say, but he shouldn't be given automatic credibility on the subject and yet many people do just that. Romney became rich bankrupting companies and selling their assets and yet people look to him to "run our economy"? What politician can ever say that they can run an economy? The Soviets tried to do just that and look what happened to them.

Another reason WCCs may not be prosecuted is that individuals, organizations, governments, and even society at large may be vested in the criminal activity either wittingly or unwittingly. Let's take an example of a large company that is disposing of hazardous waste illegally. In this case, a powerful executive wants to make a name for himself as a cost cutter that improves the earnings per share of the company and decides that he will have his subordinates illegally burn the hazardous waste in kilns at the factory, rather than having it disposed of properly.

One day, a kiln blows up, because it's not meant to burn hazardous waste, and the explosion kills a worker. According to the law, there are a number of serious crimes that have been committed, but in this case, nobody, including the company, is prosecuted. Why? Vested interests.

So who are the vested interests?

1) The employees who did the burning or who knew of the burning. If they blew the whistle or refused to do it, they'd be fired or they may have thought that by doing the practice, they're helping the company to stay in business and thereby helping their fellow workers.
2) The managers and executives who got bonuses, stock options, perks, promotions, or just kept their jobs based upon the cost savings.
3) The board that received their fees and didn't ask too many questions.
4) The shareholders, including pension funds, who see their stock price and dividends go up.
5) The members of the community, including other businesses, who benefit by having a large company in their area.
6) The politicians who depend upon the company for campaign donations (bribes?), community services, employing their constituents, etc.
7) The customers of the company.
8) The press that depends on the company for advertising revenue.
9) The government itself that depends on the tax revenue that the company generates directly and indirectly (and in the case of banks, the selling of the debt on which the government depends to finance its spending).

All of these interests can bring pressure on the prosecutor(s), who then decides that it is the community interest to not prosecute and to push for a civil resolution. The executive who made the decision may be forced to resign or be fired, but that's it. Who knows, he may even get a nice severance package for his trouble.

What if the community is national or global in scale, because the corporation we're discussing is a multi-billion dollar conglomerate? Well, now we have systemic problems, because if this corporation can out-compete others by committing crimes, the others will join in to save themselves (and possibly make a lot of money in the meantime).

Undoubtedly, many of the actors will justify it to themselves by saying that "Everyone is doing it" or "It's just the culture." In the absence of a sound regulatory structure and serious criminal consequences, we will get a crime wave. It's inevitable. The risks have to outweigh the rewards of criminal behavior; it's not rocket science. (Copyright 2012 C.D.)

Tomorrow, Part 2: "White collar criminals in our big banks and corporations have turned otherwise legitimate businesses into vehicles to commit numerous crimes."

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Winston Churchill's picture

Or it just might be Holder ,whose law firm specialises in WCC

defence, rainmaking for later on.

Precious's picture

Those godammed Russians and Chinese are so corrupt ...

DaveyJones's picture

yes but I'm proud to say that our corruption uses more energy per transaction 

icetears's picture

this is the easiest approach. I really like it. I am sure that I will use it.

free games online

enjoy dress up

WhyDoesItHurtWhen iPee's picture

Rules and laws are for little people (muppets).

MsCreant's picture

"Romney became rich bankrupting companies and selling their assets"

He's perfect!

Dr. Acula's picture

Is this statement is referring to Bain Capital?

There's nothing wrong with liquidating a company and distributing its factors of production to others. Especially when the new owners can use those factors more efficiently than the former owners did.


DaveyJones's picture

yes and recent evidence suggests that large capital / capitol is only interested in free and efficient markets

almost as much as disclosure

The only thing as bad as Obama is Romney

the gangrene has spread throughout the host

MsCreant's picture

Let me rewrite that for you so you follow me:

"There's nothing wrong with liquidating a country and distributing its factors of production to other countries. Especially when the new owners of the country can use those factors more efficiently than the former owners of the country did."

He's perfect I tell you, perfect!!!

DaveyJones's picture

you mean there's a difference?

 how's the garden?

MsCreant's picture

No garden yet, drainage not resolved. We have been abandoned by 4 contractors now. We have one coming on the 30th. We shall see. The last one said the job was too big for him after he started it. He has handed me off to this one. I think it should work.

Hulk put out a link, Back to Eden. Very inspiring techniques being used there. I am planning on woodchipping my whole front yard.

Hulk's picture

Glad you had a chance to watch that !

MsCreant's picture

We really are helping each other here green one!

DaveyJones's picture

holy cow, 4 contractors. Is the drainage problem related to the (new) terrain slope I was concerned about?

Back to Eden covers some classic permaculture truths that folks all over the earth are rediscovering by observing and duplicating nature - no till, natural elements as a rich deep compost and mulch layer for nutrient, animal and insect life and water conservation.   

Fukuoka is a true permaculture ground breaker 

Geoff Lawton does amazing amazing work as well all over the world but a lot in the middle east with water challenge

Is your wood chipping to create a mulch for a fertile base?

Grinder74's picture

Yeah, and the author's grasp of private equity is almost as robust as Obummer's.

CrimsonAvenger's picture

I'm just so damned tired of it all, and failing to see the trigger that will force change. If someone had told me in 2008 that we'd still be humming right along halfway through 2012 I would have laughed, but here we are. I suspect my belief in imminent collapse is fueled by a distinct lack of imagination at the ways they can continue to keep the plates spinning.

Doomer's picture

Triggers, hmmm ... how about smaller checks from Uncle Sugar, or money worth less than the paper its printed on?

CrimsonAvenger's picture

I don't think it's either one of those. Why should there be smaller checks, if Bernanke can hold interest rates low and keep buying everything the Treasury issues? And we haven't revolted over inflation yet, even though we all know it's a LOT higher than they're saying it is.

If it comes, I think it has to come from outside - we have to lose reserve currency status. Unless someone takes the car keys away, we'll keep driving 100+MPH with no oil in the engine.

pods's picture

To use your analogy:

In 2008 the plates all fell in a heap.  But everyone in the audience decided to pretend the plates were still up there, spinning away. So the jester kept on pretend spinning pretend plates.

That is about where we are.

Our system right now depends on belief.  It is because of this that no fact will change the minds of the people. They have moved our modern economic society into the realm of belief.

When people live daily on belief, there is a great potential for LOTS of people to die.


Monkeyfister's picture

I'm afraid that the trigger will be attached to a high-powered .308. The Wheels of Justice refuse to roll these bastards-- some muppet recently relieved of his wealth is going to take matters into their own hands one day, and start forcing the issue. The Banksters will be lining up to be imprisoned, for nothing more than the security aspect.

jumbo maverick's picture

The trigger is the gun ownership issue. The ones in charge still don't know what to do about citizen gun ownership. They have done everything possible to make ownership illegal with one exception-mass door to door confiscation.
When you see that you know the trigger has been pulled. They will do it. They have no other choice and it is the final thing standing in their way.
I look for them to confiscate your local police firearms first. This will be the indicator that within a few days if not hours they will come for your guns.
I've already made my decision, no keyboard talk here, that when they come to my house I'm ready. I will stand for something.

They had better be afraid. I'm not. Not one bit.

Whoa Dammit's picture

The trigger will be high food prices (from the drought) combined with a bankrupted treasury (due to the high cost of wars). Same as it ever was throughout history.

Arthur Borges's picture

Yep. Food stamps and welfare are just premiums government pays as insurance against rioting and revolution.

MsCreant's picture

In all seriousness, I was telling my husband the other night I am sensing a shift out there on the net. There are more and more articles out discussing the fact that no one is being prosecuted, and why. I am not willing to say the tide will turn because of this, but there is more and more dismay being publicly expressed.

GeneMarchbanks's picture

So you'll have a powwow about it for a couple of days at most and then move on to something else.

Of course, nothing will have been done but everyone will feel better about it and then everyone will resume their criminal day-to-day activity no questions asked.


LFMayor's picture

yeah, Gene, it's great work if you can get it.  Until one day when suddenly it isn't.  Louis 16, Ceascenau, Romanov, Benito.  Ask them how quick it can turn and bite you in the ass.

A quick study of history proves that something happens.  It might be long in coming, but it happens.

GeneMarchbanks's picture

Alright, if you say so. Maybe we can discuss it presently, or next year it's no rush really.

Widowmaker's picture

You and your husband should go back about 2 years of Widowmaker's comments for some candid perspective  --  you aint' seen anything yet.

You have lived through the biggest fucking robbery of all time (still going balls to the walls strong), all the way to the oval office Inc., and it will cost Boomer kids/grandkids everything they will ever dream of with exactly zero recourse and nothing to fight for.

I'm sure you and your husband are proud on the sidelines waving little American flags.

UGrev's picture

which will make the only thing left worth blood.. to be free.

LFMayor's picture

I agree, i've seen the sea change too.  Luckily it washes something better up, or gets enough people motivated to push and make a difference.

At least it's now being discussed openly, along with other formerly forbidden topics like "flash mobs" and "youth crime". 

LFMayor's picture

what, too soon?  Are flash mobs still make believe fairy tale creatures, like Eskimos?

MsCreant's picture


Edit: It happened in my neighborhood. Several cars park on the street. Bunch of folks get out at the same time and start breaking glass and grabbing everywhere up and down the street. They grab crap, get back in their cars, and drive off in sperate directions. We had broken glass the whole length of the block, a sad and overwhelming mess. 

I heard later they made other stops on other streets.

Could have happened anywhere residential, anywhere, you couldn't stop it.

I believe in Flash mobs!

Optimusprime's picture

"Folks"?  Black folks, perhaps?

TheFourthStooge-ing's picture

MsCreant said:

...I am sensing a shift out there on the net.

I am not willing to say the tide will turn because of this, but there is more and more dismay being publicly expressed.

I don't know if you've seen it yet, but Kunstler was saying something similar yesterday:

The word lamppost is popping up lately with alarming frequency in connection with the word banker in all kinds of respectable places, and I don't think this refers to, say, men in Armani suits searching for their car keys where the light is shining on the sidewalk after quaffing a few rare cuvee jeroboams of Louis Roederer Cristal. Rather, it seems to suggest a certain unease with the levers of jurisprudence in this republic of grifters, stooges, and bought-off lackeys.

HardAssets's picture

MsCreant - - - unfortunately ZH doesnt reflect the American public (though you may be in another country). At this website we're hit with example after example of massive, systemic criminal fraud. - - Ask most people about any of this, and they have no clue what youre talking about and seem to care even less. I'm no longer optimistic that enough people will 'wake up' to make a more immediate impact. But, there may be some unseen event out there that puts a crack in the confidence that holds the system together. Once people lose confidence in a currency, there can be a rapid transformation of attitude and everyone dumpng the currency as quickly as possible for real goods that might maintain some value. This is known as a 'crack up boom' and its all about confidence. At that point a helluva lot of people will figure things out. - - - The con men are trying to keep their game going as long as possible. People probably arent generally aware - down into their bones - that it all could come crashing down next week, - - or not.

sgt_doom's picture

One hops you are right, but look at the framing in this posting:

"How White Collar Crime Became..."

Problem:  The assumption that white collar crime wasn't always the model!

It's the same false assumption which states, why does America have to support dictators?

Because it is always preferred by the bank/oil cartel, and always has been --- far easier to commit murder and mass murder to steal others resources.

It is the same with people so glibly asking, why don't they legalize drugs?

Because drugs have a high profit margin along with securitized financial instruments, i.e., credit derivatives, etc.

Illegal drugs are untaxed, allow for endless money laundering opportunities, and by keeping them illegal, THEY optimize their profit cycle:  higher profits, use of drugs as currency in other profitable and amoral endeavors, and allows for the cheapest labor when they send those convicted drug users to their privatized prisons.

The simple way to change it would be to vote for an intelligent and moral candidate for the prez, such as Dr. Jill Stein of the Green Party --- but people are still self-deluding about Obama, and the morally-depraved will continue to support one of their own, no matter that he consistently stands before the American public falsely claiming that the Banksters committed no crimes (other than millions upon millionis of felonies, and a whole lot more).


DaveyJones's picture

innevitable really as the corruption like debt grows exponentially.

I relate everything to my gardening now, mostly as a coping mechanism. It reminds me of a permaculture story out on the islands in the Puget Sound. Three brothers bought some neglected land and starting reviving its natural process. At some point, they had a huge infestatation of badgers(?) I think who were eating out a lot of the aquaculture. They were tempted to intervene but held back on principle and after a while and quite suddenly, the badgers were gone, well most of them. Eagles had spread the word and swooped in. Depite the often dispicable and "unnatural" practices of the human system, the larger system will win. It will be sudden and dramatic and not before a lot of damage. I just hope this site and others like it work like a nest in the taller trees, building shelter, skill and perception      

Doomer's picture

"... so people have a hard time seeing the white collar criminal as the deviant that he is. People have a hard time wanting to punish someone who looks nice, has nice clothes, drives a nice car, lives in a good neighborhood, went to a prestigious school, belongs to exclusive clubs, etc. .."

Of course, the "people" you refer to are the deviants in attorneys general offices and political office that went to the same prestigious schools and belong to the same exclusive clubs (or wish they did).

Most Americans, I would venture, want to lock these criminals up.

Widowmaker's picture

Let me summarize:

White collar crime is another way to say socialized crime, or incorporated crime, and it fucking pays!  Hence the fucking business model of faggots in pinstripes.

Without enforcement there is no rule of law.

Eat your own ass, America, you earned it with record fucking bonuses for Collusion Inc!


SWRichmond's picture

Yes Yes Yes.  This has been called "the conspiracy of interests."  No actual conspiracy required, no secret meetings or taps on the door to get in.

steveo77's picture


Dabama words were not taken out of context.   He is an arrogant effen prick.


"If you’ve got a business, you didn’t build that. Somebody else made that happen."


He said exactly that, and his meaning was clear.   All that business needs is a stable enough operating environment with gov involvement to ensure that the rule of law is executed.  


His context is “Big Gov” good, more big Gov more better. 


He doesn’t have to fit every definition of a socialist, and really I think all the labels these days are a big part of the smoke and mirrors.    Dabama can’t fix the economy, can’t encourage things to get better, by organic growth, because there are too many effen leeches sucking off the system….so he takes the shot he has to try to prop shit up by wasteful gov spending 


He talks of Hoover Dam type stuff (good infrastructure with long term benefits) yet NONE of the spending I have seen in recent years results in those type of good long term benefit infrastructure projects…just shovel ready projects, to shovel the taxypayers money like a temporary crack hit into wastefully spent projects.

Bartanist's picture

Obama is a communist.

What he is saying is that your business and the benefits from it belong to everyone because everyone contributed to it. And, once he gets rid of greed and the need for (enslaving) money and those that keep us enslaved through money, by both government and the banks, I will be willing to listen to him. In the meantime, he is a lying fraud and deserves no respect. His actions speak much louder and much more honestly than his words.

Arthur Borges's picture

So far the President has been sending all the right signals to get Mr. Romney elected.

Collusion Inc.?


NotApplicable's picture

They built a really pretty sidewalk downtown here. All 500 feet of it! Complete with a billboard at either end telling us of how it's going to save us all.

LFMayor's picture

it was the shoulders of the highway here.  about 7 miles of it.  Now it's smoother and better than the fucking road.  I keep wanting to drive on it instead.

Colonel's picture

"Undoubtedly, many of the actors will justify it to themselves by saying that "Everyone is doing it" or "It's just the culture..."

Or "It's the nature of the beast!" Blah,blah,blah excuses.