Introduction to White Collar Criminal Defense
White collar crimes are non-violent crimes motivated by money, generally perpetrated by business professionals. For the most part, there are four main categories of white collar crime: Fraud, Embezzlement, Tax Evasion, and Money Laundering. These categories are not independent of one another; in fact, most white collar crimes include a combination of the above offenses. This article will discuss the details of the various categories of white collar crime, as well as possible penalties and defense options.
The Details of White Collar Crime:
A white collar crime’s degree of severity is most commonly determined by the amount of money involved, but also often involves determining the detriment incurred onto others; such is the case with Ponzi schemes. However, the overwhelming majority of white collar crimes are committed to the detriment of the government, often to escape tax payments.
The term fraud is incredibly broad, literally defined as the act of deceiving someone for monetary gain. Fraud is the cornerstone of nearly every white collar crime, but the specific types of fraud which comprise the majority of white collar crime are noteworthy. The first is Securities Fraud, of which the most common type is “insider trading.” Insider trading is a broad term as well, but can be narrowed down to simply: a businessman having insider information about a company and using that information for their own benefit and in violation of the U.S. Securities and Exchange Commission standards. If the insider trading goes beyond the actions of a single individual and is being conducted company-wide, the act moves from white-collar crime to corporate crime. So why is it illegal for a businessman to operate on knowledge they have been afforded by their position? Sometimes it’s not. If people within a business have information about that business’ success or failure and base their trades on this information, this is not alone illegal. It would be foolish to not operate based on this knowledge. However, businesses must report this information- usually comprised of profit projections or changes in management- to the Securities and Exchange Commission within a certain time period. This period is approximated to be roughly ten days from the end of the month when the trade took place. So, although this legal insider trading does benefit those in the company with the information, that same information must also be made available to the public. In summation, private knowledge is criminal knowledge.
Perhaps the most popular example of insider trading came in 2003, when CEO Samuel Waskal of a medical research company called ImClone decided to hide the Federal Drug Administration’s decision to reject their new cancer drug. He sold a large chunk of his stock based on this information, without releasing said information the public. Samuel Waskal ended up receiving seven years in prison along with a three million dollar fine. Ironically, that same cancer drug ended up being approved by the FDA.
Another important aspect of insider trading is intentional inflation or deflation of stock to the public eye. Just as often as company officials jump ship based on worrisome information, they also attempt to lure investors based on faulty information. These company reports do not have to even be fully false, only misleading, and must be done with full knowledge of the true numbers. Accidental misreporting, if it can be proven accidental, is not considered insider trading.
However, for the common person, insider trading is not a reality. A more typical form of white collar fraud is insurance fraud. Insurance fraud can be committed by both the insurance companies and the consumer, depending upon the situation. On the company side, there are two main methods to fraud: premium diversion and fee churning. Premium diversion is the most common form of insurance fraud, and at its core involves the insurance agent keeping owed premiums for themselves. With fee churning, money is made by constant reinsurance agreements, where intermediaries take a commission fee on each step of the ladder. However, with each commission made, the pool of money required to pay actual claims dwindles, often forcing the company on the final rung into bankruptcy. The distinction between these two forms of insurance fraud mirror that of corporate versus individual crime. Premium diversion often involves a rogue insurance agent out for profit, while fee churning is systemic . For fee churning to work, several companies must collude and also select a scapegoat company-a company to fail. Although insurance fraud often seems like a distant concept, it affects all of us. It is estimated that insurance fraud accounts for forty billion dollars per year, spiking average citizens’ premiums between 400 and 700 dollars a year.
Consumer fraud can also be split into two categories: hard and soft fraud. Hard fraud, obviously the more serious form, involves a deliberate invention of damages. Some common lies are auto collision, theft, and arson- all things which are nearly universally covered on insurance policies. Because many policies cover certain accidents up to hundreds of thousands of dollars, the “intentional accident” perpetrated, such as your home intentionally being burned down, will mean very little in comparison to the settlement received. Some will even attempt to collect on life insurance, faking their own death and fleeing the country
Soft fraud does not involve a full-fledged invention of a fictional accident as hard fraud does, but instead involves exaggerating real-life events for monetary gain. Soft fraud is often referred to as opportunistic fraud. A common instance of soft fraud occurs after a car accident. The driver will overstate the damage or hospital fees incurred to receive a larger settlement. However, soft fraud can occur even outside of an accident. For a new health insurance policy holder to exaggerate or invent past conditions for a lower premium or higher potential payout also constitutes soft fraud.
Embezzlement, although still contained under the fraud umbrella, involves different conditions than those previously described. Formally, embezzlement is the theft of assets by a person in a position of trust or responsibility. Embezzlement is most often committed within the trustee/trust relationship. A trustee is someone who is entrusted with certain powers of administration of property, which in layman’s terms, usually refers to a money, bank, or business manager. Embezzlement can also occur if a corrupt accountant is entrusted with funds. The degree of embezzlement, or amount of money stolen, varies greatly, as does the methods to cover it up. However, four things must be true to be convicted on an embezzlement charge:
-There must be a fiduciary relationship between the two parties; that is, there must be a reliance by one party on the other
-The defendant must have acquired the property through the relationship (rather than in some other manner)
-The defendant must have taken ownership of the property or transferred the property to someone else
-The defendant’s actions were intentional.
Tax Evasion and Money Laundering:
Tax Evasion is a straightforward term, simply referring to the act of avoiding paying taxes. This can be done in myriad ways and to myriad degrees. For instance, if you intentionally file your tax forms with false information, this is considered a weak form of tax evasion. A stronger form would be the transfer of millions of dollars to offshore accounts to avoid United States tax code, something perpetrated by businesses and individuals alike. As long as there have been taxes, there has been tax evasion (1776 anyone?) Therefore, the possibilities for tax evasion are virtually limitless, making full-scale enforcement extremely difficult. Unfortunately, the more taxes evaded, the more upstanding, tax-paying Americans must make up for this deficit.
Money Laundering is the act of filtering “dirty money-” or money obtained through criminal activity- through clean channels. Criminal organizations often achieve this through some kind of “front.” For instance, a prostitution ring may buy a massage parlor, so that profits from the illegal prostitution appear legitimate. Although money laundering will add penalties to a sentence, it is the one white collar crime which is not a crime in of itself. Money laundering requires dirty money to make clean money, so the crime which led to the acquisition of the dirty money will comprise the bulk of the punishment assigned, and not the laundering itself.
Depending on the nature of the white collar crime and the amount of money diverted or stolen, punishment can vary significantly. However, there are some loose Arizona standards. For embezzlement, embezzlement of under 100 dollars constitutes a Class 1 misdemeanor. A Class 1 misdemeanor includes a maximum sentencing range of six months and a 2500 dollar fine. Once the amount goes over 1000 dollars, punishment scales by one deviation per 1000 dollars. Thus, 1000-2000 dollars constitutes a Class 6 felony, 2000-3000 dollars constitutes a Class 5 felony, and so on. After 25,000 dollars, you will be charged with a Class 2 felony, carrying with it up to a five year prison sentence.
For the most part, insurance fraud is charged as a Class 6 felony, meaning a possible ten years in prison and 150,000 dollars in fines. The Arizona law A.R.S 20-463 defines insurance fraud as one of the following:
-Auto accidents and insurance
-Health care claims such as medical and dental
Because the severity of white collar crimes is so flux, defense options are entirely dependent upon your situation. Many white collar crimes are systemic, top-down schemes, where possibly hundreds are involved. The first thing to do, besides contacting an experienced defense attorney, is to note your role in the crime. Were you the CEO, or simply a lowly employee complicit with the actions of those above you? If the answer is the latter, which it likely is, the prosecution’s primary target may not be you, but someone higher in the hierarchy. To prosecute those actually responsible for a scheme, the prosecution may amount a tower of evidence against you, paired with impossibly harsh penalties. To attain knowledge of those higher up the ladder, plea bargains are extremely common. A plea bargain is an admission of guilt and possible admission of other pieces of sensitive information in exchange for reduced sentencing and/or penalty. See the article by Above the Law on white collar criminal defense.
Plea bargains are complicated and committing to one is entirely predicated on the individual defendant’s situation. Before making any decisions regarding your white-collar crime accusation, contact an experienced defense attorney. Many charged with white-collar crime consider themselves morally superior to the average criminal, since their crime was non-violent. In their minds, this will translate to more lenient court treatment, and subsequently, the hiring of budget legal defense. This is perhaps the greatest pit-fall in regard to white collar defense. Not only are white collar crimes punished with the same frequency and severity as other crimes, but many white collar defendants have more to lose. These people are generally wealthy and responsible for families, making prison even worse in comparison. In short, hire experienced and talented legal defense, regardless of your social status.
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