Wednesday, August 29, 2012

The Exclusionary Impact of Convicting White Collar Criminals Why Banksters fear being convicted of crime

"...Go where you will, in business parts, or meet who you like of businessmen, it is - and has been for the last three years - the same story and the same lament. Dishonesty, untruth, and what may, in plain English, be termed mercantile swindling within the limits of the law, exists on all sides and on every quarter…"

No, this is not a comment from a contemporary website, it is taken from an editorial published in Temple Bar Magazine, of 1866. It was written when England was experiencing a plethora of fraudulent offerings in Railway shares, but the tenor of its complaint is as relevant today as it was then!

There is a growing groundswell of informed opinion among modern commentators that financial regulators should be far more willing to bring criminal charges against those financial practitioners whose actions should be construed as more than just negligent or incompetent.

I have never understood why white collar criminals should be treated in a different manner from working class criminals, but the fact remains that they are treated differently, and have been for many, many years.

The phenomenon was first recorded in a paper entitled 'White Collar Crime', published in 1949 by the American criminologist Edwin Sutherland, in which he pointed out;

"...‘There is a consistent bias involved in the administration of criminal justice under laws which apply to business and the professions and which therefore involve only the upper socio-economic group..." 

In 'White Collar Crime', Sutherland argued that the behaviour of persons of respectability, from the upper socio-economic class, frequently exhibits all the essential attributes of crime, but that it is only rarely dealt with as such. This situation arose, he said, from a tendency for systems of criminal justice in Western societies to favour certain economically and politically powerful groups and to disfavour others, notably the poor and unskilled who comprise the bulk of the visible criminal population.

"...Probably much more important however, is the cultural homogeneity of legislators, judges and administrators with businessmen. Legislators admire and respect businessmen and cannot conceive of them as 'criminals’; businessmen do not conform to the popular stereotype of the 'criminal..."

Another American sociologist William Chambliss put it this way;

"...One of the reasons we fail to understand business crime is because we put crime into a category that is separate from normal business. Much crime does not fit into a separate category. It is primarily a business activity..."

In his research, Sutherland discovered that the white collar criminal has no real fear of the regulators appointed to control the activities of the businessman, a state of affairs which he felt impeded the proper control of their activities. He discovered that actions by the regulators were considered to be an unfortunate interlude, but carried very little exclusionary status.  He identified that;

"...the violation of the laws designed to regulate business behaviour does not necessarily mean that the violator will lose social status among his business associates.  Although some members of the industry may think less of him, others will still admire him..."
It was very clear that the actions of regulators which were seen as a bureaucratic part of a governmental process, were not considered to possess a status which would diminish the perpetrator in the eyes of his social peers. He said;
"... white collar criminals customarily feel and express contempt for law, government and regulators in a way similar to that in which professional thieves express contempt for policemen and judges. Businessmen characteristically believe that the least amount of government is the most desirable state..."

My own experiences of dealing with white-collar criminals had demonstrated very similar findings and during some academic research I undertook, I decided to study whether or not the finding of a guilty verdict for a criminal offence of dishonesty would have an exclusionary impact upon a financial practitioner.

One financial criminal had said to me rather ruefully '...the white collar sector always assumed that its wrong-doing would be treated somehow differently from other crimes...'

George Robb (1992) in what is by far the most systematic discussion of nineteenth century business crime to date notes the reluctance of the legal and criminal justice systems to intervene in the social differentiation of the treatment of white collar criminals. He states;

"...From the mid-nineteenth century through the early decades of the twentieth, the law put few obstacles in the paths of white collar criminals, trusting instead that the free market would regulate itself and that good business would drive out bad. The liberal outlook was taken up by the law courts which neglected business frauds and treated white collar criminals with comparative leniency. Throughout much of this period, cultural perceptions of 'criminality' remained focused on the 'dangerous classes' while elite misconduct was seen as a relatively minor social ill..."

He notes that the harshest sentences for white collar offences were reserved for embezzling clerks rather than leading businessmen. He adds another factor, directly associated with the high status of the business community.

"...Another reason frequently given for the lenient sentencing of most white-collar criminals was that the shame and social disgrace attendant on criminal conviction were punishment enough for middle-class persons. Exclusion from polite society was viewed as a more serious penalty than imprisonment..... For white collar criminals prison was seen as ancillary to their personal sense of shame and loss of social status..."

I wanted to test how effective the social exclusionary impact would be for a financial practitioner being found guilty of a crime. My research set out to establish how financial practitioners would respond to the news that one of their social and commercial circle had first been suspected of, and then convicted for committing offences of insider dealing (a regulatory issue in their eyes) as opposed to an offence of theft (a criminal offence in their eyes).

In so doing I wanted to test Sutherland's assertion that regulatory offences were considered less important than criminal offences and would not carry the same degree of social and commercial exclusion.

In the course of a questionnaire which was completed by 93 financial services practitioners, I posed the following questions.

"...A person in another company who you have known socially for a long time and with whom your company has done business for many years has been reported in a serious newspaper as being suspected of Insider Dealing. How would this report impact on your social dealings with them..?"

48% responded that it would place a strain on their social relationship.

The question then asked how would it affect their commercial relations with them.

49% responded that it would place a strain on their commercial relationship.

They were then asked how a report of the other person being suspected of theft would affect their social dealings.

50% said it would place a strain on their social relations.

The question then asked how it would affect their commercial relations.

Again 50% said it would place a strain on their commercial relationships, while 38% said it would cause them to avoid any business dealings with them.

They were then asked how the fact that the person had been convicted of insider dealing would affect their social relationship.

In social dealings 38% said it would place a strain on their social dealings while 28% said it would cause them to avoid the social relationship. However, 18% said it would make no social difference at all.

In business dealings 78% said it would cause them to drop the business relationship altogether.

Finally when asked how a conviction for theft would affect their social dealings,  36% said it would cause them to drop social dealings altogether, while another 30% said it would cause them to avoid them socially.

When asked how it would affect their commercial dealings, 92% said they would drop the commercial relationship altogether.

It was clear that insider dealing generally did not attract the same degree of social opprobrium as theft. Significantly, more respondents said that in social dealings, a report that a person was suspected of insider dealing would make no difference to their relationship than if that person was suspected of theft. More respondents thought that suspicion of theft would place a greater strain on their relationship than suspicion of insider dealing.

A very similar pattern emerged in social attitudes towards persons convicted of theft and insider dealing. Again, insider dealing did not attract the same degree of opprobrium and the difference between those who would avoid the social relationship in either case and those who would drop the social relationship was remarkably similar.

In business dealings however the figures were dramatically different from those identified in social dealings. Again, insider dealing generally did not attract the same degree of opprobrium as theft, but nevertheless, the percentages of respondents who would drop the business relationship altogether for persons convicted of theft or insider dealing was significant.
What was very clear from these responses was that in business dealings, conviction of a criminal offence places the convicted person in a very defined capacity as far as financial practitioners are concerned, which is in  a marked contrast to their social position.

These figures clearly demonstrate that while financial practitioners are more prepared to tolerate breaches of the social code, borne out by the fact that a greater percentage are prepared to continue a social relationship with a convicted person, in business, the vast majority are unable to continue any relationship with a convicted person. It is felt that these figures provide support for Sutherland's theory that breaches of the business code are considered more seriously than breaches of the social code and it is submitted that the breach identified here is not so much the specific offence for which the individual is convicted but the fact of the conviction itself.

I believe that these statistics prove categorically that the financial sector sees little to fear in the actions of regulators, because whatever the outcome, the penalties do not lead to social or commercial exclusion from the financial sector. Fines have no impact on the individuals in the banks, instead, their impact is only felt by the shareholders.

The much-trumpeted theory that reputational damage is caused does not seem to have too great a degree of preventative effect.

However, what clearly works beyond any other measure is a conviction for what could be termed 'an ordinary criminal offence'. It immediately places the defendant in the ranks of ordinary common criminals, and its commercial exclusionary impact has been amply demonstrated in this article. Being convicted of a crime is the route to the door marked 'exit', and it means that the convicted person can never come back into the City because no-one will be willing to work with him or employ him in future.

It must be hoped that we will not have to listen to any more special pleading on the part of the regulators that there are other, better methods of regulating the financial sector, methods which have a greater deterrent effect, because there are none!

In addition, criminal convictions lead to asset confiscation orders, and financial recovery proceedings, so ill-gotten gains can be recovered from the criminal. The proceeds of the crimes become launderable and any other person who has facilitated in their distribution or dissemination can be prosecuted for money laundering.

For these reasons, we must insist that Government implement an urgent review of the powers of the regulators to bring criminal prosecutions, and their relationship with the SFO and the Crown Prosecution Service to be upgraded and given far more flexibility, in the hope that we shall see many more banksters being forced to grip the rails at the Old Bailey.

A few selected prosecutions and convictions will send such a shock-wave through the ranks of the hitherto spoiled and arrogant financial practitioners so that they will quickly lose the mistaken perception that they are a 'protected species'.

1 comment:

AbogadoNZ said...

Nice one Rowan. Having spent some time looking for peer reviewed research on whether deterrence has any impact on the likelihood of criminal offending - an finding none the ONLY solution is to detect, try, convict and imprison. Given Rowan's research findings it is imperative regulators and others don't 'dick around' with simple non-compliance offences BUT go for the big hit of theft, fraud etc.