Committed by forceful personalities and often international in nature, white-collar crimes are a challenge. Solving them means following paper trails, sifting through red herrings and observing human behaviour
The term ‘white-collar crime’ was introduced to the world in 1939 by American sociologist Edwin Sutherland, who referenced the shirts of middle-class office workers and defined the crimes as non-violent.
Over the intervening years, white-collar crime has become increasingly sophisticated and cross-jurisdictional thanks to modern communications. Think Enron, Worldcom and the Ponzi scheme run by former Nasdaq chairman Bernie Madoff.
“My interpretation of white-collar crime is an intellectual crime: no sex, no violence, no force of any kind,” says David Corker, co-founding partner of criminal firm Corker Binning.
Instead, white-collar crime is paper heavy, document-based and revolves around deceiving people on a large or small scale for personal gain. Both ‘general’ and white-collar crime proceed through criminal rather than civil proceedings, but that’s where the similarities end.
“A general crime case often begins with a call from the police station,” says Kingsley Napley partner Stephen Parkinson. “It is invariably around an allegation of rape, indecent images, a fight, something along those lines.
“It’s all about the account of the individual, what witnesses say and forensic evidence such as DNA and fingerprints.”
White-collar crime proceedings begin in the same dramatic fashion, typically with a police raid on offices, before the pace slows down.
Computers and documents are seized and the combing for evidence of deception begins. Document analysis in a large Serious Fraud Office (SFO) case can take around a year, with millions of emails searched and documents filed. When suspects and witnesses are interviewed, they are presented with a pack of documents to examine in advance, which act as a trigger for the focus of the interview.
“We have a number of SFO cases in the department which generate cupboards full of files,” adds Parkinson. “With a case involving millions of documents, you have to filter down to what is relevant – it is about finding the needle in the haystack.”
What skills are needed? “Perspicacity,” says Corker. “The ability to see the one important thing in 99 other things. The ability to foresee how that one thing will develop and play out in court. If the lawyer doesn’t have that, they will never be able to have the gift of discernment.
“There are so many issues which could be seen as important but are actually red herrings. You can spend thousands of hours in a morass of detail.”
That shrewd narrowing of focus runs right through to trial, where cases are often so complex that for a jury to make head or tail of it, lawyers strip back their cases to the minimal number of points, starting from an argument with tens of subsets.
“With this level of complexity, you need to be more organised and detailed,” says Parkinson. “Somebody flighty, superficial or driven by adrenaline is not going to suit this work.
“It’s fascinating to come face to face with human behaviour in all its forms. What I love about criminal law is within minutes of meeting a client I’ll be talking about stressful, traumatic matters – whether you’re guilty or innocent, it’s traumatic.
“Perhaps it’s slightly dysfunctional of me, but I love that. We all enjoy it, getting to know clients like that.”
The focus on clients as individuals rather than corporate entities is a key attraction for lawyers in the field, but it comes with a caveat.
“You really need to be secure in yourself,” suggests Peters & Peters partner David McCluskey.
“You meet quite strong personalities and it is important to know what you know and don’t know and to feel secure.
“It is how you conduct yourself in that face-to-face environment that determines most things, from whether you get the case to whether the client follows your advice.”
In the field
“A lot of white-collar crime is necessarily international,” explains McCluskey. “It’s in its nature. Assets are harder to track, communications are very easy and people take advantage of lax policing or regulation in one jurisdiction in order to commit fraud in another.”
The global aspect of white-collar crime is not new. What is new is the emergent co-operation between global agencies. White-collar work is currently dominated by global super-investigations into issues such as Libor, for which agencies have had to collaborate more than ever before.
Two of the most prominent agencies, the SFO and the Financial Conduct Authority (FCA), are more active than in recent years, with the SFO led by a new director since 2012 and the FCA given criminal investigation powers, in addition to existing regulatory powers.
“The SFO is very active at the moment,” says Parkinson. “It’s been rejuvenated under David Green QC, who has managed to attract much more government resource and is targeting household names.”
Over the past year, the SFO has launched criminal investigations into the commercial practices of pharma giant GlaxoSmithKline, the accounting practices at Tesco and bribery allegations at Barclays and Rolls-Royce.
It also reopened its investigation into Weavering Macro Fund, finding hedge fund manager Magnus Peterson guilty on eight counts. Unlike former director Richard Alderman, Green also launched an investigation into Libor cases.
“It’s fascinating to see how these clever people think they will get away with it, the mistakes they make and their arrogance” – David Corker
At sentencing, two key trends are emerging. The first involves deferred prosecution agreements (DPAs). DPAs came into force in 2014 and enable an organisation and the prosecutor to agree to certain criteria by which a conviction can be stayed. Essentially, the organisation will be required to admit wrongdoing, make restitutions to victims and show that it is changing its culture or practices.
The other is the drift towards honesty tests, an increasingly common method of argument used by prosecutors, made possible by the Fraud Act of 2007.
“Honesty tests simplify the process,” explains Corker. “Rather than let defence lawyers bamboozle juries with legal terms, let’s do a simple test and ask the jury if the person was behaving in an honest way and ask them to judge their mindset at the time the crime is alleged to have been committed.”
The defence lawyer will ask the jury if the accused was dishonest in any way and if their alleged dishonesty could provide a reason for why they might have committed the crime they are accused of.
For defence lawyers, this makes advising clients more difficult as any legal argument hinges on the jury’s perception of the accused and brings their testimony and justification to the fore. It also means that more trials may take place, even if the legal grounds on which they do so are weak.
“White-collar crime is very interesting work,” concludes Corker. “It’s fascinating to see how these clever people think they will get away with it, the mistakes they make and their arrogance.”
White-collar crime’s most notorious names
The Enron scandal, which came to light in October 2001, had international implications – both financially and politically.
The Houston energy firm was created in 1985 and grew to become the seventh-largest company in the US, employing 21,000 staff in more than 40 countries. Eventually it emerged that this success was built on a foundation of lies, concealing debt and inflating profit.
As the scale of Enron’s deception was uncovered, creditors and investors beat a hasty retreat, forcing the company into Chapter 11 bankruptcy proceedings.
The key parties responsible for the fraud were named as chief executive Jeffrey Skilling, his predecessor Kenneth Lay and former chief financial officer Andrew Fastow. Both Skilling and Fastow were convicted, but Lay died before he could be sentenced.
Former Enron employees were handed $85m (£56m) in compensation for the $2bn lost from their pensions. Investors received $11.4bn in settlements.
The Madoff scandal – the largest investor fraud ever committed by an individual – was exposed in December 2008. Bernie Madoff, the former Nasdaq chairman, had defrauded nearly 5,000 clients of a sum total of $65bn.
Madoff founded his company, Wall Street firm Bernard L Madoff Investment Securities, in 1960 and remained chairman for nearly five decades. He was ensconced in the upper echelons of New York’s financial community, helping him to evade suspicion, although he was investigated multiple times during the 1990s and 2000s by the US Securities and Exchange Commission.
Although federal investigators believed that his fraudulent practices began in the 1970s, Madoff maintained that they started in the 1990s.
He ran the business from one floor of his three-storey office space. The other two floors were occupied by his legitimate businesses, providing a perfect cover. The third was taken up by 1980s computers and green-screen terminals, which were used to generate fake account statements to send to investors.
Madoff pleaded guilty to all charges. He was sentenced to 150 years in prison at the Butner Federal Correctional Complex in North Carolina and ordered to pay $17bn in restitution.