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Explaining White-Collar Crime


Petter Gottschalk

Explaining White-Collar Crime The Concept of Convenience in Financial Crime Investigations


Petter Gottschalk BI Norwegian Business School Dept. of Leadership and Org. Behavior Oslo, Norway

ISBN 978-3-319-44985-2 ISBN 978-3-319-44986-9 (eBook) DOI 10.1007/978-3-319-44986-9 Library of Congress Control Number: 2016948583 © The Editor(s) (if applicable) and The Author(s) 2016 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. Cover illustration: Détail de la Tour Eiffel © nemesis2207/Fotolia.co.uk Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland


CONTENTS

1

Introduction

1

2

Convenience Theory

5

3

Reports of Investigations

33

4

Economical Convenience

51

5

Organizational Convenience

61

6

Behavioral Convenience

79

7

The Case of Skjervøy in Norway

91

8

Conclusion

107

References

115

Index

129

v


LIST

Fig. 2.1 Fig. 4.1 Fig. 8.1

OF

FIGURES

A conceptual model of crime occurrence based on convenience theory Pyramid of needs for white-collar offenders adapted from Maslow Stages of growth model for corporate social responsibility

21 59 109

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LIST

Table 2.1 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 7.1 Table 7.2

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TABLES

Theoretical contributions to convenience in crime Sample of US reports of investigations by fraud examiners Sample of Norwegian reports of investigations by fraud examiners Convenience theory applied to the US sample of investigation reports Convenience theory applied to the Norwegian sample of investigation reports Actors in the Skjervøy case and completed interviews by KomRev (2015) Evaluation of investigation report in relation to investigation mandate

29 36 38 40 46 96 98

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CHAPTER 1

Introduction

Abstract Convenience theory provides a set of explanations of conditions and circumstances that make financial crime an attractive option for members of the elite in situations dominated by threats and possibilities. Convenience can be found in the economical, organizational, and behavioral dimensions. Keywords convenience theory  financial crime  fraud examination  report of investigation

This book deals with the topic of white-collar crime and considers the role of convenience in explaining its occurrence. It puts forward convenience as a theoretical explanation that underlies existing theories and research on white-collar crime. Convenience seems present in all three dimensions of crime: economic dimension, organizational dimension, and behavioral dimension. Based on multiple case studies of investigation reports by fraud examiners, this book explores the empirical evidence to support convenience theory. Empirical studies of fraud examination reports from both the USA and Norway illustrate the convenience perspective in white-collar crime. White-collar crime is defined as financial crime committed by privileged people in the elite. Although the occurrence of economic crime may

© The Author(s) 2016 P. Gottschalk, Explaining White-Collar Crime, DOI 10.1007/978-3-319-44986-9_1

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EXPLAINING WHITE-COLLAR CRIME

be frequent among people in the elite, the police and prosecution very seldom prosecute individuals of the upper class in society. Therefore, it always comes as a surprise when it happens. It was quite a surprise when Spain’s Princess Cristina had to stand trial on tax fraud charges. She is the youngest daughter of King Kuan Carlos. Princess Cristina became the first member of Spain’s royal family to be put on trial as she appeared in court with her husband (Robinson and Mezzofiore, 2016). When the elite and other members of the upper class in society are suspected of misconduct and financial crime, private investigations are sometimes initiated. Fraud examiners are hired to confirm or disconfirm suspicions by reconstructing the past. Very often, private investigation reports are kept secret and are neither available to the police nor to the public in general (Gottschalk, 2015, 2016). However, it was possible to identify and obtain a number of investigation reports in both the USA and Norway to conduct empirical research on white-collar crime as presented in this book. The book introduces the concept of convenience in the study of financial crime which complements, refines, and extends understanding of many popular theories in explaining white-collar crime and the various factors that contribute to it. Convenience theory is both an offense and offender-based explanation which elucidates some of the important organizational, economic, and motivational features of financial crime. Of particular significance are matters of opportunity to carry out illicit activity, and also the practical convenience of carrying out crime against the chances of being caught or discovered. Convenience theory provides a set of explanations of the subjective and objective conditions for financial crime, which is supported by data drawn from fraud examiners’ reports in Norway and the USA. The reports cover a range of organizations that have undergone investigations; while the majority are related to business organizations, they also include religious associations and other forms of administration. The data and case studies in particular help to throw light on the various ways convenience as a concept informed the decision-making and actions of well-placed individuals in organizational hierarchies to carry out white-collar crime. This book sums up the various theories about white-collar crime and contemporary discussions around these matters, which is useful in itself before going on to outline the contribution of convenience theory as a new and novel way to understand financial crime. It attempts to do this in a very lucid, engaging, and interesting manner.


1

INTRODUCTION

3

However, as pointed out by a blind reviewer of the book manuscript, the claim that convenience theory is new is potentially contentious. The key components of the theory are very similar to Marcus Felson’s problem triangle analysis in the area of crime prevention which posits the three conditions for crime as: a motivated offender, an opportunity, and the absence of a moral guardian. While the first two factors are considered in this book’s explanations and critique of conventional theories, this book makes little mention of the existence of moral guardian as a facilitator or an inhibitor for crime. This may give the impression that the omission serves to give more weight to the claims of originality of convenience theory. Therefore, it is important to emphasize the work on guardians by Felson (1994). Felson may not have used the term “convenience” explicitly in his theory on crime and crime prevention, but there is no doubt it shaped much of his thinking. The originality of convenience theory is that it throws new light on a previously unappreciated conceptual lens of convenience in theorizing and practically understanding white-collar crime. The book addresses the following: the important areas of financial and economic crime, who carries out these offenses, and under what conditions and how we understand these activities. Equally relevant, the book explores how to detect and prevent these kinds of crime, and it should be a welcome contribution to the growing literature on these issues. The book engages with the literature, is up to date, and makes a useful contribution to scholarship in the areas related to financial crime and the teaching of these subjects. An anonymous reviewer pointed out that the strengths of the book are its critical examination of theories around financial or white-collar crime and the section that addressed theory building. This section of the book provides a comprehensive summary which is useful for students or other types of readers. This book applies a descriptive approach to convenience in white-collar crime by focusing on the specifics of the case studies. The descriptive approach serves the purpose of demonstrating motives, opportunities, and behaviors. Of course, white-collar crime can also be a form of inconvenience, which might be applied to the offender(s) and those around them as it may create a variety of problems. However, as long as the likelihood of detection is low and sometimes almost nonexistent, the expected inconvenience is microscopically small. The samples of fraud examination reports from the USA and Norway represent nonprobability purposive sampling. They do not represent the


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pool of private investigations in the two countries. It is certainly a challenge trying to assess retrospective evidence for a small number of cases that do get investigated and then are accessible. The reader should apply critical skepticism throughout the work in an effort not only to consider that convenience theory may be a useful explanatory concept but also to consider rival explanations and possibilities. Terms such as financial crime, white-collar crime, and corporate crime occur frequently throughout the book. They do not mean the same. Financial crime is the broader term. It is narrowed down by white-collar crime, which means financial crime by individuals in the elite. It is further narrowed down by corporate crime, which means financial crime by individuals in the elite to benefit the organization.


CHAPTER 2

Convenience Theory

Abstract A number of theories from criminology, management, sociology, psychology, and organizational behavior have been introduced to explain occurrences of white-collar crime. In this chapter, such theories are integrated into a main theory of convenience. In convenience theory, previous theories are organized into three dimensions: economical motive, organizational opportunity, and deviant behavior. Convenience can be found in all three dimensions when white-collar crime occurs. Keywords economical convenience  organizational convenience  behavioral convenience  convenience theory

INTRODUCTION Ever since Sutherland (1940) coined the term “white-collar crime,” a number of theoretical approaches have been introduced to explain the phenomenon. Sutherland (1983) himself emphasizes differential association theory, where criminal behavior is learned in association with those who define such criminal behavior favorably and in isolation from those who define it unfavorably. Piquero and Benson (2004) as well as Benson and Simpson (2015) emphasize opportunity as the main factor for white-collar crime. Coleman (1987) suggests an integrated theory of white-collar crime claiming that criminal behavior

© The Author(s) 2016 P. Gottschalk, Explaining White-Collar Crime, DOI 10.1007/978-3-319-44986-9_2

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EXPLAINING WHITE-COLLAR CRIME

results from the confluence of appropriate motivation and opportunity. Sutherland (1983, p. 2) originally defined a white-collar crime as “a crime committed by a person of respectability and high social status in the course of his occupation.” According to Koppen et al. (2010), crime is often described as a behavior that involves the pursuit of immediate pleasure. Sometimes white-collar crime requires little in the way of effort, planning, and preparation, and also hardly requires any specific skills or contacts. It only requires legal access to resources that enable criminal acts. Even when white-collar crime requires substantial effort, planning and preparation, it may still be attractive, as alternatives are less attractive or not available at all. Ever since Sutherland (1940) coined the term “white-collar crime,” there has been a debate on who to include in and who to exclude from this category of criminals. For example, Brightman (2009) argues that personal computers and the Internet allow individuals from all social classes to buy and sell stocks and engage in similar activities that were once the bastion of the financial elite. Benson and Simpson (2015) find this insufficient as an argument to include virtually any nonviolent act committed for financial gain regardless of one’s social status into the term “white-collar crime,” since the definition of white-collar criminal involves a breach of trust. Since scholars tend to disagree, white-collar crime seems to be in need of additional theory. Scholars seem to agree that while circumstances have changed over the years, the definition of a white-collar crime has to be both offense-based and offender-based. The offense-based perspective is concerned with financial crime for economic gain. The offender-based perspective is concerned with the role, profession, and position enabling the offender to commit crime (Gottschalk and Rundmo, 2014). The concept of convenience is introduced to examine white-collar crime by creating convenience theory as an umbrella term for a number of well-established theories when applied to white-collar crime. Therefore, convenience theory is not a new theory as such but rather a new perspective integrating a number of existing theories. It can help to unify a number of different theories and can play the role of a general theory of white-collar crime. Identifying convenience construct’s qualities require engaging with a number of other theories and approaches.


2 CONVENIENCE THEORY

THE CONCEPT

OF

CONVENIENCE

IN

7

CRIME

Extracting the concept from marketing theory (Farquhar and Rowley, 2009), convenience in white-collar crime relates to savings in time and effort by privileged and trusted individuals to reach a goal. Convenience is here an attribute of an illegal action. Convenience comes at a potential cost to the offender in terms of the likelihood of detection and future punishment. In other words, reducing time and effort now entails a greater potential for future cost. “Paying for convenience” is a way of phrasing this proposition. Convenience is the perceived savings in time and effort required to find and to facilitate the use of a solution to a problem or to exploit favorable circumstances. Convenience directly relates to the amount of time and effort that is required to accomplish a task. Convenience addresses the time and effort exerted before, during, and after an activity. Convenience represents a time and effort component related to the complete illegal transaction process or processes (Collier and Kimes, 2012). People differ in their temporal orientation, including perceived time scarcity, the degree to which they value time, and their sensitivity to timerelated issues. Facing strain, greed, or other situations, an illegal activity can represent a convenient solution to a problem that the individual or the organization otherwise finds difficult or even impossible to solve. The desire for convenience varies among people. “Convenience orientation” is a term that refers to a person’s general preference for convenient solutions to problems. A convenience-oriented individual is one who seeks to accomplish a task in the shortest time with the least expenditure of human energy (Farquhar and Rowley, 2009). Convenience motivates the choice of action. An important element in convenience is saving time in terms of efficiency in time savings, and another element is avoiding more problematic, stressful, and challenging situations. Convenience can be both an absolute construct and a relative construct. As an absolute construct, it is attractive to commit crime as such. As a relative construct, it is more convenient to commit crime than to carry out alternative actions to solve a problem or gain benefits from an opportunity. Convenience is an advantage in favor of a specific action to the detriment of alternative actions. In white-collar crime, it seems that convenience is mainly a relative construct. Decision-making implies a choice between alternatives, where one alternative might be relatively more convenient. Convenience is a matter of perception in advance of


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EXPLAINING WHITE-COLLAR CRIME

possible criminal actions. Convenience must be viewed as a significant variable whose understanding involves complexity in multiple meanings (Sundström and Radon, 2015). For example, the flexibility to choose the exact moment for making a deal or another kind of action can also be perceived as a matter of convenience. Convenience can also mean selecting a proper occasion, which, in turn, is about timing. There may be more reluctance to do something at a certain point in time than willingness to save or spend time. Thus, when something is convenient, it could mean saving time as well as spending time and doing it at the right moment (Sundström and Radon, 2015). In addition to time convenience and timing convenience, there may be place convenience, where a potential offender finds the spatial circumstances convenient for crime (Sundström and Radon, 2015). In whitecollar crime, the organizational setting is typically characterized by spatial convenience. Three main dimensions to explain white-collar crime have emerged. All of them link to convenience. The first dimension is concerned with economic aspects, where convenience implies that the illegal financial gain is a convenient option for the decision-maker to cover needs. The second dimension is concerned with organizational aspects, where convenience implies that the offender has convenient access to premises and convenient ability to hide illegal transactions among legal transactions. The third dimension is concerned with behavioral aspects, where convenience implies that the offender finds convenient justification. This chapter reviews the state-of-the-art relating to white-collar crime and criminals by applying the economic, organizational, and behavioral dimensions. By combining these dimensions, an integrated explanation of white-collar crime emerges, which we label convenience theory. Whitecollar criminals have convenient access, and financial crime saves them time and effort to solve a problem related to making a personal or organizational profit. Convenience is a relative concept, where the ease of problem-solving can cause future costs for the offender. Crime is committed if found suitable by the offender, and especially when no alternative is in sight. This chapter presents ideas that are grounded in the existing literature, and these ideas represent a novel and innovative perspective: they answer questions that are not adequately explained by the


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9

existing literature or provide different answers to “how . . . ?”, “why . . . ?”, and “when . . . ?” questions. This chapter presents the proposed convenience theory’s three dimensions and develops a conceptual model integrating the dimensions. The chapter attempts to organize the literature in white-collar crime and to provoke thought in the role of convenience as a grand concept that makes sense of what already is known of crime. It asserts that the application of the notion of convenience is novel and will lead to a greater understanding of white-collar crime and the causes at economical, organizational, and personal levels.

ECONOMICAL DIMENSION

OF

CONVENIENCE THEORY

Motive-focused theories explain crime in terms of reasons. White-collar crime is profit-driven crime based on favorable economic circumstances. As argued by Naylor (2003), transfers of property occur by free-market exchange or fraud, and these transfers involve redistribution of wealth and distribution of income. Fraud is illegal procurement of a private asset or means of advantage through deception or through the neglect of care for the interests of an asset required by duty. In particular, fraud includes heterogeneous forms such as misappropriation, balance manipulation, insolvency, and capital investment abuse (Füss and Hecker, 2008). Profit-driven crime occurs both because of threats and strengths. Threats can come from loss-making business and special market structure and forces. Economic power available only to certain corporations in concentrated industries, but not to others, may generate criminal conduct. The threat of losing in a bankruptcy what owners already had created can cause executives to rescue and save the company by illegal means. An entrepreneur, who has spent all his time building the enterprise, might be unable to let it disappear (Piquero, 2012). The intention is to protect economic interests of the corporation (Blickle et al., 2006). Threats can come from a monopoly, where potential competitors have the choice of either committing crime or joining the monopoly (Chang et al., 2005). Financial gain is a requirement for survival in all markets (Brightman, 2009) to avoid strain (Langton and Piquero, 2007). Profit-driven crime because of favorable circumstances includes large contracts, subsidiaries abroad, extra personal bonus, personal promotion, and improved reputation. Bribing government officials abroad can secure establishment of local presence in oil and gas, while the executive can


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EXPLAINING WHITE-COLLAR CRIME

receive personal bonus for goal achievement. Favorable circumstances can also be found in private life, where the white-collar criminal finds favorable circumstances to acquire a summer house and a bigger boat. Favorable circumstances are here defined as possibilities to reach an organizational or personal goal. The economic model of rational self-interest considers incentives and probability of detection (Welsh et al., 2014). Human behavior finds motivation in the self-interested pursuit of pleasure and the avoidance of pain. The rational choice model finds support in an empirical study by Bucy et al. (2008), who identified a number of motives for white-collar crime. According to their study, greed is the most common reason for white-collar criminal acts (Hamilton and Micklethwait, 2006). Money and other forms of financial gain is a frequent motivator documented in many studies. Criminals pursue desired goals, weigh up likely consequences, and make selections from various options. When favorable criminal circumstances are attractive as a means to fulfill one’s desires, rational actors will choose it. Goldstraw-White (2012) defines greed as socially constructed needs and desires that can never be completely satisfied. Because participating in crime is a rational choice, crime rates will be lower where levels of punishment are more certain and/or more severe (Pratt and Cullen, 2005). Rational choice theorists have generally adopted the position of standard economic theory’s notion of revealed preferences. However, Kamerdze et al. (2014) argue that affects and individual affective states play a role in one’s utility functions and are thus relevant for rational choice theory because they have an impact on mediating cognitive processes. The Russian–American psychologist Abraham Maslow developed a hierarchy of human needs. Needs start at the bottom with physiological need, need for security, social need, and need for respect and self-realization. White-collar crime is mainly concerned with the two top levels in terms of status and success. Another well-known motivation researcher is Fredrick Herzberg who made a distinction between hygiene factors (such as job security and salary) and satisfiers. Satisfiers include achievement, recognition, work itself, responsibility, promotion, and growth. According to his motivation theory, dissatisfaction can be prevented by improvements in hygiene factors such as pay and benefits, but these improvements will not alone provide motivation. If the criminal considers favorable criminal circumstances convenient in terms of current gain (profit) relative to future cost (punishment),


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and the criminal would like to avoid additional time and effort to solve the problem, then convenience theory suggests that white-collar crime will be committed. White-collar crime is usually not offenses of passion. They are not spontaneous or emotional, but calculated risks for a convenient solution to a challenge or problem by rational actors. As argued by Agnew (2014: 2), “crime is often the most expedient way to get what you want,” and “fraud is often easier, simpler, faster, more exciting, and more certain than other means of securing one’s ends”. While the economic model of rational self-interest considers incentives and probability of detection (Welsh et al., 2014), Agnew’s (2014) theory of social concern and crime suggests that crime can also be committed when people have more considerations for others than for their own interests. Profit-driven crime is more likely in organizations motivated by ambitious economic goals. The pursuit of ambitious goals tends to accept a greater variety of means to reach goals (Jonnergård et al., 2010). One of the means available to executives is financial crime. Goal achievement by financial crime can imply both corporate crime and occupational crime, since a criminal may be promoted and paid a bonus after goal achievement. A division of the white-collar crime concept into two categories is often applied. The first one, occupational crime, stands for crime committed by the self-interest of individuals toward organizations. The second one, corporate crime, stands for crime committed by corporate officials for the interests of the organization and by corporations themselves in their routines toward other organizations. While occupational crime is an agency problem where the criminal abuses agency roles for personal benefit, corporate crime is structural problem where the enterprise is to benefit. Most jurisdiction make a similar distinction between a natural person (individual) and a juridical person (organization), and demand criminal liability in terms of prison versus fine. Crime is convenient as it often is an attempt to circumvent more difficult (legal) means of accomplishment—such as hard work, fair competition, and navigation of bureaucracy and red tape. Many individuals get tired while dealing with complexity and thus search for simple solutions. They tend to make convenient decisions when responding to incentives. Inconvenience is a cost that is circumvented by some individuals and some organizations.


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The desire for conventional success can lead to deviant behavior. There is a convenience orientation that encourages individuals and groups to take short cuts (Sundström and Radon, 2015).

ORGANIZATIONAL DIMENSION

OF

CONVENIENCE THEORY

Situation-focused theories explain crime in terms of opportunity structures (Koppen et al., 2010). Piquero and Benson (2004) proposed a middleground explanation of white-collar crime, which they call the punctuated situational theory of offending. This theory assumes that white-collar criminals start offending when they reach their thirties or forties. External factors, such as personal or occupational crisis, and opportunities that result from a certain occupational status are claimed to explain crime. Situational opportunities—such as a more influential job and more important contacts—give access to legitimate means to obtain desirable goals. The opportunity perspective in the situation has also been stressed by Benson and Simpson (2015). They emphasize legal access to premises and resources, distance from victims, and manipulation within regular transactions. The situation is not only characterized by opportunities in the organization but also by the organizational environment. Criminogenic conditions in the environment make white-collar crime even more accessible. Alibux (2015) exemplify the environment by the attitude toward banks that are considered too powerful to fail, which thus may protect wrongdoings of bank executives. This is in line with institutional theory, which suggests that opportunities are shaped by individuals, groups, other organizations, as well as society at large (Bradshaw, 2015). Opportunity is a distinct characteristic of white-collar crime and varies depending on the kinds of criminals involved (Michel, 2008). An opportunity is attractive as a means of responding to desires (Bucy et al., 2008). It is the organizational dimension that provides the white-collar criminal an opportunity to commit financial crime and conceal it in legal organizational activities. While opportunity in the economic dimension of convenience theory is concerned with goals (such as sales and bonuses), opportunity in the organizational dimension is concerned with crime (such as corruption and embezzlement). Aguilera and Vadera (2008: 434) describe a criminal opportunity as “the presence of a favorable combination of circumstances that renders a possible course of action relevant.” Opportunity arises when individuals or


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groups can engage in illegal and unethical behavior and expect, with reasonable confidence (Haines, 2014), to avoid detection and punishment. Opportunity to commit crime may include macro- and microlevel factors. Macro-level factors encompass the characteristics of the industries in which the business finds itself embedded, such as market structure, business sets of an industry, that is, companies whose actions are visible to one another, and variations in the regulatory environment (Aguilera and Vadera, 2008). Benson and Simpson (2015) argue that many white-collar offenses manifest the following opportunity properties: (1) the offender has legitimate access to the location in which the crime is committed; (2) the offender is spatially separate from the victim, and (3) the offender’s actions have a superficial appearance of legitimacy. Opportunity occurs in terms of those three properties that are typically the case for executives and other individuals in the elite. In terms of convenience, these three properties may be attractive and convenient when considering white-collar crime to solve a financial problem. It is convenient for the offender to conceal the crime and give it an appearance of outward respectability (Pickett and Pickett, 2002). Opportunity is dependent on social capital available to the criminal. The structure and quality of social ties in hierarchical and transactional relationships shape opportunity structures. Social capital is the sum of actual or potential resources accruing to the criminal by virtue of his or her position in a hierarchy and in a network (Adler and Kwon, 2002). The organizational dimension of white-collar crime becomes particularly evident when financial crime is committed to benefit the organization rather than the individual (Trahan, 2011). This is called corporate crime as opposed to occupational crime for personal benefit. Hansen (2009) argues that the problem with occupational crime is that it is committed within the confines of positions of trust and in organizations, which prohibit surveillance and accountability. Heath (2008) found that individuals who are further up the chain of command in the firm tend to commit bigger and more severe occupational crime. Corporate crime, sometimes labelled organizational offending (Reed and Yeager, 1996), on the other hand, is resulting from offenses by collectivities or aggregates of discrete individuals. If a corporate official violates the law in acting for the corporation, we still define it as corporate crime. However, if he or she gains personal benefit in the commission of a crime against the corporation, we regard it as occupational crime. A corporation cannot be subject to imprisonment,


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and therefore, the majority of penalties to control individual violators are not available for corporations and corporate crime (Bookman, 2008). An organization is a system of coordinated actions among individuals and groups with boundaries and goals (Puranam et al., 2014). An organization can be a hierarchy, a matrix, a network, or any other kind of relationships between people in a professional work environment. Rulebreaking and law-breaking seems sometimes necessary to ensure organizational flexibility and reach business goals. Because rules and laws are formulated in abstract terms, they cannot precisely prescribe behavior in any situation. To act in novel situations sometimes demands breaking rules and laws in order to fit it to the organizational circumstance at hand (Eberl et al., 2015). The organizational dimension of white-collar crime also becomes particularly evident when several persons in the business participate in crime (Ashforth et al., 2008), and when the organization generally is dominated by misconduct and an unethical culture (O’Connor, 2005), either it is occupational crime or corporate crime that is occurring. When several participants and sleeping partners are involved in crime, and the corporate culture almost stimulates violation of the law, then we label the organization as a rotten apple barrel or rotten apple orchard, as Punch (2003: 172) describes them: The metaphor of “rotten orchards” indicate that it is sometimes not the apple, or even the barrel that is rotten but the system (or significant parts of the system).

White-collar crime is illegal and unethical actions by agents of organizations (Vadera and Aguilera, 2015). Agency theory is a management theory often applied to crime, where normally the agent, rather than the principal, is in danger of committing crime. Problems arise in the relationship because of diverging preferences and conflicting values, asymmetry in knowledge about activities, and different attitudes toward risk. Agency theory describes the relationship between the two parties using the concept of work-based interactions. The agent carries out work on behalf of the principal in an organizational arrangement. Principal-agent theory holds that owners (principals) have different interests from administrators (agents), such that principals must always suspect agents of making decisions that benefit themselves, to the cost of the principals. For example, chief executive officers (CEOs) are suspects for cheating the owners


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(Williams, 2008), and purchasing managers are suspects of cheating their CEOs (Chrisman et al., 2007). In general, agency models view corruption and other kinds of financial crime a consequence of the principal’s inability effectively to prevent the agent from abusing power for his or her personal gain (Li and Ouyang, 2007). However, the principal can just as well commit financial crime in the principal–agent relationship. For example, the chief financial officer (CFO) as an agent provides a board member with inside information, on which the principal acts illegally. The organizational setting may prevent some white-collar criminals from prosecution. The company may be too big to fall, and the criminal too powerful to jail. For example, after the 2008 financial meltdown in the USA, people expected that the government would prosecute fraud in large financial institutions. Pontell et al. (2014: 10) assessed the reasons why there have been no major prosecutions to date: From a criminological standpoint, the current financial meltdown points to the need to unpack the concept of status when examining whitecollar and corporate offenses. The high standing of those involved in the current scandal has acted as a significant shield to accusations of criminal wrongdoing in at least three ways. First, the legal resources that offenders can bring to bear on any case made against them are significant. This would give pause to any prosecutor, regardless of the evidence that exists. Second, their place in the organization assures that the many below them will be held more directly responsible for the more readily detected offenses. The downward focus on white-collar and corporate crimes is partly a function of the visibility of the offense and the ease with which it can be officially pursued. Third, the political power of large financial institutions allow for effective lobbying that both distances them from the criminal law and prevents the government from restricting them from receiving taxpayer money when they get into trouble.

Similarly, Valukas (2010) found no wrongdoing at Lehman Brothers, which went bankrupt because of mismanagement decision-making. Opportunity as a distinct characteristic of white-collar crime can be exemplified in a gender perspective. As long as a glass ceiling exists for most women in terms of promotion to top positions, women have less opportunity to commit white-collar crime. Therefore, we expect to find fewer female criminals than male criminals (Arnulf and Gottschalk, 2013).


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BEHAVIORAL DIMENSION

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CONVENIENCE THEORY

Offender-focused theories explain crime in terms of personality characteristics (Koppen et al., 2010). Self-control theory is a typical theory related to deviant behavior (Gottfredson and Hirschi, 1990). Individuals with low self-control have a tendency to be impulsive, self-centered, out for adventure, and out for immediate pleasure. Immediate pleasure may be achieved more conveniently by white-collar crime than by legal activities. Most theories of white-collar crime develop along the behavioral dimension. Researchers introduce numerous suggestions to explain white-collar individuals such as Madoff, Rajaratman and Schilling. Along the behavioral dimension, we find strain theory (Langton and Piquero, 2007), deterrence theory (Comey, 2009; Holtfreter et al., 2008), self-control theory (Gottfredson and Hirschi, 1990; Holtfreter et al., 2010; Piquero et al., 2010), obedience theory (Baird and Zelin, 2009), fear of falling (Piquero, 2012), negative life events (Engdahl, 2014), slippery slope (Welsh et al., 2014), and the American dream of economic success (Pratt and Cullen, 2005; Schoepfer and Piquero, 2006)—just to name a few. These theories suggest motives for committing white-collar crime, and they make crime a convenient option according to convenience theory. It is convenient for the criminal to be deceitful and breach trust to cause losses to others and gain for one self (Pickett and Pickett, 2002). In recent years, neutralization theory seems to increase in importance as a source of explanation. By applying neutralization techniques, white-collar criminals think they are doing nothing wrong. They deny responsibility, injury, and victim. They condemn the condemners. They claim appeal to higher loyalties and normality of action. They claim entitlement, and they argue the case of legal mistake. They find their own mistakes acceptable. They argue a dilemma arose, whereby they made a reasonable tradeoff before committing the act (Siponen and Vance, 2010). Benson and Simpson (2015: 145) found that white-collar criminals seldom think of injury or victims: Many white-collar offenses fail to match this common-sense stereotype because the offenders do not set out intentionally to harm any specific individual. Rather, the consequences of their illegal acts fall upon impersonal organizations or a diffuse and unseen mass of people.


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The idea of neutralization techniques (Sykes and Matza, 1957) resulted from work on Sutherland’s (1949) differential association theory. According to this theory, people are always aware of their moral obligation to abide by the law, and they are aware that they have the same moral obligation within themselves to avoid illegitimate acts. The theory postulates that criminal behavior learning occurs in association with those who find such criminal behavior favorable and in isolation from those who find it unfavorable (Benson and Simpson, 2015). Crime is relatively convenient when there is no guilt feeling for doing something learned from others. Evidence of neutralization can be found in autobiographies by whitecollar criminals such as Kerik (2015), Bogen (2008), Eriksen (2010), and Fosse (2004). Bernard B. Kerik was the former police commissioner in New York, who served three years in prison. He seems to deny responsibility, to condemn his condemners, and to suggest normality of action. Bystrova and Gottschalk (2015) phrased the question: Why does the ruling class punish their own? They argue that the elite decide what is right and wrong, and they manage law enforcement. This is in line with social conflict theory. When a member of the elite breaks the law, it is not considered a real crime. The act is not violent, and it is committed by one of their own. Another important source of explanation is strain theory. Strain may involve the removal of positively valued stimuli (Johnson and Graff, 2014). Agnew (2005) identified three categories of strain: failure to achieve positive goals, the removal of positive stimuli, and the presentation of negative stimuli. Strain theory posits that each type of strain ultimately leads to deviance for slightly different reasons. All three types tend to increase the likelihood that an individual will experience negative emotions in proportion to the magnitude, duration, and closeness of the stress. Strain characterizes a condition that individuals dislike. The theory argues that structural strain weakens the ability of normative standards to regulate behavior (Pratt and Cullen, 2005). Strain creates the need for a convenient solution to the problem. Research by Ragatz et al. (2012) is an example of work that explores psychological traits among white-collar offenders. Their research results suggest that white-collar offenders have lower scores on lifestyle criminality, but higher score on some measures of psychopathology and psychopathic traits compared to nonwhite-collar offenders. Similarly, McKay et al. (2010) examined the psychopathology of the white-collar criminal acting as a corporate leader. They looked at the impact of a


18

EXPLAINING WHITE-COLLAR CRIME

leader’s behavior on other employees and the organizational culture developed during his or her tenure. Narcissistic behavior is suggested often to be observed among white-collar offenders (Arnulf and Gottschalk, 2013; Galvin et al., 2015; Ouimet, 2009, 2010). Galvin et al. (2015) suggest narcissistic organizational identification as an explanation for behaviors that exploit the organization for personal benefit. They define narcissistic organizational identification as a form of organizational identification that features the individual’s tendency to see his/her identity as core to the definition of the organization. This is in contrast to conventional conceptualizations of organizational identification, where the individual sees the organization as core to the definition of self. Some theorists believe that authorities can reduce crime by means of deterrents. Crime prevention (the goal of deterrence) assumes that criminals or potential criminals will think carefully before committing a crime if the likelihood of detection and/or the fear of swift and severe punishment are present. According to Comey (2009), deterrence works best when punishment is swift and certain. Scholars apply self-control theory in two different directions. First, the theory proposes that individuals commit crime because of low self-control. The theory contends that individuals who lack self-control are more likely to engage in problematic behavior—such as criminal behavior—over their life course because of its time-stable nature (Gottfredson and Hirshi, 1990). Second, the desire to control and the general wish to be in control of everything and everybody might be a characteristic of some white-collar criminals, meaning that low self-control can lead to heavy control of others. Desire for control is the general wish to be in control over everyday life events. Desire for control is similar to low self-control in terms of behavioral manifestations and influence on the decision-making power of individuals (Piquero et al., 2010). Low self-control finds support in anomie theory. Anomie refers to a sense of normlessness, which can occur when there is a strong emphasis on the desirability of material success and individual achievement (Passas, 2007; Schoepfer and Piquero, 2006). Benson and Simpson (2015) suggest that coupled with the cultural themes of success and endless striving are a cultural uncertainty and confusion about where the line between acceptable and unacceptable business behavior is developing.


2 CONVENIENCE THEORY

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Slippery slope means that a person slides over time from legal to illegal activities. Arjoon (2008: 78) explains slippery slope in the following way: As commonsense experience tells us, it is the small infractions that can lead to the larger ones. An organization that overlooks the small infractions of its employees creates a culture of acceptance that may lead to its own demise. This phenomenon is captured by the metaphor of the slippery slope. Many unethical acts occur without the conscience awareness of the person who engaged in the misconduct. Specifically, unethical behavior is most likely to follow the path of a slippery slope, defined as a gradual decline in which no one event makes one aware that he or she is acting unethically. The majority of unethical behaviors are unintentional and ordinary, thus affecting everyone and providing support for unethical behavior when people unconsciously lower the bar over time through small changes in their ethical behavior.

Welsh et al. (2014) argue that many recent scandals result from a slippery slope in which a series of small infractions gradually increase over time. Committing small indiscretions over time may gradually lead people to complete larger unethical acts that they otherwise would have judged to be impermissible. The slippery slope theory thus suggests an incremental progression toward serious white-collar crime. The sliding individual experiences no resistance or reaction, while at the same time starting to gain benefits. An offender first moves and subsequently removes the borderline between right and wrong from his or her mind. White-collar crime tends to occur when individuals are extremely ambitious on behalf of the organization and on behalf of themselves. Ambitions have to be linked to opportunities in the organizational dimension to enable financial crime. Convenience theory suggests that the link between ambition and favorable circumstances is at its optimal point when individuals are in their forties. Successful professionals tend to reach the peak of their career in terms of top positions in their late forties. Hence, it is no surprise that the average age of convicted whitecollar criminals in Norway is 44 years when they commit financial crime and 49 years when they go to prison (Arnulf and Gottschalk, 2013; Gottschalk, 2015; Gottschalk and Rundmo, 2014), in Germany, they are 47 years old when they go to prison (Blickle et al., 2006), and in the Netherlands, white-collar criminals are 42 years old when they are prosecuted (Onna et al., 2014).


20

EXPLAINING WHITE-COLLAR CRIME

A number of situational factors may influence the tendency toward crime. Criminogenic tendency, for example, is dependent on the job situation for the individual (Alibux, 2015). According to Koppen et al. (2010), offender-focused theories largely ignore the importance of situations and opportunities in explaining criminal behavior. If the individual feels own power base threatened, then corporate crime may revitalize the power base. If the individual feels that he may lose his job, occupational crime can help compensate for future financial loss. If the individual feels badly treated, occupational crime may be an option to cause damage to his employer. In these kinds of situations, criminal behavior might be explained by hygiene factors as suggested by Herzberg, rather than satisfiers such as self-realization as suggested by both Herzberg and Maslow. Convenience theory argues that it is a convenient option to commit financial crime. It is a planned behavior (Ajzen, 2014). White-collar criminals are comfortable with their own choice of illegal actions. Comfort is the opposite of discomfort. In comfort theory, comfort is characterized by relief, ease, and transcendence (Carrington and Catasus, 2007).

AN INTEGRATED EXPLANATION

OF

CONVENIENCE THEORY

The behavioral dimension of crime interacts with the organizational dimension of crime. For example, executives with narcissistic or psychopathic traits (or both in the dark triad) may search for opportunities to commit financial crime in difficult situations, while conforming executives will probably not value opportunities to commit financial crime as attractive options. The behavioral dimension of crime interacts with the economic dimension of crime as well. For example, the fear of falling (Piquero, 2012) finds causality in situations such as an acute liquidity problem, where executives perceive financial crime as the only way out of the crises. Profit-driven crime is thus not only an issue of making even more money. Rather, it is an issue of survival, and it may be to rescue a sinking ship. As suggested by Whetten (1989), a theoretical contribution starts by identifying factors (variables, construct, and concepts) that are parts of the explanation of the phenomenon. The phenomenon of white-collar crime finds explanation in the concepts of economics, organization, and behavior. This is the what-part of our theory. Whetten (1989) then suggests the how-part, which is how these concepts are related to each other. Figure 2.1 illustrates six integrated


2 CONVENIENCE THEORY

21

ECONOMICS Profitable crime

A

ORGANIZATION Concealed crime

Fig. 2.1

C

B

D F

E

BEHAVIOR Acceptable personal deviance

A conceptual model of crime occurrence based on convenience theory

relationships between the economic, organizational and behavioral dimensions. The figure presents a model of white-collar crime occurrence, which is explained by convenience theory. Convenience theory represents the theoretical glue that welds the model together: A. Financial crime is possible to carry out and hide among legal activities in the organization. Rational economic behavior implies individuals who consider self-interest in terms of incentives and potential costs, where detection and imprisonment are unlikely but possible costs (Welsh et al., 2014). Economic motivation can be found in self-centered search for satisfaction and avoidance of pain (Chang et al., 2005; Gottfredson and Hirschi, 1990; Hirschi and Gottfredson, 1987, 1989). Profit-driven crime in an organizational context has a superficial appearance of legitimacy (Benson and Simpson, 2015) and is easily hidden among other financial transactions (Füss and Hecker, 2008). Because the economic model implies that crime is a rational choice, crime rates will drop when likelihood of detection rises and when punishment becomes more severe (Pratt and Cullen, 2005). Impulses may play a role in distorting rational preferences and utility functions for white-collar criminals (Kamerdze et al., 2014). Crime is often the easiest and simplest way to goal achievement (Agnew, 2014). B. Desire for profits and success makes it attractive for individuals to commit white-collar crime. Profit-oriented offenses can be caused by both negative and positive circumstances. The motive in situations of threats might be to protect the interests of the company and


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secure survival of the enterprise (Blickle et al., 2006) or to enable down payments of personal debt (Brightman, 2009). The motive in situations of positive circumstances might be expansion into more profitable markets or satisfaction of personal greed, where greed is desires and perceived needs that will always grow (Bucy et al., 2008; Goldstraw-White, 2012; Hamilton and Mickethwait, 2006). The criminal can use illegal profits to seek respect and self-realization at the top level of Maslow’s pyramid of personal needs. C. Profession and position in the organization enables white-collar crime. Opportunity to commit financial crime in an organizational context is a distinct characteristic of white-collar crime when compared with other financial crime offenders (Bucy et al., 2008; Michel, 2008). Executives and others in the elite have an opportunity to involve themselves in economic crime without any substantial risk of detection and punishment (Aguilera and Vadera, 2008; Haines, 2014). Opportunity manifests itself by legal access, different location, and appearance of legitimacy (Benson and Simpson, 2015; Pickett and Pickett, 2002). In a principal-agent perspective, there is an opportunity for the whitecollar individual as an agent to carry out the regular job at the same time as crime is committed, because the principal is unable to monitor what the agent is doing, what knowledge the agent applies, and what risk the agent is willing to take (Chrisman et al., 2007; Li and Ouyang, 2007; Williams, 2008). Deviant organizational structure and culture can make it easier to commit financial crime and reduce the likelihood of detection and reaction (Dion, 2008; Pontell et al., 2014; Puranam et al., 2014). D. Conditions in the organization are such that the white-collar criminal can commit financial crime without being perceived as a deviant person or suspicious person. The position occupied by the individual in relation to the organization makes it easier to practice and defend deviant behavior because of ample opportunities to commit whitecollar crime (Sutherland, 1949). Social capital accumulated by the individual in terms of actual and potential resources, which are accessible because of profession and position, creates a larger space for individual behavior and actions that others can hardly observe. Many initiatives by trusted persons in the elite are unknown and unfamiliar to others in the organization. Therefore, white-collar criminals do not expect consequences for themselves


2 CONVENIENCE THEORY

23

(Adler and Kwon, 2002). Degrees of freedom grow as individuals climb up the career latter to the top (Heath, 2008). Degrees of freedom are particularly many when corporate crime is committed to beneďŹ t the enterprise (Bookman, 2008; Hansen, 2009; Reed and Yeager, 1996; Trahan, 2011; Valukas, 2010). Degrees of freedom are also ample when several individuals at the top of the organization participate and join forces in crime (Ashforth et al., 2008), and when the organization generally is characterized by an unethical and destructive business culture (O’Connor, 2005; Punch, 2003). E. Acceptance and neutralization of personal deviant behavior make it easier for the white-collar offender to commit crime. The privileged individual may feel entitled to carry out illegal acts, for example, because the acts are means to reach a higher goal. The white-collar criminal belongs to the elite that make the laws; therefore, he or she may feel free to violate the laws (Bystrova and Gottschalk, 2015). The offender notices no damage and no victim. The offender does not feel sorry for banks or tax authorities. By means of neutralization techniques, the offender reduces and eliminates any guilt feelings ahead of and after criminal acts (Sutherland, 1949; Sykes and Matza, 1957). Denial of injury and denial of victim is possible because white-collar crime is nonpersonal and without violence (Benson and Simpson, 2015). F. Deviant and criminal behavior is absorbed in an organizational context where it is not noticed. Even if unethical behavior is noticed and suspicion develops, most internal observers will be more concerned about their own job security than blowing the whistle in situations where they are not quite sure. Criminal behavior by privileged individuals might be caused by stress that is perceived by others as well (Agnew, 2014; Gottfredson and Hirschi, 1990; Johnson and Graff, 2014; Langton and Piquero, 2007; Pratt and Cullen, 2005). A privileged person may over time slide on a slippery slope from legal to illegal actions without really noticing or being conscious about it (Arjoon, 2008; Welsh et al., 2014). Punishment appears less likely and less deterrent because crime occurs in professional life in an organizational context (Benson and Simpson, 2015; Comey, 2009; Gottfredson and Hirschi, 1990). Executives with an excessive desire to control others in the organization may be able to expand their own degrees of freedom by making controlled


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employees more passive (Piquero et al., 2010). Organizations lacking norms and common values will not notice or react to criminal behavior (Passas, 2007; Schoepfer and Piquero, 2006). The conceptual model shows that there is an economical level, an organizational level and a behavioral level with equally strong and bidirectional causation among the three. Figure 2.1 focuses on causation as developed by Gottschalk (2016).

THEORIZING WHITE-COLLAR CRIME CONVENIENCE The primary contribution of this chapter is to put forth convenience as a theoretical explanation that underlies existing theory and research on white-collar crime.Convenience is a complex concept with multiple meanings (Sundström and Radon, 2015). While previous research on crime in general and white-collar crime in particular has mentioned the role of convenience, the explicit notion and role of convenience is novel, and thus does allow the current research to make a novel theoretical contribution. Ideas presented here are grounded in the existing literature, while at the same time representing a novel perspective. This chapter negotiates this arguably difficult tension—offering new theory while grounding the underlying ideas in the existing literature. The main theoretical contribution is concerned with the organizational dimension of white-collar crime. White-collar crime only occurs when the individual is in the capacity of a professional and in the position of a trusted and privileged person in an organizational setting. Both the offender-based and the offense-based perspective of white-collar crime stress the importance of an organization. The offender-based perspective stresses the privileged and trusted position of the criminal enjoying authority and economic power in the organization. The offender has legal access and resources available for crime. The offense-based perspective stresses the variety of financial crime opportunities—from fraud via theft and manipulation to corruption—that are available in an organization. In addition, simple concealment options are available to the white-collar criminal, such as transactions with other firms in other countries with different banks and governments. When Sutherland (1940) coined the term white-collar crime, he focused on crime in relation to business. A business is traditionally interpreted as an enterprise or a firm. We expand business to all kinds of


2 CONVENIENCE THEORY

25

organizations where people make their living. Some are employers, but most are employees. Employers as well as employees commit whitecollar crime. The offender commits crime in a professional setting, where the offender conceals and disguises criminal activities in organizational work by seemingly law-abiding behavior. The criminal has power and influence, forms relationships with other persons or professions—both intra-organizationally as well as inter-organizationally—that protects from developing a criminal identity, and enjoys trust from other in privileged networks. Both networks and hierarchies are defined as organizations in this context. While a hierarchy is characterized by a boss and subordinates, a network is characterized by a center and peripherals. Politicians and bureaucrats also work in organizations. In the organizational setting, we find that most individuals struggle for and reach the peak of their careers when they are between 40 and 50 years old. Their ambitions are peaking at that age, both personal ambitions and ambitions on behalf of the business. Ambitions combined with opportunities create a tendency to commit financial crime when other options for success are less convenient. Sutherland (1940) implicitly focused on crime in relation to business when he applied differential association theory suggesting that a person associating with individuals who have deviant or unlawful mores, values, and norms learns criminal behavior. While not all offenders became whitecollar criminals after learning through interaction with other persons in the organization, the organizational environment was perceived by offenders to be suitable for financial crime. The lack of guilt feeling and the successful application of neutralization techniques can be explained by the organizational context. Since crime is committed within professional activities, the offender may not consider deviant actions as crime. This is especially the case when the offender commits crime to benefit the organization in terms of corporate crime (Bradshaw, 2015). It is also evident when offenders claim to be followers rather than leaders in crime. As a follower in the hierarchy or the network, the individual may claim to obey orders, as is customary for legal activities as well. Loyalty in the organization extends from legal across the border to illegal activities, without really noticing where the border line can be found. Power and influence are characteristics of social relationships among individuals in business, and abuse of legitimate position power can enable white-collar crime. Executives have legitimate power over subordinates,


26

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who are to do what they are told. In knowledge organizations (end product is knowledge) and knowledge-intensive organizations (end product is not knowledge), subordinates are normally told what to do, but not necessarily told how to do it. In traditional manufacturing, subordinates are normally also told how to do it. Subordinates are used to obeying orders, and executives are used to giving orders in terms of their decisions. If decisions are made that involve illegal acts, decisions are presented as orders to be followed by subordinates. If subordinates notice the illegitimate nature of orders from above, they will actively have to deny following orders, and thereby risk losing their jobs. Most business organizations are driven by goals. Strategic goals can include market position, technological position, and alliances. Financial goals can include turnover, profits, and return on investments. In public administrations, goals can include response rate, efficiency, effectiveness, and cases solved. The organization identifies means to reach goals. All kinds of legal means are identified and put to work. If goals are not achieved despite tremendous efforts, some organizations lower their ambitions. Other organizations continue their struggle to reach goals and become aware of illegal means. Objectives are so important that crime becomes an option. Even before everything else has been tested, some organizations turn their attention to crime because of convenience. While white-collar crime is conducted in organizations, it also requires some form of organizing. Within the organization, white-collar crime is organized. It may be organized in terms of statement manipulations, fake invoices, or routines that are purposely changed. Criminal activity can be carried out in a sub-organization of the main organization. Criminal activity can be carried out in a sub-organization of the main organization. In addition to Benson and Simpson’s (2015) three characteristics of how white-collar offenses manifest themselves, one more can be added: 1. The offender has legitimate access to the location in which the crime is committed. Location does not have to be a physical place, it can just as well be a virtual place, such as a management information system where the offender has access and is a regular user. Legitimate access makes crime convenient. 2. The offender is spatially separate from the victim. This opportunity property is present when it comes to banks and other external victims. However, the most frequent group of victims may be


2 CONVENIENCE THEORY

27

employers who suffer loss from crime conducted by people associated with the organization (Gottschalk, 2015). For example, a procurement executive may collaborate with a vendor to submit fake invoices to the company, then approve payment of the invoice, and finally share the profit with the vendor. In this case, the offender is not spatially separate from the victim. The same lack of spatial separation occurs in cases of embezzlement and some other forms of financial crime. Spatial separation makes crime convenient. 3. The offender’s actions have a superficial appearance of legitimacy. Illegal actions are organized and carried out in ways that are as similar as possible to legal actions. The criminal dimension of actions is concealed. Superficial appearance of legitimacy makes crime convenient. 4. The offender has a role of power and influence over other individuals. Since most white-collar criminals are leaders rather than followers, and there always is a leader when there is a follower in crime, the offender tends to have legitimate rights to make decisions and give orders that others have to obey. Objecting to orders from superiors or blowing the whistle on superiors may cause harm to subordinates. Power and influence are characteristics of social relationships among individuals in business, and abuse of legitimate position power can enable white-collar crime without causing suspicion or reaction. Power and influence make crime convenient. While organizations are hierarchies and thus there are more followers than leaders in each organization as a whole, white-collar criminals tend to take on leading roles within their areas of responsibility. A goal-orientation of most organizations, rather than a rule-orientation, makes objectives more important than means to reach goals. It is left to trusted and privileged individuals to decide how they perform their duties. Controls are installed for goal achievements, but not for individual procedures and behaviors. In summary, there is a need to understand how people work in organizations, how they cooperate, how they make decisions, and what they are striving for in organizations, before the organizational dimension of convenience theory can be further explored. Theories can provide general insights into a phenomenon such as white-collar crime. Theories can also provide explanations for empirical occurrences of white-collar crime. Thus, convenience theory is useful both


28

EXPLAINING WHITE-COLLAR CRIME

ahead of and after experiences have been collected and analyzed. Convenience theory presents an integrated explanation of white-collar crime, while at the same time enabling explanations when new whitecollar criminals emerge. Davis (1971) argues that an interesting theory is one that denies certain assumptions of their audience. Convenience theory denies differential association as a significant explanation in the behavioral dimension. Differential association suggests that criminal behavior is learned in association with those who define such criminal behavior favorably and in isolation from those who define it unfavorably. Sutherland (1940, 1949, 1983), who coined the term “white-collar crime,” argues in all his works that the main explanation for deviant behavior among white-collar criminals is differential association. In line with Davis (1971), one of the reasons convenience theory is interesting is the lack of belief in differential association as a major factor in explaining white-collar crime, which can also find support in the Norwegian sample (Arnulf and Gottschalk, 2013; Gottschalk, 2015; Gottschalk and Rundmo, 2014). Convenience theory denies the assumption that differential association is a major factor in the explanation of white-collar criminal behavior. However, differential association is implicitly present since excuses for crime are typically learned in association with others. Convenient excuses are provided in the behavioral dimension. It is more convenient to conform with the norms advanced by or embraced by those with one associates rather than to reject this learning process from associates. Convenience theory addresses an important and interesting topic of misconduct and crime by the elite in society. Convenience theory extends and advances our understanding in significant ways. Convenience theory has clear implications for future research in terms of both theoretical and empirical studies.

INTEGRATING WHITE-COLLAR CRIME THEORIES Convenience theory integrates a number of theories as listed in Table 2.1. This chapter has dealt with the topic of white-collar crime and considered the role of convenience in explaining its occurrence. It has put forward convenience as a theoretical explanation that underlies existing theories and research on white-collar crime. It seems convenient for some trusted and privileged individuals to commit financial crime to solve their problems and challenges. In a


2 CONVENIENCE THEORY

Table 2.1

29

Theoretical contributions to convenience in crime

Theoretical Contribution

Convenience in Crime

Economical Dimension Theory of profit-driven crime (Naylor, 2003) Theory of goal orientation (Jonnergård et al., 2010) Theory of social concern (Agnew, 2014) Strain theory (Langton and Piquero, 2007) Fear of falling theory (Piquero, 2012) American dream theory (Pratt and Cullen, 2005) Theory of crime forces (Leonard and Weber, 1970)

Desire for more gain Business ends justify means Desire to help others Causes of strain removed Prevention of disaster Money is success Usual way of doing business

Organizational Dimension Opportunity theory (Benson and Simpson, 2015) Institutional theory (Bradshaw, 2015) Agency theory (Eisenhardt, 1985)

Opportunity at work Opportunity in society Principal cannot control agent

Behavioral Dimension Differential association theory (Sutherland, 1983) Rational choice theory (Pratt and Cullen, 2005) Self-control theory (Gottfredson and Hirschi, 1990) Strain theory (Langton and Piquero, 2007) Deterrence theory (Comey, 2009) Obedience theory (Baird and Zelin, 2009) Fear of falling theory (Piquero, 2012) Negative life events theory (Engdahl, 2014) Slippery slope theory (Welsh et al., 2014) Neutralization theory (Sykes and Matza, 1957) Social conflict theory (Petrocelli et al., 2003)

Learning from others Benefits exceed costs Lack of self-control Removal of strain No risk of detection Action according to authority Avoidance of threats Victim of crime Violation of law not noticed Denial of wrongdoing Acceptable for the elite

General Perspectives Marketing theory (Farquhar and Rowley, 2009) Comfort theory (Carrington and Catasus, 2007)

Savings in time and effort Relief and ease

professional setting, they have favorable circumstances to commit crime (economic dimension), to conceal crime by giving it an appearance of legitimacy (organizational dimension), and to justify the crime (behavioral dimension). Convenience documents itself in the relatively easy opportunity, the relatively easy concealment, and the relatively easy justification of crime. Therefore, convenience seems to be a common denominator for all three dimensions in our explanation of white-collar crime. Although the role of convenience has been considered in previous research, the notion of convenience in this chapter is novel in the role of


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an umbrella term for a general theory of white-collar crime. Therefore, this chapter makes a novel theoretical contribution. One important implication of convenience theory is that organizations are often to blame for occurrences of white-collar crime in their businesses. While they tend to present themselves as victims, enterprises and other organizations hit by white-collar crime have made crime possible. The organizational dimension of convenience theory has illustrated how lack of control, excessive degrees of freedom enjoyed by privileged individuals, goal orientation without attention to means, and domination in leader-follower relationships have made white-collar crime an attractive option. Organizations that let privileged and trusted professionals do what they like without transparency or control should not be surprised that they are hit by abuse in terms of white-collar crime. When white-collar crime occurs, victims can be found externally, such as customers, banks, and state revenue services. Since the organization allows crime to occur, then the organization is also an offender toward victims such as customers, banks, and state revenue services. Rather than claiming that they are victims of crime, organizations emerge as offenders since they allow crime to happen. As suggested by Byron and Thatcher (2016), building a good theory requires a number of exercises such as (1) writing a paragraph explaining the basic idea and why it is important, (2) creating a visual representation, where relevant, of what the model looks like, (3) explaining the idea verbally, (4) creating an annotated bibliography of approximately ďŹ fty articles that explains how each article relates to the idea; (5) developing a set of propositions; and (6) writing a draft that outlines the basic logic of the model. As documented above, convenience theory is on its way to becoming a relevant theory. Convenience theory can stimulate discussion and debate on the overall signiďŹ cance of convenience as a perspective to understanding the endlessly complex phenomenon of white-collar crime. However, in theory development it is always important to be challenged to foster discussion and debate concerning even better explanations of whitecollar crime. The core claim is that the concept of convenience can be applied to our understanding of the dynamics of white-collar crime in a way that advances our insights into this phenomenon. As the term is applied here, it could be regarded as a synthesis of dimensions of motivation, opportunity, and the absence of a capable guardian to explain why white-collar


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crime occurs. White-collar crime is viewed as arising not so much out of strong motivational forces and clearly articulated justifications, but more in a kind of default mode—why not?—or as a path of least resistance mode of conduct for an achievement leading to white-collar crime. The concept of convenience suggests that white-collar crime occurs with an almost total absence of consideration of morality and ethics (or a violation of trust) and as a careful calculation of potential costs of engagement in white-collar crime (i.e., the assessment of risk). The invocation of the notion of a slippery slope or incremental involvement in white-collar crime seem to align with the convenience concept as a result of the whynot question. We have noted that ambition tends to peak for most individuals when they are in their forties, and this is correlated with involvement in whitecollar crime This does not imply that white-collar crime is driven by ambition. Rather, white-collar crime is a default mode that is more frequently applied at higher levels of ambition (or quite specific and ambitious goals). It is a path of least resistance with little or no considerations of misconduct. Again, white-collar crime emanates out of convenience.


CHAPTER 3

Reports of Investigations

Abstract Samples of reports of investigations from the USA and Norway are presented in this chapter. Fraud examiners write reports of investigations after they have examined white-collar crime suspicions in organizations. Both the US sample and the Norwegian sample of fraud examination reports provide strong support for convenience theory. In all cases where white-collar criminals were convicted to prison, we find evidence of the economical dimension, the organizational dimension as well as the behavioral dimension. Keywords fraud examiner  investigation report  United States  Norway

INTRODUCTION Reports of investigations by fraud examiners are typically written at the final stage of private investigations. Reports are handed over to clients who pay for the work. Reports are seldom disclosed so that the public never learn about them. Reports are often protected by the attorney–client privilege, when investigating firms are law firms. Therefore, it is quite a challenge to identify and obtain a sample of investigation reports to empirically evaluate and test convenience in white-collar crime. It is not easy to get access to private investigation reports for research. This chapter documents findings from a sample of reports acquired in the USA as well as a sample of reports acquired in Norway. The samples © The Author(s) 2016 P. Gottschalk, Explaining White-Collar Crime, DOI 10.1007/978-3-319-44986-9_3

33


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are the result of nonprobability purposive sampling, and thus I cannot confidently claim they represent all private investigations in neither the USA nor Norway. At the same time, the method of obtaining the reports included enough versatility in identifying the private investigation cases where investigators wrote reports, and seeking out these reports. Methods of identifying and obtaining reports included media coverage, digital searchers, tips from friends and colleagues, and student searches. Therefore, the samples can serve as tentative ways to get an approximate idea of the variety of white-collar crime suspicions being first detected or further investigated by private fraud examiners. However, it is important to keep in mind that the samples represent nonprobability purposive sampling of a small number of cases that got investigated and that were accessible.

CHARACTERISTICS

OF

FRAUD EXAMINATION REPORTS

Reports of investigations vary in length. In the following samples, the US reports range from 12 pages to 874 pages, while Norwegian reports range from 4 pages to 555 pages. The shortest ones are typically summary reports or reports from very limited investigations. A typical example of an investigation report is the report of investigation regarding procurement practices at the Office of the Chief Technology Officer (OCTO) of the District of Columbia. The report was written by law firm Sidley Austin LLP in Washington, DC, and submitted by the Committee on Government Operations and the Environment at the Council of the District of Columbia by councilmember Mary Cheh. The report by Sidley (2010) consists of 60 pages with the following table of contents: I. II. III. IV. V. VI. VII.

Introduction and executive summary Scope of investigation Background Findings concerning the execution of Acar’s schemes Findings on procurement and related vulnerabilities Recommendations Appendix

Focus in the report is on Yusuf Acar, a mid-level manager at OCTO who was arrested in 2009 for fraud related to procurement improprieties. The report


3

REPORTS OF INVESTIGATIONS

35

documents the private investigation into Acar’s procurement fraud at OCTO as well as recommendations for changes to the controls and procedures designed to assist in preventing fraudulent conduct of the type committed by Acar. The investigation did not actively seek to determine whether similar types of fraudulent activity were still taking place at OCTO. Nor did the investigation seek to determine the guilt or innocence of any of the participants in Acar’s scheme. Those issues were addressed by the US Attorney’s Office for the District of Columbia. Reports of investigations vary both in length and in quality. Some reports are ill-structured and difficult to read. Other reports communicate messages very well to readers. Reports contain information that readers have to transform into knowledge by understanding sentences and chapters.

SAMPLE

OF

REPORTS

FROM THE

USA

In the spring of 2015, while teaching financial crime investigations at Henry C. Lee College of Criminal Justice, it was possible to identify and obtain a total of 13 fraud examination reports as listed in the table. The listed reports are concerned with a variety of issues such as the ignition switch failure at General Motors and the collapse of the bank Lehman Brothers as well as the collapse of Enron and WorldCom. Table 3.1 lists the case, the investigator, suspicion, and number of pages in the report.

SAMPLE

OF

REPORTS

FROM

NORWAY

In the spring of 2014, while teaching leadership and financial crime at BI Norwegian School of Management in Oslo, Norway, it was possible to identify and obtain a total of 40 fraud examination reports as listed in Table 3.2. The listed reports are concerned with a variety of issues such as embezzlement by the chief executive officer in a church foundation and corruption in building maintenance in a municipality.

ANALYSIS

OF

REPORTS

FROM THE

USA

Only 5 out of 13 fraud examinations from the USA can be linked to whitecollar crime, where one or more white-collar criminals were convicted to prison in each case. These five investigation reports are listed in Table 3.3. The table applies convenience theory to the US sample of investigation reports. The first case is concerned with Yusuf Acar, who was convicted to


36

EXPLAINING WHITE-COLLAR CRIME

Table 3.1 #

Sample of US reports of investigations by fraud examiners

Case

Investigator

Suspicion

1

Acar Manager at DC’s office of technology

Sidley (2010) Law firm

2

Coatesville School district superintendent and director Enron Energy company collapse General Motors Ignition switch failure

BDO (2014d) Auditing firm

Bribery, conspiracy, money laundering, and conflict of interest Missing income statements and improper expenses

5

Lehman Brothers Bank collapse

Valukas (2010) Law firm

6

Motorola Telecommunications company’s results

SEC (2002) Securities Commission

7

Padakhep Bangladesh non-government organization Peregrine Financial group CEO

Inspector General (2012) Official Berkeley (2013) Research group

Philadelphia Police department

Pennsylvania (1974) Commission

Sandstorm Bank of Credit and Commerce International

PwC (1991) Auditing firm

3

4

8

9

10

Powers et al. (2002) Committee Valukas (2014) Law firm

Accounting fraud by top executives in the company Failure not reported and ignored by executives to maximize profits Bad and fraudulent decision-making by executives caused confidence loss Senior official selectively disclosed inside information about the company’s sales Acts of misappropriation and a fraud scheme by recipients How former CEO conducted fraud and caused company failure Police corruption and misconduct in law enforcement Money laundering and illegal transfers of funds from Bank of India

Pages 60

54

218

325

229

12

32

160

874

50


3

Table 3.1

REPORTS OF INVESTIGATIONS

(continued)

#

Case

Investigator

Suspicion

11

Walters Tax assessment manager in District of Columbia

WilmerHale and PwC (2008) Law firm

12

Wildenthal Director at University of Texas Medical Center WorldCom Telecommunication company bankruptcy

Breen and Guberm. (2012) Law firm

Theft of tax refunds by cashing returned checks and depositing into own bank accounts Spending of university funds for personal travel and entertainment CEO involved in fraud, conspiracy and filing of false documents with regulators

13

37

Wilmer and PwC (2003) Auditing firm

Pages 126

365

345

prison for bribery, conspiracy, money laundering, and conflict of interest related to procurement improprieties. He exploited his position within the security division at the District of Columbia’s Office of the Chief Technology Officer. In terms of convenience, Acar found it convenient to solve his problems in the economical dimension by means of whitecollar crime. His problem or threat was that he had lost money as one of the owners of an information technology firm. He never got paid when he transferred his stocks to someone else. To compensate for his previous loss, he found it convenient to recover the loss by abusing his new position as a manager at DC’s office of technology (Sidley, 2010). In the organizational dimension, Yusuf Acar went into a criminal partnership with vendors. An important partner in crime was Sushil Bansal, the president and chief executive of a local vendor, Advanced Integrated Technology Corporation. Their fraud scheme grew more and more, reflecting that Acar and Bansal’s growing confidence that there were no mechanisms in place to detect their fraud. The initial scheme was a basic kickback procedure. Bansal’s company had been awarded a contract to provide temporary contractors to the security division. Bansal had tendered a number of candidates, but Acar had rejected them as unqualified. After failed attempts to place Bansal’s people, Farrukh Awan, a contractor, approached Acar and proposed the following: Acar would independently locale qualified candidates for the security division and


38

EXPLAINING WHITE-COLLAR CRIME

Table 3.2 #

Sample of Norwegian reports of investigations by fraud examiners

Case

Investigator

Suspicion

1 2 3 4

Adecco nursing home Ahus hospital maps Andebu municipality Betanien foundation

Wiersholm (2011) PwC (2013a) BDO (2014a) BDO (2014b)

5

Briskeby sports

Lynx (2011)

6 7 8 9 10 11

Eckbo foundation Fadder foundation Military contracts Furuheim foundation Gassnova controls Hadeland broadband

Thommessen (2009) BDO (2011) Dalseide (2006) Hald (2006) BDO (2013a) PwC (2014a)

12

Hadeland energy

PwC (2014b)

13

Halden ice hall

KPMG (2012)

14 15 16

Halden municipality Hordaland police Kraft & Kultur

17 18 19 20

Kragerø boating Kvam Auto Langemyhr building Lindeberg nursing

21 22

Lunde bankruptcy Moskva School

23 24 25

NFF soccer players NIF sports players Norsk Tipping betting

Hjort (2013) Wiersholm (2015) Ernst & Young (2012) Deloitte (2012) Wikborg (2015) PwC (2008a) Kommunerev. (2013) Vierdal (2012) Ernst & Young (2013a) Lynx (2012) BDO (2014c) Deloitte (2010)

Work climate violation Procurement fraud Executive roles abused Embezzlement committed Construction fund abused Foundation fund abused Documentation falsified Procurement corruption Building fund abused Procurement abused Embezzlement committed Embezzlement committed Construction funds abused Manager bribed Whistleblower harrassed Accounting manipulated

26 27

Omsorgsbygg Spain Oslo Vei bankruptcy

PwC (2009) Kvale (2013)

28

Romerike water

29 30

Samferdselsetaten Skjervøy fisheries

Distriktsrevisjon (2007) PwC (2007) KomRev (2015)

Pages 23 15 23 10 267 119 46 184 164 27 32 25 121 46 111 31

Leader overpaid Private expenses covered Municipality overbilled Assault committed

109 93 27 92

Funds disappeared Private expenses covered

86 52

Sport clubs mislead Sport clubs bribed Funds wrongly transferred Funds abused Funds wrongly transferred Assets privatized

48 4 61

555

Department bribed Assets abused

88 138

92 53


3

Table 3.2

REPORTS OF INVESTIGATIONS

39

(continued)

#

Case

Investigator

Suspicion

Pages

31

Stangeskovene owners

Stock transfer prevented

103

32 33 34 35 36

Stavanger Turkey Sykehuset hospital Terra Rana funding Troms Kraft energy Undervisningsbygg I

Public money abused Executive power abused Funds disappeared Funds abused Project manager bribed

13 15 52 38 30

37

Undervisningsbygg II Verdibanken funds Videoforhandlere World Ventures

Property manager bribed Stroh man abused Subsidy misdirected Pyramid scheme

44

38 39 40

Ernst & Young (2013b) PwC (2013b) Haavind (2011) PwC (2008b) Norscan (2013) Kommunerev. (2006a) Kommunerev. (2006b) Wiersholm (2012) BDO (2013b) Stiftelsestilsyn (2014)

5 20 17

allow Bansal to hire those individuals. Bansal would then offer the candidates to Acar, and Acar would approve them. In exchange, Acar and Awan would receive a kickback from Bansal for part of the value of each contract. Over time, Awan’s role was phased out, while Bansal and Acar continued the arrangement on their own (Sidley, 2010). In the behavioral dimension, Acar explained that from his perspective, the arrangement provided him with a bonus payment for hiring individuals he would have hired anyway, and had the additional benefit of allowing him to do his job at OCTO more effectively by retaining more competent contractors (Sidley, 2010). The second case in the table is Enron, which is a world-famous case of white-collar crime. Powers et al. (2002) wrote a report of investigation about the Enron scandal. In the economical dimension, the threat of corporate collapse made crime a convenient option. The crime consisted of restating financial statements for the period from 1997 to 2001. Furthermore, Enron employees were enriched by tens of millions of dollars they should never have received—Andrew Fastow by at least $30 million, and Michael Kopper by at least $10 million. Some accounting transactions were implemented to offset losses. They allowed Enron to conceal from the market very large losses resulting from Enron’s merchant investments by creating an appearance that those investments were hedged—that is, that a third party was obligated to pay Enron the amount of those losses—when in


#

Acar Manager at DC’s office of technology Sidley (2010) law firm

Enron Energy company collapse Powers et al. (2002) committee

Philadelphia Police department Pennsylvania (1974) Commission

1

3

9

Case

Police officers were not very well paid, so they found it convenient to supplement their income with bribes from organized criminals

Taking bribes from organized criminals to look the other way was very common in the police force. Everybody did it to some extent, and it had become regular practice

Top management found they could justify financial statements and found themselves eligible to large payments

Acar had a deal with vendors that he expected never would be detected. He ran operations so efficiently that no real loss was caused

Acar perpetrated a wide-ranging fraud involving technology contracts by favoring certain vendors. As security officer, he could monitor all other activities Top management manipulated accounting figures and created fake transactions between entities to make it look as though the company was profitable Organized criminals found it useful to bribe police officers, since they represented law enforcement that could create obstacles for their gambling and prostitution businesses

Acar had lost money as owner of a firm. He found it convenient to recover his loss by abusing his new position

It was important for top management to show a successful and profitable company to the stock market and their friends

BEHAVIORAL DIMENSION Personal acceptance of criminal activity

ORGANIZATIONAL DIMENSION Opportunity in trusted position to commit crime

ECONOMICAL DIMENSION Threat or possibility as motive for crime

Table 3.3 Convenience theory applied to the US sample of investigation reports

40 EXPLAINING WHITE-COLLAR CRIME


Walters Tax assessment manager in District of Columbia WilmerHale and PwC (2008) law firm WorldCom Telecommunication company bankruptcy Wilmer and PwC (2003) Auditing firm

11

13

Case

#

Table 3.3 (continued)

Ebbers wanted to acquire all kinds of properties based on substantial loans from banks

She wanted to help family, friends, colleagues and herself to a better standard of living

ECONOMICAL DIMENSION Threat or possibility as motive for crime When tax returns were issued to people who in the meantime had died, she could cash the checks herself. It was her responsibility to handle tax returns in the tax administration He initiated false and unsubstantiated accounting entries to create a stock value that could support his loans

ORGANIZATIONAL DIMENSION Opportunity in trusted position to commit crime

His narcissistic trait was based on previous success with WorldCom and as a private businessman

People were dead anyway, so there were no victims. Also, she found the tax administration inefficient and bureaucratic

BEHAVIORAL DIMENSION Personal acceptance of criminal activity

3 REPORTS OF INVESTIGATIONS

41


42

EXPLAINING WHITE-COLLAR CRIME

fact that third party was simply an entity in which only Enron had a substantial economic stake. Thus, in the organizational dimension, Enron was able to report earnings that were almost $1 billion higher than should have been reported. In the behavioral dimension, top executives found that they could justify deviant financial statements, and they found that they personally deserved large payments. Executives included Kenneth Lay, Jeffrey Skilling, Richard Causey, and Richard Buy, in addition to Fastow and Kopper. The Pennsylvania (1974) commission uncovered evidence of systematic, widespread corruption at all levels of the police department. Their report documents the police corruption problem and suggests some possible measures for its eradication. Several police officers lost their jobs, and some went to prison. The report of investigation documents financial crime involving police officers ranging in rank from policeman to inspector. Specific acts of corruption involving improper cash payments to the police by gamblers, racketeers, bar owners, businessmen, nightclub owners, afterhours club owners, prostitutes, and others. In the economical dimension, police officers were not very well paid and thus supplemented their income by corruption. Rather than confronting powerful criminals, it was more convenient to accept bribes and not challenging crime. In the organizational dimension, police officers represented an obstacle for organized criminals which it was wise to bribe to keep them away from doing law enforcement work. In the behavioral dimension, everyone else did it, ranginging in rank from policeman to inspector. Walters is the fourth case in the table. On September 15, 2008, Harriette Walters pleaded guilty to federal charges related to the theft of over $48 million on District of Columbia funds. Walters was a former long-time employee and low-level manager in the real property tax administration of the office of tax and revenue, a division of the office of the chief financial officer in the District of Columbia. In the economic dimension, Walters supported a number of poor family members and friends with money from her crime. Therefore, an additional 10 individuals pleaded guilty in connection with her scheme. In the organizational dimension, she was handling tax refunds. She was able to process fake refunds, and waive penalty and interest charges in exchange for gifts and cash. In particular, she was able to cash refund checks that were returned to the tax administration when taxpayer recipients had died. Her embezzlement scheme also included issuance of fraudulent real property tax refund checks. The fraudulent refund requests appeared on the surface to be


3

REPORTS OF INVESTIGATIONS

43

legitimate. The requisite vouchers attached what seemed to be valid supporting documentation containing property descriptions and proof of tax payments. But the documentation often did not relate to the properties or property owners identified for the refund. Instead, supporting materials were frequently copied from legitimate tax refunds for unrelated properties or were simply fabricated. In the behavioral dimension, Harriette Walters helped other people out. She felt she was helpful to family and friends, and also to colleagues, when they had financial problems. She argued she did good deeds. She was cynical in viewing her employer as an inefficient government bureaucracy (Wilmer Hale and PwC, 2008). The fifth and final US case is WorldCom investigated by Wilmer and PwC (2008), where CEO Bernard Ebbers had to go to jail. Other involved top executives at WorldCom included Scott Sullivan, David Myers, Buford Yates, and Mark Abide. In the economic dimension, Ebbers acquired personally real estate ventures, hotels and other kinds of property. He had purchased the largest working cattle ranch in Canada, and approximately 540,000 acres of timberland in four southern US states. The total scope of Ebbers’ non-WorldCom businesses was summarized to include a Louisiana rice farm, a luxury yacht building company, a lumber mill, a country club, a trucking company, a minor league hockey team, an operating marina, and a building in downtown Chicago. To buy all these properties, he had accumulated substantial debts with a number of banks. Ebbers took out more and more loans from commercial banks. Many of these loans were margin loans secured by shares of Ebbers’ WorldCom stock. Although the terms varied among various margin loans, each required that the value of Ebbers’ stock remained greater than or equal to some multiple of the amount of the loan. Therefore, CEO Ebbers had to make sure that WorldCom stock prices were high, and much higher than real accounting justified. The massive indebtedness left Ebbers exposed to decline in the price of WorldCom stock. Ebbers initiated more than $9 billion in false or unsupported accounting entries in WorldCom’s financial systems in order to achieve desired reported financial results to boost the WorldCom stock value. Most of WorldCom’s people did not know it was occurring. In the organizational dimension, Ebbers was able to initiate and conceal the false entries. The fraud was the consequence of how Ebbers ran the company. He was the source of the culture, as well as much of the pressure, that gave birth to the fraud. That the fraud continued as long as it did was due to a


44

EXPLAINING WHITE-COLLAR CRIME

lack of courage to blow the whistle on the part of others in WorldCom’s financial and accounting departments (Wilmer and PwC, 2008). In the behavioral dimension, Ebbers had strong narcissistic tendencies. He had grand images of himself both as an executive and as a private businessman. He found he deserved to spend a lot of money on himself. Ebbers had a very expensive lifestyle. WorldCom had tremendous success under the leadership of Ebbers in the past. When things got bad, Ebbers presented a substantially false picture to the market, which he felt entitled to do (Wilmer and PwC, 2008).

ANALYSIS

OF

REPORTS

FROM

NORWAY

Only 8 out of 40 fraud examinations Norway can be linked to white-collar crime, where one or more white-collar criminals were convicted to prison in each case. These seven investigation reports are listed in Table 3.4. The table applies convenience theory to the Norwegian sample of investigation reports. The first case is concerned with Are Blomhoff, who was convicted to prison for embezzlement. He was a priest and a trusted CEO in the Betanien church foundation. While establishing a nursing home run by the Christian foundation in Spain, he transferred some of the money from Norway to Spain to his private bank account in Spain. He spent the money on his own housing project in Spain as well as on parties with guests and prostitutes in Spain (BDO, 2014b). In the economical dimension of convenience theory, Are Blomhoff had a strong desire for a personal real estate in Spain as well as enjoyed sex with paid younger women. He felt strongly attracted to spending some of the foundations money on private parties where some of his trusted colleagues participated. He felt a desire to establish himself in Spain with a completely different lifestyle than at home in Norway (BDO, 2014b). In the organizational dimension, Blomhoff was completely in charge of all activities in Spain as well as all money transfers from Norway to Spain related to the new nursing home. Nobody was required to approve his transactions, and nobody were granted insight into his transactions. The board at the Christian foundation had complete trust in him as the chief executive and as a priest (BDO, 2014b). In the behavioral dimension, the priest regrets what he has done. He blames his lack of self-control when phased with opportunities for fun and parties in the sunny and warm Spanish environment. He admits to wrongdoing and applies no neutralization techniques. Blomhoff believes that his


3

REPORTS OF INVESTIGATIONS

45

completely different lifestyle in Spain as compared to his lifestyle back home in Norway can be explained by his desire to experience new adventures he never could allow himself at home (BDO, 2014b). The second case in the table is the Furuheim foundation. Both Leif Walle and Knut Gausi were convicted to prison sentences for embezzlement. In the economical dimension, both Walle and Gausi had their own companies that could supply construction and maintenance services. They wanted to make more profits in their own businesses. In the organizational dimension, as board members of the foundation, they were able to allocate work to their own companies. In the behavioral dimension, they had experienced learning in the construction and maintenance business that contracts could be obtained in various ways. One way was to be in a double position of both vendor and customer (Hald, 2006). Hadeland Broadband was a subsidiary of Hadeland Energy. Both were investigated by fraud examiners from PwC (2014a, 2014b). Lars Brorson worked first in the accounting department of the mother company and later as the chief financial officer in the daughter company. He was completely in charge of all money transfers between mother and daughter as well as between daughter companies. He used this opportunity for embezzlement. His economic motive was an expensive lifestyle that was not sufficiently supported by his regular income. His motive was also to impress his girlfriend financially. He bought expensive bottles of cognac, several cars, and a cabin in the mountain, in addition to a new house. In the organizational dimension, we had complete authority to transfer money between a number of accounts. Some of the money he transferred to his own private account. In the behavioral dimension, Brorson blamed lack of control and poor auditor work for his crime. He said he would never have committed financial crime if there had been proper internal control mechanisms and if the auditor had questioned some of his transactions. But the auditor never did. Case labeled 21 is a bankruptcy case. Johannes Lunde was extremely ambitious, and he started up a number of companies in various business sectors without a solid financial foundation. Lunde and his companion Morten Arnold Berg were sentenced to prison after the collapse of the Lunde empire. In the economical dimension, Lunde with the help of Berg wanted to create a business empire of a conglomerate involved in production and transportation of various goods and services. In the organizational dimension, Lunde and Berg were the only ones who had the power and the overview to manipulate economic performance reports. When


Betanien foundation BDO (2014b)

Furuheim foundation Hald (2006)

Hadeland broadband PwC (2014a)

Hadeland energy PwC (2014b)

Lunde bankruptcy Vierdal (2012)

Romerike water Distriktsrevisjon (2007)

9

11

12

21

28

Case

4

#

Opportunity for private real estate and parties with prostitutes Their own corporate enterprises needed more business to become profitable He wanted to impress his new girlfriend with a luxury lifestyle He wanted to impress his new girlfriend with a luxury lifestyle Desire to develop a business empire in the shortest time possible Ambition to become a hero locally and rich abroad

ECONOMICAL DIMENSION Threat or possibility as motive for crime

Lunde blamed banks for having caused bankruptcy

A number of acrobatic financial transactions in the conglomerate of companies Controlled and threatened individuals to comply with his instructions

Found that he deserved admiration as well as benefits

He blamed lack of control and poor auditing work

He blamed lack of control and poor auditing work

They had learned in the maintenance business

Lack of self-control made his desire for adventure

BEHAVIORAL DIMENSION Personal acceptance of criminal activity

He was alone in charge of money transfers between subsidiaries

He was alone in charge of money transfers between subsidiaries

CEO was in complete control over money transfers from Norway to Spain As board members they were able to allocate lucrative contracts to their own enterprises

ORGANIZATIONAL DIMENSION Opportunity in trusted position to commit crime

Table 3.4 Convenience theory applied to the Norwegian sample of investigation reports

46 EXPLAINING WHITE-COLLAR CRIME


Case

Undervisningsbygg I Kommunerev. (2006a)

Undervisningsbygg II Kommunerev. (2006b)

#

36

37

Table 3.4 (continued)

Suppliers were his friend with whom he entered into a fraudulent scheme of kickbacks Murud was so greedy that he wanted more cars, larger house, and bigger boat

ECONOMICAL DIMENSION Threat or possibility as motive for crime It was accepted in the organization that Nettli was not competent in formalities and procedures and thus ignored them Lack of approval control made him exceed his approval limit for invoiced that were fake

ORGANIZATIONAL DIMENSION Opportunity in trusted position to commit crime

He found that the organization was so inefficient that it did not really matter He blamed Undervisningsbygg for not having proper controls of employees’ financial transactions

BEHAVIORAL DIMENSION Personal acceptance of criminal activity

3 REPORTS OF INVESTIGATIONS

47


48

EXPLAINING WHITE-COLLAR CRIME

banks finally found out, then Lunde blamed bank executives in the behavioral dimension. Lunde blamed them for having caused the collapse of his empire. If banks had continued their support of the Lunde Group, Lunde was convinced that his empire would transform into profitable businesses (Vierdal, 2012). Ivar Thorer Henriksen was the CEO of publicly owned water supply company. He did a lot of good deeds for his local community. For example, the company built a water fountain outside a nursing home. For his local involvement, he was honored by the King of Norway. At the same time, he spent money on a farm in South Africa, where he vacationed with his family and friends. The farm was purchased with company money. He spent company money on his son, and he got into kickback schemes with suppliers. When subordinates questioned his decisions, he threatened them and told them that nobody would believe them because he was a local hero. In the economical dimension, his ambitions were both related to become a local hero by spending company money in the community and also to have an exciting life hunting wild animals on the farm in South Africa. In the organizational dimension, he was an extremely powerful and respected chief executive. He did not conceal his illegal transactions among legal transactions. Instead, he expected those who knew would accept his decisions. In the behavioral dimension, his narcissistic traits were quite visible in that he looked down on others and got confirmed by the king that he was very special indeed. He found it natural to combine his status as a hero with some illegal benefits for himself (Distriktsrevisjonen, 2007). Henriksen was sentenced to 8 years in prison, his son was sentenced to 4.5 years in prison, and two more accomplices were sentenced to 4 years and 10 months, respectively. The final two cases in the table are concerned with two different executives who worked for the school administration in Oslo, the capital of Norway. One was a project manager, while the other was a property manager. Harald Gunnar Nettli was the project manager who went into a kickback scheme with his friends in supplier firms. In the economical dimension, both his friends and he himself were attracted to more income as a status symbol rather than as a need for more personal expenditures. In the organizational dimension, Nettli did not really have executive powers. But he was known in the organization for not being very concerned with formalities, and there was an acceptance in the organization that he did not follow routines and standard procedures. In the behavioral dimension, Nettli blamed lack of control and lack of auditing for enabling him to


3

REPORTS OF INVESTIGATIONS

49

commit fraud in the organization. He argued that a more efficient work environment would have prevented him from financial crime. He almost made his employer responsible for his crime (Kommunerevisjonen, 2006a). Frank Murud was the other white-collar criminal at Undervisningsbygg in Oslo. He was an easy-going manager who was very well liked by all others in the organization. He was the last who would be suspected of any wrongdoing. Unfortunately, he had a strong desire for material goods. He bought a house in the most expensive part of the city; he bought himself several new cars, and be bought an expensive cabin cruiser. He told his wife that he was extremely successful in betting. The truth was that he made his friends send invoices to Undervisningsbygg that he approved. Then they shared the profit. His approval limit was only the equivalent of $30,000, but he quickly found out that nobody noticed that he exceeded his approval limit. In the economical dimension, Murud was a typical example of greed, where greed implies that you never can get enough. In the organizational dimension, Murud found out that he could alone approve invoices far exceeding his approval limit. In the behavioral dimension, he blamed lack of control, just like Nettli did. Murud argued that an organization should be able to control financial activities of all employees. Since Undervisningsbygg had failed at this task, Undervisningsbygg, rather than himself, was to blame for the fraud (Kommunerevisjonen, 2006b).


CHAPTER 4

Economical Convenience

Abstract The economical dimension of convenience theory argues that a financial motive triggers white-collar crime. A financial motive can be greed, fear of falling, fear of bankruptcy, status desire, American dream or other temptations, and threats. In this chapter, evidence of economical convenience can be found in a number of white-collar crime occurrences as presented in reports of investigations. Keywords crime motive  hierarchy of needs  self-realization  admiration

INTRODUCTION The first dimension of convenience theory is concerned with the motive for white-collar crime. Motives can be derived from both positive and negative triggers. Examples of positive triggers include fame, respect, status, and wealth. Examples of negative triggers include debt, bankruptcy, and loss of position. In this chapter, we present two cases from the USA concerned with status ad influence as well as prosperity and conflict avoidance, respectively, and two cases from Norway concerned with bankruptcy and greed, respectively.

© The Author(s) 2016 P. Gottschalk, Explaining White-Collar Crime, DOI 10.1007/978-3-319-44986-9_4

51


52

EXPLAINING WHITE-COLLAR CRIME

US CASE

OF

KENNETH LAY

AND

JEFFREY SKILLING

AT

ENRON

Enron was investigated by Powers et al. (2002). Enron was an American energy, commodities, and services company based in Houston, Texas. The company employed 20,000 people in the areas of electricity, natural gas, communications, and pulp and paper. In the 1990s, the company ran into financial problems. Enron was in need of a rescue plan. One alternative for the rescue operation was to sell off subsidiaries and close down unprofitable business. Another alternative was to let a competing business enterprise take over Enron to restructure it and merge it with similar activities. A third alternative was to replace top management with new skills to change product lines, marketing strategy, and organizational structure. A fourth alternative was for the failing top management team to commit white-collar crime. The top management team consisted of Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. They decided to implement alternative four. This alternative was considered the most convenient one. By committing white-collar crime, they believed that they could rescue Enron. They thought the financial problems were temporary and would disappear after some years. They thought they might be able to correct their crime when profits would be flowing in again. They were convinced Enron would recover. Alternatives one to three were less attractive to them. They had built an empire that was associated with success, status, and influence. Ken Lay was a close friend of the Bush family, including the president. Enron made large campaign contributions to Bush and headed several important committees in the republican party. In their prestigious positions, it was unacceptable to Lay, Skilling, and Fastow to hand over the business to others. It was unacceptable to reveal to the environment that Enron was performing poorly. White-collar crime was thus a convenient option. By presenting financial results far more favorable than the real situation told them, they were able to stay on top of a seemingly successful, expanding, and profitable business enterprise. It was the threat of collapse and bankruptcy that made white-collar crime a seemingly convenient way out of performance problems. If the white-collar crime had been successful, then Enron would have recovered and probably nobody would have learned about the offense. It would have served to protect Enron’s interests. Some quotes from the internal investigation report by Powers et al. (2002) illustrate convience in the economical dimension: Enron used this strategy to avoid recognizing losses for a time. (P. 14)


4

ECONOMICAL CONVENIENCE

53

One perceived solution to this finance problem was to find outside investors willing to enter into arrangements that would enable Enron to retain those risks it believed it would manage effectively, and the related rewards. (P. 36) On June 18, 1999, Fastow discussed with Lay and Skilling a proposal to establish a partnership, subsequently named LJM Cayman. Fastow would serve as the general partner and would seek investments by outside vendors. (P. 68) Fastow and Glisan developed a plan to hedge the Rhythms investment by taking advantage of the value in the Enron shares covered by the forward contracts. (P. 78) In late 1999, at Skilling’s urging, a group of Enron commercial and accounting professionals began to devise a mechanism that would allow Enron to hedge a portion of its merchant investment portfolio. (P. 99) It is particularly surprising that the accountants at Andersen, who should have brought a measure of objectivity and perspective to these transactions, did not do so. (P. 132) The Board of Directors was denied important information that might have led it to take action. (P. 148)

Powers et al.’s (2002) investigation report reveals that it was not only a threat motive that made white-collar crime a convenient option. Greed was also present, especially as it related to Fastow: Andrew S. Fastow, Executive Vice President and Chief Financial Officer of Enron, is the managing member of LJM1’s general partner. The general partner of LJM1 is entitled to receive a percentage of the profits of LJM1 in excess of the general partner’s proportion of the total capital contributed to LJM1, depending upon the performance of the investments made by LJM1. (P. 184) The failure to set forth Fastow’s compensation from the LJM transactions and the process leading to that decision raise substantial issues. (P. 187)

Unfortunately for Lay, Skilling and Fastow, their white-collar crime was not successful. It did not solve the problem. Enron went bankrupt, and the executives went to prison. While the economical convenience of white-collar crime in the Enron case is mainly characterized by the need for success and the fear of falling (Piquero, 2012), the organizational convenience is characterized by


54

EXPLAINING WHITE-COLLAR CRIME

opportunities of advanced manipulation techniques that are available to top executives (Benson and Simpson, 2015). The behavioral convenience can be found in a corporate culture dominated by Lay, Skilling, and Fastow focusing on goals that justify (illegal) means (Jonnergård et al., 2010) and neutralization of potential guilt feelings (Stadler and Benson, 2012).

US CASE OF POLICE CORRUPTION

IN

PHILADELPHIA

The Pennsylvania Crime Commission published an investigation report on police corruption and the quality of law enforcement in Philadelphia. The report documents evidence of systematic patterns of corruption in Philadelphia among some police officers. The commission found that police corruption in Philadelphia was ongoing, widespread, systematic, and occurring at all levels of the police department (Pennsylvania, 1974). In an economic convenience perspective, it was convenient for police officers to receive improper cash payments by gamblers, racketeers, bar owners, prostitutes, illegal construction companies, and others. Since salaries for police officers were not great, and law enforcement actions against organized crime was a challenge, it was much more convenient to cooperate with criminals rather than arresting them. By cooperating with criminals, police officers made additional money that enabled a slightly better lifestyle for their families. By cooperating with criminals, police officers avoided threats, and dangerous situations. While it was convenient for police officers to receive bribes, criminals at the same time avoided inconvenience from law enforcement when providing bribes to police officers (Pennsylvania, 1974: 170): If the police were to enforce strictly all the laws, ordinances, and regulations governing the activities of construction companies, it would cause much inconvenience for the companies involved. Because of pressures to get work finished, the companies are willing to pay the police and other public employees to avoid the situation.

Convenience among police officers occurred both in terms of receiving bribes and in terms of planting evidence to get the wrong person arrested to protect bribing criminals (Pennsylvania, 1974: 204): My partner really wanted this guy busted so we went in to search, right. So my partner conveniently comes up with the pinch.


4

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55

Patrol by police officers among bribing criminals were scheduled conveniently for offenders (Pennsylvania, 1974: 220): We would call them up or either stop by and see them and let them know that they would inform us which time was most convenient.

In addition to the convenience of receiving bribes and the convenience of avoiding confrontations with serious criminals, there was also the convenience of playing along with colleagues in the police force. The occupational culture in the police was such that police officers better not challenge the corruption culture. Interviewed police officers told investigators that fraudulent behavior was the rule rather than exception (Pennsylvania, 1974: 228): The young officer begins to realize that one who does not participate in corrupt activities is ostracized. One officer in New York who did not participate in taking money described the system as follows: To other police officers your participation (in taking money) was another strong link in a chain of fraternity and had no reflection whatsoever on your honesty. Conversely, your refusal meant certain ostracism and a cross-eyed look as someone not in full possession of all his mental faculties. It cannot be emphasized enough that taking money was such a tradition, such a habit, and was so common all around, that the police officers I talked with did not think of it with any more regard than the habit of smoking—you know it’s bad for you and you shouldn’t do it, but you do it anyway. In Philadelphia, police officers have similarly described the peer pressure with which they were confronted. A member of the Philadelphia police force testified before the Commission that after he noticed vice activity at certain locations within his sector, he talked to an older officer who said, “Don’t worry about it, kid; I’ll be taking care of it. Or you walk a beat.”

Convenience theory is concerned with white-collar crime. It might be argued that corruption among police officers is not a typical case of white-collar crime. However, there was a system of weekly payments based on rank in the police department: policemen received $5, sergeants received $10, and captains and special vice investigators received $15. The payments were usually made between the hours of 8 a.m. and 4 p.m. Criminals made regular payments of a sizeable sum to a large number of


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person in exchange for protection against gambling raids and other law enforcement activities. Toward the end of their internal investigation report, the Pennsylvania (1974) crime commission summarizes their corruption investigation experience. They argue that a corruption investigation of a police department is one of the most difficult investigative tasks which any investigatory agency can undertake. When another law enforcement unit is the target of the investigation, there are additional problems for the investigators. Police are very protective of each other, and law enforcement units are exceedingly reluctant to investigate other law enforcement units.

NORWEGIAN CASE

OF

JOHANNES LUNDE

AT

MARINE GROUP

Lunde at Marine Group was investigated by Vierdal (2012). Johnnes Lunde’s conglomerate of businesses went bankrupt in 2011. Suspicions of financial crime arose quickly in the main company Marine Group. Lunde’s conglomerate could best be described as the result of financial acrobatics. Shortly before the Marine Group had to file for bankruptcy, Lunde transferred to himself 189 million Norwegian kroner (NOK) (equivalent of US$24 million) without any board approval. Lunde had been a very ambitious business man. He was only 42 years when the bankruptcy kept up with him. He had tried for a long time to avoid bankruptcy because his empire of businesses had given him status and prestige, especially in the southwest part of Norway where his firms were located. His motivation for crime in the economical dimension of convenience theory can be found in his ambitions to build an empire of companies involved in transportation, shipbuilding, and other businesses. He was a high-profile entrepreneur who had emerged as an extremely successful businessman in his own eyes and in the eyes of others. Johannes Lunde was sentenced to four years in prison by a court of appeals in 2015. The chief accountant at Marine Group, Ruth Karianne Hinna, and the chief operating officer, Morten Arnold Berg, were also sentenced to prison. Some quotes from the internal investigation report by Vierdal (2012) illustrate convience in the economical dimension: As an introduction, we want to emphasize that the business idea of the Lunde systems to a large extent was founded on the asset play principle. It is noted that businesses in the Lunde systems at several occasions were able to


4

ECONOMICAL CONVENIENCE

57

establish agreements that lead to significant profits. Johannes Lunde and his closest associates managed in several instances to create added values at impressive levels. (P. 5) Internal transactions in the Lunde systems have been of a substantial magnitude. So far in our investigation, it is established that management in most companies, preferably through top executive Johannes Lunde, have managed company assets and liabilities across business areas, and independent of what might serve the interests of each company. (P. 7) Johannes Lunde has been the most central figure in all companies, and the person who initiated and implemented or told others to implement all financial transactions in the Lunde systems. (P. 10) The complicated structure of liabilities between companies in the Lunde systems made several companies vulnerable to liquidity problems. (P. 28)

NORWEGIAN CASE

OF

FRANK MURUD

AT

UNDERVISNINGSBYGG

Murud was investigated by Kommunerevisjonen (2006b). Frank Murud (born 1955) was sentenced to prison for seven years for corruption and embezzlement. Murud was property manager at Oslo City school district. His motive in the economical dimension of convenience theory was greed. He just could not get enough of material wealth. His fraud amounted to NOK 90 million (equivalent of US$12 million). He spent the money on a noble property in the best neighborhood in Oslo, on luxury cars and on luxury boats. He really enjoyed all his valuable things and commodities. After Murud had been arrested, prosecuted, and sentenced to prison, he was not very upset about his time in jail, nor was he upset about all the negative publicity in the media. He did not really care about his family breaking up and his wife leaving him. All he cared about was all the valuables taken away from him. He said he would miss his house, his cars, and his boats. He would not miss his wife, he said. It had been convenient for him for many years to participate in corruption and to carry out embezzlement in his position as property manager to enable him to spend multifold of what he actually earned in his position. He knew of no other way to satisfy his greed for more and more wealth. He did not feel bad about it. He blamed lack of controls at his employer for letting him carry out his fraud scheme. In the organizational


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dimension, he was only allowed to approve invoices of minor amounts. Invoices of larger amounts had always to be approved by two executives or one executive higher up in the organization. When he asked a friend to send an invoice of a substantial amount, he then approved the invoice, and sent it to the accounting department, which reimbursed his friend for the amount on the invoice. Murud argued in court that because the accounting department was so sloppy, they were to blame for his fraud. Therefore, in the behavioral dimension, Murud applied a neutralization technique of blaming others for his own crime. Some quotes from the internal investigation report by Kommunerevisjonen (2006b) illustrate convience in the economical dimension: Another reason why the fraud was not detected was that the additional resource drain on the maintenance budget did not reduce the magnitude of planned maintenance. (P. 31) The chairman of the board received in 2006 a message of concern from a person who argued that the property manager had too much money privately to be employed in the public sector. The chairman asked for a cheque of the property manager. No alarming findings occurred. (P. 32)

Murud had managed a wide variety of real estate projects for the city of Oslo at Undervisningsbygg (=Educational Contruction). He earned NOK 500,000 (US$ 70,000) in 2004, but somehow managed to afford a NOK 10-million villa in the exclusive Holmenkollen district of the city. He also had a holiday cabin in the mountains at Geilo, two plots and an apartment in Geilo, an apartment in Lillehammer, and a house in Fredrikstad. Murud had purchased property worth tens of millions of Norwegian kroner. He was also an investor in technology company Birdstep, owning a 5.9 percent stake through shares purchased for NOK 6.6 million. He told friends and family that he was extremely successful in all kinds of money games and bets. The fraud employed was reportedly a simple classic, with Murud paying fictitious bills sent in by his accomplices. Murud then collected most of the money for this kind of criminal billing service. Murud’s motive for crime was greed, where greed is socially constructed needs and desires that can never be completely satisfied.


4

CONVENIENCE

ECONOMICAL CONVENIENCE

59

ECONOMICAL DIMENSION

IN THE

Maslow suggested that there exists a hierarchy of needs for a person. When basic needs such as food and shelter are satisďŹ ed, then the person moves up the pyramid to satisfy needs for safety and control over own life situation. Further up in the pyramid, the person strives for status, recognition, and self-respect, as illustrated in Fig. 4.1.

Hero Success Elite

Fame

Opinion Leader Admiration

Respect

Acceptance Status Power

Ego Influence

Goals

Prosperity

Self-Realization Self-Respect Confidence Security Food

Fig. 4.1

Wealth Privileges Challenges

Exploration Self-Assured

Safety Friendship Drink

Reputation

Community

Freedom Self-Acceptance Closeness

Predictability Clothes

Sleep

Care

Protection Varm

Pyramid of needs for white-collar offenders adapted from Maslow


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EXPLAINING WHITE-COLLAR CRIME

Most individuals will want to move higher up in the pyramid when needs below are satisfied. However, there are some exceptions. An example can be found in law firms, where partners work very long hours and make a lot of money without reaching very high in the pyramid. Business lawyers tend to oversatisfy basic needs by owning large houses, several cars, boats, and shares in companies. They are not very respected and are not considered leading experts of the law. The opposite example seems to be that of university professors, who quickly try to move up the pyramid when basic needs of housing are satisfied. They struggle to publish in leading research journals to become famous and associated with a reputation of being leaders in their fields. As far as money or other valuable items can help climbing higher in the pyramid, potential offenders may find white-collar crime convenient if other options to achieve success are more stressful and require more resources. Whether the offender wants more at a certain level or wants to climb to higher levels in the pyramid, financial crime can be a means to the end. For some white-collar criminals, money is the goal of crime. For other white-collar criminals, money is a means to a goal of acceptance, influence, and fame. When we look at our case studies, it seems that: • Kenneth Lay and Jeffrey Skilling were aiming for success, belonging to the elite, fame and being business heros. They were at the top of the needs pyramid. • Police officers in Philadelphia were aiming for prosperity and wealth. They were in the middle of the needs pyramid. • Johannes Lunde in his Marine Group was aiming for acceptance, reputation, and admiration. He was close to the top of the needs pyramid. • Frank Murud at Undervisningsbyggwa aiming for prosperity and wealth, combined with adminiration and respect. He was above the middle of the needs pyramid.


CHAPTER 5

Organizational Convenience

Abstract Evidence of organizational convenience can be found among suspected white-collar criminals as described in reports of investigations in both Norway and the USA. For example, Yusuf Acar at the chief technology office in Washington, DC, had ample organizational opportunity to hire people in return for kickbacks. Keywords crime opportunity  resource availability  legitimate business  concealment

INTRODUCTION The organizational dimension of convenience theory is concerned with opportunities to commit white-collar crime. In a professional setting with privileges based on trust and few or no control mechanisms, it can become attractive to achieve financial gain in illegal ways. This chapter presents two cases where the US cases where job positions enabled fraud. This chapter also presents two Norwegian cases where fraud was easily possible in areas where the offender had sole authority. Ahrne and Brunsson (2011) argue that an organization is characterized by membership, hierarchy, monitor, and sanctions. Organizations decide about membership, about who will be allowed to join the organization as employees. Membership brings a certain identity with it, an identity that differs from that of nonmembers. Organizations include a hierarchy, a duty © The Author(s) 2016 P. Gottschalk, Explaining White-Collar Crime, DOI 10.1007/978-3-319-44986-9_5

61


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to oblige others to comply with decisions. Hierarchy entails a form of organized power. Organizations can issue commands and can also decide upon rules that its members are expected to follow in their actions. An organization has the right to monitor compliance with its commands and rules. Organizations have the right to decide about sanctions, both positive and negative. They can decide to change a member’s status by using promotions, grading systems, awards, diplomas, and medals.

US CASE

OF

YUSUF ACAR AT THE CHIEF TECHNOLOGY OFFICE

The Acar fraud involved a series of loosely related fraudulent schemes over the course of a three-and-a-half-year span from September 2005 to March 2009. While none of these schemes were particularly complex according to fraud examiners Sidley (2010), they all escaped detection and would likely have remained undiscovered but for the cooperation of an informant. Over time, these schemes grew more brazen, reflecting Acar’s growing confidence that there were no mechanisms in place to detect their fraud. The initial plan was a basic corruption scheme with kickbacks from Sushil Bansal. Bansal’s company, AITC, had been awarded a contract to provide temporary contractors in the security division. Bansal had tendered a number of candidates, but Acar and his coworkers had rejected them as unqualified. After these failed attempts to place AITC contractors, Farrukh Awan, a contractor who had been offered a full-time position at the Office of the Chief Technology Officer (OCTO), approached Acar and proposed the following: Acar would independently locate qualified candidates for the security division positions and allow Bansal to hire those individuals as AITC employees. Bansal would then offer the contractors to OCTO, and Acar would approve them. In exchange, Acar and Awan would each receive a kickback from Bansal for part of the value of each contract. Acar explained to Sidley (2010) that from his perspective, the arrangement provided him with a bonus payment for hiring individuals he would have hired anyway, and had the additional benefit of allowing him to do his job at OCTO more effectively by retaining more competent contractors. Therefore, in the behavioral dimension of convenience theory, Acar argued that there was no damage and no victim of his corruption scheme. In the organizational dimension of convenience theory, Acar had the


5

ORGANIZATIONAL CONVENIENCE

63

opportunity to involve himself in the kickback scheme because he was in a position at OCTO to hire people. Over time, Awan’s role was phased out, but Bansal and Acar continued the arrangement on their own. The next scheme they developed was a ghost-employee fraud. Under this scheme, AITC either submitted false timesheets to Acar that inflated the contractor’s actual hours or submitted timesheets for fictional AITC contractors. In some circumstances, Acar would identify contracts in the security division that had been awarded to AITC in which work already had been completed, but the contract remained open. Acar would approve timesheets submitted by Bansal on those contracts. In exchange for the approvals of ghost employee timesheets, Bansal would kickback a share of the billings attributable to the ghost employees. The final form of fraud Acar and Bansal engineered involved the purchase of software licenses. OCTO approved Acar’s request for the purchase of 2,000 software licenses, and the contract was awarded to AITC. Instead of the 2,000 licenses OCTO purchased, however, AITC delivered only 500 licenses. Acar certified that OCTO received the complete order, and the District paid AITC for the entire contracted amount (Sidley, 2010). In order to impede detection of these acts, Acar engaged in several other improper practices. For example, while working as a district employee and awarding government contracts, Acar owned an undisclosed interest in Circle Networks, a company that contracted with the district and which was allegedly used to launder illegal kickback payments from Bansal to Acar. Acar’s ownership interest in Circle Networks represented a conflict of interest for a district employee, yet the district never detected it. Similarly, Bansal created shell companies nominally controlled by other individuals in order to create an appearance of competitive bidding on contracts that Acar would award to AITC. Finally, Acar used the access he had to electronic data in the security division to monitor emails to and from OCTO leadership to determine whether his activities were in any danger of being discovered by the Office of the Inspector General during its audits (Sidley, 2010). Therefore, Yusuf Acar had ample organizational opportunity to commit convenient white-collar crime: • He was in charge of hiring consultants to the security division • He was in charge of buying software licenses • He was able to monitor emails by others


64

EXPLAINING WHITE-COLLAR CRIME

OCTO had 231 full-time employees and employed 267 contractors, most of whom were full-time. OCTO had a long-standing contractor culture where contractors draw a salary from a third-party vendor that contracts with the District government. Contractors played a key role in managing numerous, simultaneous, one-time modernization projects. Some quotes from the internal investigation report by Sidley (2010) illustrate convience in the organizational dimension: Acar told us that the genesis of the first kickback was a 2005 contract for forensics engineers in the security division. Acar was going to supervise these engineers, and he was among the OCTO employees with input on the hiring decisions. (P. 22) Acar would manipulate the requirements listed in the procurement requests to direct hiring decisions towards Bansal’s candidates. (P. 23) Acar and Bansal concocted a plan whereby bills for individuals who had finished their work at OCTO without exhausting all the allotted hours in the purchase order would continue to be issued for the remaining time in the contract by using fraudulent timesheets. (P. 24) This overbilling scheme evolved into a plan in which Acar and Bansal would bill the remaining time in the name of individuals who had never even worked at OCTO. (P. 24) Acar and Bansal also collaborated to get the agency to overpay for software purchased by the security division. (P. 25) In 2009, Acar began monitoring incoming District emails to OCTO employees to detect any communications from the Office of the Inspector General. (P. 26) OCTO’s internal controls failed to detect or prevent Acar’s various fraudulent activities. (P. 27) Many OCTO employees attribute Acar’s prolonged success to what they describe as the isolation of the Security Division. Because the Security Division has access to all District email and telecommunication messages, OCTO treated the Division differently from its other programs. (P. 30) For several years before discovery of the fraud, Acar was a key decisionmaker in the hiring of contractors for the security division, which facilitated his kickback scheme. Moreover, on several occasions he served as acting program manager of the department, at which time he was able to make procurement decisions without any careful, third-party scrutiny. Further, as


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ORGANIZATIONAL CONVENIENCE

65

the acting leader of the group, Acar was able to expand the fraud by exercising substantial control over the division’s annual budget request. The lack of external scrutiny prevented these decisions from receiving the sort of oversight that might have prevented the fraud. (P. 31)

According to the investigation report by Sidley (2010), the internal controls at OCTO played no role in detecting Acar. Some OCTO employees claimed that reforms initiated by CTO Kundra adequately addressed the Acar fraud, and several expressed the belief that these changes actually led to the detection of the fraudulent schemes. The fraud examiners’ review contradicts those assessment. Many of the fraudulent transactions took place both during and after reforms, and Acar himself said to investigators that the reforms did not meaningfully impede his ability to accomplish his criminal activities. Sidley’s (2010) investigation focused on identifying the organizational and institutional vulnerabilities both inside and outside of OCTO that allowed Acar’s fraudulent activities to escape detection over a prolonged period of time. The identified vulnerabilities fall into two general categories. First, Acar exploited several OCTO-specific deficiencies. Second, at least two broader issues involving procurements throughout the District government allowed Acar and his coconspirators to engage in these schemes. Although OCTO and responded to several of these vulnerabilities after the Acar scandal became public, investigators argued that there were remaining institutional vulnerabilities to be addressed.

US CASE

OF

HENRIETTE WALTERS AT REVENUE OFFICE

THE

TAX

AND

Henriette Walters is a case of economical convenience in terms of helping friends, family and herself financially. She let friends participate in her fraudulent schemes. For example, Walters relied on a long-time relationship with a local bank teller named Walter Jones. Walters also involved three family members in the scheme. All three—her brother, nephew, and niece—used different companies that did not own property in the District of Columbia. Some quotes from the internal investigation report by Wilmer Hale and PwC (2008) illustrate convience in the economical dimension: Jones deposited the fraudulent payments into accounts controlled by Walters, her family, or her friends. (P. 40)


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EXPLAINING WHITE-COLLAR CRIME

In early March 2007, Walters created an $85,000 credit on a property associated with Samuel Earl Pope, Walters’ friend. (P. 47) Walters apparently provided cover stories to explain her generosity. According to one rumor, she was from a wealthy family and had inherited large sums of money, According to another rumor, she had a wealthy boyfriend or a second job and was good at ‘budgeting’ her money. (P. 60)

Walters’ motive was private money spending for herself, her friends, and family. Unfortunately, the investigation by Wilmer Hale and PwC (2008: 8) “did not attempt to trace the stolen money or to determine how the money was distributed or spent.” Wilmer Hale and PwC (2008: 2) describe Walters’ scheme, which is part of the organizational dimension of white-collar crime: Harriette Walters was a long-time employee and starting in 2001, a lowlevel manager in RPTA. As Walters explained to us, she first became involved in a fraudulent tax refund scheme in the mid-1980s when she learned from a co-worker how to process fake refunds, how to waive penalty and interest charges in exchange for gifts and cash, and how to cash refund checks that were returned to RPTA when the taxpayer recipient had died. According to Walters, she eventually concluded that her co-worker, whom she described as a substance abuser, was unreliable as a partner in these activities. Walters then embarked on her own embezzlement scheme in the late 1980s, which focused on the issuance of fraudulent real property tax refund checks. From the late 1980s through late 2007, Walters stole more than $48 million from the District, which, according to the Washington Post, is the largest known government-related embezzlement scandal in the District’s history. Despite the long duration and scope of Walters’scheme, it was accomplished in a relatively simple and mundane fashion. Walters started small. Her first two fraudulent refunds in the late 1980s were for less than $5,000 each and were issued payable to a friend who agreed to participate in the scheme. Soon, however, Walters discovered she could issue significantly larger refunds without incurring any additional risk of detection. In the early 1990s, Walters began processing fraudulent refunds to her friends and to her friends’ companies for more than $10,000 per transaction. By the late 1990s, Walters was issuing fraudulent refunds in excess of $100,000 each. After becoming a manager of her unit, she increased the amount of the fraudulent refunds further still. By 2004, she was processing fake refunds for $350,000 or more. During the course of her scheme, Walters processed two fraudulent refunds in excess of $500,000—one for $543,423.50 in July 1997 and another for


5

ORGANIZATIONAL CONVENIENCE

$541,000.74 in May 2007. These fraudulent refund requests appeared on the surface to be legitimate. The requisite vouchers attached what seemed, at first glance, to be valid supporting documentation containing property descriptions and proof of tax payments. But the documentation often did not relate to the properties or property owners identified for the refund. Instead, the supporting materials were frequently copied from legitimate tax refunds for unrelated properties or were simply fabricated. Many of the refunds were issued directly to entities that did not own property in the District. The names of these entities were sometimes slight variations on legitimate businesses operating in the District. On at least one occasion, it appears that Walters simply strung together letters to create a nonsensical payee name. In still other instances, Walters processed fraudulent refunds in the names of legitimate property owners, but directed that payments be made “care of” companies that did not own or bear any relationship to the referenced property. Walters also processed refunds in care of, or to the attention of, prominent real estate attorneys. (We saw no indication whatsoever that these attorneys were involved in, or aware of, the scheme.) In all of these cases, Walters arranged for the refund checks to be delivered to her rather than mailed to the recipients. She then passed the checks to other participants in the scheme for deposit into bank accounts that they controlled, in later years with the help of a corrupt bank employee. To put the scale of Walters’ scheme in perspective, the average value of legitimate real property tax refunds in the District from October 1998 through January 2008 was about $7,300. By contrast, the average fraudulent refund processed by Walters during that time frame was over $275,000. Between October 1998 and January 2008, 21% of real property tax refunds between $100,001 and $200,000 were fraudulent, 45% of real property tax refunds between $200,001 and $300,000 were fraudulent, and 68% of real property tax refunds between $300,001 and $400,000 were fraudulent. Most significantly, 81% of real property tax refunds between $400,001 and$500,000 were fraudulent. Between 2005 and 2007, Walters’ fraudulent refunds accounted for nearly 35% of all real property tax refund dollars. Although some of Walters’ subordinates helped prepare vouchers for the fraudulent refund requests and received gifts and/ or substantial payments from her, we could not establish that any of them actually knew the refunds were in fact fraudulent. The subordinates we interviewed denied knowing about Walters’ scheme, although one key witness who initially faced criminal charges that were later dropped refused through her attorney to talk to us. We also could not establish that more senior managers or other employees of the District were aware of Walters’ scheme.

67


68

EXPLAINING WHITE-COLLAR CRIME

While the economical convenience for Walters was consumption by spending money far in excess of personal income for herself, friends, and family, and the organizational convenience was tax returns and other special transactions that she could manipulate, the behavioral dimension is difficult to understand based on the investigation report by Wilmer Hale and PwC (2008). She pleaded guilty to federal charges related to theft of over $48 million of District of Columbia funds.

NORWEGIAN CASE

OF

ARE BLOMHOFF FOUNDATION

AT THE

BETANIEN

Blomhoff at Betanien was investigated by BDO (2014b). Are Blomhoff (born 1952) was a priest and the managing director of the Betanien Foundation in Bergen. He was assigned the sole responsibility of establishing a nursing home in Spain for elderly Norwegians. He transferred money from Norway to Spain to build and run the nursing home. Most of the money went into a Betanien bank account in Spain, but some of the money went into his private bank account in Spain. Since the nursing home project was his sole responsibility, nobody was looking into this part of the foundation business. In general, it seems particularly convenient for white-collar criminals to commit financial crime in areas that are separate from the major business. It might be a project of establishing a nursing home, or it might be a one-time task of selling shares in a venture. By controlling all information and actions related to a separate task, the white-collar criminal finds it convenient to commit financial crime in an organizational setting. When the task or the project is completed, nobody will ever look into it again. Priest and managing director Are Blomhoff accumulated funds in his private bank account in Spain. For some of the money, he bought himself a Spanish summer house. For some of the money, he arranged sex parties with prostitutes. While he lived a normal family life when in Bergen, he lived a wild life when in Spain. In the economical dimension of convenience theory, his embezzlement of foundation funds enabled him to live a life which so far had only occurred in his fantasies. Another aspect of organizational convenience in this case is the Betanien Foundation as a religious organization. In religious organizations, people tend to trust each other. Religious persons are seldom or never suspect of misconduct, wrongdoing, or crime. Are Blomhoff was a


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69

respected Methodist pastor and at the same time the managing director of the Betanien Foundation. He was convicted to prison for embezzlement and fraud against the foundation. Based on the Betanien case, it is relevant to phrase the following questions: Is there too much trust, too much freedom, too much individual authority, too little skepticism, and too little control of the financial side in religious organizations? Is trust often betrayed in terms of white-collar crime in religious institutions (Fleckenstein and Bowes, 2000)? According to Owens and Shores (2010), most white-collar crime incidents are exploitations of trust, which can be fostered by a shared religious identity between the victim and the perpetrator. Are social religious networks an attractive arena for white-collar criminals (Shores, 2010)? Is the moral of not acting illegally blinded from a chance perspective when an attractive opportunity arises? Do shared religious beliefs lead to less acceptability of white-collar crime (Corcoran et al., 2012)? Many questions are asked and can be put forward concerning white-collar criminals in religious organizations. In my sample of hundreds of convicted white-collar criminals in Norway from 2009 to 2016, very few of them were associated with or committed their crime linked to a religious organization. Nevertheless, the subsample of six religious white-collar criminals is worth exploring in terms of their characteristics and to what extent they may be different from the majority of white-collar criminals. In addition to Blomhoff, two were convicted in another church foundation case, one was convicted in a bank that managed religious people’s and institutions’ money, and two were convicted in a bishop family. Corcoran et al. (2012) found that shared religious beliefs and the importance of God in one’s life are negatively related to the acceptability of whitecollar crime. Religious belief was found to be associated with lower acceptance of white-collar crime and certain types of religious contexts condition this relationship. These effects, however, weaken in religious contexts characterized by belief in an impersonal or a moral God, as do the effects of religious social relationships and belonging to a religious organization. Owens and Shores (2010) examined the importance of social and spatial distance in the case of Bernard Madoff, the perpetrator of one of the largest white-collar crime cases in US history. Their study shows that residents of countries in which there were stronger Jewish networks were more likely to be victimized by Madoff. Shores (2010) found that Jewish Americans form an ethnic group sharing a common religion, religious language, a history composed of stories of events, a homeland, and


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oppression. Many Jewish Americans also share a common heritage as many of their ancestors emigrated from central and eastern parts of Europe. Additionally, there are many population clusters of Jewish Americans, in particular in cities throughout the USA. In 1990, the comptroller of the Catholic Diocese of Buffalo was charged with the embezzlement of 8 million dollars of money belonging to the Diocese. He was subsequently convicted and served several years in state prison. It was a newspaper story that revealed that he had purchased church property at less than market value and had used the church’s tax exemption for his own purchases. It was revealed that his wife bought 36 acres of land for half the price of what the Diocese paid for it 25 years previously (Fleckenstein and Bowes, 2000). Heaton (2006) phrased the question: Does religion really reduce crime? He found no empirical evidence for the proposition that religion has a deterrent effect on crime, although sociologists and criminologists have long recognized the potential links between religious belief and delinquent behavior. One theory, labeled hellfire hypothesis, posits that religion deters criminal behavior by increasing the costs of delinquency through the fear of punishment in the afterlife. Works that are more recent have emphasized the role of religious bodies as reference groups against which individuals frame behavior. Hofmann et al. (2014) studied morality in everyday life. They repeatedly assessed moral or immoral acts and experiences in a large (N = 1252) sample using ecological momentary assessment. Moral experiences were frequent and manifold. Religious and nonreligious participants did not differ in the likelihood or quality of committed moral and immoral acts. A discussion of Hofmann et al.’s (2014) research results in the Norwegian religious newspaper Vårt Land (“Our Country”) revealed that most people who were interviewed agreed with the findings. When religious people get an opportunity to commit crime, they will basically act the same way as nonreligious people. Some may consider whether they will be paid in heaven, or whether they should take what they can on earth. Some may argue that it is the will of God, and therefore they can violate the law. Some religious individuals portray themselves as more moral than others (Arnesen, 2014). I commented to journalist Arnesen (2014: 31) on the topic of religious persons: When you have the opportunity to commit economic crime, there are many who are considering whether they should wait until they get paid in heaven,


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or take their share on earth. There are surprisingly many people who do the latter, says Gottschalk.

A characteristic of white-collar criminals in general and in religious networks in particular is the betrayal of trust. When we are not sure, we tend to give the other the beneďŹ t of the doubt. Fleckenstein and Bowes (2000) argue that the immediate problem for a religious organization is the different perceptions of trust. Relationships are rooted in ideals, values, and services. When trust is violated, some are led to question their trust in God who these organizations claim to serve. Such negative experiences have led many to place their trust elsewhere, thereby abandoning their faith. The low fraction of a religious category of offenders, only one and a half percent of the several hundred white-collar criminals convicted to prison in Norway, who betrayed trust based on shared religious beliefs, is an indication either of an unwillingness among religious individuals to commit immoral deeds or of less detection and reporting to the police of misconduct and crime. Are Blomhoff was not the only religious white-collar suspect who caught the attention of the media in the city of Bergen in Norway in 2014 and 2015. A father and a son who were active in a church did also receive attention. The police suspected them of white-collar crime. The son was a pastor in a church as well as employed in the Norwegian military. Father and son were indicted of having swindled the military of several million Norwegian kroner. The father was accused of setting up a fake company from which the son bought and paid for fake services to the military (Valland, 2015). I commented to journalist Valland (2015: 11) on the topic of religious persons: If someone were to notify that a religious person has done something wrong, the person who is notiďŹ ed, will not believe it, says Gottschalk.

Another example of a religious person suspected of white-collar crime is Major John Lee Cockerham. He was prosecuted for orchestrating the largest single bribery scheme against the military since the start of the Iraq war. According to prosecutors, the 41-year-old ofďŹ cer, with his wife and sister, used an elaborate network of offshore bank accounts and safe deposit boxes to hide nearly $10 million in bribes from companies seeking military contracts. Major Cockerham was active in the New Friendship Baptist


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Church. The congregation in the church celebrated Cockerham’s last promotion with a parade. At his son’s baptism, he told fellow worshipers that he hoped to instill in his children the values he had wrested from his hardship. He and his seventeen siblings grew up without electricity and running water. Crockerham was sentenced to 17 and 1/2 years in prison for accepting bribes from Army contractors (Thompson and Schmitt, 2007). Are Blomhoff received a medal from the King of Norway one year before his arrest. The chairman of the Betanien foundation had at that time heard rumors about Blomhoff, but he did not believe them. Two whistleblowers tried to inform the board at Betanien, but nobody would listen. When the whistleblowers threatened to go to the media with their story, then finally their message was taken seriously. In Drammen district court in 2015, Are Blomhoff confessed to embezzlement of NOK 16 million (about US$2 million). A substantial portion of the embezzled money was spent on parties in Spain, where he hired in prostitutes. Blomhoff admitted to buying sexual services for himself, which is illegal according to Norwegian legislation. The prosecutor in court, Johnson, knew that the Betanien foundation had a Christian statute (Buanes, 2015): One can hardly get further apart from the Christian statute than how Blomhoff decided to spend embezzled money, said Johnsen.

In addition to prison for three years, the court decided on an asset recovery of NOK 18 million from Blomhoff. Embezzlements occurred from 2005 to 2012. He did not terminate his embezzlement activities before rumors started to spread in the organization. Blomhoff said in court that he regrets what he has done. He was labeled “party-priest” in Norwegian media. The Betanien foundation has 550 employees and is operating a hospital, a kindergarden, and a college in Bergen. In 2001, the foundation established “Fundación Betanien” that operates a nursing home in the Spanish city Alfazdel Pi. Embezzlements occurred when Blomhoff got money transferred to a fictive maintenance account associated with the nursing home in Spain (Drammen tingrett, 2015).

NORWEGIAN CASE OF LARS BRORSON

AT

HADELAND ENERGY

Financial crime specialist Gunnar Holm Ringen at PricewaterhouseCoopers was responsible for a private investigation of embezzlement at Hadeland and Ringerike Broadband (PwC, 2014a) as well as Hadeland Energy (PwC,


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2014b) in the spring of 2014. He is a lawyer and certified accountant and is responsible for preventive services as a partner at PwC. Gunnar Holm Ringen has worked as a senior public prosecutor in economic crime and as a police inspector in Norwegian police, as well as been a judge in the district court. Hadeland and Ringerike Broadband can be found at www.hrb.no and Hadeland Energy can be found at www.hadeland-energi.no. Chief financial officer at Hadeland and Romerike Bredbånd, Mr. Lars Brorson, was in August 2014 sentenced by a Norwegian district court to four and a half years in prison (Gjøviktingrett, 2014). He was convicted for embezzlement of NOK 20 million (US$3 million). He agreed to the charges and accepted the verdict without appeal. This was his third conviction for embezzlement. Where were the auditors? PwC (2014a, 2014b) addressed a clear finger at the auditor who put a stamp of approval on the accounts in Hadelandand Ringerike Broadband. Resigned chief financial officer of the company,Lars Brorson, sent according to investigators from PwC (2014a, 2014b) a total of 18million to own accounts from the company’s overdraft account. Half the amount was transferred in 2012, divided into 42 payments. Between 2011 and 2014, 66 such transactions were recorded. During the same period the Deloitte auditor wrote that financial statements were prepared in accordance with laws and regulations. Auditor Ragnar Nesdal was one of six from Deloitte interviewed by investigator Gunnar Holm Ringen from the auditing firm PwC (2014a, 2014b). In the interview Nesdal felt that the company was so small that there was no requirement for annual meetings between the board and the company’s auditors in accordance with the Norwegian auditing act. The auditor had not attended board meetings or general meetings. The only communication with the board had therefore been through written auditing statements from Deloitte. For a long time, both reports by PwC (2014a, 2014b) were attempted to be kept secret for the public. The local newspaper Hadeland (www. hadeland.net) was active in getting disclosure. The newspaper argued for transparency and wrote in its editorial on 13 July 2014: The newspaper Hadeland has requested access to investigation reports prepared after the embezzlement in Hadeland and Ringerike Broadband (HRB) and Hadeland Energy (HE). The answer has been no by referencing to the Norwegian freedom of information act section 24 which states that documents can be exempted if they deal with offenses.


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The request for access was sent municipalities before the police declared the investigation closed. As anewspaper, the editor forwarded arguments that there is a need of a new assessment based on the fact that police has concluded the case. A Friday afternoon came a note from Council man Arne Skogbakken that the owners have decided to accommodate the request for access. The report was to be made available the following Monday. It is in every way good. That documents have been exempt from public disclosure has angered many and could have caused to undermine confidence not only in the management and control of companies but also in the owners. After all, we are talking about two companies that are both owned by municipalities and counties.The representatives on the board and in the general assemblies are thus representing all of local inhabitants and not themselves. Where were board members? The boards of both companies were reelected in June. It has puzzled many. Chairman of HRB has previously stated that the report is pointing in a certain direction, but he wanted not to expand on this. That Friday afternoon came a strong indication. Then HRB board stated in a press release that CEO John Ottesen had resigned in July. We would be surprised if not the report also points to board and auditor liability. What about the white-collar criminal? The chief financial officer in his 40s was under investigation in the spring of 2014 for embezzlement of between NOK 17 and 18 million (approximately US$3 million) from Hadeland and Ringerike Broadband. The man was previously convicted of economic crime. According to chairman Kai Glemmestad, the company has an annual turnover of NOK 75 million. The case became known to the board of HRB in March 2014 as a result of another police investigation in Romerike police district. The investigation was led by police officer Ena Bisevic in Romerike police district and later transferred to police lawyer Frode Aabak in Vestoppl and police district. According to police, the suspected man has spent the money on house, cabin, and car. Hadeland and Ringerike Broadband is owned by three municipal power companies, and those who can lose money because of the crime are thus the inhabitants of the municipalities. A second person was charged in the case, but that person should not be related to the company. The firm Deloitte has been auditor for the broadband company. Since 2011, Lars Brorson has been convicted of embezzlement and tax evasion, and he has spent about three years in prison. He has been employed in accounting services firms such as Manpower. It turned out


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that Hadeland Energy was familiar with the man’s past economic crime when he was hired in 2009. The case was uncovered on March 10, 2014, in connection with police investigations of another firm for tax and accounting offenses in the neighboring police district Romerike. The accused CFO did accounting for this business, in addition to his job at the broadband company. He was also charged for these offenses, making the total add up to NOK 20 million. Norwegian daily newspaper Dagbladet wrote the following story about the case under the heading “20 million in three years for cabins, cars, wine and brandy” (Andersen, 2014: 9): A previously convicted CFO in his 40ies has admitted embezzling 20.9 million kroner from two municipality- and county-owned energy and broadband companies in Hadeland over a period of three and a half years. A sensationally large amount compared to the short time and the companies’ turnover of 48 million annually. It is obvious that both missing employment procedures, his wide powers in the position, as well as the board’s lack of expertise has caused the company to be out of control. And it is strange that the largest owner reelects the chairman long after the financial crime is known, says professor Petter Gottschalk, Norwegian Business School to Dagbladet. He has written several books on economic crime, teaches criminal justice, and he researches four hundred white-collar crime cases in the last six years, where people have abused their positions to “help themselves.” Also, the unfolding of embezzlements in Hadeland Energy and Hadeland and Ringerike Broadband happened by chance, as professor Gottschalk has registered for a large part of the four hundred cases successively examined. It was in March this year that the investigation of the embezzlement-accused CFO started in the neighboring police district Romerike. Suspicions were then linked to irregularities of cash flows in a company where the man had an extra job doing accounting. The investigation in the neighboring district led to charges of embezzlement at the main employer Hadeland and Ringerike Broadband. The amount grew rapidly from roughly 10 million to 18 million kroner. When Vestoppland police district concluded the case and referred it to the public prosecutor yesterday, the sum of money he was charged for had increased by an additional 2.9 million to 20.9 million. The accused has acknowledged all conditions, and there is no reason to believe that there is a greater amount astray in this matter now. We believe we have a good overview, also over what the money has gone into. It’s all


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about houses and cottages, car purchases and very high personal consumption, says police lawyer FrodeAabak to the newspaper Hadeland.

Andersen (2014: 9) wrote that “20 million in three years were spent on cabins, cars, wine and brandy.” However, it turned out that only half of the money was spent that way, the other half was spent on luxury consumption. Police seized a house, two cottages, two cars, cash, and exclusive wines—and a cognac collection. The CFO accused of and convicted for embezzlement served a total of three years and three months in prison after being convicted of similar crime in 2002 and 2004. In addition to charges of gross embezzlement of 18.9 million from Hadeland and Ringerike Broadband and 2.2 million from the principal owner Hadeland Energy from 2010 to 2014, he was also charged with accounting and tax offenses in the case handled by Romerike police district. The man from the town of Lunnernorth of Oslo in Norway was employed as accountant in Hadeland Energy in the autumn of 2009 and promoted to CFO of subsidiary Hadeland and Ringerike Broadband in February 2011. The accused’s defense lawyer Kenneth Strømme Gundersen said that his client informed about the second punishment, but not the first, before he got the job as CFO. The auditor had “no comments” to the accounts in Hadeland and Ringerike Bredbånd in recent years.

CONVENIENCE

IN THE

ORGANIZATIONAL DIMENSION

The organizational dimension is at the core of convenience theory. It is the organization that provides opportunity for financial crime and make crime appear to be legitimate or make crime disappear among legitimate activities. In certain positions in organizations, individuals have access to resources and opportunities that make white-collar crime convenient. There is no or little risk of detection, and carrying out criminal activities is easily completed within other professional activities at work. Yusuf Acar had a convenient organizational opportunity to arrange recruitments where he could benefit financially himself in terms of kickbacks. Henriette Walter was in charge of returned property tax refunds that she embezzled. Are Blomhoff was alone responsible for establishing a nursing home and embezzled some of the money transferred from Norway to Spain. Lars Brorson was in charge of both ends of money


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transfers within a group of public companies where he could conventiently transfer some of the money to himself. All these cases illustrate opportunity properties as suggested by Benson and Simpson (2015): (1) the offender has legitimate access to the location, systems and networks required to commit crime, (2) the offender has no victim in sight, and (3) the offender’s actions are hidden in legal transactions giving them an appearance of legitimacy. While there always is a victim, victimization is not perceived my the offender. In all our four cases, the employer was the victim. Thus, the formulation of Benson and Simpson (2015) that the offender is spatially separated from the victim has to be modified to mean that the employer is not perceived as a victim. Similarly, Benson and Simpson’s (2015) third property that the offender’s actions have a superficial appearance of legitimacy has to be modified to mean that the offender’s activities have a superficial appearance of legitimacy, where the offender commits crime in the course of legal activities. Opportunity is dependent on social capital available to the criminal. Acar was good at networking, Walter was good at performing her job, Blomhoff was good at creating trust, and Brorson was good at taking on tasks involving more responsibility. The structure and quality of social ties in relationships shape opportunity structures. For example, an executive who has hired a manager may trust the manager to a larger extent, simply because the executive was responsible for the recruitment and is unwilling to see shortcomings in the manager. This was the case with Lars Brorson, who enjoyed trust far beyond what was reasonable in his position. Lack of suspicion toward Henriette Walters can be explained by the gender perspective, where men are more likely than women to be suspected of financial crime (Benson and Gottschalk, 2015).


CHAPTER 6

Behavioral Convenience

Abstract The third and final dimension of convenience theory is concerned with attributes of individuals who make financial crime by whitecollar criminals convenient and not problematic for them. Important theories include neutralization techniques and differential association. Evidence of behavioral convenience can be found in reports of investigations in both Norway and the USA. Keywords neutralization technique  self-control  personal strain  slippery slope

INTRODUCTION Convenience may be derived from learning by differential association (Sutherland, 1983), from benefits that exceed costs as a rational choice (Pratt and Cullen, 2005), from lack of self-control (Gottfredson and Hirschi, 1990), from strain (Langton and Piquero, 2007), from absence of perceived deterrence (Comey, 2009), from obedience to authoritarian others (Baird and Zelin, 2009), from fear of falling (Piquero, 2012), from negative life events (Engdahl, 2014), from sliding on a slippery slope (Welsh et al., 2014), from neutralization of potential guilt feelings (Sykes and Matza, 1957), and from avoidance of social conflict (Petrocelli et al., 2003). In this chapter, the remaining case of convicted

© The Author(s) 2016 P. Gottschalk, Explaining White-Collar Crime, DOI 10.1007/978-3-319-44986-9_6

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white-collar criminals in the USA is presented as well as the remaining three cases of convicted white-collar criminals in Norway.

US CASE OF BERNARD EBBERS

AT

WORLDCOM

Ebbers at WorldCom was investigated by Wilmer and PwC (2008). Ebbers directed significant energy to building and protecting his own personal financial empire, with little attention to the risks these distractions and financial obligations placed on the company that was making him one of the highest paid executives in the country. It was when his personal financial empire was under the greatest pressure—when he had the greatest need to keep WorldCom’s stock price up in order to avoid margin calls that he could not meet—that the largest part of the fraud occurred. And it was shortly after he left that it was discovered and disclosed. The fraudulent corporate culture began at the top. Ebbers created the pressure that led to the fraud. He demanded the results he had promised, and he appeared to scorn the procedures (and people) that should have been a check on misreporting. When efforts were made to establish a corporate code of conduct, Ebbers reportedly described it as a “colossal waste of time.” He showed little respect for the role lawyers played with respect to corporate governance matters within the company. While we have heard numerous accounts of Ebbers’ demand for results—on occasion emotional, insulting, and with express reference to the personal financial harm he faced if the stock price declined—we have heard none in which he demanded or rewarded ethical business practices. Ebbers was autocratic in his dealings with the board, and the board permitted it. With limited exceptions, the members of the board were reluctant to challenge Ebbers even when they disagreed with him. They, like most observers, were impressed with the company’s growth and Ebbers’ reputation, although they were in some cases mystified or perplexed by his style. This was Ebbers’ company. Several members of the board were sophisticated, yet the members of the board were deferential to Ebbers and passive in their oversight until April 2002. An example of the board’s deference is its failure to challenge Ebbers on the extent of his substantial outside business interests (and the resulting claim on his time and energies). Those interests included a Louisiana rice farm, a luxury yacht building company, a lumber mill, a country club, a trucking company, a minor league hockey team, an operating marina, and a building in downtown Chicago. Most properly run boards of directors


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would probably not permit a chief executive officer to pursue an array of interests such as these, certainly not without careful examination of the time and energy commitments they would require. Yet there seems to be no evidence of any such challenge. Ebbers dominated the board meetings, which followed a consistent format. Each meeting opened with a prayer. A series of presentations— generally done fairly quickly—followed. Typically, the chairmen of the audit committee and compensation and stock option committee, Bobbitt and Kellett, respectively, each reported to the board. Michael Salsbury, general counsel, reported on legal and regulatory issues. The fragmentation of the legal department was Ebbers’ choice. None of the company’s senior lawyers was located in Jackson. He did not include the company’s lawyers in his inner circle and appears to have dealt with them only when he felt it necessary. He let them know his displeasure with them personally when they gave advice—however justified—that he did nutlike. In sum, Ebbers created a culture in which the legal function was less influential and less welcome than in a healthy corporate environment. WorldCom marketed itself as a high-growth company, and revenue growth was clearly a critical component of WorldCom’s early success. In the 1990s, WorldCom was often cited as atop “growth stock.” Analysts marveled at WorldCom’s ability to “outgrow an industry that was outgrowing the overall economy,” and Ebbers repeatedly trumpeted the company’s impressive record on revenue growth during his quarterly conference calls with analysts. As Ebbers stated in 1998, “[WorldCom’s] industry leading and accelerating revenue growth, combined with a demonstrated track record of margin expansion, are cause for optimism as we continue our relentless pursuit of increasing shareholder value.” This growth was both critical to WorldCom’s stock market valuation, and to its ability to use its stock as currency for compensation and expansion. Beginning in September 2000, the compensation committee extended to Ebbers a series of loans and guaranties that, by April 29, 2002, reached approximately $408 million (including interest). These loans and guaranties enabled Ebbers to avoid selling most of his WorldCom stock in response to the demands of those banks from which he had borrowed substantial sums of money. The loans from WorldCom provided Ebbers the funds with which to conduct his personal business affairs at advantageous interest rates. In making these loans and guaranties, WorldCom assumed risks that no financial institution was willing to assume. The


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company did not have a perfected security interest in any collateral for the loans for most of the time period during which they were outstanding. The price of WorldCom stock continued to decline during 2000, and Ebbers continued to face margin calls from his lenders. By September 6, 2000, the day of a scheduled meeting of the compensation committee, the stock price was down to $30.27 a share. Shortly before the meeting, Ebbers told Stiles Kellett, the committee’s chairman, about the margin calls he was facing, and they discussed the possibility that the company would give him a loan. There is conflicting evidence whether it was Ebbers who first suggested the loan. Kellett agreed to take the matter to the committee. At the meeting that followed, the committee directed the company to give Ebbers a $50 million loan and—as part of the retention bonus program then being applied to many WorldCom employees—pay him a $10 million bonus. At some point, in-house counsel to the compensation committee discovered that Ebbers was withdrawing money from the direct loans for use in connection with his other companies’ operating expenses. When confronted with this fact, Ebbers justified the use of the money for these other businesses as necessary in order to avoid impairing the value of these assets. Instead of objecting and demanding that Ebbers use the loans only for their intended purpose, however, the committee accepted this rationale, concluding it was in the company’s interest that these assets remain unimpaired so that Ebbers could sell them, if necessary, and repay WorldCom. After discovering Ebbers’ other uses of the loan proceeds, the company characterized the purpose of the loans more neutrally in its filings with the SEC: “We have been advised that Mr.Ebbers has used, or plans to use, the proceeds of the loans from WorldCom principally to repay certain indebtedness under loans secured by shares of our stock owned by him and that the proceeds of such secured loans were used for private business purposes.”

US CASE

OF

KERN WILDENTHAL

AT THE

UNIVERSITY

OF

TEXAS

This case is different from other US cases presented so far, since there was never any prosecution or conviction of Kern Wildenthal. His case is nevertheless included here, since the internal investigation by Breen and Guberman (2012) document misconduct that was caused by convenience. Wildenthal had successfully created a medical center at the University of


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Texas, and he felt entitled to benefit from the success in the behavioral dimension of convenience theory. Dr. Wildenthal had a broad mandate to spend university funds for fundraising, promotion of reputation and recruiting, which largely left his travel and entertainment expenses to his discretion and judgment. Wildenthal’s spending was generally consistent with a well developed and successful fundraising strategy, which focused on a small number of individuals with the financial capacity to make large donations. However, he exercised questionable judgment by mingling his business and personal travel and entertainment expenses. Breen and Guberman (2012) argue that as a leader of and key official at a public institution, Wildenthal’s conduct is subject to public scrutiny and is inevitably viewed by others at UTSW as an example of how to act. Nevertheless, his spending at times tested the boundaries of permissible travel and entertainment expenses under the UT System and UTSW rules. UT System and UTSW had adequate policies, procedures, and internal controls in place that provided a mechanism for approval, documentation, reporting, and auditing of Wildenthal’s spending, but they were not enforced at UTSW. His spending was not in all instances sufficiently documented to show the predominant business purpose and benefit to UTSW, and as a result, it was not subjected to meaningful review. Wildenthal’s travel and entertainment expense reports frequently contained inadequate information and sometimes did not even include a signed acknowledgment by him. Such expenses were routinely approved by UTSW’s chief business officer without any inquiry. The practices at UTSW disregarded UT System policies in place because Wildenthal was never questioned about the adequacy of the listed business purpose for his travel or benefit to UTSW. The investigation by Breen and Guberman (2012) revealed too much dependence on the audit process by personnel at UTSW. Individuals responsible for approving presidential expenses admitted to relying on the audit process, rather than themselves inquiring about questionable expenses or inadequate business purposes for expenses. Dr. Wildenthal’s mingling of business and personal expenses forced him to frequently make decisions as to which expenses were for business and which were personal. He was a busy man, and it was not at all obvious what could count as business expenses and what should account for personal expenses. For example, he traveled to New Zealand for more than two weeks in January 2010. The business purpose for this trip, as


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listed on Dr. Wildenthal’s travel voucher form, was to “Visit the Medical School at the University of Otago.” While on its own, such a visit may qualify as a legitimate business purpose, but the primary purpose of this trip does not necessarily appear to have been business. He designated more days on this trip as vacation days than as work days, and he traveled with his family throughout New Zealand. UTSW reimbursed him for $7,646.60, the cost of his airfare and six nights at a hotel. While Dr. Wildenthal later made a donation to UTSW for this exact amount, the fact remains that he perhaps should never have submitted nor should UTSW perhaps have paid for these travel expenses. In another instance, he traveled to France and Spain with his wife in September 2005. As part of his business purpose for this trip, he explained that he toured the Barcelona Opera House to view its new construction because UTSW was undergoing its own construction projects at the time. This is not necessarily a legitimate business purpose. He split his time on this trip almost equally between work days and vacation days. He was reimbursed by UTSW for both his and his wife’s travel expenses. While he made a donation to UTSW for some of his and his wife’s travel expenses, the fact remains that at least some of these expenses should maybe never have been submitted to or paid for by UTSW. Investigators Breen and Guberman (2012) interviewed Wildenthal. He articulated a business purpose for his trips that were within his broad spending mandate. He described the purpose of some of his trips as “borderline” between business and personal. He explained that the opportunity to introduce donors to opera singers backstage or at dinners was invaluable because it was an experience that he could provide, but which could not be purchased. From a theoretical perspective, neutralization techniques applied by Wildenthal seem to include entitlement on his own behalf and lack of injury or victim (Sykes and Matza, 1957). At the same time, reduced or limited self-control seems to have been present when making business travel decisions (Gottfredson and Hirschi, 1990).

NORWEGIAN CASE

IVAR HENRIKSEN WATER SUPPLY

OF

AT

ROMERIKE

Ivar Thorer Henriksen (born in 1937) at Romerike Water Supply and Waste was investigated by Distriktsrevisjonen (2007). He felt entitled to abuse company funds and get into kickback schemes with suppliers


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because he was successfully running the municipality’s water supply and water waste companies. He had built up and led the water works. For his efforts to build these plants for 35 years, he was in 2002 awarded the King’s Medal of Merit in gold. In 2005, he was forced to resign after Norwegian newspaper Aftenposten through a series of articles had revealed irregularities concerning the operation of enterprises. Aftenposten revealed that Henriksen through a company he controlled in South Africa had acquired 9 farms and turned them into a 100,000 acre hunting farm. Henriksen was sentenced to 8 years in prison for corruption and misappropriation of funds. The revelations in Aftenposten started when the newspaper wrote about economic collusion via his son Pål Henriksen’s companies that the father controlled. The father found it quite acceptable to spend company money on enterprises that had nothing to do with the water works. When asked where he got the money to buy farms in South Africa, he told investigators that was none of their business. Among employees at the water works, there were rumors of fraud. But no one dared to speak out. They feared reprisals from the boss, Ivar Thorer Henriksen, who was known for his whimsical mood and his authoritarian leadership style. The waterworks chief used his power to punish active union leaders with lower wages than others, while loyal employees were rewarded with gifts and free trips. This is documented in the investigation report. Anyone who delivered something to the waterworks also had to give something to Henriksen. All frequently used vendors have contributed to private enrichment of Henriksen. Employees at the waterworks worked privately on Henriksen houses and cottages, but they did not dare to raise the alarm. For Ivar Henriksen was “King of Romerike” after he received the King’s Medal of Merit. Henriksen was nonbureaucratic until the nerve-racking for detailoriented councilors. He could be a hardliner with his authoritarian style. But he was also the epitome of human charm and disarming persuasiveness. Nobody said against him. He was the King of Romerike. Investigators write in their report that Henriksen undoubtedly put a great deal of effort in the water companies. He has managed to build and operate facilities within the water sector that are solid, efficient, and dimensioned for the future. Heriksen had both great technical insight and was energetic and innovative in his aim of developing the companies further. The same applies to his interest in searching for new opportunities


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for utilization of energy, especially the sludge and wastewater. He put these opportunities in a broader context that he said needed to be interesting both for the region and society as a whole. Henriksen conveyed the view to investigators that he found he had not gained acceptance and respect as deserved for what he had contributed through many years. He argued that nobody understood his visions of modern water supply and waste. He said his allocation of funds, even to himself, had to be viewed in a larger context of great plans for the future. The investigation team received numerous independent explanations showing that Henriksen often had an authoritarian behavior, especially toward employees, but also toward representatives of suppliers. Toward locals and munipalities served by his waterworks, however, he was always friendly and helpful. For example, outside a nursing home in Romerike, he got built a water fountain that the residents very much enjoyed. When the police was lacking space for a landing platform for its helicopter, he got a free space paved for it. Henriksen’s changing mood created uncertainty and distance to employees. Several interviewees stated that on days with bad mood, it was best to stay away from Henriksen. Henriksen made his temperament unleash in the presence of employees and others. A representative of a foreign supplier was physically attracted because Henriksen was cursed at something. A hired consultant experienced that he one day came to a locked office door with all his belongings lying on the floor in the corridor. The consultant assignment was abruptly and definitely ended. On the other hand, Henriksen could be generous to those who did a great effort and showed high degree of loyalty. These persons could, for example, receive gifts of various kinds. Henriksen gave on one occasion a big outboard motor as thanks for good work as an employee. In another case, two office employees went on a spa trip to Poland as a reward for, according to the employees, overtime work without payment and otherwise well-completed work. The journey was recorded as a business trip and not reported to tax authorities. Many have also been permitted to buy used cars at a preferential rate. Henriksen decided who should be allowed to buy and at what price. Private purchases where the employee benefited from discounts, were common. Other employees who had problems of one kind or another, could also find that Henriksen was generous and willing to assist in various ways. In this manner he secured himself undoubtedly many faithful supporter in the organization, and employee loyalty to Henriksen grew.


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In interviews with investigators, Henriksen expressed his opinion that he has no respect for political games that often led to lack of decisions and bureaucratic dilatoriness. His impatience and result-oriented attitude combined with what appears to have been a lack of respect for democratic decision-making in inter-municipal companies, led him several times to chose to act first and then afterwards ensure that the respective boards approve his dealings. Henriksen often tried to and succeeded in influencing political processes in municipalities that affected his companies. He was willing to spend substantial resources to get his views across, to stop what he disliked and to initiate what he liked.

NORWEGIAN CASE

OF

LEIF WALLE

AT

FURUHEIM FOUNDATION

Former deputy mayor of Øyestad admitted to misconduct and embezzlement. The police seized assets for NOK 35 million. The 65-year-old Leif Walle gave an unreserved confession during interrogation. He has previously been head of the joint council of churches in the town of Arendal, and was once deputy mayor of Øyestad, which was merged with Arendal in 1992. Walle was in 2012 indicted for serious financial fraud and gross embezzlement as chairman and CEO of the Furuheim Foundation home for seniors. Walle was sentenced to three years in prison. A convenient perspective in the behavioral dimension was the dual role often taken by Walle. He was on the board making decisions to grant projects to companies that he owned. He may have been convinced that his own companies were indeed the best to carry out construction and maintenance projects for the foundation on the home for seniors. His dual role also involved financial transactions from which he could profit. He felt that he and his companies could benefit without the foundation suffering any losses. In a case where he personally benefitted, he argued that he had done his utmost to get others to take over the project, without success. The investigator from Hald (2006) law firm did not believe him. Walle profited from ambiguity and misunderstandings, for which he felt he was not to be blamed, for example when he took over apartments in his dual role (Hald, 2016: 28): It also emerged that Walle had sold apartments and agreed on sales prices, and then later discovered that the apartments were actually larger/better than what was assumed at the time of the sales transactions.


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As chairman of the board, Walle made a contract with himself as the chief executive officer. Walle was to record his hours as the CEO and get paid accordingly. Walle as chairman approved his own time sheet. Although he made a nice salary as the CEO, he felt he did a lot of good work for the foundation. He claimed to be the innovative and driving force on behalf of the Furuheim foundation. Walle was not only in dual roles of chairman and CEO. He was also head of the election committee in the foundation. Walle was formally in charge of all bank accounts owned by the foundation, and he could sign any money transfer without a need for a co-signature. He managed bank accounts as his own personal accounts, and he claimed he did only what was best for the foundation. Foundation Furuheim was created by Øyestad health association. The foundation’s objective is to acquire and undertake construction of appropriate housing for seniors and rent out homes in these buildings. The foundation also has the purpose of constructing and maintaining other kinds of buildings, such as car ports and vacation houses, when they are to be used by occupants in foundation houses. The foundation is to be headed by a board of five members. Walle was running the foundation because he found that others were reluctant to involve them selves (Hald, 2016: 34): We assume that some of those who have served on the board simply did not wanted to sit there. Several board members stated that they were persuaded or felt they had to, among others because Leif Walle had talked with them. They did apparently not learn about their responsibilities as board members, and they have assumed that “Leif Walle will fix all of it”. It is understandable that one can end up in a board position without fully understand what responsibilities you have, especially in the case of this type of organizations with ideal purposes, but it is also obvious that when making decisions in cases that occasionally touches values for millions of kroner, everyone ha an independent responsibility regardless, if there are subsequent questions about the decision made.

Leif Walle may have assumed that he carried the burden of the foundation on his shoulders alone. He may have felt that he could not count on others in voluntary work and formal positions in the Furuheim foundation. From a theoretical perspective, Walle may think that he carried out rational choices both on behalf of the foundation and on behalf of himself


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(Pratt and Cullen, 2005). He may have been short on self-control (Gottfredson and Hirschi, 1990) as he had taken on many conflicting roles. Strain theory might also apply (Langton and Piquero, 2007), as Walle alone was to make a number of decisions since others were reluctant to participate. He might also have been on a slippery slope (Welsh et al., 2014), where he did not notice that he moved from legal to illegal activities. In terms of neutralization (Sykes and Matza, 1957), Walle probably denies injury, and he probably claims entitlement. For some illegal actions, he may claim dilemma tradeoff, whereby he made a reasonable tradeoff before committing the act (Siponen and Vance, 2010).

CONVENIENCE

IN THE

BEHAVIORAL DIMENSION

Deviant behavior by white-collar criminals finds a number of explanations in the research literature. Differential association with other offenders, rational choice to commit crime, lack of self-control, removal of strain by criminal acts, lack of deterrence, obedience and loyalty, fear of falling, negative life events, sliding on a slippery slope, and neutralization of misconduct are some of the explanations found in the literature. Bernard Ebbers felt entitled to do what he did. When he became subject to strain because of poor business performance, he carried out manipulations based on low self-control. He neutralized his misconduct by claiming entitlement. It seems that crime was a rational choice for him. Kern Wildenthal also felt entitled to do what he did. He had successfully found sponsors who funded university activities. Some of the funding he felt entitled to spend on travels that were combinations of business and pleasure travels. Again, neutralization is present in terms of entitlement. Also, when been made aware of big private spending, it seems that he was on a slippery slope from legal to illegal activities. Ivar Henriksen is first and foremost a case of deterrence prevention. He felt so powerful that whatever he did, nobody could stop him. He would expand business activities into areas that had nothing to do with the core water business. He was in charge of benefits, such as obsolete vehicles that were given away to loyal and favorite employees. Leif Walle is a slightly different kind of criminal. He may have argued that he created synergies by combining his elective positions with his business enterprise. He felt he was the only one who really cared for the foundation. Differential association can be found in his case as he worked


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closely with another criminal entrepreneur. It was probably a rational choice to abuse his elective position to promote his own business enterprise. Galvin et al. (2015) suggest narcissistic organizational identification as an explanation for behaviors that exploit the organization. Such narcissistic identification can be found in all four cases of Ebbers, Wildenthal, Henriksen, and Walle. Narcissistic organizational identification is a form of organizational identification that features the individual’s tendency to see his identity as core to the definition of the organization.


CHAPTER 7

The Case of Skjervøy in Norway

Abstract This case study is concerned with a report of investigation about white-collar crime suspicion among important individuals involved in politics on the island of Skjervøy in the northern part of Norway. Nobody on the island has ever been investigated, charged, prosecuted, or convicted of financial crime in this case. However, rumors, accusations, and critical media reports have followed key individuals on the island for more than a decade. The case study attempts to discuss potential misconduct and crime in the Skjervøy case by application of the convenience theory. Keywords case study  internal investigation  religious organization  crime suspicion

INTRODUCTION In the economical dimension, powerful individuals on the island of Skjervøy all belong to a special religious group that provides benefits to group members and family members. In the organizational dimension, group members are on both sides of the table—they are on the council of the municipality providing funding to projects run by group members on the board of companies. In the behavioral dimension, group members

© The Author(s) 2016 P. Gottschalk, Explaining White-Collar Crime, DOI 10.1007/978-3-319-44986-9_7

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adhere to church rules rather than legal rules, where they can confess their sins to priests and trusted members of the church. This case study is concerned with suspected white-collar crime. It is not about actual white-collar crime. All persons mentioned in the case study are innocent at the time of writing this case study.

THE ISLAND

AND

MUNICIPALITY OF SKJERVØY

Skjervøy is a municipality in Troms county in Norway. The administrative center of the municipality is the village of Skjervøy on the island of Skjervøya, where most of the three thousand inhabitants live. The main industries are fishing and shipbuilding. The municipality of Skjervøe (later spelled Skjervøy) was established in 1838. In 1963, the southeastern (inland) part of the municipality was separated from the new municipality of Kvænangen. Then in 1886, the southern part of the municipality was separated from Skjervøy to form the new municipality of Nordreisa. The island municipality of Skjervøy is surrounded by the Norwegian Sea to the north, Ullsfjorden to the west, Lyngenfjorden to the southwest, Reisafjorden to the southeast, and Kvænangen fjord to the east. The municipality consists of several islands, the major one being Arnøya, with the villages of Årviksand, Akkarvik, and Arnøyhamn. Most people, however, live on the relatively small island of Skjervøya. The other islands include Haukøya, Kågen, Laukøya, Vorterøya, and the northern part of Uløya. Kågen and Skjervøya are connected by the Skjervøyabridge. Kågen is connected to the mainland by the Maursund tunnel. The Church of Norway has one parish within the municipality of Skjervøy. It is part of the Nord-Troms deanery in the Diocese of NordHålogaland. Many inhabitants in Skjervøy municipality are laestadians. Laestadianism is a conservative Lutheran revival movement started in Lapland in the middle of the nineteenth century. Named after Swedish state church administrator and temperance movement leader Lars LeviLaestadius, it is strongly marked by both Pietistic and Moravian influences. The Moravian church is one of the oldest protestant denominations in the world, with its heritage dating back to Bohemian reformation in the fifteenth century. Laestadians in Norway are members of the Church of Norway. Laestadianism is the biggest revivalist movement in the Nordic countries. It has members mainly in Finland, North America, Norway, Russia, and Sweden.


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The movement shares many essential teachings including a central emphasis on the Lutheran doctrine of justification (forgiveness and grace). They claim to be true Christians through their lifestyle and beliefs, and they expect to be the only ones reaching the kingdom of heaven. The church teaches that every believer has the authority to testify that others’ sins are forgiven, sometimes referred to as the audible declaration of the forgiveness of sins. Roy Waage (born 1963) is a Norwegian politician for the Coastal Party. He was mayor of Skjervøy for many years. Waage was originally a member of the Christian Democrats, serving as a deputy representative to the Norwegian parliament from Troms during the term 1997–2001. He switched to the Coastal Party after it was created in the late 1999. He was a top candidate for the party in Troms in the 2001 election, but marginally failed to get elected. In the 2003 local elections, he was elected member of the Troms county council and reelected mayor of Skjervøy. In 2005, he was appointed chairman of the party, a position he held until 2007. The party failed to get legislative representation in the 2005 election, but Waage was again re-elected mayor of Skjervøy in the 2007 local elections. Waage is a laestadian.

KOMREV INVESTIGATION

IN

SKJERVØY

KomRev (2015) investigated suspicions of white-collar crime in Skjervøy. The report of investigation is 145 pages long and covers a number issues as defined in the mandate: 1. The municipal council asks for an overview of grants, loans, and payments from and to Skjervøy Fisheries Development. 2. The municipal council asks for a report on the statutes and any other guidelines that applied to the management of funds in Skjervøy Fisheries Development. 3. The municipal council asks for an explanation of whether the use of funds and awards that have taken place in accordance with the statutes and other guidelines for the operation. 4. The municipal council asks for a report on whether the allocation of funds has taken place in accordance with the formal rules of decision-making in the competent forums in the company. 5. The municipal council asks that the loan/grant of NOK 3.1 million to Årvikbruket Eiendom is investigated and explained, including how the loan/grant was used in the company.


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6. The municipal council asks that it be investigated and explained the loan of NOK 4.5 million to Skjervøy Seafood, including whether Skjervøy Fisheries Development was aware that the assets were leased before the loan was disbursed. 7. The municipal council asks that it be investigated and explained the loan of NOK 2.5 million to Industrial Park Skjervøy, including their relationship between the loan and the former sale of Industrial Park Skjervøy to West Contractors. 8. The municipal council asks that it be investigated and explained what security and control that were established for the loans/grants so they be used for the purpose they were granted. The main theme of the report of investigation by Kom Rev (2015) is Skjervøy municipality’s enterprise Skjervøy Fisheries Development’s allocation of NOK 15 million that the municipality had been paid from Nergård in connection with the Nergård group’s closing down its fishing industry in Skjervøy. Skjervøy Fisheries Development was established in 2010, and according to the statutes was to fund specific initiatives and projects in fisheries and in aquaculture. The management of Nergård funds had been the subject of critical issues in the local community and the council. Investigators conclude after investigations of Skjervøy Fisheries Development that appropriations and disbusements of loans and grants from the company with some exceptions were made in accordance with the company’s bylaws, formal decision-making rules, and conditions of the award decision. Investigators also conclude that there were no established general control procedures to ensure that payments from the company were used for the purposes they were granted for. However, board decisions for several fund allocations described conditions that could enable donor control over the funds disbursed. Board decisions specified purposes for funding, and the company’s chairman exercised de facto control of some of the payments. As regards the grant to Årvikbruket Eiendom and the recipient’s use of the funds, investigators identified that Årvikbruket Eiendom used most of the funds to make up for an invoice from Årvikbruket, which operates the fish industry that is owned by the municipality. The invoice concerned remodeling and improvement work at the fish factory as specified by the operating company. The maintenance work had partly been provisioned and paid for and partly would soon be


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performed. After what investigators had found out, there was no evidence which of the invoiced improvements related to Nergaard funds that were actually performed. Nevertheless, Årvikbruket Eiendom paid the invoice. Investigators conclude that the invoice does not satisfy requirements related to valid sales documents. Investigators’ analysis of publicly available accounting figures for Årvikbruket provides no guidance to the extent of maintenance work performed. From the bottom line figures for 2008 and 2009, it is obvious that the company itself had no funds to conduct regular maintenance work (KomRev, 2015: 5): Our financial analysis of the two aforementioned years as a whole shows that without receiving revenues of 3,85 million as a result of the invoice to Årvikbruket Eiendom, the equity at Årvikbruket would be negative at 3,944 million. On request from investigators, an engineer has considered whether the 22 improvements funded actually had been carried out. In numbers, most of the improvements are completed. However, the most expensive innovations have only partly been completed.

Investigators also studied how the board at Årvikbruket Eiendom had handled issues related to renovation work at the fishery. Work by the board is scarcely documented. Investigators conclude that Årvikbruket Eiendom’s reimbursement of the invoice from Årvikbruket is a violation of Norwegian accounting laws. The fraud examiners interviewed a number of persons as listed in Table 7.1. Some may be considered suspects, while others may be considered witnesses. Halvar Solheim, Reidar Mæland, Rune Stifjell, FrodeSchultz, TorgeirJohnsen, Cissel Samuelsen, Ingrid Lønhaug, and Elin Einarsen were not laestadians. Among these people, Halvar Solheim, Reida rMæland, Rune Stifjell, and Ingrid Lønhaug may have benefitted financially from cooperating with the laestadians. In addition to interviews listed in the table, investigators had shorter conversations with former and current board members at Årvikbruket Eiendom: Elin Merete Johannessen, Irene Toresen, KolbeinSimonsen, Pernille Jørgensen, and Kurt Michalsen. Although bailiff Henning Engen was interviewed by investigators on January 7, 2015, the interview is omitted in the list of intervjuews in KomRev’s (2015) report on page 26. Henning Engen thinks the reason why he is not on the list is that the interview was simply not planned (email from Henning Engen on January 1, 2016):


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Table 7.1 (2015)

Actors in the Skjervøy case and completed interviews by KomRev

Person

Roles at Skjervøy

Interviewed

Roy Waage

He has been mayor of Skjervøy for 16 years, deputy mayor for 8 years, chairman of Skjervøy Fisheries Development, chairman of Industrial Park Skjervøy, general assembly alone for company owned by the municipality, handpicked board members for various companies, denied other politicians insight into publicly owned companies by referring to company regulations and laws. Chief accountant for ÅrvikbruketEiendom, chairman of the board at Årvikbruket and previous accountant for Industrial Park Skjervøy, appointed by Roy Waage as Skjervøy municipality’s representative on the board of North Troms Energy. In addition, board member at Kvænangen Power Station, Arnøytind, and Arnøy- and Laukøy-ferry. Contact person at Årvikbruket Eiendom, Skjervøy Maritime Center and Redskapshuset. He has been chairman of the board at Industrial Park Skjervøy and at ÅrvikbruketEiendom. Surveyor and leader of Skjervøy church ward. He estimated the value of ÅrvikbruketEiendom at a time when he was chairman of the board, on behalf of Årvikbruket. Board member at Årvikbruket and Årvikbruket Eiendom. President at Brødrene Albrigtsen. He owns 24% of Årvikbruket.

21.11.2014 26.03.2015 29.04.2015 06.05.2015

Halvar Solheim

Øyvind Isachsen

Håvard Albrigtsen Andor Albrigtsen Ørjan Albrigtsen Reidar Mæland Rune Stifjell Dag Roar Stangeland Torgeir Johnsen Cissel Samuelsen Ingrid Lønhaug

Current mayor and representative of the Coastal Party on the municipality council. He was councilman in the municipality. He was chief financial officer in the municipality. Retired chief of police for the region. He has been mayor in Skjervøy municipality and chairman of the Skjervøy Fisheries Development. Council leader at Skjervøy kommune. Current deputy mayor and representative of the Labour Party on the municipality council and previous member of the board of Skjervøy Fisheries Development.

26.03.2015

16.02.2015

Not interviewed Not interviewed Not interviewed 26.03.2015 Not interviewed Not interviewed 03.12.2014 05.06.2014 16.02.2015


7 THE CASE OF SKJERVØY IN NORWAY

Table 7.1

97

(continued)

Person

Roles at Skjervøy

Interviewed

Frode Shultz

Consultant in the municipality administration at Skjervøy. He has been board member of Skjervøy Fisheries Development. He has been board member of Skjervøy Fisheries Development. He has been board member at Skjervøy Fisheries Development. Bailiff at Troms police district, Skjervøy sheriff’s office, since 2006. Retired chief financial officer submitted only two cases from the municipality to the bailiff from 2006 to 2013. After Stifjell left, the municipality has submitted hundreds of cases to the bailiff. In 2014, Engen as bailiff has an increase of 30% in cases at Skjervøy sheriff’s office. Tax collector at Skjervøy. He revealed the scandal at Skjervøy sports club. He has raised a number of issues with auditors about misconduct in the municipality.

16.02.2015

Helge Andersen Elin Einarsen Einar Lauritzen Henning Engen

Osvald Isaksen

17.02.2015 17.02.2015 26.02.2015 07.01.2015

Not interviewed

I documented a number of dubious/illegal acts. I think simply Lars-André Hanssen (chairman of KomRev) has censored my interview and will not use the information I provided, because it may appear in retrospect what bad job KomRev has done for years as auditors in Skjervøy municipality. This is probably the reason why they never interviewed the tax collector at Skjervøy. He has for years raised issues concerning illegal circumstances and crime in the municipality without auditors acting on documented misconduct.

Kom Rev-leader Lars André Hanssen responded to these accusations to me in an email January 4, 2015: Henning Engen, who had no formal roles in any of the companies or businesses under investigation, is generally referred to as “others.”

Some of the actors in the Skjervøy case were not interviewed at all by investigators. KomRev (2015) argues that they have interviewed key people in the municipal companies Årvikbruket Eiendom, Skjervøy Fisheries Development, and Industrial Park. A key person is Håvard Albrigtsen, who was member of the board of Årvikbruket at the same


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time as he was involved in municipality companies. Investigators might have interviewed him about where the money went. When the committee for control in Skjervøy municipality received the investigation report from KomRev (2015), they were not quite happy with it. Although they found the report thorough and detailed, they found the report’s assessments, conclusions, and summary vague and in many instances difficult to understand: “The combination of a very detailed report and unclear conclusions and summaries have made the report difficult available.” Table 7.2 shows the committee’s evaluation of the report of investigation in relation to the mandate. Out of eight tasks in the mandate, KomRev (2015) has completed four tasks to their satisfaction (Yes), while four tasks were not completed (No). This implies that investigators have not performed the inquiry as defined in the mandate. Investigators have only completed half of the tasks described in the mandate from the control committee in Skjervøy municipality. Therefore, the only issue in Table 7.2 Evaluation of investigation report in relation to investigation mandate

1 2 3

Mandate

Report of investigation completed the task?

Complete overview of transactions Statement on statutes and guidelines Comparison between the criteria and practices

Yes, neat overview of many grants, receipts, disbursements, and loans. Yes, orderly enumeration of criteria based on statutes and guidelines. No, ambiguous conclusion where not determined whether the payments were in line with board decisions. No, fuzzy conclusion that decisions on cases might not have happened contrary to the rules that applied to decisions in Skjervøy Fisheries Development, including eligibility rules. Yes, Årvikbruket Eiendom’s payment of invoice from Årvikbruket, which does not satisfy requirements to a valid sales document, is a violation of provisions in the bookkeeping regulations No, no conclusion. No, no conclusion Yes, investigator concludes that there were established some general control procedures to ensure that payments form the company was used for the purposes they were granted for.

4

Comparison between rules and practices

5

NOK 3.1 million

6 7 8

NOK 4.5 million NOK 2.5 million Security and control of loans and grants


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the investigation report that could be followed up by the municipality council and reported to the police, was issue number 5 in the mandate concerning possible abuse of 3.1 million in Årvikbruket. Suspected white-collar crime should be investigated both in terms of possible crime and in terms of potential criminals. Unfortunately, KomRev (2015: 135) did not do the latter: Investigators have found no reason to question whether some of the decisions of the board of Skjervøy Fisheries Development had particular significance for board members own benefit or anyone close to them such that they had to be regarded as having prominent personal or financial interest in the matter and thus were not objective.

CONVENIENCE

IN THE

ECONOMICAL DIMENSION

The report of investigation from KomRev (2015) must be understood in a larger context. The investigation was implemented as an extraordinary examination, where examiners have to reconstruct and evaluate what happened. The following is some of the media attention that has taken place in the Skjervøy case so that the investigation report can be understood in a larger context. In 2010, journalist Solvang (2010) revealed that Waage earned NOK 3 million on municipal land speculations, and that he withheld information. This happened under the auspices of the Industrial Park, which is housed in the premises of the old shipyard in Skjervøy. A well-known suspicion on the island is that Øyvind Isaksen wrote a fake application for funding, where he knew that the money would not be used for renovation. He is also accused of having accepted an invoice he knew was false. Another notable suspicion is that invoices might have been used for the unwarranted return of VAT. Øyvind Isaksen shall knowlingly have used incorrect information in the application to get grants from Skjervøy Fisheries Development. Some of the money might have ended up in the Coastal Party. Isaksenis thus was suspected of fraud in Årvikbruket. Håvard Albrigtsen may have contributed. The same applies to Halvar Solheim as an accountant (Solvang, 2006). Thus, the motive of the suspected crime might have been to support their own party to win the next election.


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In addition to making money on municipal land speculations, Roy Waage was also suspected of payments, although he knew that equipment was to be leased, not bought. Waage was accused of providing a fictitious mortgage certificate that had no value. The purpose might have been to deceive the other board members of Skjervøy Fisheries Development and the municipal council to make them believe that the company had a pledge in the equipment. Many on the island accuse Waage of fraud. Waage was personally involved in both Skjervøy Seafood and the Industrial Park. Agnew (2014) suggests that misconduct can occur when people have more considerations for others than their own interests. He suggests that social concern may be present rather than simple self-interest. Most leading theories and control policies are based on the assumption that people are self-interested. However, people can be both self-interested and socially concerned. Social concern involves biologically based inclinations that sometimes lead people to give more consideration to others than to their own interests. A prominent member of a church can feel strongly for the greater good of the community and wants to serve members as successfully as possible. Personal inclinations include caring about others, forming close ties to and cooperating with others, following certain moral intuitions, and conforming. Social and religious factors shape social concerns. Social concern may have direct, indirect, mediating, and conditioning effects on misconduct and potential crime. In addition to Agnew’s (2014) theory of social concern, other theories can as well shed light on the Skjervøy case in the economical dimension of convenience. Strain theory suggests that unorthodox and simple solutions are sought when a situation becomes complex and threatening (Langton and Piquero, 2007). Fear of falling theory suggests that people in leading positions are afraid of consequences from failure and therefore try to survive in their positions by applying various means (Piquero, 2012). The theory of goal orientation implies that when ambitious goals are set, and individuals are strongly committed to the goals, then goal achievement is much more important than how the goals are achieved (Jonnergård et al., 2010).

CONVENIENCE

IN THE

ORGANIZATIONAL DIMENSION

Roy Lennart Waage (born 1963) was the leader in the Coastal Party from 2005 and was re-elected mayor in Skjervøy municipality in 2007. The municipality has for many years been characterized by secrecy and by


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alleged scandals in connection with the protocols of the boards of companies wholly owned by the municipality. Those who demanded answers to difficult questions should get it. But it never happened (Solvang, 2013a). Through twelve years as mayor, Roy Waage built a powerbase in the community. The powerbase is founded on a tight family network in the laestadian environment on the island of Skjervøy. It was the newspaper Nordlys with journalists Thor Harald Henriksen and Ola Solvang who revealed that Waage had violated tax law, cheated the auditor, and lied to the tax collector (Henriksen and Solvang, 2007). Laestadians belong to a Lutheran church revival movement that was started by the Swedish priest Lars Levi Laestadius in Swedish Lapland. Alcohol abuse was one of the most important things Læstadius wanted to change. Laestadians are known for their abstinence and their strict form of Lutheran Christianity. In addition to Waage and others interviewed by KomRev (2015), the head of the economic crime team in Troms police district is also assumed to be a laestadian. The investigation report by KomRev (2015) conclude according to Solvang (2015a) that there was systematic misconduct in Skjervøy municipality. Solvang (2015a: 2–3) wrote that it is all about concentration of power, secrecy, and dark shortcuts through legal borders: The report paints a picture of local government at its worst. Here we have a mayor who deliberately leads his colleagues in the council behind the lights into the dark. In one of the cases, he issued a worthless mortgage statement, according to Roy Waage himself, with only one purpose in mind: to put an end to the hassle of critical opposition politicians. There was a chairman of a municipality company who accepted a specified invoice of NOK 4.8 million. In retrospect it was found few traces of the alleged construction work.

A convenience aspect of white-collar crime is that the police is often reluctant to investigate suspicions of financial crime. The police finds it hard to figure out what is legal and what is illegal in organizational settings. Investigators in Troms police district dismissed the Skjervøy case twice (Solvang, 2015b: 18): Friday this week, the control committee in Skjervøy discussed the latest version of the investigation report concerning the use of 15 million from the municipal fisheries fund. A previous police investigation was dropped by the financial


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crime team in Troms police distric. The new inquiries have revealed that no one is able to account for the millions that were allocated to upgrade and renew municipally owned buildings in Årviksand on Arnøya. Fraud examiners have also revealed that the privately owned fishing company, which was leasing the municipal building, sent invoices for work that was not performed.

The police never checked the state of the alleged newly renovated fish factory. When KomRev (2015) vent on inspection by an authorized surveyor, it could be concluded that several of the alleged upgrading measures, which were billed by 4.8 million in 2009, never was completed. The police had in its first review in 2011 ignored this information. In its second review in 2015, the police again ignored this information and dismissed the case. Prosecuting police attorney Einar Sparboe Lysnes dismissed the case in December 2015. Troms police district would not investigate the Skjervøy case, and Lysnes gave the following reason (Solvang, 2015d: 19): • I would like to emphasize that Skjervøy municipality has not submitted a review to the police but requested further investigation of any criminal activities surrounding the management of funds from Skjervøy Fisheries Development. • Have the police concluded that there is no offense committed in this case? • No. We have done an overall assessment to suggest that we should not investigate it. The case is about circumstances that can be found far back in time, and we have previously looked at it without finding any criminal offenses. It would be a comprehensive job to start up a new investigation. We have scarce resources and concluded that we do not want to give priority to this matter. In all cases, and in particular in matters within the category of economic crime, we must ask ourselves the following question: How likely is it that illegal offenses are committed? How costly will it be to find these potential offenses, and will there be any company or individual who can be held criminally responsible? And not least, will we be able to prove guilt, says Einar Sparboe Lysnes. The organizational convenience can here be found in the likely dismissal of white-collar crime cases such as the Skjervøy case by the police (Solvang, 2015c).


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Roy Waage as mayor for many years designated board members in enterprises owned by the municipality. He worked closely with council chairman Øyvind Isaksen in the church, who was at the same time chairman of the municipal company that got NOK 3.8 million municipal money to renovate the fish factory. The money was handed over to a private company where Isaksen had close family ties to one of the owners (Solvang, 2015e). Roy Waage was also involved in the sports club at Skjervøy (Solvang, 2007). When the club was short of money, he got municipal money to fund it. Salary payments to staff personnel in the club were to report to tax authorities. Therefore, Waage was suspected of both misappropriation of public funds and tax evasion (Fjellheim, 2007; Henriksen and Solvang, 2007). Benson and Simpson (2015) suggest that opportunity is the most prominent characteristic of white-collar misconduct and crime. Opportunity arises from positions such as mayor of Skjervøy, council member in the municipality at Skjervøy, chairman, and board member in companies owned by the municipality of Skjervøy, leader of the church congregation at Skjervøy, and owner of private companies doing business with Skjervøy municipality. Opportunity theory emphasizes legal access to premises and resources for misconduct, distance from potential victims, and manipulation within regular and completely legal activities and transactions. In addition to Benson and Simpson’s (2014) opportunity theory, other theories can as well shed light on the Skjervøy case in the organizational dimension of convenience. Institutional theory suggests that misconduct and crime may emerge in organizations with morale collapse as a consequence of missing flow of ideology, regulation, ideas, and mutual influence (Bradshaw, 2015). Agency theory suggests that the principal is not able to control an agent because of lack of insight and access to activities performed by the agent in roles such as mayor or chairman (Eisenhardt, 1985).

CONVENIENCE

IN THE

BEHAVIORAL DIMENSION

Laestadianism holds that when a Christian has committed a sin such as crime, whether in thought or in deed, she or he should confess the sin to another believer. Thus it is a common practice among laestadians in or out of church at any time, but especially during the church service prior to the rite of holy communion, to be confessing their sins to one another or,


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occasionally, to one of the church ministers performing the sacrament. A common declaration is, “Believe your sin(s) forgiven in Jesus’ name and (shed) blood.” Because a laestadian takes very seriously the proposition that grace exists only for one whose sins have been specifically forgiven, there is scarcely another rite in this movement that would rival the importance of the declaration of forgiveness. This doctrine is a unique extension of the priesthood of the believer doctrine. The priesthood of all believers is a doctrine that Christians share a common priesthood in that they have direct access to God through their prayers without requiring a human mediator. The central activities of laestadians are frequent church conventions. The Lutheran laestadian congregation meets in the church at Skjervøy, where everyone learns about the laws of God that are to be followed. Laestadians moved from another island to Skjervøy in the 1950ties, when they no more could practice their own rules, laws, and criminal justice on the other island. They moved almost collectively from one municipality to another, creating strong bonds of solidarity and loyalty. It is probably more important to adhere to the laestadian faith and practice than to Norwegian laws and regulations. Laestadians emphasize the doctrine of sin and forgiveness, just remorse (over sins) and charity. The repentant sinner received absolution through requesting this from a Christian he or she has confidence in or through confession at supper in the church. You do not tell public authorities about misconduct or crime by fellow leastadians. What the person did might have been the will of God, so violating Norwegian law is then not a sin. On the island of Skjervøy, there still exists what is perceived as a closed network, mainly laestadians, who refuses to provide access and insight into municipal activities and companies. They refuse general assembly’s access to share protocols of meetings and minutes (Solvang, 2013b). They argue that the fish factory has been renovated when everyone else can see no sign of it. It is alleged that they lie without blinking their eyes to protect themselves, and they steal from the community without feeling guilt. When they are revealed and confronted, they still refuse—here there seems to be no repentant sinners asking for forgiveness from society. Obedience theory suggests that individuals may engage in behaviors that conflict with their personal values and beliefs if they are subjected to pressures to obey someone in authority. According to this theory, individuals rationalize their behavior by essentially placing full responsibility on the authority figure rather than taking any individual responsibility for the


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action themselves (Baird and Zelin, 2009). The ultimate authority for a Christian person is God, who is interpreted by priests and other prominent members of the laestadian religious movement. Obedience pressure comes from the authority of interpreting the laws of God rather than the laws of Norway. In cases of misconduct and crime, incidents are reported to fellow members of the church who provide forgiveness for sins. In addition to Baird and Zelin’s (2009) obedience theory, other theories can as well shed light on the Skjervøy case in the behavioral dimension of convenience. Slippery slope theory suggests that it is hard to tell when you are on the wrong side of the law (Welsh et al., 2014). Neutralization theory suggests that there is no guilt feeling because victims are hard to find (Sykes and Matza, 1957). Self-control theory suggests that lack of self-control more easily leads to misconduct and crime (Gottfredson and Hirschi, 1990). Differential association theory suggests that it is more convenient to conform to the norms advanced by or embraced by those in the church rather than to deviate in opinion from fellow associates (Sutherland, 1983).

WHITE-COLLAR CRIME

IN

RELIGIOUS ORGANIZATIONS

Financial crime in organizational settings where the common denominator is faith is extremely difficult to detect, investigate, and prosecute. Only by exception are white-collar criminals caught and brought to justice. Are Blomhoff was a respected Methodist pastor and managing director of the Betanien Foundation in Bergen in Norway. He was convicted to prison for embezzlement and fraud against the foundation. Based on the Betanien case and other similar cases, it is relevant to phrase the following questions: Is there too much trust, too much freedom, too much individual authority, too little skepticism, too much loyalty, and too little control of the financial side in religious organizations? Is trust often betrayed in terms of white-collar crime in religious institutions (Fleckenstein and Bowes, 2000)? According to Owens and Shores (2010), most white-collar crime incidents are exploitations of trust, which can be fostered by a shared religious identity between the victim and the perpetrator. Are social religious networks an attractive arena for white-collar criminals (Shores, 2010)? Is the morale of not acting illegally blinded from a chance perspective when an attractive opportunity arises? Do shared religious beliefs lead to less acceptability of white-collar crime (Corcoran et al., 2012)? Many questions are asked and can indeed be put forward concerning white-collar criminals in religious organizations.


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These issues were discussed in the presentation of the Norwegian case of Are Blomhoff at the Betanien Foundation earlier in this book. Heaton (2006) found no empirical evidence for the proposition that religion has a deterrent effect on crime, although sociologists and criminologists have long recognized the potential links between religious belief and delinquent behavior. Hofmann et al. (2014) found that religious and nonreligious participants did not differ in the likelihood or quality of committed moral and immoral acts. Some may argue that it is the will of God, and therefore they can violate the law. Some religious individuals portray themselves as more moral than others (Arnesen, 2014). Valland (2015) reported a case of a father and son, where the son was a pastor in a church as well as employed in the Norwegian military. Father and son were indicted of having swindled the military of several million Norwegian kroner. The father was accused of setting up a fake company from which the son bought and paid for fake services to the military. Thompson and Schmitt (2007) reported the case of Major Cockerham, who was active in the New Friendship Baptist Church. The congregation in the church celebrated Cockerham’s last promotion with a parade. At his son’s baptism, he told fellow worshipers that he hoped to instill in his children the values he had wrested from his hardship. Crockerham was sentenced to 17 and ½ years in prison for accepting bribes from Army contractors (Thompson and Schmitt, 2007). In the Skjervøy case, nobody is prosecuted or convicted. Several were suspected of misconduct and crime. The religious network and milieu feel invincible, and so far they have been right. The police district and the regional sheriff seems to have kept their eyes shut since 1996. There have been a number of misconduct cases involving possible crime over the years, which has been revealed in the media. The regional sheriff always protected the gang. Some inhabitants on the island of Skjervøy do not hesitate to call it mafia business, where a handful of people have enriched themselves at the population’s expense. They have abused the trust they have in terms of their positions. Many found it overdue to get them stopped in 2016. What may seem remarkable in 2016 is that the economic crime team in Troms police district do not follow leads identified by KomRev (2015). They could have chosen to say that they now actually have some new information on the case and start a police investigation into the matter (Solvang, 2015c).


CHAPTER 8

Conclusion

Abstract This chapter introduces a stages-of-growth model for corporate social responsibility (CSR). CSR should include corporate actions to contribute as an active citizen in society to detect and prevent white-collar crime. White-collar crime undermines institutions in society and creates distrust to the elite that manages organizations in society. CSR implies that the organization is looking for opportunities in society where the organization can make a difference. Keywords corporate social responsibility  maturity levels  stages-ofgrowth model  society

This book has used fraud examination reports as case studies from the USA and Norway to develop the concept of convenience toward a theoretical understanding and explanation of white-collar crime. Hopefully, this scholarly analysis has made a contribution to the much needed focus on ďŹ nancial crime and to those whose research is in this sphere. Intellectual interests have traditionally clustered within criminology, but this subject matter is also drawing in others, including scholars of management and organizational behavior. Norway is a small country with ďŹ ve million inhabitants. Some global companies have their headquarters in Norway. Examples include fertilizer company Yara and telecommunication company Telenor. Both companies

Š The Author(s) 2016 P. Gottschalk, Explaining White-Collar Crime, DOI 10.1007/978-3-319-44986-9_8

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operate in a number of countries worldwide. They are expected to respond to the globalization challenge by acknowledging a new political role of business that goes beyond mere compliance with legal standards and conformity with general ethics. However, both companies have been caught in corruption scandals. The Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (â€œĂ˜kokrimâ€?) was prosecuting executives from both companies in Norwegian courts in 2015 and in 2016. While Yara executives were prosecuted for corruption in Libya, Telenor executives were prosecuted for corruption in Usbekistan through the partly owned subsidiary Vimpelcom. The Yara and Telenor cases illustrate that Norwegian chief executives can be held responsible for wrongdoings and misconduct even if they personally were not involved. Chief executives are held responsible for whatever goes on in the organization that they are heading, including crime. Furthermore, the cases illustrate that Norwegian chief executives have not yet understood their responsibility for CSR in general and certainly not for political CSR. Most executives still believe that CSR is concerned with doing good symbolic deeds in local societies by behaving so as to create an image of philanthropists. In this section, we suggest that the powerful concept of stages of growth is extremely important in management research. Stages of growth models have been used widely in both organizational research and information technology management research. These models describe a wide variety of phenomena. These models assume that predictable patterns (conceptualized in terms of stages) exist. The stages are (1) sequential in nature, (2) occur as a hierarchical progression that is not easily reversed, and (3) involve a broad range of organizational activities and structures. Researchers have struggled for decades to develop stages of growth models that are both theoretically founded and empirically validated. A number of multistage models have been proposed which assume that predictable patterns exist in the growth of organizations, and that these patterns unfold as discrete time periods best thought of as stages. These models have different distinguishing characteristics. Stages can be driven by the search for new growth opportunities or as a response to internal crises. Some models suggest that an organization progresses through stages, whereas others argue that there may be multiple paths through the stages. Therefore, a stage of growth theory needs to allow for multiple paths through stages as long as they follow a unidirectional pattern.


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Maturity models can have varying number of stages, and each stage can be labeled according to the issue at hand. Here we suggest the following four stages of growth for CSR, as illustrated in Fig. 8.1: 1. Business stage of proďŹ t maximization for owners within the corporate mission. At this basic maturity level, the company is only concerned with itself and its owners. In addition, the company seeks to please its customers so that they will continue to buy its goods and services. The sole responsibility corporations have is that of maximizing proďŹ ts to shareholders while engaging in open and free competition, without deception or fraud. To make decisions that serve other interests at the expense of shareholders would constitute a breach

Level of CSR maturity

Stage IV Contribution Level Activating corporate actions to contribute as an active citizen in society

Stage III

Corporate executives look for opportunities in society where the company can make a difference.

Resource Level Mobilization of corporate resources to be employed in cases of emergency

Stage II Function Level Establishing CSR function within the company for risk assessments

Stage I Business Level Maximizing profits for shareholders without any other obligations

Fig. 8.1

The company is prepared for crisis management as well as opportunity exploration and exploitation. Opportunities may emerge where corporate executives will implement opportunistic behavior to gain from opportunities in terms of trengthening corporate reputation.

Out of necessity and external expectations, a CSR function is established within the company staffed with individuals who have a business perspective.

The only responsibility corporations have is that of maximizing profits to shareholders while engaging in open and free competition, without deception or fraud.

Development over time

Stages of growth model for corporate social responsibility


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in trust and loyalty. It would be like taking money away from owners and resemble a kind of theft. According to this perspective, corporate executives do not have the right to behave like modern Robin Hood types, taking money from the rich and giving it to the poor. 2. Function stage of establishing a function for corporate social responsibility in the company. At this second maturity level, business executives have understood that they need to address company relationships with the outside world in a professional manner. Out of necessity and external expectations, a CSR function is established within the company staffed with individuals who have a business perspective. The function here is to survey implications of business activities in the external environment; to develop intelligence to learn about external reactions to business practices; and to conduct risk assessments in terms of effects on corporate reputation. Corporate social responsibility can be defined here as a process. The process implies that corporate leaders in the organization reflect over, and discuss, relationships with stakeholders and partners. The process also implies that corporate leaders identify their own and the organization’s roles in relation to societal conditions and societal utility. This kind of reflection and discussion will cause them to endow their roles with relevant content and action. 3. Resource stage of resource mobilization for potential threats and opportunities. At this level, we find a complete, yet passive form of corporate social responsibility. It represents a reactive strategy where the company has mobilized resources for cases of emergency. The company is prepared for crisis management, as well as opportunity exploration and exploitation. Opportunities may emerge where corporate executives will implement opportunistic behavior to benefit from opportunities in terms of strengthening corporate reputation. CSR, at this level, is a concept that causes the company to integrate principles of social and environmental responsibility and induces engagement in the company’s activities, both internally and externally. Two perspectives emerge from this definition. First, CSR implies a strong link to internal business processes; second, interactions with stakeholders and the society at large also require the involvement of stakeholders and the society at large, in terms of their relationships to the company. 4. Contribution stage of proactive involvement in society. At this final maturity level, corporate executives as well as all other organizational members perceive their business as part of a greater course in


8 CONCLUSION

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society. They adopt a comprehensive and active responsibility in both the local and the global society, and they look for opportunities in society where the company can make a difference. At this level of CSR, short-term loss to the company can be acceptable when weighed against the long-term good to society. CSR at this level is a long-term commitment to society (Mostovicz et al., 2009). Evidence is emerging that long-term citizen commitment on the part of the company by no means has to harm corporate profitability: in either the short-term or the long term. We argue that political CSR can be found at the contribution stage. Executives understand their business as part of a greater course in society. Since Gjensidige executives seem reluctant to act in the Hells Angels clubhouse case, we argue that Gjensidige is not at stage 4 in the growth model for corporate social responsibility. Although the claim involves an insignificant amount of money, which is almost impossible to retrieve, the claim has a greater value in that it could help both the municipality and the police in fighting organized crime in society (Gottschalk, 2013). Researchers argue that corporations ought to step up to the challenge of political CSR and take on new political responsibilities (Basu and Palazzo, 2008; Palazzo and Scherer, 2006; Scherer et al., 2006). They suggest the concept of corporate political responsibility or political corporate social responsibility (Scherer and Palazzo, 2011: 901): Political CSR suggests an extended model of governance with business firms contributing to global regulation and providing public goods.

A new theory of the firm is called for, since the old way of thinking is outdated (Scherer and Palazzo, 2011: 901): We suggest that, under the conditions of globalization, the strict division of labour between private business and nation-state governance does not hold any more.

In order to clarify what the concept of political CSR means and in which way it is distinguished from earlier approaches of corporate responsibility, they put up a contrast between political CSR and stakeholder theory. Both of these approaches imply that corporations have commitments toward


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society, but the scope of these commitments differs. Stakeholder theory suggests that corporations are responsible toward those who are affected by the results of corporate activity, whereas political CSR goes beyond this and argues that corporations have a general commitment to work for the good of society. These extended commitments arise from the global nature of the challenges facing humanity (Scherer and Palazzo, 2011: 910): In contrast to stakeholder management which deals with the idea of internalizing the demands, values, and interests of those actors that affect or are affected by corporate decision making, we argue that political CSR can be understood as a movement of the corporation into the political sphere in order to respond to environmental and social challenges such as human rights, global warming, or deforestation.

Of course, on the basis of a broad concept of the stakeholder concept, one could argue that there is no practical difference between these two perspectives, since certain decisions by big business might directly or indirectly affect more or less the entire global society. However, the difference lies in the justification. Normative stakeholder theory finds moral commitments in the mutual relationship between corporations and stakeholders, whereas political CSR points to a more general corporate duty arising from the political power of corporations. Scherer and Palazzo’s (2011) normative standpoint regarding the political commitments of corporations are based on a realization of the global challenges we face, and on the more or less pragmatic point that corporations are in the best position to take on these challenges. However, the ascription of increased political responsibility inevitably points in the direction of a strengthening of political rights. Scherer and Palazzo (2011) are not blind to this problem when they discuss the democratic deficit of the growing engagement of business firms in public policy. Their claim is that globalization is a given and not something we can opt out from, and that this makes a new perspective on CSR necessary and unavoidable (Scherer and Palazzo, 2011: 906): In order to respond to the globalization phenomenon and the emerging post-national constellation, it is necessary to acknowledge a new political role of business that goes beyond mere compliance with legal standards and conformity with moral rules.


8 CONCLUSION

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In line with the idea of corporate CSR, corporations are responsible for contributing to social security and crime prevention. Rather than presenting themselves as victims of financial crime, corporations need to step up to their responsibility in terms of: • Offenders in crime. Corporations enable white-collar crime and participate in white-collar crime. They need to take on the responsibility of offenders. • Detectors of crime. Corporations need to introduce efficient prevention mechanisms rather than window-dressing routines such as compliance guidelines. • Preventors of crime. Corporations have to apply their powers to prevent crime in society. Under the conditions of increasing globalization, governments tend to lose some of their capacity to regulate and control, and private corporations must step in. A renegotiation of the social contract seems currently to be taking place. Society does not primarily exist to enable corporations to make money. Rather, corporations exist to produce goods and services that benefit society. If corporations fail in their obligations to cover needs for goods and services within a responsible framework, then society may change the rules of the game, for example, by abolishing capitalism and market places. Corporations are to serve society more than society serves corporations. Does it make sense to hold a company responsible for cleaning up a river it has not helped pollute, sheltering the homeless it has not deprived of property, or fighting corruption even when it has not been part such activity? Political CSR is often discussed in abstract terms with a focus on grand challenges such as climate change and global poverty alleviation. In contrast to such discussion, the case of white-collar crime that we are dealing with in this book is concrete and manageable: The company is in a position to make a difference, but should we expect it to, even if it probably does not pay to do so? Swiss business ethicists Andreas Scherer and Guido Palazzo are among those who argue that we should expect more from companies in terms of contributing to the common good. Their concept of political CSR starts out from the description of a situation where transnational corporations have become global political actors with significant economic and political power.Scherer and Palazzo (2008: 416) define globalization as:


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The process of intensiďŹ cation of cross-area and cross-border social relations between actors from very distant locations, and of growing transnational interdependence of economic and social activities. Globalization processes can be viewed as ideological transitions, where stakeholders and national legislation as well as international norms and initiatives create new expectations towards business.

Corporate social responsibility is only one approach to reduce the number of white-collar crime occurrences. Governance structures have to effect opportunities in the organizational dimension of convenience theory. Detection risk has to rise to a much higher level than today. A number of other actions can also be implemented to ďŹ ght white-collar crime. In conclusion, this book has contributed to the empirical study of convenience as an important explanation for white-collar crime. Future research is possible in a number of directions. First, the causality in the model linkeing three dimensions of convenience needs much more work. For the current version, critics may suggest that correlation rather than causality is the proper terms to use. The model needs to be turned on its head where the research takes on board all convenience and inconvenience in relation to the topic and research material. Furthermore, it might be useful to conduct an analysis of convenience among individuals who have not been convicted or accused of white-collar crime. Finally, a larger sample could enable generalization to fraud examinations in general.


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INDEX

A Agency model, 15 American dream, 16, 51 Andrew Fastow, 39, 52 Appearance of legitimacy, 13, 21, 22, 27, 29, 77 Audit process, 83

B Behavioral convenience, 54, 79–90 Bernard Ebbers, 43, 80–82, 89 Big business, 112 Board meeting, 73, 81 Board of directors, 53 Business expense, 83 Business lawyer, 59 Business level, 109 Business organization, 2, 26 Business purpose, 82, 83–84

C Case study, 92 Chief executive, 14, 35, 37, 44, 48, 81, 88, 108

Coatesville school district, 36 Code of conduct, 80 Compensation committee, 81, 82 Contribution level, 109 Convenience theory, 1–4, 5–31, 35, 40, 44, 46, 51, 56, 57, 61, 62, 68, 76, 83, 114 Convenient solution, 7, 11, 17 Corporate crime, 4, 11, 13–15, 20, 23, 25 Corporate culture, 14, 54, 80 Corporate social responsibility, 107–111, 114 Corruption scandal, 108 Crime prevention, 3, 18, 113 Criminal activity, 26, 40, 41, 46, 47 Criminal behavior, 5, 17, 18, 20, 23–25, 28, 70

D Desire for control, 18 Deviant behavior, 12, 16, 22, 23, 28, 89 Differential association, 5, 17, 25, 28, 29, 79, 89, 105

© The Author(s) 2016 P. Gottschalk, Explaining White-Collar Crime, DOI 10.1007/978-3-319-44986-9

129


130

INDEX

E Economical convenience, 51–60, 65, 68 Elite in society, 28 Empirical evidence, 1, 70, 106 Enron energy, 36, 40

F Fear of falling, 16, 20, 29, 54, 79, 89, 100 Financial crime, 1–4, 6, 8, 11–13, 15, 19–22, 24, 25, 27, 28, 35, 42, 45, 49, 56, 59, 68, 72, 75–77, 101, 105, 107, 113 Financial statement, 39, 40, 42, 73 Fraud examination, 1, 3, 34–35, 44, 107, 114 Function level, 109

G General Motors, 35, 36 Globalization challenge, 108 Goal orientation, 27, 29, 30, 100

H Harriette Walters, 42–43, 66

I Illegal means, 9, 26, 54 Internal investigation, 53, 56–58, 65, 65, 82 Investigation report, 1, 2, 33–35, 40, 44, 46, 53, 54, 56–58, 64–66, 68, 73, 85, 98, 99, 101

J Jeffrey Skilling, 42, 52–54, 59

K Kenneth Lay, 42, 52–54, 59 Kern Wildenthal, 82–84, 89

L Legal function, 81 Legal transaction, 8, 48, 77 Legitimate access, 13, 26, 77 Lehman Brothers, 15, 35, 36 Local newspaper, 73

M Maturity model, 109 Motorola telecommunications, 36

N Negative emotion, 17 Neutralization technique, 16, 17, 23, 25, 44, 58, 84

O Occupational crime, 11, 13, 14, 20 Opinion leader, 59 Opportunity perspective, 12 Organizational convenience, 54, 61–77, 102 Organizational opportunity, 63, 76 Organizational setting, 8, 15, 24, 25, 68, 101, 105

P Padakhep Bangladesh, 36 Pennsylvania crime commission, 54 Peregrine financial group, 36 Personal business, 81 Philadelphia police department, 36, 40


INDEX

Police district, 75, 76, 101, 102, 106 Police officer, 40, 42, 54–56, 60, 74 Political role, 108 Power and influence, 25, 27 Private spending, 89 Privileged individual, 23, 27, 28, 30 Profit-driven crime, 9, 11, 20, 21, 29 Psychopathic trait, 17, 20 Public institution, 83

R Rational self-interest, 10, 11 Religious organization, 69, 71, 105–106 Report of investigation, 34, 39, 42, 93, 94, 98, 99 Resource level, 106

S Sandstorm bank, 36 Self-acceptance, 59 Self-assured, 59 Self-control, 16, 18, 29, 44, 46, 79, 84, 89, 105

131

Self-realization, 10, 20, 22, 60 Self-respect, 59, 59 Slippery slope, 16, 19, 23, 29, 31, 79, 89, 105 Social concern, 11, 29, 100 Social conflict, 17, 29, 79 Social security, 113 Social ties, 13, 77 Stages of growth, 108, 109 Stakeholder management, 112 Stock price, 43, 80, 82

U University of Texas, 37, 82

W White-collar crime, 1–4, 5–16, 19–31, 33, 34, 39, 44, 51–54, 56, 59, 61, 63, 66, 69–71, 75, 76, 92, 93, 99, 101, 102, 105, 107, 113, 114

Y Yusuf Acar, 34, 35, 37, 62–65, 76

Explaining white collar crime  
Explaining white collar crime  
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