Special Assignment

Special Assignment: White Collar Crime

Oasis Ponce

[Institutional Affiliation(s)]

Author Note

Special Assignment: White Collar Crime

In the documentary Enron: the smartest guys in the room, one of the most complex corporate white collar crimes in U.S. history was explored to illustrate how several unethical and illegal practices led one of the leading fortune 500 companies into bankruptcy. Enron Corporation started as an energy trading company that was hit by a huge accounting and financial fraud scandal which became an infamous example of wrong corporate governance and willful corporate fraud. One of the main factors that led to their downfall was their deliberate use of deceptive financial statement which would cleverly show the company to be rising in profits while it owed millions of dollars in debt. The company's financial figures were presented in a manner which hid their actual profit, cash flow, and financial position, yet at the same time, bewildering observers by their figures.

Enron’s executives gambled on the stock market by misreporting their financial standings, taking unnecessary risks while encouraging investors to buy their stocks since profits were shown inflated in the company’s book. Another company Borget was used to divert the company’s funds into their executives’ offshore accounts, while a separate set of books were maintained hidden from the auditors who tried uncovering any problems. Although, the executives were aware of these unethical practices, yet Borget was encouraged to continue the practice as executives would continue to raise stock prices through manipulated figures, buy them and sell them for millions. Enron’s employees too were involved in the practice, keeping account of the stock prices for their benefit. It was in 2001 when the company’s stock, reaching a point of no return, that people realized they had fallen victim to Enron’s misleading information. This occurred because no one cared how Enron was making money as long as it continually did so. As their stocks crashed in 2001, nearly twenty thousand of Enron’s employees lost jobs and insurances, along with $1.2 billion retirement funds. Although some top executives still made a significant amount of money in the deal, they had to face criminal charges and imprisonment.

White-collar crimes, such as the one Enron's executives were involved in, are usually ones that involve complex evidence and concepts. Generally, prosecutors find it difficult understanding the complex financial scenarios that are created in these cases. Similarly, attorneys are tasked to review financial records spanning thousands of pages at times, along with other complex accounting procedures and evidence to present to a jury comprised of laymen. Additionally, jurors are not as familiar with such white collar crimes and the defendants are usually notable and respectable members of the community. A white-collar crime, in essence, is a criminal act that involves stealing or exploiting an organization, a corporation or a number of people, without necessarily involving any intimidation or violence. The term is derived from the idea that people dressed in white collared business suits are the ones that are more likely to commit crimes of such subtle and complex nature.

White collar crimes carry significant importance owing to the fact that a large number of people are affected, often involving a massive amount of stolen resources. Moreover, the accusation is difficult to prove and the accused could potentially engage in it again, while cleverly covering their tracks as they get better at doing it. However, even if crackdowns are harsh, the challenge for the criminal justice system begins even before the opening statements are taken. White collar crimes can overburden law enforcement agencies due to the complexity of the problem, requiring them to carefully prioritize resource allocation for the purpose. White collar crimes take more resources, time and money than generally other types because accusations of internet fraud, embezzlement, or insurance fraud require a deeper understanding of financial concepts than what local agencies are used to with violent crimes and property crimes. Embezzlement may involve an organization's president or top executives steal money from the company's own resources, and often get uncovered only if the company accountants whistle-blow the matter to investigative agencies. Similarly, insider-trading is another white-collar crime, in which information about the company's stocks is released secretly to a few people who buy or sell these stocks through knowledge otherwise unavailable to the public. A beverage company that, for instance, fails in carrying out a critical safety inspection has a few stakeholders sell its shares before the information is made public, is one example of insider-trading. Therefore, white collar crime is not violent or dramatic as other forms of crime, but the financial impact it can bring is immensely higher.

In my view, one of the major issues in tackling white collar crime is the amount of resources and time needed to investigate these practices, especially in following the financial trail. Companies have to develop internal practices that reflect strong financial integrity that is then reviewed and evaluated by external auditors that work independent of any influence, while being trained, skilled and experienced in tracing out these subtle irregularities. Enron was exposed after its stocks crashed in 2001, however, even if that did not happen, it was clear to the executives as well as its employees that the company was engaging in dubious practices. If I was hired to provide consultation to Enron, I would ensure that all employees are well trained in adhering to a code of ethics to ensure that they understand each and every aspect of ethical business conduct. If these ethical codes are enforced across the board, it would encourage employees towards whistle-blowing instead of becoming complicit with their organization's practices. A top-down implementation of a zero tolerance rule towards such unethical conduct could have saved Enron a lot of trouble.