White-collar crime

White-collar crime is the term used to describe criminal offences that are economically related. The criminal acts can be directed against private individuals, other companies or the state.

In the mid-20th century, Donald R. Cressey investigated the causes of white-collar crime. In doing so, he developed one of the most well-known explanations of the causes of fraudulent acts, the Fraud Triangle. The approach presented by Cressey is also known as the Strategic Triangle, Dolose Triangle, Fraud Triangle or Crime Risk Model and is based on interviews with convicted white-collar criminals.

Economic development as a result of globalisation since the turn of the 20th to the 21st century, digital technologies and the pushback against legally binding documentation or formal requirements have led to a new dimension of white-collar crime. In the literature, these offences are still referred to as white collar crime (for the term white collar, see blue collar), but new terms such as financial fraud can also be identified. The often transnational nature of the offences poses major problems for the prosecuting authorities due to the many possibilities for concealment.

In current economic growth models, economic crime is considered one of the long-term and sustainable factors that negatively affect the state polity and economic growth. At the global level, combating economic crime such as corruption, money laundering, tax evasion and creating the means to detect it, combined with legal certainty (e.g. through contract and registry security, formalities, independent and effective courts/administration) are therefore seen as key to innovation, productivity and prosperity.

Typical offences (selection)

(The linked articles specifically describe German law in some cases).

Unauthorised speculation, such as the Nick Leeson and Jérôme Kerviel cases, is also part of white-collar crime.

Competitor spying is the process by which companies are spied on by other companies through the violation of trade and business secrets. This can be done by individuals or organized groups. If the other company is a foreign state-owned enterprise, or if a foreign state tolerates or promotes the spying on the company concerned, this is referred to as industrial espionage.

In addition to the above-mentioned offences, the associated concealment of assets must also be mentioned. For this purpose, there is an internationally secretive wealth preservation and consulting industry. These companies and offshore providers do not primarily serve the purpose of legal tax optimization or economic management, but rather to circumvent regulations, a multitude of criminal activities or unlawful skimming of proceeds. The members of this international financial advisory industry create their own legal system by using tax havens and exploiting all possible loopholes and additionally engage in massive lobbying to open new loopholes and to abolish criminal offences or formal requirements.

On white-collar crime in Germany

German law

Since there is no legal definition of white-collar crime in Germany, the Federal Criminal Police Office (Bundeskriminalamt, BKA) uses the catalogue of Section 74c (1) Nos. 1 to 6b of the Judicature Act to classify offences as white-collar crime.

Relevant German criminal provisions are contained, inter alia, in the German Fiscal Code, the German Criminal Code (in part), the German Commercial Code, the German Unfair Competition Act, the German Copyright Act, the German Money Laundering Act and the German Securities Trading Act.

Case numbers

According to the Federal Situation Report on Economic Crime 2017 of the Federal Criminal Police Office (BKA), 74,070 economic crimes were registered in the police crime statistics (PKS); this was over 28 % more than in 2016. The number of cases was thus significantly above the average of the last five years. The average for the last five years is 65,484 cases. An extensive complex of proceedings from Saxony, in which a small number of suspects committed numerous investment fraud offences, has a significant impact on the statistics due to the large number of cases solved. The share of white-collar crime cases was only 1.3 % (2016: 0.9 %) of the total number of offences.

In contrast to the BKA, PricewaterhouseCoopers distinguishes between analogue white-collar crime and cybercrime in its 2017 study on white-collar crime in Germany. According to their research, there was a rapid increase in cases of cybercrime in contrast to the declining development of analogue white-collar crime. The percentage of analogue white-collar crime dropped from 51% to 45% from 2015 to 2017, while cybercrime increased from 34% to 46%. The gap between analogue (49%) and digital crime (46%) has thus largely disappeared. However, analogue forms of white-collar crime continued to cause significantly higher losses on average than cybercrime. The average costs resulting from a serious white-collar crime were put by the companies concerned at 7.23 million euros, while cases of cybercrime caused damages of 183,000 euros on average.

It should be noted that PricewaterhouseCoopers used a standardised questionnaire to conduct telephone interviews in Germany from the beginning of July to the end of September 2017 with managers from 500 companies who had declared themselves responsible for crime prevention and crime awareness in their company. Furthermore, additional in-depth interviews on selected questions were conducted with 32 companies in order to obtain more detailed reports and assessments. According to PwC, whistleblowing systems to combat white-collar crime are increasingly commonplace. The usefulness of whistleblower systems for uncovering compliance violations is hardly doubted any more. 86 percent of companies have now implemented such a system.

In its 2018 study, KPMG concludes that around one in three companies is affected by white-collar crime. About two out of three respondents have a whistleblower system in place, which is a powerful weapon against white-collar crime. Two in three respondents (66 per cent) now have a whistleblowing system in place to report suspicions, rising to 95 per cent among financial services firms. This includes mailboxes (57 percent) or a dedicated e-mail address (54 percent) for reporting suspicious cases. However, smaller companies in particular seem to have major problems with implementation: one in two of them (49 percent) complains of an inadequate reporting culture. KPMG conducted the study as part of a telephone survey of 702 companies across all sectors.

Damage

According to the BKA's situation report, the damage caused by economic crimes recorded in the police crime statistics amounted to 3.738 billion euros in 2017. This is over 50.5 % of the total damage reported by crime in the German police crime statistics. This means that the amount of damage is higher than in 2016 (2.970 billion euros) by more than 6 %. Individual losses are not reported.

According to PricewaterhouseCoopers, the financial consequences can only be quantified to a limited extent, as indirect consequences such as liability risks, legal disputes and reputational damage must also be taken into account. In 2018, the average damage was €723,000 per company. Larger companies reported significantly higher damages. In the PwC study, 212 companies surveyed estimated average costs of €7.23 million due to serious economic offences.

Problems with BKA statistics and company figures

According to former BKA President Ziercke, "police data [...] reflect the actual extent of white-collar crime only to a limited extent. First and foremost, it is the victims' interests that result in only a portion of the white-collar crimes committed being reported to the law enforcement authorities. Affected companies fear loss of image and reputation. Internal damage limitation often still comes first."

In addition, the police crime statistics, which form the basis of the BKA situation reports, only contain cases reported to the police. The economic offences reported directly to the public prosecutor's offices are not recorded in the PKS, as there is no obligation to report them.

Moreover, neither the undetected nor the unreported offences, the so-called dark field, can be included in the damage figures, so that the actual number of cases is likely to be far greater than the figures given in the BKA's bright field.

The BKA points out that "the damage sums recorded in the PKS can, however, only partially represent the total damage actually caused by white-collar crime", since "in addition to the damage that can be represented in monetary terms, the non-material damage caused by criminal activity must also be taken into account" and furthermore that "this damage can hardly be quantified statistically and estimates in this regard vary greatly" and therefore "a reliable statement on this is not possible". "It is undisputed, however, that it is precisely the non-quantifiable immaterial damages that are essential factors for assessing the damage potential of white-collar crime."

The problematic nature of the extrapolations with regard to the number of cases and damage to companies through the inclusion of suspected cases has already been addressed. With regard to damage, there is another conspicuous feature: Section 2.2 refers to damage caused to companies by white-collar crime. None of the studies listed mentions the possible benefits that companies derive from their own white-collar crime. This is not surprising when one knows that these studies, published by auditing and management consulting firms, mainly serve the purpose of obtaining new orders for detection, other special or final audits, in order to set up compliance departments, to examine the internal control system, to carry out risk analyses, to carry out anti-corruption training in-house and what is similarly financially attractive work.

For this reason, such marketing-oriented studies by PwC, KPMG, but also by Ernst&Young, Deloitte, Mummert, Euler Hermes, etc. should be viewed with caution, especially with regard to any projections of case numbers or damages. Nevertheless, some figures have been used in the article because the BKA does not make any projections for white-collar crime (as it does for corruption) and therefore there are otherwise no points of reference for assessing the damage potential of white-collar crime.

Combating economic crime

Whistleblowers can pass on their knowledge of white-collar crime cases to the prosecution authorities as a criminal complaint. This can also be done anonymously, since according to the principle of legality, the police must also investigate anonymous reports. With an anonymous report, whistleblowers can protect themselves from possible consequences of their report.