Poll
Should employees get financial incentive for reporting fraud & unethical conduct
Yes, it will increase reporting
No, employees should report because it is the right thing to do
It is acceptable in the financial industry but not in others
 


 
Relationship between violent crime, white-collar crime and unethical behaviour

1. INTRODUCTION

Justice, freedom and fairness for all form the foundation of a true democracy. The South African Constitution guarantees us personal rights, such as the freedom to trade, freedom of occupation and profession, and freedom of movement and residence. Crime and unethical behaviour affect these rights negatively and rob citizens of, amongst others, basic freedoms.

2. HARMFUL BEHAVIOUR

Society has a duty to enforce behaviour that will not harm others. Violent crimes, statutory offences, white-collar crime and unethical behaviour are all forms of conduct that may cause prejudice to others . The action taken against these four different forms of wrongful behaviour differs and will briefly be explained.

2.1 ACTION TAKEN AGAINST CRIMINAL OFFENCES

In South Africa, common-law offences include crimes such as murder, theft, assault and many more. These crimes have been inherited from our Roman-Dutch legal roots and are not prohibited by a specific statute. Common-law offences are enforced through the rulings of our courts (referred to as case law). The procedure for prosecution of these crimes, however, is prescribed by the Criminal Procedures Act, amongst others. The penalties for common-law offences are also regulated by legislation.

In addition to common-law offences, there are statutory offences, created by law, such as avoidance of tax and traffic offences. These offences are often non-violent and include white-collar crimes. Statutory offences are regarded as “modern” crimes. The seriousness of an offence does not depend on whether it is a common-law or a statutory offence, but rather on the consequences of the offence.

When a crime is committed, the victim should report it to the police, who, in turn, have to investigate the crime in order to find the necessary evidence to prove a case against the accused.  The docket is given to the State Prosecutor, who has to institute criminal prosecution if the offence is of a serious nature and if there is evidence to prove the crime. The case then goes to trial, and a magistrate or judge has to be convinced beyond all reasonable doubt that the accused is criminally liable. If the accused is found guilty of the offence, sentencing will follow.  The sentence may be in the form of imprisonment, a fine, correctional supervision, house arrest, community service or a suspended sentence.

2.2 ACTION AGAINST UNETHICAL BEHAVIOUR

Unethical behaviour does not carry the same burden of proof or the same severe punishment as criminal offences. In the case of unethical behaviour, it may also be more difficult to show that the victim suffered prejudice. There may therefore be some reluctance to take action against unethical behaviour.

Sadly, the long-term effects of unethical behaviour may be the same as those of crime. Unethical behaviour is just as unacceptable as crime and should not be tolerated. If allowed, unethical behaviour may lead to a culture of wrongdoing and, in its worst form, a climate of dishonesty.

There are also other differences between violent crime, white-collar crime and unethical behaviour in terms of the manifestation of these transgressions, the effect thereof on society and the punishment thereof. I shall briefly describe these transgressions, starting with violent crime.

3. VIOLENT CRIME

Violent crime can informally be described as crimes that involve some form of force or bodily injury to the victim. Violent crimes are more visible than white-collar crimes and unethical behaviour, because there is a “body” or a victim that can be identified. Violent crimes often create a huge social outcry, because of the emotional impact on people when, for example, a child is raped or someone is murdered. The social outcry is normally severe unless people have become so desensitised to violent crime that they no longer perceive it as shocking and wrong.

Law-abiding citizens feel victimised and even “helpless” when crime is widespread and runs rampant in a country. The criminal justice system is often ineffective and slow, and justice may not be seen to be done when it takes years to prosecute criminals and evidence is compromised.  Property prices in the country are affected, and brain power is lost by citizens emigrating to countries perceived to be safer. It is extremely difficult to calculate the financial losses caused by violent crime – what is a lost life worth?

Because our prisons are overpopulated (amongst other factors), shorter sentences tend to be given to violent criminals. We often hear that such criminals are released on parole, only to fall back into crime, because of unemployment or unsuccessful rehabilitation.

4. WHITE-COLLAR CRIME

White-collar crime may loosely be defined as non-violent economic crimes, which are carefully planned and of which fraud is a central part. Most white-collar crimes involve a complex fraudulent scheme, meant to confuse investigators. There is often no clear victim, and it may not be obvious who the real perpetrators of the crime were, because criminals collude to commit these crimes. Many white-collar crimes continue for years without being detected, and millions of rand are often stolen in this way.

Research by the Certified Fraud Examiners in the United States of America and PricewaterhouseCoopers shows that large corporations lose an average of 6 per cent of their annual turnover to fraud (a form of white-collar crime).

The victims of white-collar crime may be the employees of a company, the general public or society in general. Although a calculation can be made to estimate the financial losses suffered by the victims, it is more difficult to arrive at a financial estimate of the broader damage caused when white-collar crime flourishes in a country. Because of the “hidden” nature of white-collar crimes, these schemes may go unnoticed for years, making the recovery of stolen monies almost impossible.

As is well known, fraud and white-collar crime by company executives have resulted in the failure of large companies.  Such crimes and failures, in their turn, result in jobs being lost, families being adversely affected and a company’s trust relationship with its stakeholders and investors being harmed.

Because of the (usually) non-violent nature of white-collar crime, these crimes are often more tolerated and “accepted” than violent crimes. There seems to be less of a social outcry when a white-collar crime is detected. It is only when people understand the pervasive and destructive nature of white-collar crime, or when they suffer real losses as a result of white-collar crime, that action is taken.

Unfortunately, many companies still deny that white-collar crime poses a real threat to their existence. Consequently, there is still a high level of resistance against fraud-prevention training in many companies, for fear of embarrassment or ignorance.

The punishment of white-collar crimes has come full circle. In the 1980s, white-collar criminals were sent to prison. After some years, it became apparent that the prospect of imprisonment did not deter white-collar criminals, and the concept of asset forfeiture was conceived in the United States of America. The assets of suspected white-collar criminals were seized, bank accounts were frozen and, after conviction of the criminals, the assets were forfeited to the State. The burden of proof shifted to the accused, who had to prove where he/she had obtained the assets. A presumption was created that all assets of the accused had been acquired through the proceeds of crime and were therefore tainted. Asset forfeiture initially seemed to work very well and still does so, provided that the criminal does not hide the assets so that they escape detection.

The modern approach is to use multiple forms of punishment for white-collar criminals. Assets are seized and forfeited upon conviction, combined with large fines and house arrest or, in serious instances, a long prison term, as was recently imposed on Bernie Ebbers of Worldcom.

5. UNETHICAL BEHAVIOUR

Ethical conduct may be described as behaving in a responsible way, which is right, good and fair and does not harm others. Ethical behaviour may also be seen as conduct that complies with the following tests:

- It is legal.
- It is fair to others.
- It will not be embarrassing to you if others find out.
- Your mother will be comfortable with your behaviour.

In simple terms, ethical conduct is the correct way of doing things, taking the interests of others into account and acting in a responsible way. Ethical behaviour often refers to the “unwritten rules” in organisations. Sadly, unethical behaviour is often apparent in the way that people do business. There is a general attitude that “business is business” and that anything is justified to secure work or a contract.

Unethical conduct harms others in much the same way as criminal behaviour does. Self-interest is served at the cost of the broader interest of the company or the community. A company’s reputation and trust are damaged by unethical conduct, and work may be lost if others refuse to do business with the company again. There is an increasing international drive to combat unethical conduct, because of the unfair competition created thereby and the damage caused to others.

Ethics training has become a prerequisite for sustained success. Ethics officers play a critical role in ensuring adherence to ethical practices by the companies that they represent. Companies publish ethics statements, in which they openly state their commitment to ethical and honest behaviour towards stakeholders. Internally, employees are required to sign a code of conduct, whereby they commit to abide by the rules and to ethical behaviour towards others. Such a code of conduct should give detailed direction as regards employees’ desired conduct. A serious transgression of the code of conduct should be a dismissible offence.

Unfortunately, unethical conduct often goes unnoticed, because of its non-violent nature. As mentioned above, however, the damage caused by unethical conduct may be equal to that caused by violent crime or white-collar crime when investor confidence is impaired and trust is lost.

It is important to remember that not all unethical behaviour is criminal. For example, to take credit for someone else’s idea is unethical, but may not be criminal per se. On the other hand, all criminal behaviour (violent and non-violent) is unethical in nature, because crimes are wrong, unfair and bad.

6. CONCLUSION

To summarise: what is the relationship between violent crimes, white-collar crimes and unethical behaviour? White-collar crimes and unethical behaviour are not violent and are less visible. The victims may not be as obvious as those of violent crimes, and the reaction to white-collar crime and unethical behaviour is therefore often less severe. It should be noted, however, that if a white-collar criminal is a member of an organised crime syndicate, there may also be violence. 

The damage caused by white-collar crime and unethical behaviour is in my opinion equal to that of many violent crimes. The broader community is harmed, and jobs are lost. The pillars of a healthy democracy are shaken, and the principles of fairness are attacked.

In my opinion, there is also a relationship between small indiscretions and a larger culture of crime in society. Where will it stop if we tolerate certain dishonesties or wrongdoings? One lie is often covered by three others. Employees arriving late at the office and unapproved absences from work cause organisations millions of rand in losses. Is it less wrong to lie to one’s boss than to steal a pen from work, or to take credit for work done by someone else?

I believe one is either honest or not honest – we need to take a stand and fight crime and unethical behaviour in all its forms.  The damage done is the same, and no one can afford to lose their reputation.

J H Minnaar-van Veijeren
Tel: 012 342 2799
E-mail: Janette@ethicsa.org

 



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