Financial frauds in business: White-collar crimes

Although most people envision white-collar crimes as ‘crimes of the powerful’ or high-flying executives, white-collar offenses come in many forms and magnitudes. In fact, if an employee writes a check to themselves for a personal expense, they have committed a white-collar crime. More often than not, these activities are not a one-time thing and can grow into large-scale or complex schemes.

White-collar crimes include nonviolent activity committed for personal or corporate financial gain. A sizable portion of these crimes involves financial fraud or deceit, by means of misrepresenting or hiding facts. These offenses usually involve carefully planned webs of transactions and schemes, which is why they are typically difficult to prosecute and require complex and sophisticated investigations.

When facing or suspecting accusations of unlawful financial activity in your business, you should consult a white collar crime defense law firm with experience in the nature and complexity of such cases. Below we have explained some of the common cases of financial fraud as they pertain to white-collar crimes.

Financial statement fraud

According to the FBI, the majority of corporate fraud cases include accounting schemes designed to deceive auditors, investors, and analysts regarding the financial condition of a corporation or business entity. 

Financial statement fraud is perpetrated through the manipulation of financial data or other valuation metrics, by which offenders artificially inflate their financial performance indicators. Common examples include false accounting entries, misrepresentation of financials, fraudulent trades that inflate profits or hide losses, and illicit transactions that help evade regulatory oversight.

Money laundering

Money laundering refers to the process of concealing or disguising illegally obtained proceeds to make them appear legitimate. Money laundering can allow individuals to hide and accumulate wealth, evade taxes, increase profits through reinvestment, and finance other criminal activities. Some of the channels through which the offenders launder their proceeds include financial institutions, international trade, real estate, third-party service providers, and virtual currency.

There are three steps in the money laundering process – placing the money in the system, layering it by separating the funds from the illegal origin through complex transactions, and integrating it with legally obtained proceeds.

Tax fraud

Tax fraud (also known as tax evasion) occurs when earnings or expenses are misreported to the IRS, often to reduce taxpayer obligations and qualify for special exemptions. 

Activities that constitute tax fraud or evasion include:

• False information in tax forms;
• Failure to report all income;
• Intentional absence of payments;
• Illegal transfer of property for escaping tax obligations.

Tax fraud is charged as a crime if the IRS can find proof that the underpayment is willful. In certain cases, perpetrators succeed at finding legal ways to reduce their tax-paying obligations.

Employee theft and embezzlement 

Internal company theft can occur when employees steal anything from funds to assets such as company products they don’t pay for. One form of theft is embezzlement, which refers to the illegal use or transfer of funds by a person who controls the funds.

One example of embezzlement is when an employee or a bookkeeper is in control of funds that they should transfer to another employee or use for other purposes, but instead, choose to transfer them to their own account or use for personal needs. Another form of embezzlement is when a business person uses their clients’ funds for activities outside of their account.

Bribery and corruption

Bribery involves the use of financial rewards or improper behavior to gain business advantage and influence someone’s behavior.

Bribery and corruption activities include:

• Kickbacks where employees accept money or other benefits for access to the company’s business;
• Using financial rewards to influence major business decisions;
• Extortion or obtaining money through force or threats;
• Deceiving others into obtaining larger payments for services or projects;
• Facilitating projects or activities by offering cash payments or other rewards.

Even small-scale corruption can be corrosive and cause extreme damage to a business. There are instances when small illegitimate payments can seem harmless, such as ones that prevent a project from falling behind schedule. However, even small-scale indiscretions can constitute bribery or corruption, so it’s important to follow guidelines and impose company-wide regulations.

Final words

White-collar crimes include a range of fraudulent activities perpetrated for financial gain, and depending on the financial scope of the offense can lead to severe penalties and jail time. Businesses should, therefore, monitor business activities to protect themselves from such convictions.

The types of financial frauds that constitute white-collar offenses include:

• Financial statement fraud;
• Money laundering;
• Tax fraud;
• Employee theft and embezzlement;
• Bribery and corruption.

If you are suspecting white-collar crime in your company or are afraid of committing such an offense yourself, it is important to seek advice from an experienced white-collar crime attorney as soon as possible.

 

02/07/2021