A white collar crime has been defined as a nonviolent crime committed for financial gain. White collar crime often involves financial offenses that employees commit against their employer. The effect the crimes have on the business is more than just the financial loss reflected on the bottom line of the financial statement.
Just a few common white collar crimes occurring in businesses are billing fraud, check tampering, skimming, embezzlement, money laundering, corporate fraud, and securities fraud. These crimes are committed by office workers at all levels, business managers and executives.
No business is too small to be the victim of a white collar crime. Even if you only have a few employees, an apparently trustworthy employee may still steal from your business.
Sometimes, the financial loss may be so great, the business must shut down. Other times, the damage to the business’s reputation is severe and makes it difficult for the business to regain its good standing in the community.
White collar crime affects businesses in three key ways.
The most recent study showed that a typical business loses five percent of revenue every year to fraud. This amounts to approximately $850 billion lost by U.S. businesses. This does not include personal losses some individuals suffer due to their involvement in a Ponzi scheme, like that perpetrated by Bernie Madoff, or some other get-rich scheme in which they may be duped to invest.
To understand how that may affect your own business, for every $1 million of revenue, your business will lose $50,000 to white collar crime. And this is only an approximation since much of white collar crimes goes undetected and it is harder to prosecute.
In addition to the financial loss that can be detected, there are other financial losses that are often overlooked since they are indirect losses, like:
If word gets out that your business is being investigated for or has been charged with a white collar crime, the reputation of your business is compromised. Often, if only one person in a business is identified as a perpetrator, the business owner will decide not to turn that person into the authorities and not prosecute just to avoid reputation damage.
Even if the actions of a single employee result in prosecution, the business reputation is compromised. People think perhaps only one person got caught and there were more involved. They question if they may have been a victim by paying too much for services or goods, or by having their payments embezzled, and they could find it easier to stop using your business and go somewhere else.
White collar crime has an impact on all workers. When honest employees discover a perpetrator has been treated leniently, there is a negative impact on morale. The honest worker is frustrated and assumes that crime does indeed seem to pay.
Many workers quit and try to find new jobs when they discover the business they are working for is involved, or has an employee who is involved, in white collar crime. The worker may have difficulty even finding a new job.
Even an executive who leaves a business and finds another position fairly quickly suffers financially. One report shows that totally innocent executives who leave a company that has been charged with a white collar crime are paid four percent less than their peers. Over time, this means not only less annual income but also less money going to their retirement plan. The lower income level also puts the employee lower down the hierarchy for advancement.
There is a major impact on employee morale for those employees who do stay with the business. Employees work better in an environment where they feel like they are part of the team. When a team member, or the managers of the team, are involved with white collar crime, the team breaks down and morale suffers.
Michael J. Wynne is a graduate of Harvard Law School and has a track record of success representing clients in both state and federal courts. The 15 years he spent as a federal prosecutor in the Southern District of Texas and his work in collaboration with the IRS, FBI, DEA, Secret Service and more give him a unique understanding of white collar crime and how it affects business owners.
For more information about how your business can recover from damage caused by white collar crime or a discussion of whether to prosecute an individual perpetrator within your business, contact us as soon as possible either online or by calling 713-487-7975 to schedule a consultation.