1. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-1 The Legal Environment of Business A Critical Thinking Approach 5 th Edition Nancy K. Kubasek Bartley A. Brennan M. Neil Browne

2. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-2 -2 CHAPTER 7 White Collar Crime and the Business Community THE LEGAL ENVIRONMENT OF BUSINESS

3. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-3 -3Crime  Crimes are offenses against the public  Wrongful actions  Wrongful intent – mens rea  Felonies  Misdemeanors  Petty crimes

4. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-4 -4 Major white collar crime sentences 8- 25 yrs state prison. Pay $134M to Tyco & fined 70M. 8- 25 yrs state prison. Pay $134M to Tyco & fined 70M. Corruption, larceny, stealing & not paying tax Tyco - Dennis Kozlowski 25 yr federal prison Accounting fraud World com – Bernie Ebbers 12 yrs+ in fed. Prison & over 3 Billion in restitution. Wire fraud, mail fraud, conspiracy, Sec.fraud & insider trading CENDANT – Walter Forbes Servings 10 years in jail. Fine of $150k $ $267K to United Way. Bribery, Mail fraud & obstruction of justice Health South- Richard Scrushy serving 24 yrs+ in federal prison & fined $45 Million. Case under appeal. Conspiracy, insider trading, sec. fraud, & making false statements to auditors ENRON - Jeffrey Skilling

5. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-5 -5 Criminal Procedure Criminal Procedure  Warrant issued  Arrest  Miranda Rights  Booking  First appearance  Bail  Information

6. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-6 -6 Grand Jury Proceedings  Used in felony cases  Evidence presented by the state  Witnesses may be subpoenaed Purpose of Grand Jury: To decide if there is enough evidence to justify a full trial

7. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-7 -7 Other Procedures Indictment  Whether sufficient admissible evidence exists to obtain a conviction Pretrial Diversion  Agreement to perform services under supervision

8. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-8 -8 Criminal Procedure Criminal Procedure  Arraignment  Plea  Plea bargains  Burden of production of evidence  Burden of persuasion  Standard of proof  Fifth Amendment

9. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-9 -9 Defenses  Entrapment  Insanity  Duress  Mistake

10. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-10 -10 Features of White Collar Crime Crime committed in a commercial context by professional and management classes. Definition: “Crime committed by a person of respectability and high social status in the course of his occupation.” ~ Edwin Sutherland

11. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-11 -11 Can the Corporation Be a ‘Criminal’? The Corporation is an artificial, legal entity How can liability based on acts of natural persons be attributed to a corporation? DOJ is looking to the corporations and the individuals for responsibility.

12. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-12 -12 Arguments in Support of Corporate Criminal Liability  Fines will pressure shareholders  Maintain incentives to obey law  Ease of investigation and prosecution  Collective decision making should not provide escape  Avoids making scapegoats of employees

13. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-13 -13 More Arguments in Support of Corporate Criminal Liability  Unfair to single out individuals for common pattern of criminal behavior  Unfair to allow shareholders to benefit from crime  Public information and disclosure to consumers important function of prosecution

14. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-14 -14 Arguments Against Corporate Criminal Liability  Fines are just passed on to consumers  Punishing shareholders is misguided; shareholders really do not control the enterprise  No real or lasting damage to corporate image can be achieved

15. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-15 -15 Liability of Top Executives The only way in which a corporation can act is through the individuals who act on its behalf. ~ Dotterweich Corporate executives can be found guilty of committing corporate crimes. ~ Park NOTE: Even when executives are found guilty, few are actually convicted. Often, harsh punishments aren’t imposed or they serve jail time under less severe conditions.

16. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-16 -16 Factors Encouraging White Collar Crime  Pressure to succeed  Short-term goals  Groupthink  Easy to rationalize  Dispersed decision making  Lack of stigma even when convicted  Lax regulation  Poor personnel policies

17. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-17 -17 Sentencing of White Collar Criminals 1991 Federal Sentencing Guidelines  Base Fine + Culpability Score  Aggravating + Mitigating Factors  Extraordinary circumstances

18. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-18 -18 Alternative Sentencing  Community service  Occupational disqualification  House arrest  Weekend prison

19. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-19 -19 Common White Collar Crimes  Bribery  Regulatory Violations  Criminal Fraud  Defalcation  False entries  False token  False pretenses  Forgery  Fraudulent concealment

20. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-20 -20 More White Collar Crimes  Larceny  Embezzlement  Computer Crimes  Piggybacking  Imposter  Trojan Horse  Salami slicing  Data destruction (Virus, Worm)  Data misappropriation

21. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-21 -21 Prevention  Federal vs. State chartering  Require public directors  Link fines to benefits obtained  Equity fines  More vigorous regulation  Internal corporate measures

22. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-22 -22 Federal Laws  RICO 1970  False Claims Act- see Rockwell case  Sarbanes-Oxley Act 2002  Whistleblower Protection Act- Is this effective?

23. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-23 -23 State Laws  Whistleblower protection statutes  Protect public employees  Provides specific remedies CASE: McNamee v. County of Allegheny ISSUE: What is “ wrongdoing”?

24. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-24 -24 Global Dimensions White Collar Crime: A worldwide problem Example: IOS case  Lack of cooperation among law enforcement  2001: Creation of international fraud database  Convention on Cybercrime- [effective in U.S. in 2007]

25. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-25 -25 Summary  Criminal law protects the public.  Criminal procedure differs from civil procedures.  White-collar crimes are difficult to prosecute and punishments are light.  New technology and globalization of the economy have made new crimes possible.

26. THE LEGAL ENVIRONMENT OF BUSINESS © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7-26 -26 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall