The rational choice theory is of the opinion that an individual acts by weighing the costs and benefits brought about by an action at the end through the use of personal advantage. As far as crime is concerned, the theory assumes that the rational decisions made by criminals to engage in any crime are made through the revision of all outcomes and possibilities. The outcomes depend on the benefits the criminals get by committing these crimes. Criminals do however consider the consequences of their actions, such as imprisonment and tread with care in the process of committing a crime. The rational choices that criminals make do not involve the crime being committed as the individual offenders take part in these acts with no intention of getting caught. An example is Bernie Madoff, a successful businessman who engaged in white-collar crimes, pulling off the biggest Ponzi scheme in the history of finance. In light of this, this paper will highlight the application of the rational choice theory in line with white-collar crime.
The Madoff fraud
Bernie Madoff was a man who was successful in a career that had lasted averagely fifty years. Bernie’s main achievements included him being the American Jewish Congress’s former National Treasurer, the Security Industry Association’s member of the Board of Directors and as a Chairman of the board for the NASDAQ stock exchange (Zuckoff, 2008). His greatest victory came in 1960 when he finally became the Chairman of L. Maddoff Investment Securities LLC. All around the country and among New York’s elite, Bernie’s investment group filled him with notoriety and wealth. Many individuals put their trust in him and allowed him to give them financial advice. Madoff, however, in the early 1990s made use of his power, knowledge and charisma to create a Ponzi scheme. Litigators and other analysts believe that Bernie began his Ponzi scheme way before 1991 most likely in mid-1990s.
Charles Ponzi was the creator and father of Ponzi schemes. Charles Ponzi in 1920 had promised to double investor money in a period of 45-90 days if the investors could agree to invest in a complicated security that could only be managed by him. Charles, however, did not invest that money and instead diverted it into his account paying back the return of the money invested with the fresh incoming investor money. In a year’s time his scam was found out and in the process investors who had not withdrawn their investments lost everything.
Bernie unlike Ponzi had a legitimate brokerage company and he made use of his company’s success to cover up his fraudulent activities. The Ponzi scheme created by Bernie involved him taking on investments and assuring the investor that they would get a 15-20% return to their investment annually (Zuckoff, 2008). Bernie stated that the division begun as a legal business, but he confessed that from 1995 the returns provided were engineered.
Once a customer made an investment, Bernie would place the money in a bank account and in case any individual needed money, he would withdraw it from the accumulated money from the same account, simply put the withdrawals were painted by new investments. In order to keep the scams going Bernie made use of various methods. Bernie by the end of every month sold all of the financial instruments and stocks so that the authorities only got reports of the amount of cash in the hedge fund. To add to this, investors only got simple mail each month with the balance and information in their accounts, and they did not have any online access to the investments they had made.
Bernie’s investment plan attracted a second round of investors through word of mouth. This was a plus for Bernie as he was able to give back the returns to the first investors. Initial investors were paid off with money gathered from the second round investors. As years passed by, the cycle continued with subsequent rounds of participants.
Bernie’s investment practices started being questioned by 1999. Harry Markopolos a Fraud and Financial analyst investigator reported the unorthodox ways Bernie was using to run his company to the U.S. Securities and Exchange Commission (SEC) (Ackerman, 2012). Harry was not sure how legal Bernie’s business was, since it was close to impossible to earn the kind of gains the company was claiming to deliver.
Bernie’s end was marked by the recession of 2007 because client redemptions had gone up to $1.4 billion and in the investment, bank account he only had a sum of $487 million. The cash on hand and redemption request gap kept on widening by the day and his secretary called the bank every day at 5:30pm to give more bad news. Once the Ponzi scheme collapsed, then Bernie’s family would end up in the corridors of justice trying to tidy up his mess, Bernie himself would end up behind bars, more than 200 employees would lose their source of livelihood, friends and relatives would lose everything and thousands of clients would lose billions of dollars.
In his last attempt to save all his businesses, Madoff in the week before thanksgiving came up with a new fund that he marketed to five of his exclusive clients two of the clients, that is, a feeder fund from Spain and the co-founder of Home Depot declined this offer instantly. The new fund required each client to put in an investment of $100 million.
Bernie was joined by his sons in his apartment where he admitted to all his crimes. Bernie’s two sons, Mark and Andrew reported their father’s company to the authorities once they discovered it was a Ponzi scheme. Bernie Madoff was finally arrested on 11th December 2008. His crime was embezzlement and fraud of an amount totaling up to 65 billion dollars. Bernie pledged guilty to all the charges as well as false filing, mail fraud and money laundering. Bernie Madoff on June 2009 was charged and sentenced to serve 150 years in prison.
Criminal behavior analysis
The framework of understanding and properly molding social and economic aspects of human behavior is what is referred to as choice theory or in other words rational choice theory (Allingham, 2006). In recent microeconomic schools, rational choice theory is the primary academic practice. The state of wanting or needing more instead of good is what the rationality term is associated with. Economists mostly use the term while assuming human behavior during decision making skills. Instrumental rationality is linked to the rational choice theory and this is because it is comprised of methods of cost effectiveness used for the purpose of achieving a goal without analyzing its value (Blickle, 2006). Doing things that are good in the long run through understanding and sanity is the common meaning of rationality.
The word white-collar crime was founded in 1939 by a sociologist and criminologist referred to as Edwin Sutherland. Edwin referred to white-collar as a crime that is committed by an individual of respect and high social status in their occupation or workplace (Friedrichs, 2009). Edwin in the process also included company and legal firm crimes in this category. Edwin was motivated to research on white-collar crimes, due to people’s view that criminology only evolved around social and economic causative factors of crime. He affirmed that individuals from the different economic studies in his research and in all levels in society can equally commit crime (Gill & Scott, 2008).
White-collar crimes involve individuals with some commonalities and from different backgrounds. The criminals portray higher rationality and management levels; hence they end up attaining a higher status and great success in their activities (Shover & Hochstetler, 2006). Most of the sociologists and criminologists define white-collar crime depending on how the offender chooses to commit the crime (Piquero & Tibbetts, 2002). White-collar crime, according to the department of justice in the US refers to a crime that is non-violent and committed through deception and dishonesty by professional individuals who have an occupational status. Other scholars feel white-collar crime is a crime that is non-violent in nature for the financial gain of the offender of government knowledge and technical business (Friedrichs, 2009). There is no mention of the offender’s occupation in the latter explanation. Both definitions make use of deception and dishonesty as a tool for committing crime.
Not all white-collar criminals, however, possess technical knowledge. For example, criminals accused of tax fraud might not possess the skills required to be categorized as white-collar criminals. The definitions reveal the fact that the criminals in the white-collar category come up with rational choices to deceive for the purpose of financial gains. These criminals weigh all the outcomes and benefits that may pop up in the process of committing the act and it is here that we see some rational choice theory characteristics. The best way to look at white-collar crimes has been through the perspective of the judges for a long time (Gill & Scott, 2008). A prosecutor or lawyer is more likely to illustrate this type of crime as one that does not involve force on individuals or property, one that is related to common theft, involves policies such as immigration and civil rights and the sale or distribution or possession of drugs. When white-collar crime is described in this manner, then it is linked to certain aspects of the rational choice theory. The simple fact that the crime does not involve the individual using force shows that they are good in the deception act.
Many criminals do not possess the technical skills needed to deceive innocent people for their own financial gain. The judges believe that white-collar criminals are aware of the social status of the people whom they are about to deceive. Crimes that fall under the white-collar statute are hereby rendered to be by association according to criminal law. Hence crimes that fall under the laws of security fraud and antitrust are known as white-collar crimes (Archer & Tritter, 2000).
The preferences, assumptions and actions of an individual are directly linked to the rational choice theory. The reason behind this is that, the patterns of behavior in society show the decisions individuals make, especially participants of crime in the process of trying to reduce costs and increase the benefits (Bartol and Bartol, 2012). White-collar criminals in real sense choose the type of crime to commit by weighing the costs and benefits brought about by their actions (Archer & Tritter, 2000). Such actions lead to the development of patterns of criminal behavior.
The economic theory clearly describes the choice theory. Economists basically work towards acquiring useful and valuable things through the use of minimal resources. Due to this, they often evaluate an object’s action or benefit in comparison with another object similar to the original one. The choice of the economist depends on the action or object that is at the lowest cost but has the biggest reward. This scenario is similar to that of white-collar criminals as they normally use deception to get financial gain from an action they partake in. Judges believe criminals of white-collar activities take part in crime in an unorganized manner, hence they cannot involve themselves in organized crime as their main aim is to reduce costs.
There are approaches in the choice theory that try to explain why white-collar crimes exist (Gill & Scott, 2008). Approach number one is adopting and focusing on a specific crime. This involves the situational framework and the adoption of the choice made. Adopting this approach will assist in cushioning any issues that might come up in the handling of data variation among the white collar criminals (Archer & Tritter, 2000). Crime-specific focus is able to accommodate clearer distinctions than the ones made in the field of criminology (Bartol and Bartol, 2012). Not considering these differences lowers the chances of identifying the points of prolific intervention. It is, for example, crucial to differentiate between white-collar crimes committed in wealthy residential areas, middle class suburbs and middle public housing. Individuals that partake in white-collar crimes from an empirical point of view, use techniques and are motivated by different angles and reason all together (Gill & Scott, 2008). This approach offers a counter weight to theoretical preoccupations and policy in relation to white-collar criminals.
Approach two pinpoints the fact that approaches for decision making in white-collar crimes should consider the differences between involvement and white-collar criminal events. White-collar criminal involvement in this context is the process of deciding to partake, stop participating or continue to participate in various forms of white-collar crimes (Blickle, 2006). Various factors influence the process of decision making in participation stages leading to stages that are modeled separately. The decision process uses specific classes of information. The choices white-collar criminals make are multi-staged; they make use of information from various sources and extend over a wide period of time. Decisions in the event, however, involve shorter processes, making use of information that is strictly limited, relating largely to the immediate situational context.
Concerns/issues
There are several issues in the rational choice theory and white-collar crime. One of the issues on the theory is if it exists in the field of Criminology. Many scientists believe rational choice theory approaches supplement instead of superseding the current theory (Blickle, 2006). Rational choice theory in criminology mainly looks at white-collar crimes. In addition, scholars have tried to give an analysis on rational choice theory, routine activities and social control. In the view of sociologists, rational choice theory in line with white-collar crimes involves approaches in routine activities and the content of decisions. This is a contrast from the idea of rational choice dealing with backgrounds on ecology that offer many options to choose from.
The nature in white-collar crimes in the decision making process is another theoretical issue (Blickle, 2006). Empirical studies, however, show that associated perspectives, frameworks on decision theory, economic and normative conditions might not show the real nature of the decision making process needed in white-collar crimes. These frameworks need information that is extremely sophisticated and proper skills more than what these offenders can handle. Another theoretical issue is the specialization role in the activities of white-collar crime. The focus of the particular crime relies on the idea that white-collar criminals decide to specialize in and the activities of the crime in order to perform perfectly. This, however, is a contrast from different empirical evidences.
The last theoretical issue of rational choice theory and white-collar crime is policy implication concerns for approaches of rational choice (Friedrichs, 2009). Some criminology researchers express the view on the way white-collar criminals are able to act in a rational manner to blend with their criminal behavior. Some criminologists believe that in order to prevent situational white-collar crimes, it is important to understand the factors affecting the decision on target. Displacement on this note is the white-collar offender’s likelihood to adapt and shift to other choices. The perspective on rational choice theory provides a path that explains the displacement concept, while assessing any levels that could demean the measures for white-collar crime control (Gottschalk, 2009).
Effects
The presence of white-collar crimes is high and it is hard to identify them (Blickle, 2006). The criminals in this type of crime do it in an office or in the privacy of homes with little or no eye witnesses. Evidence collected by the government relies heavily on paper trails and contextual proof. Lack of resources and expertise is what slows government efforts to identify white-collar criminals. Other government bodies do come in, however, to help in solving crimes involving fraud and money laundering. There are different harmful effects of white-collar crimes. The system of criminal justice has valid reasons to hunt down white-collar criminals (Blicke, 2006). These criminals bring losses to the government; in 1988 the US confirmed that white-collar crime was an issue that was at the top of the list of authorities of law enforcement.
The enforcement and adoption of criminal law in the US are done by the state, local and federal governments. The federal level receives less than one out of twenty offenses. Most states have implemented laws to deal with white-collar criminals, many of which are in line with federal laws. The biggest white-collar cases are handled at the federal state. And this is because, the cases might involve prosecution schemes, criminal investigations that are multifaceted and widely ranged and also the case may involve different activities that are broad, spanning all across state borders, hence the best for federal prosecution (Gottschalk, 2009). So many white-collar crimes end up undetected which means they are difficult to solve.
Conclusions
Rational choice theory involves individual activities that are measured depending on the costs and benefits that will lead to the final action bringing forth personal gain. Rationality generally means understanding and doing things better for an individual in the future. White-collar crime is a crime that is committed by a person who has respects and social status in the society. Criminal activity outcomes depend on the benefits the criminals want to attain from committing the crime. Rational choice theory approaches are meant to explain how white-collar crimes exist.
References
Allingham, M. (2006). Rational choice theory: critical concepts in the social sciences, volume 1. New York: Taylor & Francis.
Archer, M., & Tritter, J. (2000). Rational choice theory: Resisting colonization. New York: Routledge.
Ackerman, T. (2012) Bernie Madoff Case Study. StudyMode.com. Retrieved from http://www.studymode.com/essays/Bernie-Madoff-Case-Study-1567541.html
Bartol, A. M and Bartol, C. R. (2012) Criminal Behavior: A Psychology approach. ISBN-10: 0132973197 | ISBN-13: 9780132973199
Blickle, G. (2006). Some personality correlates of business white-caller crime. International Journal of Applied Psychology, 225-233.
Friedrichs, D. (2009). Trusted criminals: White collar crime in contemporary society. New York: Cengage Learning.
Gill, J., & Scott, M. (2008). The legal environment and white collar-crime. New York: Association of Fraud Examiner.
Gottschalk, P. (2009). Policing financial crime: Intelligence strategy implementation. New York: Universal-Publishers.
Piquero, A., & Tibbetts, S. (2002). Rational choice and criminal behavior: Recent research and future challenges. New York: Routledge.
Shover, N., & Hochstetler, A. (2006). Choosing white-collar crime.Cambridge: Cambridge University Press.
Siegel, L. (2012). Criminology: Theories, patterns, and typologies.New York: Cengage Learning.
Surhone, L., Tennoe, M., & Henssonow, S. (2011). Rational choice theory (criminology). New York: Betascript Publishing.
Zuckoff, M. (2008) Were charities part of Madoff's secret formula? Retrieved from http://money.cnn.com/2008/12/29/news/newsmakers/zuckoff_madoff.fortune/.
