The US sociologist and criminologist Edwin Hardin Sutherland is widely considered the founder of white-collar criminology, and was mentored by a protégé of the well-known economist and sociologist Thorstein Veblen. Although there was considerable effort on the part of journalists dedicated to investigating the crimes of the rich and powerful during the late 19th and early 20th centuries in the US, criminology had no theory of white-collar crime at that time.
Sutherland was an academic intelligent and brave enough to put forward the first conceptual framework for understand how white-collar crime differentiated from typical street-level crimes. He revealed this in his influential address as President of the American Sociological Society in 1939. He had strong moral convictions and was appalled at the perceived bias of the criminal justice system which almost entirely focused its resources and effort into investigating, prosecuting and punishing street-level criminality while rarely doing the same for the more financially and socially powerful businesspersons.
His landmark paper in 1940 presented his detailed analysis of white-collar crime in the American Sociological Review.
Sutherland noted that the criminality of the robber barons of the latter half of the 19th century, typically railroad corporations, and the white-collar criminals of the day, consisting of powerful merchants and financiers (considered to be more devious than the robber barons), received detailed coverage in the media, especially in the financial sections. This arguably echoes present-day Australia given the growing investigations of corporate crime in the media though, similar to Sutherland’s time, the authorities and criminologists have preferred to focus on the street-level crimes committed by people of low socioeconomic status.
Sutherland argued that the financial costs from white-collar crimes was likely to be a multiple of street-level crimes, the latter of which is considered to be the problem by the authorities who conveniently ignore white-collar crime (then and now).
White-collar criminals are able to defraud by breaching trust. When committing the criminal act of fraud, which is a major component of white-collar crime, the perpetrator intentionally develops trust with the victim or uses already-existing trust as a lure. Trusting people are much easier to defraud than those who are suspicious.
Sutherland noted that breaching and diminishing trust carried not only financial costs but societal ones as well. Trust is a necessary element for economic efficiency, obviously important to businesses, investors and consumers.
A primary point of contention was defining the benchmark for what should be considered a violation of criminal law. He argued that conviction was inadequate because many of those who commit white-collar crimes escape prosecution and subsequent conviction in criminal courts. This problem meant supplementing the criterion of criminal conviction with four elements.
The first is that other agencies must be involved given it is not only the courts which make decisions over violations of law; regulatory agencies are an obvious example. The failure of criminologists to incorporate the interventions and investigations of such agencies was considered a major reason for statistical bias suggesting almost all crime was committed by the lower class.
Behaviour which would have a strong probability of conviction by criminal courts should be considered as the second criterion. In essence, this refers to the notion of convictability. Victims of white-collar crime may prefer to seek financial restitution through civil courts rather than relinquish settlements and compensation if criminal prosecution could potentially interfere with proceedings.
The third aspect is the prosecution and convictions foregone due to pressure brought about by suspected criminals upon the criminal justice system, for instance, intimidated witnesses and the ability of white-collar criminals to influence and obstruct the implementation and administration of regulatory agencies, notwithstanding the class bias of the courts.
Lastly, those who assist the primary culprits in committing white-collar crime as accessories should be included among the ranks of such criminals given these accessories often escape prosecution and conviction. These factors have led to the divide between the treatment of white-collar and street-level criminals, due predominantly to the manner of the implementation of applicable criminal law as Sutherland argued.
Importantly, Sutherland pointed out that while white-collar criminals were often powerful and organised, their victims were not. They were often disorganised, atomised and trusting, which made them easy targets. Such criminals should understand never to steal from their own class, which explains why Bernie Madoff is in jail for a long time and the rest of the fraudsters who caused the GFC escaped prosecution: they stole from the peasants below them.
What little statistical evidence on white-collar criminality pointed to widespread corporate malfeasance and corruption on Wall Street. Nothing has changed since then.
Sutherland ended his landmark paper by suggesting a number of propositions derived from his research which helped to further academic investigation within criminology, particularly of white-collar criminal research.
To this day, Sutherland and contemporary criminologists such as William K. Black are hated by the conservative side of politics, economics and law, precisely because they demonstrate that white-collar crime is class-based, is widespread, flourishes in privatised and deregulated economies, is committed predominately by the wealthy and imposes enormous financial costs.
Black extended Sutherland’s research, including that of economists Paul Romer and George Akerlof, to develop the concept of control fraud, whereby white-collar criminals use the institutions they control to defraud stakeholders. This helps to explain the epic rampage of looting committed by the US financial services industry in recent times.
Australia is currently infected with control fraud, primarily centred in the financial services industry. It has become so rotten that a Royal Commission (though sabotaged) is presently investigating. The research by Sutherland and Black helps us to understand why this widespread criminality has taken hold while the mainstream economics and criminology professions remain clueless of what is happening in the real world.