The phrase “white-collar crime” was in its infancy when the criminologist Edwin Sutherland made it his own. In the late 1930s theft was almost entirely associated with the poor. As he saw it, his fellow sociologists had come to the conclusion that crime was a result of “feeblemindedness, psychopathic deviations, slum neighborhoods and ‘deteriorated’ families”; it was believed that less than 2 percent of crime came from members of the upper echelons of society. But Sutherland believed this outlook was not only biased, but blinkered, failing to take into account theft that was taking place in plain sight. “The ‘robber barons’ of the last half of the 19th century were white-collar criminals,” he told the crowd of the American Sociological Society in 1939, recounting the time Commodore Cornelius Vanderbilt more or less confessed that his family wealth was ill gotten, saying, “You don’t suppose you can run a railroad in accordance with the statutes, do you?”
According to people on both sides of the law, today, thanks to the internet and tax havens, it is even easier for white-collar crime to slip under the radar: Cash is stashed in untouchable island accounts; corporate checks can be forged and deposited; money laundering takes the form of a prepaid debit card; insider trading is just a conversation over cocktails. You’ll be shocked to learn just how simple it is to rob and steal while maintaining a veneer of respectability.
Checks can be useful tools when it comes to engaging in both corporate theft and what are called account takeovers. Each requires a basic understanding of forgery. To steal from a business, says Frank Abagnale, whose criminal exploits inspired the movie “Catch Me if You Can,” the best forgers “capture a corporate logo and maybe the front of the building — layer it in the background, and you can make a check 10 times better looking than the actual check.” Then they call the company and ask to speak to someone in accounts receivable. After they explain that they want to pay an invoice by wiring money to the institution, they are told where it does its banking and are given its routing and account numbers. They add that information to the fake check.
Next they find someone in corporate communications to give them a press statement, which will include the signature of the C.E.O. or C.F.O. They scan the document and print the signature onto the check. It is not likely be scrutinized unless the amount is more than $2,000. “No human being sees the check — it goes through a high-speed processor,” Abagnale says. For the last 40 years, he has been a consultant to financial institutions and government agencies, telling them how to combat forgery. Around 17 billion checks, with a value of roughly $27 trillion, were written in 2015, according to the Federal Reserve.
Another, more common way to use checks fraudulently is to take over an individual’s account. “Let’s say you gave me a check for $9,” Abagnale says. “All I would do is go to checksinthemail.com — they have every style of check you can imagine.” It’s possible for fraudsters to match the style of check they’ve been given — to duplicate the trees in the background, say — and then to order with a different name on the check along with the bank account information of the unsuspecting person. When the other person’s bank receives those checks, it will debit that account. The swindler can pay rent and credit-card bills or visit a local check-cashing operation and walk away with thousands of dollars. “It’s months later that anyone would discover it,” Abagnale says. “And the bank is responsible for paying both parties even if the business files a complaint within 30 days.”
Scammers have long mounted schemes to pressure gullible customers to buy assets, especially penny stocks, with promises of hot tips and inside information. But today, the pump-and-dump playbook is being applied to the new frontier of cryptocurrency. “One of the things we’re seeing in the virtual-currency space is an application of these old schemes to new conduct,” says James McDonald, the director of enforcement for the U.S. Commodity Futures Trading Commission. What pump-and-dump schemes need is a thinly traded market where a price swing is easy to manipulate and disproportionately large compared with how little the asset costs. “If I buy a hundred shares of Apple, that’s not going to move the price,” McDonald says. “But if there’s a new currency, if I buy a hundred tokens or shares, that could be 50 percent of the trading for that day. If it was trading at 10 cents, that could triple the price or more.”
The scammers begin by investing a large sum in a currency that is relatively unknown. Then they spread misinformation on social media, claiming, say, that a famous investor like Warren Buffett is investing in the currency. They might post false news articles that say it has been granted a line of credit by bank or a company like Mastercard, and then circulate links to the fake news on social media — spreading the news on Twitter accounts known to promote stocks, for example. It’s a risk if the stories are too appealing. An article claiming that the Fed chairman is endorsing an unknown currency for the Reserve or that the United States is going to use a specific coin will not be believed.
Scammers often cultivate an online identity on Twitter or Facebook that becomes known for specializing in recommending currencies or stock picks — then recommend the one they want to pump up and wait for followers to buy it. “Then you have trading that corroborates the misinformation,” McDonald says. “You get the false reports, the currency spikes and then it looks believable.” Monitoring the enthusiasm for the currency, they sell when it seems to be at a peak. Because they hold the majority of the currency, its price will plummet once they dump the holdings. “This can happen in a matter of minutes,” he says.
People who want to keep their money away from the tax collector will move it to a foreign country. Those who are rich enough will hardly even have to seek out such a tax haven — the opportunities will come to them. “When you have more than $20 million, then you’re going to start being targeted by these financial institutions — you will be invited to sporting events like golf or galas,” says Gabriel Zucman, an assistant professor of economics at the University of California, Berkeley, and the author of “The Hidden Wealth of Nations.” “They won’t sell in an aggressive way, but they will talk about legal tax immunization and strategies.”
Until the financial crash in 2008, according to Zucman’s research, Switzerland controlled approximately 50 percent of the “offshore” accounts used by the world’s wealthiest; today that figure is roughly 25 percent. More wealth is now stored in Asia: Singapore and Hong Kong are home to 30 percent of offshore accounts in use, while the rest are in the Caribbean, Panama and Europe.
A lawyer or financial adviser can set up a shell corporation. “There are intermediaries — law firms that can connect people to banks, and they supply these anonymous shell companies,” Zucman says. Once the shell company is established, it will send an invoice for phony services like investment advice. Payment for these services then goes to the offshore bank account attached to the shell company. The resulting paper trail looks legitimate.
Zucman estimates that an amount equivalent to 8 percent of the world’s household financial wealth is held, untaxed, in offshore accounts — around $8.6 trillion in 2016. “There’s a great deal of opacity,” he says. “You see all this wealth that belongs on paper, and authorities don’t have a good way to pierce this veil of secrecy. They rely on the good will of bankers, which is not sufficient.”
Accessing money in an offshore account is as easy as using a debit card from the offshore bank or taking out a loan in the United States against the assets held abroad. “You don’t have to show up,” Zucman says. “It can all be done remotely.”
Employees at publicly held companies often possess something quite valuable to outside investors: knowledge about their employers’ prospects beyond what has been issued in news releases. Those who would share — and perhaps illegally profit from — this intelligence in order to play the stock market know to circulate among their company’s various departments, says Roomy Khan, a former analyst at Intel who went to prison for passing nonpublic information to Raj Rajaratnam, the billionaire founder and former chief of the Galleon Group hedge fund and others.
“I was always trying to make connections in the company’s finance department and the marketing chain,” Khan says. “In sales they know what the bookings are; in marketing they know what people are looking for.” Because Intel controlled nearly 90 percent of the PC market for microchips when she was there, the intelligence gathering she did for Rajaratnam gave him the ability to predict the fortunes of Intel and the entire PC market.
When it comes to buying or selling stocks based on those predictions, insider traders must avoid being consistently accurate. Too many on-the-spot and out-of-the-ordinary trades that are correct can raise flags. “The government spots insider traders,” says Khan, who now gives speeches to companies about the dangers of insider trading. The feds aren’t the only ones monitoring unusual trades. Companies can get in trouble if they have too many leaks, and so can investment funds if they act on them, so both types of businesses are looking out for suspicious activity.
Social and professional circles can be used to draw out information from anyone willing to share secret details of products or strategies. “Let’s say Samsung was having battery issues, and if my friend said something about the issues, I would start probing him. I know what the market is looking for,” Khan says. “I would ask more and more detailed questions.” Manipulation is the key to gaining confidential information, but insider traders try to be casual and friendly; people are more easily persuaded to share if they are made to feel powerful, wanted and included in the upper echelons of financial society. Khan says: “I used my lifestyle, my success, the trappings of success.”
Illegal enterprises seek every possible way to get their cash back into circulation. To launder this dirty money in the United States requires them to “structure” their deposits of ill-gotten cash. Banks are required to report transactions involving $10,000 or more in cash, so their deposits need to be much smaller than that. “Criminals understand that U.S. banking laws have become a lot stricter in the last several years,” says Adam Braverman, United States attorney for the Southern District of California. “They used to deposit $9,999 in 10 or 20 different banks. Now we look for those suspicious activities.” Would-be launderers try to avoid triggering the software banks use to maintain anti-money-laundering controls by varying their deposits by amount, location — both geographically and institutionally — and even timing.
Prepaid debit cards like Green Dot offer more anonymous (and less labor-intensive) means of working dirty money into the system. “A new way organizations launder money is by purchasing gift cards or debit cards that they can resell and transfer money easily,” Braverman says. Because anyone can buy such cards at a drugstore, for example, they’re harder to trace than bank deposits, which require accounts. Purchasers still need to limit how much they put on debit cards to less than $10,000.
If launderers want to do things the old-fashioned way, they can smuggle cash across a border. It’s best to vacuum-seal it or pack it with plastic wrap to reduce the bulk — a million dollars can take up a lot of space — and hire a courier to transport it in duffel bags to a country with lax banking laws. Once the money is in, say, a South American location where that’s the case, dollars can be exchanged for the local currency at a casa de cambio.
The United Nations estimates that up to $1.6 trillion is laundered annually worldwide. Pop culture would have us believe that cash-driven businesses like strip clubs, car washes and casinos are the best places to clean up money. Dealing with the burden of running a legitimate business and paying actual taxes is anything but easy money.