On May 24, David O. Friedrichs protested a “widely held but fundamentally wrongheaded way of thinking about crime,” in a letter to the New York Times. Friedrichs, the author of “Trusted Criminals: White-Collar Crime in Contemporary Society,” was responding to an article on a decline in “major crime” that focused on murder, rape and robbery but made no mention of corporate crime.

A criminal justice professor at the University of Scranton, Friedrichs insisted in his letter, and in a subsequent article in the Corporate Crime Reporter newsletter, that white-collar crime has further reaching, deeper and more lasting impact than street crime. “Although it is far more challenging to measure [white-collar] crime,” he wrote the Times, “there are reasons to believe it may not be in decline, and may well be rising.”   

He’s not alone in that opinion. Shortly after his office’s sweeping 14-count conviction of Raj Rajaratnam, U.S. Attorney Preet Bharara decried a growing culture of corruption and greed in American business in a speech to financial industry writers. Bharara likened corporations—and not just Wall Street—to drunk drivers that try to stay just under the legal limit, a recipe for inevitable disaster.

These comments reflect two pervasive sentiments: that corporate crime is perceived to be different from other types of crime, and that it’s bad and getting worse. The first notion seems to be significantly eroding; the second, spreading—and both stand in stark contrast to the perspectives of most in-house counsel and compliance officers.

After absorbing the legislative responses to the Enron era and the global financial crisis, as well as a decade-long drive toward individual accountability and a global surge in corruption enforcement, corporate counsel routinely assert that the culture of compliance has never been greater. More is asked of companies than ever, and for the most part, they feel they are meeting the challenge.

This widening gap in the perception of corporate crime denotes a meaningful watershed—one that owes to a variety of social, political and economic influences, and that will have profound future implications for companies and executives alike.

Organized Crime

“There has been a permanent shift in perceptions of white-collar criminals,” says Toby Bishop, director of the Deloitte Forensic Center. “The focus is on the stain on the collar, not on the color of the collar.”

In essence, that “fundamentally wrongheaded” differentiation—the view of white-collar crime as a separate category—is beginning to blur.

In the eyes of prosecutors and the public alike, the privileged notion that business crimes are treated differently is on the wane. The Galleon trial, with its aggressive use of investigation techniques previously associated mostly with drug and mob cases, marks a new era. So too do the sentences white-collar criminals now face.

Bernie Madoff recently lamented the severity of his sentence. Though few may be sympathetic, he does have a point in that 150 years—and the certainty that he will die in prison—is the type of penalty previously reserved for mobsters and murderers.

“Corporate criminal activity is now viewed as another form of organized crime,” Bishop says. “The approaches and techniques used to deal with it are taken from those previously applied to organized criminal groups. It’s a real attitude change. We can expect a higher level of more effective and more targeted enforcement on an ongoing basis.”

Every economic down-cycle brings resentment among the general population at the small number of people who are thought to have either caused or capitalized on the situation. That draws both increasing scrutiny of those people and increased skepticism of their methods. It also inevitably influences the attitudes of prosecutors and jurors.

In this case, however, the protracted pace of the recovery provides an additional element. The longer the economy stays mired, the more that scrutiny is sustained, giving amplified enforcement tactics time to take root and become the norm. It also places an ongoing strain on companies that may have barely weathered the initial storm.

“A long, slow recovery puts businesses and executives under pressure for an extended period during which time it is not unsurprising if a number of people break and commit wrongdoing to accomplish objectives that in better economic times would be much easier to achieve,” Bishop says. “That, too, creates pressure on the political establishment to enforce laws and regulations in order to satisfy the needs of their constituents.”

Global Dilemma

Governments around the world are more sensitive than ever to the fact that economic turmoil halfway around the planet can have dramatic effects at home. That feeds directly into enforcement efforts, particularly around corruption.

In this sensitized landscape, U.S. companies are forced to take their compliance efforts to a new, almost evangelical level when doing business abroad.

“It’s not enough to simply instill a climate of compliance within the four walls of your own company,” says Daniel E. Karson, executive managing director and counsel at Kroll. “This message must be delivered to customers, vendors, trading partners, to inventors—anyone the company does business with.”

This is a new role for companies, and often an uncomfortable one. Culture is difficult enough to change within a company, let alone in entire business climates. Multinationals depend upon local people to source business for them, much of which falls in the context of government contracts. Striking a balance between telling third-party service representatives to maximize results while imploring them to comply with unfamiliar ethics is no small task, especially in the developing world.

“There’s no question that big multinationals are taking compliance more seriously than they have before—no doubt about it,” Karson says. “The difficulty for them is that they are operating in business climates that have not yet absorbed the lesson. In Asia, in Africa, in Central Europe, these are still new concepts.”

Quantum Shift

In the end, the biggest driver behind intensified enforcement efforts may not be the fickle winds of political regimes or the reflexive reaction to economic turmoil, but the increasing awareness that the integrity of and faith in markets is integral to political and economic stability.

In a world where companies and countries, supply chains and financial relationships are inextricably intertwined, market integrity is paramount. Crises that previously had contained or predictable ramifications now have domino potential.

“I don’t think it should be underestimated,” Bishop says. “There is a very real concern that confidence could be lost if investors reach the conclusion that the deck is stacked against them. The consequences of such loss of confidence are so great that government regulators and key stakeholders in the securities market have a very strong interest in ensuring that does not occur.”

Given the stakes, a harder hammer will fall on the schemers and fraudsters whose exploits, isolated as they may be, threaten public faith. In this menacing landscape, in-house counsel are left once again to redouble their efforts.

“We’re going to see a lot more emphasis on risk intelligence—informed risk- taking involving multiple parties in the C-suite collaborating to identify and manage business risks before decisions are made, during and afterward,” Bishop says. “The complexity and the potential severity of business risks today require new coordination, new methodology and new supporting information and management tools.”

In short, for businesses to stay in the clear in this new era—if one takes Bharara’s comments to heart—compliance must be viewed as the floor, not the ceiling. For some companies, that no doubt remains a quantum shift.