THE LEGAL ENVIRONMENT OF BUSINESS The Legal Environment
THE LEGAL ENVIRONMENT OF BUSINESS The Legal Environment of Business A Critical Thinking Approach 5 th Edition Nancy K. Kubasek Bartley A. Brennan M. Neil Browne © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -1
THE LEGAL ENVIRONMENT OF BUSINESS CHAPTER 7 White Collar Crime and the Business Community 2/20/2021 © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -2
THE LEGAL ENVIRONMENT OF BUSINESS Crime q Crimes are offenses against the public q Wrongful actions q Wrongful intent – mens rea q Felonies q Misdemeanors q Petty crimes © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -3
THE LEGAL ENVIRONMENT OF BUSINESS Major white collar crime sentences ENRON - Jeffrey Skilling Health South. Richard Scrushy CENDANT – Walter Forbes World com – Bernie Conspiracy, insider trading, sec. fraud, & making false statements to auditors Bribery, Mail fraud & obstruction of justice serving 24 yrs+ in federal prison & fined $45 Million. Case under appeal. Servings 10 years in jail. Fine of $150 k $ $267 K to United Way. Wire fraud, mail fraud, 12 yrs+ in fed. Prison conspiracy, Sec. fraud & over 3 Billion in & insider trading restitution. Accounting fraud 25 yr federal prison Corruption, larceny, stealing & not paying tax 8 - 25 yrs state prison. Pay $134 M to Tyco & fined 70 M. Ebbers Tyco- Dennis Kozlowski © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -4
THE LEGAL ENVIRONMENT OF BUSINESS Criminal Procedure q Warrant issued q Arrest q Miranda Rights q Booking q First appearance q Bail q Information © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -5
THE LEGAL ENVIRONMENT OF BUSINESS Grand Jury Proceedings Purpose of Grand Jury: To decide if there is enough evidence to justify a full trial q Used in felony cases q Evidence presented by the state q Witnesses may be subpoenaed © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -6
THE LEGAL ENVIRONMENT OF BUSINESS Other Procedures Indictment q Whether sufficient admissible evidence exists to obtain a conviction Pretrial Diversion q Agreement to perform services under supervision © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -7
THE LEGAL ENVIRONMENT OF BUSINESS Criminal Procedure q Arraignment q Plea bargains q Burden of production of evidence q Burden of persuasion q Standard of proof q Fifth Amendment © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -8
THE LEGAL ENVIRONMENT OF BUSINESS Defenses q Entrapment q Insanity q Duress q Mistake © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -9
THE LEGAL ENVIRONMENT OF BUSINESS Features of White Collar Crime Definition: “Crime committed by a person of respectability and high social status in the course of his occupation. ” ~ Edwin Sutherland Crime committed in a commercial context by professional and management classes. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -10
THE LEGAL ENVIRONMENT OF BUSINESS 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. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -11
THE LEGAL ENVIRONMENT OF BUSINESS Arguments in Support of Corporate Criminal Liability q Fines will pressure shareholders q Maintain incentives to obey law q Ease of investigation and prosecution q Collective decision making should not provide escape q Avoids making scapegoats of employees © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -12
THE LEGAL ENVIRONMENT OF BUSINESS More Arguments in Support of Corporate Criminal Liability q Unfair to single out individuals for common pattern of criminal behavior q Unfair to allow shareholders to benefit from crime q Public information and disclosure to consumers important function of prosecution © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -13
THE LEGAL ENVIRONMENT OF BUSINESS Arguments Against Corporate Criminal Liability q Fines are just passed on to consumers q Punishing shareholders is misguided; shareholders really do not control the enterprise q No real or lasting damage to corporate image can be achieved © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -14
THE LEGAL ENVIRONMENT OF BUSINESS 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. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -15
THE LEGAL ENVIRONMENT OF BUSINESS Factors Encouraging White Collar Crime q Pressure to succeed q Dispersed decision making q Lack of stigma q Short-term goals even when q Groupthink convicted q Easy to rationalize © 2009 Pearson Education, Inc. publishing as Prentice Hall q Lax regulation q Poor personnel policies Ch. 7 -16
THE LEGAL ENVIRONMENT OF BUSINESS Sentencing of White Collar Criminals 1991 Federal Sentencing Guidelines q Base Fine + Culpability Score q Aggravating + Mitigating Factors q Extraordinary circumstances © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -17
THE LEGAL ENVIRONMENT OF BUSINESS Alternative Sentencing q Community service q Occupational disqualification q House arrest q Weekend prison © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -18
THE LEGAL ENVIRONMENT OF BUSINESS Common White Collar Crimes q Bribery q Regulatory Violations q Criminal Fraud q Defalcation q False pretenses q False entries q Forgery q False token q Fraudulent concealment © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -19
THE LEGAL ENVIRONMENT OF BUSINESS More White Collar Crimes q Larceny q Embezzlement q Computer Crimes q Piggybacking q Salami slicing q Imposter q Data destruction (Virus, Worm) q Trojan Horse q Data misappropriation © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -20
THE LEGAL ENVIRONMENT OF BUSINESS Prevention q Federal vs. State chartering q Require public directors q Link fines to benefits obtained q Equity fines q More vigorous regulation q Internal corporate measures © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -21
THE LEGAL ENVIRONMENT OF BUSINESS Federal Laws q RICO 1970 q False Claims Act- see Rockwell case q Sarbanes-Oxley Act 2002 q Whistleblower Protection Act- Is this effective? © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -22
THE LEGAL ENVIRONMENT OF BUSINESS State Laws q Whistleblower protection statutes q Protect public employees q Provides specific remedies CASE: Mc. Namee v. County of Allegheny ISSUE: What is “ wrongdoing”? © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -23
THE LEGAL ENVIRONMENT OF BUSINESS Global Dimensions White Collar Crime: A worldwide problem Example: IOS case q Lack of cooperation among law enforcement q 2001: Creation of international fraud database q Convention on Cybercrime- [effective in U. S. in 2007] © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -24
THE LEGAL ENVIRONMENT OF BUSINESS Summary q Criminal law protects the public. q Criminal procedure differs from civil procedures. q White-collar crimes are difficult to prosecute and punishments are light. q New technology and globalization of the economy have made new crimes possible. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -25
THE LEGAL ENVIRONMENT OF BUSINESS 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. Publishing as Prentice Hall © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 7 -26
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