Different types of ethical violations linked to corporate crime include misrepresentation in advertising, deceptive packaging, the lack of social responsibility in television commercials, the sale of harmful and unsafe products, the sale of virtually worthless products, polluting the environment, kickbacks and payoffs, unethical influences on government, unethical competitive practices, personal gain for management, unethical treatment of workers, stealing of trade secrets, and the victimization of local communities by corporations.
Corporate crime is nothing new. In the article "Schemers and Scams: A Brief History of Bad Business" (Fortune, March 18, 2002), a brief chronology of corporate malfeasance is given, including some of the more well-known corporate crimes of the past 15 years:
- In 1989 Charles Keating was convicted of fraudulently marketing junk bonds, which led to the collapse of Lincoln Savings and Loan. The cost to taxpayers for the bank's failure was estimated at $3.4 billion. Keating served five years of a twelve-year prison sentence.
- In 1997 Columbia/HCA insurance company was the target of the largest-ever federal investigation into
FIGURE 7.1
Identity theft complaints by victim age, January 1-December 31, 2003 health-care scams. An $840 million Medicare-fraud settlement was agreed to in 2000. Identity theft complaints by victim age, January 1–December 31, 2003 - In 1998 Al Dunlap, nicknamed "Chainsaw Al" in the press after taking over companies and reducing costs by firing people, was fired from Sunbeam for illicitly manufacturing earnings. He overstated revenues, booking sales, for example, on grills neither paid for nor shipped.
- In 2001 Al Taubman, former chairman of Sotheby's auction house, was convicted of conspiracy for price-fixing at Sotheby's and Christie's auction houses.
In November 1998, 46 states collectively settled lawsuits they had brought against cigarette manufacturers to recoup the tobacco-related costs of health care paid out by state Medicaid agencies. Although the sale of tobacco products was legal, the states alleged that tobacco firms knew of the highly addictive nature of smoking yet deliberately concealed their research findings from the general public for decades while promoting tobacco use. According to the terms of the settlement, the tobacco industry agreed to pay out some $206 billion over 25 years. The states of Florida, Texas, Minnesota and Mississippi settled their lawsuits separately for some $40 billion over 25 years.
Between 2001 and 2002 there were a number of verdicts in cases brought against tobacco companies, some of them resulting in million-dollar jury awards. In March 2002 an Oregon jury found Phillip Morris liable for a smoker's death and ordered the company to pay $150 million in punitive damages. In June 2001 a California jury awarded former smoker Richard Boeken $3 billion in punitive damages, later reduced to $100 million. Also in June of 2001 a New York jury found the U.S. tobacco industry liable for "unfair and deceptive business practices" and awarded some $17.8 million to Empire Blue Cross and Blue Shield of New York for the health costs of smoking-related illnesses.
A Different Type of Crime
Corporate crime can cost billions of dollars, but because these losses are frequently spread out over so many uninformed victims, it usually does not create the same initial public impact as, for example, an armed robbery of a few hundred dollars. There often is no single person to take the blame. Corporations can be so complex and powerful that the rules of justice applied to individuals are often applied differently to business. A board of directors is not imprisoned for a corporate wrongdoing; instead, the corporation may be fined.
Despite their potential to do extensive damage, corporate crimes are not regarded with the same fear as "street crime." Personal attacks are far more frightening, even to persons who have never been physically assaulted, than the seemingly remote possibility of dying a slow death due to air pollution, or buying defective tires, or using a poorly tested drug. On the other hand, someone who has had a considerable part, or perhaps all, of their savings stolen as the result of fraud or embezzlement can face a painfully insecure future because they may no longer have the money intended to support their later years. Nonetheless, except in certain spectacular cases that receive extensive media coverage such as the savings and loan fraud of the 1980s, the consequences of corporate misbehavior are generally ignored.
Corporate Espionage
Many corporations are becoming concerned about the potential espionage activities of competing corporations. In a computerized global economy where a competitor's advantage can mean life or death for a company, trade secrets, copyrighted information, patents, and trademarks become very important. Most major companies have developed sophisticated security systems to protect their secrets. Stealing classified corporate information has become a major issue for national governments. In a 2001 report by the U.S. General Accounting Office (GAO), it was reported that the American Society for Industrial Security, which surveys Fortune 500 companies, estimated that potential losses to American businesses from theft of proprietary information were $45 billion in 2000.
Many governments have begun to use their national intelligence organizations to protect local companies from espionage by foreign companies or governments. In the United States, the Economic Espionage Act of 1996 (PL 104-294) made it a federal crime to steal trade secrets for another country.
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