Focus on speaking

1. Do you agree with Shirley Chisholm who said: “When morality comes up against profit, it is seldom that profit loses”?

2. Using the material of the unit, prove that ethical problems frequently occur in business.

Unit 5 Corporate crime

Pre-text exercises

1. a) Make sure that you know how to pronounce the following words, consult the dictionary if necessary:

corporate – corporation, to offend – offender – offence, conceit, primary, jurisdiction, espionage, insider, to distort – distortion, negotiate, bribe – bribery, budgetary, narcotics, smuggler, to organize – organization, to extort – extortion, illegitimate, nepotism, cronyism, North Korea, Syria, to embezzle – embezzler – embezzlement, minor, sophisticated, to falsify – falsification, phantom, audit, strategy, to misappropriate – misappropriation, to recruit – recruit, tour

b) Translate these words into Russian.

Now read the following text and do the exercises after it.

Text

Corporate crime refers to crimes committed either by a corporation or by individuals that may be identified with a corporation or other business entity.

In law, corporations can commit the same offences as natural persons. The majority of crimes are committed because the offender simply sees the chance and thinks that he or she will be able to commit the crime and not be detected. For the most part, greed, rather than conceit, is the motive. And the corporation is the vehicle for the crime. This may be a short-term crime, i.e., the corporation is set up as a shell to open credit trading accounts with manufacturers and wholesalers, trades for a short period of time and then disappears with the revenue and without paying for the inventory. Alternatively and most commonly, the primary purpose of the corporation is a legitimate business, but criminal activity is secretly intermixed with legal activity to escape detection. To achieve a suitable level of secrecy, senior managers will usually be involved.

Examples of criminal behavior in most jurisdictions include: corruption and related types of abuse, industrial espionage, insider trading, etc

Corruption is one of the main problems in the developed world. It undermines economic development by generating considerable distortions and inefficiency. In the private sector, corruption increases the cost of business through the price of illicit payments themselves, the management cost of negotiating with officials, and the risk of breached agreements or detection. Although some claim corruption reduces costs by cutting red tape, the availability of bribes can also induce officials to contrive new rules and delays. Openly removing costly and lengthy regulations is better than covertly allowing them to be bypassed by using bribes. Where corruption inflates the cost of business, it also distorts the playing field, shielding firms with connections from competition and thereby sustaining inefficient firms.

Corruption also generates economic distortions in the public sector by diverting public investment into capital projects where bribes and kickbacks are more plentiful. Officials may increase the technical complexity of public sector projects to conceal or pave way for such dealings, thus further distorting investment. Corruption also lowers compliance with construction, environmental, or other regulations, reduces the quality of government services and infrastructure, and increases budgetary pressures on government.

Bribery is the offering, giving, or receiving of any item of value to influence the actions of an official or other person in discharge of a public or legal duty. The bribe is the gift bestowed to influence the receiver's conduct. It may be any money, good, right in action, property, privilege, object of value, or any advantage. Bribery requires two participants: one to give the bribe, and one to take it. In some countries the culture of corruption extends to every aspect of public life, making it extremely difficult for individuals to stay in business without resorting to bribes.

For example, a motorist may bribe a police officer not to issue a ticket for speeding, a citizen may bribe a functionary for faster service, a construction company may bribe a civil servant to award a contract, or a narcotics smuggler may bribe a judge to lessen criminal penalties.

Bribery is generally considered unethical. In most jurisdictions it is illegal, or at least cause for sanctions from one's employer or professional organization.

Extortion and robbery. While bribes may be demanded in order to do something, payment may also be demanded by corrupt officials who otherwise threaten to make illegitimate use of state force in order to inflict harm. This is similar to extortion by organized crime groups. Illegitimate use of state force can also be used for outright armed robbery. This mostly occurs in unstable states with lacking control of the military and the police. Less open forms of corruption are preferred in more stable states.

Nepotism and Cronyism. Favoring relatives (nepotism) or personal friends (cronyism). This may be combined with bribery, for example demanding that a business should employ a relative of an official controlling regulations affecting the business. The most extreme example is when the entire state is inherited, as in North Korea or Syria.

Embezzlement is outright theft of entrusted funds. It is a misappropriation of property.For instance, a clerk or cashier can embezzle money from his or her employer, or a civil servant can embezzle funds from the treasury.

Embezzlement may range from the very minor, involving only a very small amount, to immense, involving very large sums and very sophisticated schemes. It sometimes causes falsification of records in order to conceal the theft. Embezzlers commonly steal relatively small amounts repeatedly over a long period, although some embezzlers steal one large sum at once. Some very successful embezzlement schemes have continued for many years before being detected due to the skill of the embezzler in concealing the nature of the transactions.

One of the most common methods of embezzlement is to under-report income, and pocket the difference. For example, in 2005, several managers of the service provider Aramark were found to be underreporting profits from a string of vending machine locations in the eastern United States. While the amount stolen from each machine was relatively small, the total amount taken from many machines over a length of time was very large.

Another method is to create a false vendor account, and to supply false bills to the company being embezzled so that the checks that are cut appear completely legitimate. Yet another method is to create phantom employees, who are then paid with payroll checks.

The latter two methods should be uncovered by routine audits, but often aren't if the audit is not sufficiently in-depth, because the paperwork appears to be in order. The first method is easier to detect if all transactions are by check or other instrument, but if many transactions are in cash, it is much more difficult to identify. Employers have developed a number of strategies to deal with this problem.

A kickback is an official's share of misappropriated funds allocated from his or her organization to an organization involved in corrupt bidding. For example, suppose that a politician is in charge of choosing how to spend some public funds. He can give a contract to a company that isn't the best bidder, or allocate more than they deserve. In this case, the company benefits, and in exchange for betraying the public, the official receives a kickback payment, which is a portion of the sum the company received. This sum itself may be all or a portion of the difference between the actual (inflated) payment to the company and the (lower) market-based price that would have been paid had the bidding been competitive. Kickbacks are not limited to government officials; any situation in which people are entrusted to spend funds that do not belong to them is susceptible to this kind of corruption.

Industrial espionage includes a great variety of methods allowing to get the necessary information:

1. Getting information from potential recruits - some applicants often unknowingly or even deliberately become invaluable sources of information.

2. Conducting false job interviews - here the intention is not really to employ but rather to get the selected candidates to talk and reveal some useful information.

3. Hiring people away from competitors - a deliberate 'headhunting' activity.

4. Deliberately planting spies in a competitor’s firm - there have been cases where a person leaves his organization to join a competitor for a while before returning to his original organization.

5. Encouraging key customers to talk

6. Interviewing competitors – a way of interviewing competitors is to pretend to be a potential customer or supplier.

7. Taking factory tours - highly trained and observant engineers have been known to take in what they see and reproduce blueprints after visiting their competitors' factories.

8. Taking competitors’ products apart - some companies spend years in research and development activities. But the moment they put a new product on the market, you can buy it, take it apart and improve on it.

Insider trading is the trading of a corporation's stock or other securities by corporate insiders such as officers, key employees, directors, or holders of more than ten percent of the firm's shares. Insider trading may be perfectly legal, but the term is frequently used to refer to a practice, illegal in many jurisdictions, in which an insider or a related party trades using non-public information obtained during the performance of the insider's duties at the corporation.

For example, illegal insider trading would occur if the chief executive officer of Company A learned (prior to a public announcement) that Company A will be taken over, and bought shares in Company A knowing that the share price would likely rise.

Insider trading is believed to raise the cost of capital for securities issuers, thus decreasing overall economic growth.

Conclusion. Corporate crime poses a significant threat to the welfare of the community. Given the pervasive presence of corporations in a wide range of activities in our society, and the impact of their actions on a much wider group of people than are affected by individual action, the potential for both economic and physical harm caused by a corporation is great.