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The type of white-collar crime exposed by the Banking Royal Commission is difficult to explain using criminological theory.
White-collar crime consists of law-breaking actions that business and government-appointed officials in workplace environments have committed. The crimes are usually nonviolent, and primarily focused on financial gain. (Loy, n.d.) The Banking Royal Commission investigated the improper behavior of businesses in the banking, superannuation, and financial services sectors. It was initiated by the Australian government on 14 December 2017, in accordance with the Royal Commissions Act 1902. (Ferguson, 2014) Various white-collar crimes discovered included money laundering, improper loan funding, and bribery. These white-collar crimes exposed by the Banking Royal Commission can be explained by criminological theories; namely differential association by Edwin Sutherland; the general theory of crime by Michael R. Gottfredson and Travis Hirschi; Robert K. Merton and Robert Agnew’s interpretations of strain theory and lastly, opportunity theory.
Differential association describes criminality as the result of learned behavior from cultural influences and social interactions. Criminal behavior can be learned through content, how the crime is committed and justified, and through the process, the social interaction where the crime is learned. Peer groups are especially important in establishing these behaviors. A key factor in explaining white-collar crime is status and acceptance in this peer group. (Clare, n.d)
Similarly, a survey in 2006 of city managers in six medium to small-sized cities in the Netherlands and 74 medium to small-sized cities in the United States was conducted. There were a total of 105 participants in the Netherlands and 85 participants in the United States. The results found both countries had similar rates of frequency and acceptability of integrity violations. The results concluded the more acceptable the violation of integrity, the less likely it is observed. (Kolthoff, 2016)
Sutherland explained white-collar crime with this theory in his book ‘White Collar Crime’ where he studied 70 businesses and found that white-collar crime is common and prevalent. The consequences of criminality usually do not manifest in anything too severe for violators. The study also uncovered a group effort in companies; their crimes are similar to each offense despite looking down their nose at street criminals and lastly, this was a learned behavior from co-workers. Sutherland concluded that crime needs instruction. (Clare, n.d.)
The ABC TV show “Four Corners” revealed an aggressive sales-obsessed mentality within the Commonwealth Bank’s financial planning sector. (Ferguson, 2014) The Royal Commission investigated the fraud scandal, stealing millions of dollars from the bank’s customers. (Grath & Janda, 2014) Commonwealth Bank was later discovered to be involved in money laundering and wilful ignorance of terrorism funding. (Verrender, 2017) Hence, the work environment of the Commonwealth Bank encouraged and rewarded peer groups for their greed-driven mentality over the interest of the public, cementing Sutherland’s theory that status and acceptance in a peer group are essential in the development of learned criminal behavior.
The general theory of crime is a control theory based on self-control, i.e. the act of resisting temptation keeping in mind the results of one’s behavior. Self-control includes impulsiveness, risk-taking, selfish and irascible behavior. These crimes are often spur of the moment, with little planning, correlated to poor education and complex skills. Gottredson and Hirschi propose the relationship between low self-control and offending to be a result of poor parenting. Failing to teach self-control as a skill can lead to children who may partake in risk-inducing behavior. (Clare, n.d.)
Furthermore, Westpac was accused of tampering with Australia’s key interest rate, the bank bill swap rate. (Danckert, 2017) The bank was sued for its use of a computer program in deciding if home loan applications were fit for lending. (Long, 2017) A Westpac banker was incarcerated for illegally lending millions of dollars to elderly citizens. (Jackson, n.d.) The bank was discovered to have leaked confidential details of clients to foreign exchange traders. (Uribe & Thomson, 2017) Later, after failing to meet benefits promised from package deals such as home loans, credit cards, and transaction accounts, the bank refunded $65 million to 220,000 customers (Yeates, 2017).
The three types of criminals proposed in Gottfredson and Hirschi’s self-control theory impulsive, insensitive, and less intelligent are relevant in explaining white-collar crimes exposed by the Royal Banking Commission; only two of which are relevant. Low self-control leads to immediate satisfaction, although the means are risky they provide rewards that are tangible. Impulsive criminals rarely put much thought into the consequences of their actions. Insensitive criminals are apathetic to the consequences of their actions. (Eato & Korach, 2016) (Clare, n.d.) The lower the self-control a person has, the higher the chances they have of committing a white-collar crime due to an accumulation of mounting pressure in a workplace and the opportunity to allow crimes to be committed. (Eato & Korach, 2016)
As seen in the example of Westpac’s repeat failure to put the interest of their customers first but rather the company’s. The satisfaction of a short-term reward, illegally lending money or revealing confidential information, over long-term consequences such as imprisonment or harm to others. Low self-control has links to victimization, and hasty decision-making in consumer interactions increasing the risk of consumer fraud; often targeting large groups of individuals in order to take advantage of vulnerable consumers. (Simpson, 2013) Low self-control is an important factor to consider in the explanation of white-collar crimes such as those uncovered by the Royal Banking Commission.
Merton’s strain theory focused on the dichotomy between the ‘American dream’ such as wealth, and a materialistic lifestyle compared to the means to achieve such goals. This produces a ‘strain to anomie’. Features of this American Dream are the emphasis on success, individualism, materialism, and universalism. There is a cultural aspect pertaining to the nature of crime and a structural aspect pertaining to the uneven distribution of criminality. White-collar crime occurs where there is a significant cultural goal but a lack of institutionalized means, this leads to the use of illegal means to arrive at one’s goal. (Clare, n.d.) The American dream provokes values that put a strict emphasis on an individual’s financial success however the means of which to achieve these goals are few. This leads to different paths to acquire them through illegal means. It is a self-fulfilling desire that anyone can fall victim to in any socioeconomic state. (Schoepfer & Piquero, 2006) The fear of failure spreads across all classes, and the competitive culture around sustaining a capitalist lifestyle is a motivator for success. (Coleman, 1987)
Agnew’s General Strain Theory has two types of strain. Firstly, the absence of something valued such as privileges, opportunities, and relationships (negative reinforcement). Secondly, anticipated presentations of negative stimuli such as abusive relationships (positive reinforcement). The higher the amount of strain, the higher the likelihood that deviancy will result. Strain can create a possibility of crime. Repeated strain decreases a person’s ability to cope with strain and can lead to negative emotions such as anger, depression, fear, and frustration. Crime may stem from this as a coping mechanism. (Clare, n.d.)
White collar criminals are often driven by the fear of failure, the stress of losing what they have already gained – that is the incapability to achieve financial success is an important type of strain. White-collar offenders are more preoccupied by a greed for wealth, if this becomes a core goal this form of strain can result in deviance. These crimes may be committed as a means to achieve stability or to conform to the norms of a working environment. Data taken from Wheeler, Weisburd, and Bode’s (2000) “Nature and Sanctioning of White Collar Crimes” study seems to support this theory. Although lower levels of crime such as embezzlement, credit fraud, and tax fraud were expected to be highly correlated to strain, this was not the case; particularly embezzlement showing a negative relationship. Middle-level white-collar crimes such as bribery, wire fraud, and false claims supported a positive relationship between strain and offending. (Langton & Piquero, 2007) A ‘case study’ done in the 1970s looked at how the structure of markets and industries increased the risk of crime. (Leonard & Weber, 1970) It shows structural power is balanced at the top of the workplace social hierarchy where pressures are pushed downwards. The effects of these pressures are known as a ‘criminogenic tier’. These pressures manifest as crime as a result of motivations and opportunity and can then lead to strain linked to crime (Simpson, 2011).
Further, The National Australia Bank was involved in a number of scandals in 2015, discovering financial planners had paid millions of dollars to clients due to their subpar financial planning advice from 2009. A banker at the company relayed that NAB had a ‘volatile, toxic and Machiavellian culture.’(Ferguson & Williams, 2015) Further cementing the pressure of a greed-driven competitive culture within the work environments of Australian banks that leads to white-collar crimes.
Opportunity plays an important role in explaining white-collar crime. The perceived risks and rewards outweigh the circumstances of a situation. The criminal focuses on the reward and neglects punishments that may result from the crime committed. Decisions are usually made impulsively and aren’t well thought out. Involvement decisions have three stages: initiation, habituation, and resistance. Initiation is the decision to commit a crime, habituation is the decision to continue committing a crime and resistance is the thought of halting criminal activities. Event choices explain variables of committing a crime, it is not inevitable, being dependent on the desires, needs, and wants of the offender and opportunities. Routine activity theory proposes three elements of space and time where crime occurs, an offender, a target, and the absence of a guardian. The problem analysis triangle stemmed from the routine activity theory, it specifies how and why a crime occurs at a time and place. (Clare, n.d)
Likewise, NAB staff were discovered to have accepted bribes up to $2800 in cash to wave loans from fake documents in order to meet targets and acquire bonuses. A group of 11 people, six including branch managers, were accused of making fake pay slips, IDs, and Medicare cards. Despite the fact it was discovered to have been a group effort of 60 individuals were involved in a program named “Introducer Program” that generated $24 billion worth of home loans between 2013 and 2016, paying $100-$150 million in commission, only five were fired from their positions. Their activity includes false loan documents, faking customer’s signatures, and supplying unsuitable loans. (Chung, 2018)
The white-collar crimes committed by Australian top banks such as the Commonwealth Bank, Westpac, and National Australia Bank that were uncovered in the Royal Banking Commission can be explained by a variety of criminological theories. Namely differential association theory, general theory of crime, Merton’s and Agnew’s strain theory, and opportunity theory. Differential association theory proposes that crime is a learned behavior through social interactions where peer acceptance is an important factor in explaining how pressures from acceptance in a peer group may lead to white-collar crime. The general theory of crime suggests individuals with low self-control can lead to committing crimes due to a lack of foresight in the consequences of their actions. Merton’s and Agnew’s strain theory relay strain from different factors, The desire for financial gain in Merton’s while in Agnew’s positive and negative reinforcement, can lead to crime as a coping mechanism. Opportunity gives criminals the ability to commit a crime at a particular time and place. These theories give an explanation of the fraudulent behavior of Australia’s top banks that was uncovered by the Royal Banking Commission.
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