White Collar Crime and Mediation: A Discussion Document


by Clive Lewis

November 2012

Clive  Lewis

The England riots of 2011 splashed images across the world of hooded youths setting fire to cars and properties, smashing shop windows and stealing the items within. Using explosive headlines and more explosive images, the media erected a banner that all right-thinking people in the country could stand under and admonish what they could all agree was nothing but old-fashioned, brutal criminality. As the events unfolded, rioters began to give interviews and were asked to explain their actions. Some blamed societal ostracism, some blamed the government and some, much to the consternation of the media, just wanted some new trainers and so thought they would help themselves. A nation raged about the kind of individuals we were entrusting the country to – how could there be so many young people in the twenty-first century who didn’t know right from wrong?

This particular event, carried out typically by unemployed young men with prior convictions, cost insurance companies over £100m1. What didn’t make the front pages that year was that white-collar crime, carried out typically by a “male, aged 36-45, with a senior job in finance”2, cost the UK economy £1.5bn3–fifteen times that associated with the riots. Board level perpetrators alone rose from 11% to 18%4 in the same year. Allied to this, internal fraud rose from 55% to 60% between 2010 and 20115. A similar rise in 2012 would see almost two thirds of business fraud conducted by employees. It may not be as visually destructive as setting fire to cars and smashing shop windows, but fraud that goes unchecked can have a greater long term impact, potentially bringing down an entire company and putting untold numbers of jobs and pensions at risk.

What we can learn from these statistics is that there is an entire underworld of crime going on right under our noses, an underworld whose crimes are defined as “…commercial fraud, cheating consumers, swindles, insider trading on the stock market, embezzlement and other forms of dishonest business schemes”6. The proliferation of these crimes indicates either that one or both of the following conclusions is true – that white-collar crime in the workplace is becoming easier to commit and that more individuals are risking it for the reward. With £4m a day being lost to it, corporate fraud is clearly becoming a very serious problem, and the demographic of those implicated is steadily expanding (management fraud alone increased by a staggering 74% from 2010 to 2011 to the tune of almost £730m7).

Public and private organisations alike have tried to counter the growth of fraud, but it is a notoriously difficult crime to trace. The 2010 Bribery Act for example was introduced to bolster the outdated corruption act that had been in place for almost a hundred years, giving the UK some of the toughest corruption legislation in the world. However, legislation like this is designed to widen the net of prosecution rather than prevent the crimes happening at all, something many organisations have undertaken to achieve. The NHS for example has had a Counter Fraud Service in operation since 1998, a scheme that places as much emphasis on creating an anti-fraud culture as it does on uncovering fraudulent activity, perhaps even more. A recent report highlights a raft of infringements ranging from abuses in taxi privileges and bogus invoicing to working whilst on sick leave and filing fraudulent agency fees. The unit has recovered millions of pounds since its inception, during which time it has held hundreds of anti-fraud awareness presentations.

What then is fuelling this growth and diversification in white-collar crime? Perhaps unsurprisingly the recession of the last five years has been held widely accountable and parallels are being drawn with the most recent recession in the early 1990s which also saw a surge in fraud cases. When times get tough, it seems, people do whatever they can to get by, including break the law. Corporate greed is another motivating factor that grabs the headlines, but not all root causes are as simple as greed and desperation. There are three commonly held factors that drive white-collar crime: motive, opportunity and rationalisation. These three tend to work as a team, with opportunity and motive both acting as driving factors, either together or individually, while rationalisation exists to act as the final internal barrier to the crime – the proverbial angel or devil on the shoulder debating both sides of the potential criminal action.

Economic downturns increase both the range of motives and their sphere of influence, meaning that more opportunities to cheat are both sought and exploited by those who wouldn’t normally consider nefarious means. Viewed externally the rapid growth in white-collar crime could be suggestive of two things; either these people are nothing but criminals who routinely break the law but rarely get caught, or they are generally decent, law abiding citizens driven to illegal measures by external factors. Of course things aren’t that black and white, and there are bound to be those who sit permanently on the fence, casually flit between the two or make a gradual progression from one to the other, and this is where mediation can make a difference over the existing legal process – it can assist with both short-term resolution and long-term prevention.

A skewed moral compass and a recession is a dangerous combination. In an economic downturn where money becomes tight, the motivation to dip a toe into illegal waters in order to pay the bills becomes stronger and more widespread. Add to this pressure at work, where managers of all levels are being pressured to keep profits up despite downturns in business activity, and it won’t take long for an individual or two to indulge in small-scale immoral activities to take the heat off for a while.

Punishment of white collar crime in the workplace has traditionally been dealt with by internal disciplinary procedures prior to the police and then the courts, but it has become apparent, to me anyway, that not all cases may be suitable for the legal system. Some incidents, such as that of Jerome Kerviel who lost his employer SociétéGénérale €4.9bn through fraudulent activity, arguably, are open and shut, relating to one individual acting on their own motives of greed and disregard for law. These cases can naturally be dealt with in a court of law, but other cases are starting to reveal many shades of grey, with claims of diminished responsibility due to management pressure on the increase, unsurprising in times of economic downturn. Other cases are less clear still, such as the protracted legal battle between Mattel and MGA Entertainment over copyrights to the Bratz brand of dolls. In 2005 Mattel claimed that the Bratz creator was working for them at the time of the doll’s creation and thus the copyright was theirs, a claim the creator denied. The resulting legal battle ran through four different courts and saw accusations of copyright infringement, interfering with contractual duties and theft of trade secrets thrown at both parties. Halfway through, after the third hearing, the companies were asked to try and resolve their dispute out of court. They didn’t, and as a result the case is still ongoing.

I also recall a case that didn’t make the headlines. In this scenario an employee had been claiming excess mileage on his monthly expenses form, netting a difference of about £200 per month over nearly 10 months. This was done with his line manager’s blessing. The reason his boss turned a blind eye to it was ‘everyone was doing it’ and in his mind there were two principle reasons why there was nothing wrong with it. The reasons were that a) with the exception of the most senior managers, all employees had been given a pay freeze the year prior and b) the individual in question was regularly working 55 hours a week for no additional remuneration. These reasons were given during the investigation process that preceded the employee’s dismissal. The wrinkle in the case was that as the investigation unfolded and other employees, including the line manager, were drawn in, the organisation realised that it would face a huge brain drain and would struggle to operate in one particular function because of the specialist skills of those involved in the expenses scandal. The dilemma had to be solved at Board level, eventually letting all off the hook because of the commercial impact of what was originally considered to be a black and white case affecting one employee.

The Role of Mediation

One can only speculate as to what might have happened had parties in the Mattel v Bratz case agreed to mediation when they were asked to consider it, but it is a safe bet that the case would not still be open three years later. Both the above examples illustrate that the disciplinary and/or court system is often ill-suited to cases of such complexity where HR and/or judges can have such hugely contradictory views, but these are just the kinds of cases for which mediation is ideal, for a number of reasons. For example, mediation:

  • Is a flexible tool that can be applied for situations where there are shades of grey
  • Can be used to consider the application of corrective measures to close gaps for future business
  • Can help the process of mitigating risk against future occurrences
  • Can be used as a way to ensure business continuity
  • Allows people to move on with a sense of dignity where moving on is deemed to be the appropriate outcome
  • Is not a soft touch or some kind of fluffy intervention
  • Can be used to acquire the help of the ‘perpetrator/s’ to implement a fix for the identified loophole

Naturally, criminal proceedings and custodial sentences are the only option in some cases, but with prison numbers at record levels penal servitude should no longer be seen as the only option when it comes to lesser crimes, especially those of a more complex nature. In complex cases many discussions are needed to get to the bottom of what really happened, discussions that can be open and honest without fear of judgements, rebuttals or interruption from lawyers. Unlike in courtrooms, what happens during the mediation sessions stays in the mediation sessions and, apart from the agreed settlement, is not documented, allowing greater freedom and honesty for all parties. Mediation already involves the frequent presence of lawyers, as would be the case in almost all criminal cases, but the role of the lawyer is in an advisory capacity rather than a representative one entirely. In mediation the parties are encouraged to speak for themselves and tell their stories without filtering. Legal representation is recommended although not always necessary for those who cannot afford it. It is regularly referred to as mediation advocacy.

The use of mediation as a tool in criminal cases would allow for greater flexibility, giving the Crown Prosecution Service (CPS) additional options during plea bargaining negotiations. Formal, legal agreements can be reached in mediation sessions, something that would dramatically reduce the rate of appeal seeing as the aim of mediation is to reach mutually acceptable terms. Criminal mediation of this sort was endorsed in 2011 by Mr Justice Ramsay, a High Court judge, who predicted that a Mediation Act would be in place in the legal system by the end of the decade, making mediation compulsory before civil cases could be pursued.

This presents a conflict however, in that mediation represents a mutual desire on both sides to come to an agreement, which may not work if one or both parties are forced into the process. Mediation too requires both parties to be flexible with their initial demands, and if one or both is in the position where they refuse to negotiate then the process is doomed from the start. This isn’t to say that the courtroom is the best place for such cases as they may be no less complex, but with mediation the responsibility is with the parties to come to a without prejudice resolution while the mediator acts as a facilitator helping them towards a mutual goal rather than acting as a judge to decide who is right and who is wrong. Using mediation as a bargaining tool would at least get individuals on the right path to a successful mediation, which would be much more beneficial to forcing them into it. In mediation, parties have a direct impact on the outcome and their future conduct, given that agreements almost always include guidance on future conduct. It is clear from the figures on re-offending that having a stake in one’s own future is much more likely to have a positive impact on future behaviour than having a judge hand down a sentence. Mediation gives the individual a sense of control in their own behaviour, whilst also being a legally robust process.

It is not just those involved in mediation that are aware of its benefits. In January 2012 the Government, in response to its ‘Resolving Workplace Disputes’ consultation, announced pilot schemes to utilise mediation as a tool to resolve workplace disputes before they get to employment tribunals, stating, “Following the consultation, we are even more convinced about the role that mediation can play, as one of the forms of early dispute resolution.”8 This display of trust in the mediation process, added to the Government’s decision in 2011 to push for compulsory mediation in divorce cases, illustrates just how highly regarded mediation is and how its influence is likely to grow in the future.

If, as is expected, white collar crime continues to rise and the legal system perpetuates the same process for dealing with implicated individuals, the cost to the legal system, the prison system and the taxpayer will continue to escalate, in some cases with unsatisfactory results at the end of it all. Whilst mediation is not a suitable tool in all cases, in certain cases it could be more productive and have a more morally suitable outcome for the concerned parties, particularly where there are shades of grey. The perception that it will let wrongdoers ‘off the hook’ is very far from the truth, and in fact would be more beneficial given that using mediation as a bargaining tool may result in a higher number of ‘guilty’ pleas being entered. There is, and always will be, a place for civil action and the court system, but it must be recognised that not all white-collar crimes are black and white, that there are more influences at hand than greed and a lack of morality, and that mediation is the perfect way to deal with cases of this nature where higher levels of complexity are involved.

The reason behind the writing of this paper is to prompt an above-the-table discussion on the merits of mediation in a criminal context as an alternative to the disciplinary or legal route. There are many cases that go through the courts that, due to their complex nature, cannot be satisfactorily resolved with a ‘right or wrong’ answer, yet this remains the only option – one is found guilty or not guilty. There is often little opportunity for the parties themselves to have a frank, open discussion in order to come to a ‘win-win’ solution. Sometimes this isn’t possible and a legal process is the only viable option, but sometimes, as in the Mattel v MGA case outlined earlier, there may be no obvious right or wrong, yet courts must somehow decide this, which can lead to protracted and sometimes fruitless legal battles. Mediation encourages the exploration of the grey areas of a case rather than treating them as if they don’t exist. Mediation in a criminal context would also take the pressure off the court system, would allow better plea-bargaining negotiations and would reserve only the most serious cases for the courts, thus freeing up an already overloaded system and allowing for swifter justice.

The motivations behind workplace fraud are not always clear, and the existing system doesn’t always allow for these motivations to be properly explored. Those involved in mediation like myself have seen first-hand the huge benefits the process brings to conflicts of all backgrounds and natures, and a more flexible form of criminal resolution such as mediation would benefit the entire legal and justice system almost instantly. It seems probable that such a system will have to be implemented sooner or later, and an open debate about mediation’s strengths as a contender would, I feel, be the perfect place to start.

References

1Alex Hawkes, Juliette Garside and Julia Kollewe. (2011). UK riots could cost taxpayer £100m. Available: http://www.guardian.co.uk/uk/2011/aug/09/uk-riots-cost-taxpayer-100-million. Last accessed 17th April 2012.

2Julia Kollewe. (2011). Fraud at senior management level is highlighted in KPMG report. Available: http://www.guardian.co.uk/uk/2011/jun/20/fraud-senior-management-kpmg-report. Last accessed 17th April 2012.

3Unknown author. (2012). Boom time for fraudsters as “austerity bites” . Available: http://www.kpmg.com/uk/en/issuesandinsights/articlespublications/newsreleases/pages/fraud-barometer-boom-time-for-fraudsters-as-austerity-bites.aspx. Last accessed 17th April 2012.

4 Julia Kollewe. (2011). Fraud at senior management level is highlighted in KPMG report. Available: http://www.guardian.co.uk/uk/2011/jun/20/fraud-senior-management-kpmg-report. Last accessed 17th April 2012.

5Jim Barnett. (2012). Internal fraud at companies on the rise, says study. Available: http://edition.cnn.com/2011/10/18/business/business-fraud/index.html. Last accessed 17th April 2012.

6White Collar Crime: Free Legal Dictionary Definition. Available: http://legal-dictionary.thefreedictionary.com/white+collar+crime. Last accessed 17th April 2012.

7 Julia Kollewe. (2011). Fraud at senior management level is highlighted in KPMG report. Available: http://www.guardian.co.uk/uk/2011/jun/20/fraud-senior-management-kpmg-report. Last accessed 17th April 2012.

8Unknown author. (2011). Resolving Workplace Disputes: Government response to the consultation. Available: http://www.bis.gov.uk/assets/biscore/employment-matters/docs/r/11-1365-resolving-workplace-disputes-government-response.pdf. Last accessed 17th April 2012.

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Biography




Clive Lewis OBE DL is one of the UK's leading dispute resolution specialists. He is an accredited commercial mediator specialising in helping to solve complex one on one, team, organisational, multi-party and collective disputes. He has mediated hundreds of disputes. He was an advisor to the Department for Business and the CIPD on the Gibbons Review of simplifying UK workplace disputes processes and has advised the Department for Business during the 2011 ‘Resolving Workplace Disputes’ consultation.

He is the author of seven books including 'The Definitive Guide to Workplace Mediation', 'Win-Win Resolving Conflict at Work: 12 Stories' and 'Difficult Conversations 10 Steps to Becoming a Tackler not a Dodger'. He serves as Honorary Secretary on the board of the Civil Mediation Council. The Council acts as an advisory organisation to Government on issues relating to the progression of mediation in England and WalesClive also chairs the council’s workplace committee. His work has taken him across three continents and has included advising governments outside of the UK. In addition, he is also a Non-Executive Director at an NHS Foundation Trust, a Trustee and Board Member of the National Youth Jazz Orchestra, another small charity, a Trustee and Board Member of E-ACT and Board Member of the Open College Network, South West Region. During 2006-2009, his commitment to charity work led to him being appointed as Chair of a Government appointed independent panel exploring the rising costs of youth underachievement. The Government accepted four of the five recommendations from the report. He was awarded an OBE for Public Service in the Queen's Birthday Honours List of 2011, and appointed as Deputy Lieutenant of Gloucestershire in 2012.

Clive writes the employment and workplace mediation documentation for the legal website Practical Law Company. This site is regularly accessed by thousands of lawyers. Clive is also a visiting University lecturer – speaking on the topic of Human Resource Management. He is a former HR Director and has board level experience across the public and private sectors.

Published Material
Books

‘The Definitive Guide to Workplace Mediation and Managing Conflict at Work’, 2009 (ISBN 978-1-903905-36-4)

‘Win:Win Resolving Workplace Conflict 12 Stories’ 2011 - hardback & paper back, 2011 (ISBN 978-1-903905-70-8 & 978-1-9203905-69-2)

‘Difficult Conversations 12 Steps to Becoming a Tackler not a Dodger’, 2011, (ISBN 978-0-9568648-0-2)

‘Bouncing Back from Redundancy 12 Steps to Getting your Career and Life Back on Track’, 2011 (ISBN 978-0-9568648-5-7)

‘Performance Management Ten Steps to Getting the Most from your Workforce’, 2012, (ISBN 978-0-9568648-8-8)

‘Work-Life Balance How to Put Work in its Place and Reclaim Your Life’, 2012, (ISBN 978-0-9568628-6-4)

‘Difficult Conversations in Dementia A Ten Step Toolkit for Clinicians Involved in End of Life Discussions’, 2012 (ISBN 978-0-9568648-9-5)

 



Email Author
Website: www.globis.co.uk

Additional articles by Clive Lewis



Comments



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 David Bogan     david@davidbogan.com      12/04/12 
 White Collar Crime 
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Hello Clive, thank you for your very comprehensive article. You will be happy to know that there is are good precedents for mediating white collar crime and here in the antipodes (NZ and Australia) we have been mediating these sort of offences for a long while. Perhaps it is that employers in this part of the world are more pragmatic and just want as much money back as possible without the expense of chasing it, or getting a better understanding of both 'how' and 'why' it happened in the first place. Whatever the reasons, the outcomes are largely as you imagined, and the process goes well beyond employer employee relationships and delves into that whole grey world of humanity for which mediation is ideally suited.
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