- White-collar crimes are nonviolent, opportunistic criminal activities by people of high respectability and status in their jobs.
- Psychoanalysts say leaders can proactively mitigate and defend against malfeasance by understanding the drivers of white-collar crime.
- Failure to understand organizational psychodynamics may be a willful disregard for how crime occurs.
Auditors and insurance agencies are becoming ever more sophisticated in their understanding of how to protect the public from corruption, a.k.a. white-collar crime, which encompasses many forms of fraud. Across the globe, psychologists are researching what works best to prevent banking and other corporate fraud. Psychiatrists specializing in white-collar crime advise boards and executives that they must be alert to the psychological culture of their organizations as their part in preventing fraud. The lawsuits alleging fraud on the part of Silicon Valley Bank executives have already started in San Jose, the home of Silicon Valley.
Understanding white-collar crime
According to the American Psychological Association Dictionary of Psychology, white-collar crimes are nonviolent, opportunistic criminal activities committed by people of high respectability and social status in the course of their jobs. It arises in government and corporate organizations alike, and the best practices to protect organizations apply equally to government and private institutions.
Alexander Stein, a psychoanalyst and corporate consultant, teaches leaders the psychodynamics of fraud, ethics, compliance, and organizational culture. He says that by understanding the drivers of white-collar crime, leaders can proactively mitigate and defend against malfeasance. He suggests that failure to understand these dynamics may indicate a willful disregard for how crime occurs. Stein says leaders must assess the complex matrix of dynamic human factors which unwittingly abet or facilitate corruption.
Stein explains that the “wily opportunism” of bad actors includes recognizing and exploiting situational blind spots and vulnerabilities but that white-collar criminals rarely act entirely alone. He maintains that “unintentional collaboration or collusion by both passive and active facilitators within the organization, irrespective of anyone's ethics and integrity, is a characteristic signature of all corporate malfeasance.” This applies to boards and executives who simply do not pay attention to red flags around them.
Ramamoorti, Morrison, and Koletar, in their review of fraud studies, "Bringing Freud to Fraud: Understanding the State-of-Mind of the C-Level Suite/White Collar Offender through “A-B-C” Analysis," hypothesize that fraud occurs either because of an individual’s intentional betrayal of trust, a cabal who push ethical envelopes, or, as Stein points out, a culture of “passivity” in an organization/society/nation.
Stein elaborates, “Behavior that violates established ethical principles and practices needs first to be understood as a symptom—an outburst which encodes both obvious intentionality and obscure, potentially disguised, motivational origins." He continues, “the truest determinant of authentic integrity is the ability to modulate and emotionally process lacerating disappointment, inequity, and other traumatic disturbances without succumbing to indignation or vengeance.”
Ramamoorti, Morrison, and Koletar say successful executives modulate and exercise good judgment because they are able to:
- Collect data
- Boil it down to its essence
They explain that good judgment requires an executive to first perceive what is relevant in the world; then prioritize it; and finally, use that information to inform his or her actions. They find that executives with high levels of integrity continue to have accurate perceptions even when the environment is ambiguous. Watch out for those who do not. Those who lack some or all of these three capabilities are potential white-collar criminals.
Stein defines integrity as “the capacity to exercise restraint irrespective of their capacity to act.” He boils this down to what leaders must watch out for: “an individual, who is a person of influence, responsibility, and reputational and economic power showing poor judgment—acting in malicious self-interest, however, self-justified, with apparent disregard or indifference to broader ramifications.”
From a pragmatic perspective, Stein, Ramamoorti, Morrison, and Koletar agree that professionals who have oversight of the organization will be measurably better equipped to deter or resolve ethical lapses through deeper, more sophisticated awareness and understanding of the multidimensional psychodynamic forces and potential vulnerabilities at play in the organization. In short, the red flag that executives mustn’t miss, according to these experts, is poor judgment that manifests as self-interest without regard for the consequences.
Do the Silicon Valley and Signature Bank failures rise to the level of white-collar crime? They meet many of the criteria. According to news reports, they exercised poor judgment. In seeking higher rates of interest to profit the bank, they violated their clients’ best interest, apparently without regard for the broader ramifications. It appears that the board did not call a halt to the behavior or raise red flags, but it’s early days; the injuries haven’t been quantified and the juries are still out.
Stein, Alexander Ph.D. (2017). "The Psychology of Integrity and Corruption." FCPA.
Ramamoorti, Sridhar; Morrison, Daven; and Koletar, Joseph W., "Bringing Freud to Fraud: Understanding the State-of-Mind of the C-Level Suite/White Collar Offender through “A-B-C” Analysis" (2009). Accounting Faculty Publications. 71.