The notion of white collar crime appeared in 1939 and was first used by Edwin Sutherland, the most influential American criminologist of his day, during his speech to the Sociological Association (Johnston, 2002). Since then on various definition were introduced but failed to find general acceptance, still the term “white collar crime” is already deeply rooted into legal, moral and social science vocabulary and while it is frequently met in the academic, professional and popular culture, the notion is rather rare in substantive criminal law (Green, 2005). A number of societal trends directly influence the escalation of white collar crime, among them are the technological advances, placing the emphasis on violent crimes, fiscal pressures on organizations and government sectors, insufficient human and financial resources of the police agencies. That is why this kind of crime deserves particular attention.
Due to the lack of trained personnel, financial resources and the complicated nature of white collar crimes, encompassing a variety of non-violent crimes, it steadily results in the issues connected with the phenomenon examination and discussion as well as the battle over the consideration of the meaning of white collar crimes. The police are not always able to investigate and prosecute suspected fraud or other white collar crime cases.
Consequently, according to Factors Which Allow the Problem to Continue article, white collar crimes in Canada as well as in other developed countries invoke non-threatening images of people in suits who should be treated with respect and courtesy. Unfortunately, the Canadian justice system does not place adequate emphasis on fraud and other white collar crimes such as antitrust violations, internet fraud, bankrupts fraud, healthcare fraud, phone or credit card fraud, government or tax fraud, telemarketing fraud, insider trading, bribery, kickbacks, public corruption, counterfeiting, money laundering, embezzlement, trade secret theft, economic espionage, etc.
According to the data of the federal bureau of investigation, white collar crime is estimated to cost the United States, for instance, more than three hundred billion dollars annually. In Canada readers have already got used to being reported that billions of investor dollars vaporize each year and white collar crime came to be regarded as a devastating form of financial assault.
White collar offences are obviously complex, and include numerous tangled legal and factual issues. The difficulty in primary consideration and further investigation of white collar crimes lies in the fact that they often refer to illegal offences that are virtually committed in the business or professional setting to pursue one’s own financial interests.
Many white collar crimes are not easy to prosecute, as the perpetrators apply to the advanced means to conceal their activity with the help of various complicated transactions. Moreover, the peculiarities of the Canadian jurisdiction make the pace of Canadian justice snail-like. Canadian write collar criminals are aware of the countries jurisdictional limitations and take advantage of them.
Ad interim, due to the intensive technological development of society white collar crimes are continuously on the rise, which relies on the use of computers and the Internet to gain access to information of different levels of confidentiality. The crimes are committed in business situations by individuals, groups or corporations for the purpose of financial gain, as White Collar Center states.
According to the data of Criminal Law: Felonies and White Collar Crime article white collar crimes are difficult to prosecute and carry lesser penalties, as they are called non-violent and victimless. However, there is a trend towards stricter punishment for white collar crimes, as the awareness of their impact on society becomes more and more evident. According to the White Collar Crime Law Guide the penalties include fines, restitution, prison sentences and criminal forfeiture.
Still, in Canada white collar crimes are said to be of lesser priority for police departments than violent crimes. It may be explained by the fact that justice system is overloaded with work, jails are mostly used for violent offenders and white collar criminals search for ways out of possible sentencing and often find them thanks to their high ranks. It is clear that white collar criminals hire best lawyers which shorten a period of rest and a sum of penalty.
So, according to White-collar Crime in Canada article, Canada remains as shockingly slow as many countries in Latin America when it comes to dealing with allegations of corruption and white-collar crime. According to the surveys conducted Canadian issues with white collar crime combating are rooted in the lack of effective regulators. The Supreme Court emphasizes that current situation often leaves victims of white collar crimes unprotected and while criminal offences are designed to punish past wrongful conduct, regulatory measures are aimed at the prevention of future harm through the enforcement of minimum standards of conduct and care.
Barbara Shecter in First Big Win against White-collar Crime describes the general tendency in Canada concerning the issue considered, she claims that Canada has long been criticized fro its dismal record on white collar crime prosecutions. But the Livent case which drew a wide response may be considered the first major victory of Canadian justice system concerning white collar crime investigation on the example of the marquee conviction of theatre impresario Garth Drabinsky (Shecter, 2009). The case will assist in the country’s international reputation “where it is perceived as weak on enforcement involving stockmarket and investment crimes” (Shecter, 2009). This criminal case is regarded as “the first high-profile conviction” which demonstrates the states serious attitude towards corporate crime. Alan Mark, a senior partner at Ogilvy Renault LLP in Toronto considers that four or five years are unacceptable to investigate the crime, even though the police agencies may face the problems of poor supervision, limited resources and shuffling of personnel.
In the decade-old case of Livent co-founders Garth Drabinsky and Myron Gottlieb, one may trace that the wheels of justice ground remarkably slowly and Canadian authorities struggle to accelerate the mechanisms to make securities crime enforcement faster. Lack of attention towards non-violent crimes produces an impression that Canada has rare cases of high-profile corporate fraud, one may mention Bre-X Minerals, YBM Magnex and Philip Services where nobody was jailed. In comparison with the US, Canada does not have such strong public attorneys as American Eliot Spitzer and Patrick Fitzgerald, therefore, has no national regulators who are equipped enough to pursue matters in court quickly (Norris, 2009).
Joseph Weber noted that Garth Drabinsky’s fall from grace at Broadway production company Livent Inc. has become one of the theatre world’s most spectacular declines. In fact, such a case happened only twice in the forty-two-year history of the order which was established during Canada’s centenary in 1967 (Perkel, 2009). Like many financial frauds, the Livent Inc. fraud was managed by several individuals, including Garth Drabinsky, Myron Gottlieb who made a remarkable career in theatrical productions. Drabinsky, an entrepreneur and risk-taker who revolutionized film presentation and distribution in Canada was named to the Order of Canada. His role in the country’s entertainment and tourist industries is hard to be overestimated as he made an invaluable contribution to the development of theatrical production in Canada (Perkel, 2009). It was difficult for Canadians to believe that a man who deserved success and honors appeared in court charged with his company’s dishonest accounting practices, as he systematically manipulated books to outwardly increase profits. According to the Canadian Theatre Encyclopedia, viewed as a monolith and criticized by cultural nationalists, the company was responsible for tourism increase in Toronto and talent-base improvement of the artists.
Len Brooks, a professor of accounting and business ethics from Toronto pointed out that the fraud “clouded” Garth Drabinsky’s brilliant achievements (Perkel, 2009). Toronto news journalists reported that on the twenty fifth of March 2009 the co-founders of North America’s once largest theatre company Livent Inc. were finally found guilty of fraud and forgery. Each count of fraud carries a maximum jail term of ten years while the maximum sentence for a count of forgery of fourteen years, according to Canada’s Livent Chiefs of Fraud.
But the case requires close examination and analysis of the long-term investigation through its consideration from the very beginning. The company Livent Inc. was the only publicly owned firm throughout nineties which dealt with live theatrical production. Garth Drabinsky who succeeded at Tony awards hired Maria Messina as the engagement partner for the 1996 audit and invited her to leave Deloitte & Touche to become Livent’s chief financial officer. As she dreamt of well-paid high-profile position in the sphere of show business, Messina accepted an offer and despite the pressures she faced started working for the Livent. However, in 1999 Messina pleaded guilty for the role in a massive financial fraud managed by Livent’s top executives. Consequently, she faced up to five years of imprisonment and $250,000 fine (Knapp, 2003). Though Drabinsky’s had acquired severe limp which did not hinder and prevented him from reaching his targets and “aiming for the stars”. Since college years he made his first steps in show business and after graduation from the law school the future Broadway “impresario” worked in the sphere of real estate and began dabbling in motion pictures and various productions. By the time he was thirty the producer had made three movies and one Broadway musical. However, not yet a success, Drabinsky decided to enter show business via the “back door” and together with his friend Myron Gottlieb he negotiated with a famous Toronto producer and persuaded him to invest a million dollars in “cinema complex” project. Despite of the expectations, Toronto moviegoers were ready to pay extra money for a film in Drabinsky’s high-quality theatres. Soon the company Cineplex Odeon administered about two thousand theatres, but the investors started complaining of the producer’s lavish spending practices and criticized his rapid expansion out of the enormous sums borrowing.
In 1989 serious accounting irregularities were uncovered in the company’s accounting records. As Drabinsky and Gottlieb chose to leave the company, they acquired the Pantages Theatre and the rights to some Broadway plays, they also ran Live Entertainment Corporation in Toronto. Several years later in 1993 the Livent Inc. went public but in 1995 its stock was sold to the United States and controlled by foreign investors (Knapp, 2003). In the year 1998 Livent owned five live production theatres in Canada and the US thanks to Drabinsky’s talent to choose the shows that would appeal to the public and hire gifted staff to produce a successful Broadway show. His creativity was richly supported by Gottlieb who assisted him in company’s accounting and financial reporting business. Maria Messina testified that the Livent accountants were neglected and told to “keep their mouths shut”, as Drabinsky could be tyrannical. According to Webster along with othe company staff he also experienced Drabinsky’s profane management style.
In 1998 the Livent executives had nothing to do but accept the twenty million investments from Michael Ovitz to cope with debts. Having agreed to invest in Livent, Ovitz knew he would become the company’s main stockholder and would take control over the company in summer of 1998. Drabinsky could only occupy the post of vice-chairman and chief creative director of the firm while Myron Gottlieb was demoted to a vice-president of the company. Along with other changes which occurred in the structure of Livent, Ovitz hired Robert Webster to serve as an executive vice-president. The Livent accountants did not agree to provide Webster with unlimited access to all information about the company and as Webster began to suspect Livent in unfair transaction in 1988 he found out that in the firm there functioned a number of fraudulent schemes coordinated by the head of the company and its top executives. A series of lawsuits were filled against the company in 1998 and the board proclaimed that massive systematic irregularities were revealed. Livent filled for bankruptcy in Canada and the United States with Drabinsky and Gottlieb dismissed. Ad interim, a federal jury in the US issued a fraud indictment against the co-founders of Livent and the judge issued arrest warrants and initiated necessary extradition proceedings.
Finally the details of the fraud were revealed to the public by the SEC, the Ontario Securities Commission and described as “pervasive multi-faceted” fraud with a large kickback scheme. By the mid-nineties the kickback scheme invented by Drabinsky and Gottlieb brought considerable loses and to conceal the company’s financial problems they decided to get the accountants of the firm into accounting manipulations (Knapp, 2003). The most common accounting scam for Livent was to transfer preproduction costs from a running show to a show still in production.
The accountants practiced charging the costs to fixed asset accounts and debited salary expanses and other expenses to long-term asset accounts. According to the SEC calculations, the Livent fraudulent revenue-generating scheme made up about thirty million loss for the state. The multimillion-dollar transaction dealt with the sale of production rights owned by the co-founders of Livent, they also used a scam which involved inflating box-office results for key productions in 1996 and 1997. Livent reimbursed the vendors for Ragtime’s ticket purchases and charged the payments to different fixed asset accounts. By 1997 the company’s fixed assets of more than two hundred million were overstated by nearly twenty-four million thanks to accounting schemes used.
The two peculiar features of the Livent fraud lied in the scope of the crime and in the matter-of-fact manner in which the fraud was planned and carried out. The scope of the crime grew throughout the nineties and it became more and more difficult to track both the real and the phony numbers. Without leaving paper trail for outside auditors the accountants of the company managed to record fraudulent transactions. The company’s management team and accounting staff got together and the top executives reviewed the financial reports of the company and prepared further instructions for them. The experts claim that despite the company had an aggressive growth”“orientated management team, the massive fraud that involved top executives and active accountants was remarkably difficult to detect. Livent continued insisting on the fact that it was no one’s business how they ran their own company and prevented anybody from letting into the conspiracy. Maria Messina was faced with the fact that concealing the Livent fraud from the Deloitte auditors was among her key responsibilities.
However, the Deloitte auditors managed to concentrate their attention on suspicious Livent transactions and grew skeptical about the records they presented in 1996 and 1997. Livent apprehended recognizing revenue on large transactions conducted with fraudulent elements and was aggressive about putting agreements. Deloitte and Livent management teams had some conflicts and Deloitte officials demanded negotiations with Livent’s board of directors (Knapp, 2003). As one dispute was resolved, another one occurred and to solve the problems the Livent management arranged to sell the naming rights for existing theatres and planned to build a new company.
It is clear that due to the complicated nature of a white collar crime resolving the legal implications of the fraud can require years. A key complicating factor in the case under consideration is its “cross border” nature. Brooks told that the Livent prosecution took a long time because there were technicalities which were introduced and according to the Canada’s system people who are accused are given every opportunity to “make their case” (Norris, 2009).
Moreover, there existed a kind of competition between the US and Canadian federal agencies concerning first place in prosecuting of the Livent fraud. US authorities were frustrated with the slow progress of investigation led by the Canadian authorities. Drabinsky and Gottlied gained the time and waged a public relations war in courts and press while Canadian and American law enforcement authorities disentangled the case and tried to cope with jurisdictional matters. The co-founders of Livent did not plead guilty, they claimed that they were not responsible for the fraudulent schemes within the company. In 1999 Gottlieb filled a civil lawsuit against Messina, Craib and Eckstein charging them with responsibility for the fraud. In response, Eckstein charged Gottlieb with the fraud, naming him among the key architects of the accounting fraud; he also blamed Messina fro playing an important role in the scheme. In turn Maria Messina declared she refused to sign the letters of representations which said there were no accounting inaccuracies in the company. Deloitte & Touche came to be a target of plaintiffs who needed someone responsible for the financial losses. In one of the lawsuits of the year 1999 the US federal judge dismissed Deloitte, in June of 2001 a federal judge concluded that the Livent’s accounting manipulations were so scandalous that it was impossible to conceal them any more.
The remaining assents of the company were purchased by SFX Entertainment in 1999. Maria Messina and Christopher Craib were fined and received suspension. At last the Livent case which had more than sixty days of hearings and seven thousand pages of witness testimony was finished, as on the twenty-fifth of March of 2009 Garth Drabinsky was convicted of fraud and forgery. It is remarkable that defense lawyers asked minimum sentence for Drabinsky as according to Greenspan, the defense lawyer: “a sentence hearing is the one time a person’s good deeds should weigh heavily on the case’s outcome” (Greenspan, 2009). The Crown recommends a sentence of eight to ten years for Drabinsky and his partner Gottlieb and calls the case an enormous fraud. Actually, the convictions on two counts each of fraud and one of forgery carry respective maximum sentences of ten and fourteen years.
Taking into consideration the number of frauds in Canadian society numerous department and agencies hardly have enough guidelines or standards for action and responsibility. However, there should be a zero-risk working scheme of operation for securities regulators who should cooperate with various agencies. An integrated database including standardization of information capture and exchange should aid the efforts to combat white collar crime by focusing on the specific operations both nation-wide and cross border.
Police forces and Crown prosecutors should allocate the resources to pursue commercial crime the same way as violent crime but possibly with different methods. Parliament needs to adopt strict sentencing guidelines so that white collar crime should be treated with the same seriousness as violent crime (Kivenko, 2005). Crowning it all, Canada still needs definite regulations to keep abreast of a fast-moving criminal world and to move forward to quick and effective white collar crime detection and investigation.