Judicial Corruption Judicial corruption refers to corruption related misconduct of judges, through receiving or giving bribes, improper sentencing of convicted criminals, bias in the hearing and judgment of arguments and other such misconduct. Governmental corruption of judiciary is broadly known in many transitional and developing countries because the budget is almost completely controlled by the executive. The latter undermines the separation of powers, as it creates a critical financial dependence of the judiciary. The proper national wealth distribution including the government spending on the judiciary is subject of the constitutional economics.
Financial crimes or notably known as white-collar crimes refers widely to nonviolent crimes committed by business professionals. Financial crimes have a deep impact on the society as it affects the economy and the stability of a country. It is a gateway of sourcing criminal activities like mafia operations, drug trafficking, illegal arms dealing and terrorist financing. Financial crimes ca be in the form of credit card fraud, insider trading and money laundering. Money laundering is a large scale financial crime.
The financial scandals in early 2000s caused the Sarbanes-Oxley Act of 2002 to be created. Enron, WorldCom and the accounting firm, Arthur Andersen, to intentionally mislead their shareholders by exaggerating their profits and understating their expenses. The scandals had raised the importance of internal control for enhancing corporate governance. Therefore, the government established the SOX to protect the interest of the investors and employees and to monitor the companies and auditors.
One of the most suspicious activities before the attacks were the actions of people in the stock market. A large number of ‘put’ options were placed on American Airlines and United Airlines’ stocks. For the financially illiterate, a put option is when a trader obtains the right to sell a stock or asset, at a specific price on a predetermined date to a seller. In this case, selling shares of A.A. and U.A. at its price before the 911 attacks, after the 911 attacks, which would be a significant amount of money. I will quote Allen M. Poteshman, from The Journal of Business.
In the west we have recent examples like the recent Libor scandal in London as well as numerous scandals before and during the global financial crisis concerning unlawful and unethical action. Cheating seems to be in the heart of these unethical behaviours where rules are bent and misinformation is leveraged on purpose for financial gain like in the mortgage backed securities scheme, that some have argued, was the harbinger of the collapse of the Western financial system. For this kind of behaviour to take place social scientists have offered different models of justifying cheating, fraudulent actions and taking advantage of other people. Most models that the discipline of economics offer a model of people as selfish agents that are ultra-rational, making every action a computation to maximize personal gain.
Background WorldCom, once known as one of the most powerful telecommunication organizations of the world, is now studied as a case of a fraudulent company that carried out unethical financial activities to cover its weakening position in the market. After some aggressive investment decisions, the company started to witness huge financial pressure. The management used various forged accounting entries to conceal its weakening position. Cynthia Cooper, Vice President Internal Audit, discovered the unethical activities and raised the issue with the management and relevant departments and received bitter responses. She carried out internal audits in her own capacity with her colleagues and compiled evidence against fraudulent activities.
The crisis was specifically characterized by accumulating debt levels and extremely high structural deficits of the government. Unfortunately, the Great Recession left a weakened banking sector that has already recorded huge capital losses. The strong relationship between the survival of many Europeans government and their financial stability prompted the government to bail out banks that were badly affected by the Great Recession (Obstfeld et al 2009, 480-486). Thus, the banking sector is obviously in a very weak condition to intervene in the
The Savings and Loan Crisis: The defining features, the resultant deregulation, and its influence on the financial policy making. The U.S. economy's trajectory sketching the emergence of bank failures to the Savings and Loan crisis of the 1980s is attributable to the transformation of the U.S. financial system from being the one with a high degree of regulation to the one with huge deregulation. This process portrays the consequences that led to the crisis and further aggravated it. The magnitude of the crisis gave the U.S. economy a window to reform its banking industry post the crisis.
Major cause for perpetration of fraud is laxity in observance in laid-down system and procedures by supervising staff. Harris and William (2004), however, examined the reasons for ‘loan’ frauds in banks and highlighted on due persistent program. They concluded that lack of an effective internal audit staff in the company, frequent changes of management and directors, appointment of unqualified staffs in important audit or finance posts, customer’s reluctance to provide requested information or financial statements and false data provided by the customers are the main reasons for loan frauds. Beirstaker et al.
The similarities between the three scandal. The similarity between Olympus and Lehman Brothers is using fraudulent transaction to conceal their losses. While Olympus manipulated transactions by moving bad asset from balance sheet without recognizing losses, Lehman Brothers took advantage of accounting method for a short term borrowing of cash. Both of these two companies purposely practice illegal accounting practices in the transaction with some related parties to conceal the losses to community and potential investors.
In The Anatomy of a Murder: Who Killed America’s Economy? Stiglitz interprets the main cause of the crisis was the behavior of the banks. According to Joseph Stiglitz, the "culprits" are the bankers, the investors, the politicians, and the economists. Corporate governance laws are partly to blame. Stiglitz explains that the bankers didn 't understand the risks.