(FORTUNE Magazine) – THE HEADLINES this year about white-collar crime have resembled a strung-out series of lightning bolts: E.F. Hutton victimizes banks, General Electric defrauds the government, Jake Butcher gets 20 years, and on. Yet the news most worth attention may be the rough weather forming. In Washington government officials talk of big-name crime news still to come. ''It's not going to stop,'' says Robert W. Ogren, head of the Department of Justice's fraud section. ''We have a terrific pipeline of cases,'' says John S.R. Shad, chairman of the Securities and Exchange Commission. The inspector general of the Department of Defense, Joseph H. Sherick, even has the load in his pipeline measured: 45 of the 100 biggest defense contractors are under criminal investigation. This action adds up to a limited, semitough war against white-collar crime -- more of a war than the Reagan Administration tends to get credit for, less than activists would like. Crimes related, say, to environmental or safety regulations are not a conspicuous target. The attack focuses instead on defense procurement, bank fraud, money laundering, and securities fraud. Critics say even this assault is soft -- long on talk, light on punishment. Both Ralph Nader on the left and New York Times columnist William Safire on the right have laid into the Department of Justice for limiting its indictments in the E.F. Hutton case to the corporation, sparing its officers. The war also bumps into the realities of the criminal justice system, which includes 93 U.S. Attorneys around the nation, each a political appointee setting his own priorities. The kinds of cases that Department of Justice officials in Washington most wish to pursue, such as bank and defense procurement frauds, are typically complex. They need a U.S. Attorney willing to take them on, and some resist. Says Inspector General Sherick: ''When you walk into a U.S. Attorney's office with three tons of records, you know you have just lost his attention.'' Nonetheless, the tonnage moving through the system has caught the rapt attention of business. Many companies in the headlines (see table) are today engaging in damage repair. They and others are also studying ways to head off trouble, all too aware that a financially complex world has made that task more difficult. The opportunities for fraud have vastly expanded -- and so has the premium for success when it goes undetected. In near lock step, the body of laws that address and define white-collar crime has also expanded. The Racketeer Influenced and Corrupt Organizations Act (RICO), passed in 1970, was aimed at offenders displaying ''a pattern of racketeering activity'' -- underworld criminals, in short. But private plaintiffs have stretched the law to include all manner of legitimate businesses (an unfairness Congress may get rid of). The Foreign Corrupt Practices Act, signed in 1977, told corporations, in effect, ''Thou shalt not bribe,'' not even foreigners accustomed to viewing bribes as part of their take-home pay. The Bank Secrecy Act of 1970 eventually produced rules that require banks and brokers to report cash and foreign currency transactions of $10,000 or more (except for some exempted transactions, such as deposits by grocery stores). The First National Bank of Boston broke the rules and hit the headlines last winter for appearing to have abetted money laundering. The latest addition to the arsenal, 1984's Comprehensive Crime Control Act, gave authorities new weapons for preventing fraud against banks. The Department of Justice used these powers in the E.F. Hutton case, enjoining the company from future use of cash-management procedures -- among them systematic overdrafting schemes -- that in essence had been giving the company interest- free loans. Hutton's chairman, Robert Fomon, says managers looking for a way to increase interest-rate profits ''crossed the line.'' Ogren of the Justice Department says the Hutton case has put the corporate world on notice that sharp practices in dealing with banks will not be tolerated. The department's drive against bank fraud is typical of the overall war against whitecollar crime. This war has no particular theme, but is directed at seemingly disparate infractions. Beneath the surface, however, most of these crimes have a common base: they stem from booming volume of some kind -- in defense spending, in securities trading, in money laundering. The boom in the bank world is failures, many of which the feds believe have been assisted by fraud. Congress helped instill that belief. In 1983 the House Committee on Government Operations, alarmed by the casualty rate, undertook a study of 105 bank and savings and loan failures. The committee concluded that criminal activity by insiders figured in more than half the bank failures, and in one- quarter of those afflicting savings and loans. A second finding, delivered scathingly: many crimes went unpunished because of haphazard attention to the problem by both regulators and the Justice Department. WELL BEFORE that indictment came down last fall, though perhaps in anticipation of it, the Justice Department began to hammer at bank fraud. The attack has included suits filed against officials of several failed banks -- and a mix of verdicts. The 20-year sentence that Jacob F. Butcher got, after pleading guilty to offenses that brought down eight banks he controlled, was a smashing victory for the Justice Department. In the case of Oklahoma City's Penn Square Bank, however, a jury acquitted Executive Vice President William G. Patterson, the top officer prosecuted, of charges that he intentionally defrauded the bank. A lower-ranking officer of Penn Square went to trial in June, and Patterson himself walked out of one trial into the preliminaries of another: he is under indictment for contributing to the collapse of Continental Illinois National Bank, which overdosed on Penn Square loans. A Continental Illinois lending officer, John R. Lytle, has been indicted also. The government's crusade against money laundering is primarily aimed at drug traffickers, who are not exactly white-collar criminals. But employees of financial institutions who help with the wash can definitely qualify. First National Bank of Boston's brush with that work cost it $500,000 in criminal fines, but so far none of its employees has been indicted. A grand jury inquiry continues. U.S. Treasury agents, meanwhile, have identified about 140 other financial institutions that failed to report large cash or currency transactions in past years and have referred these violations to the Internal Revenue Service for criminal investigation. (Meanwhile, four big New York banks -- Chase, Manufacturers Hanover, Irving Trust, and Chemical -- were hit in June with civil fines for violations.) All told, about 600 Treasury investigators are looking into money-laundering schemes. Says John M. Walker Jr., Assistant Secretary of the Treasury for enforcement: ''Anytime you have that many people doing nothing but this kind of investigation, you're going to be getting a lot of cases.'' The lore of money laundering has lately been embellished by the testimony of one ''Mario'' (a pseudonym), who appeared in June before the subcommittee on crime of the House Judiciary Committee wearing black pants, a maroon windbreaker, and a pointed hood, with eyeholes, that hid his identity. His occupation until recently was ''smurf'' -- the name given to the foot soldiers in the money-laundering game who go from bank to bank exchanging cash for cashier's checks or money orders, keeping their transactions below the $10,000 flash point. Banks, however, are supposed to be alert to suspicious cash transactions below that level, and Mario was caught for using a false identity. Mario described his employer as a Colombian businessman (who fled the U.S. after sniffing trouble) and the smurfing operation as ''multistate.'' Laundering money was tough in New York, Miami, and some parts of Philadelphia, he said, but a breeze on the West Coast and in certain cities elsewhere. (''In Omaha, we laundered $300,000 in three days at 11 banks.'') For his work Mario got up to 3% of the money laundered. But he called the work ''unstable,'' explaining that ''after a spree, you might be out of work for two to three months.'' Banks, he suggested, could impose permanent unemployment on smurfs by better training of tellers. The billions going into defense contracts and the need for quality weapons have long put the procurement process in the spotlight. So the commotion coming out of Congress today about procurement evokes memories of uproars past. But the episodes of the 1960s and 1970s did not feature major allegations of downright cheating, such as those arising in the GE case. Nor were there scandals about wildly priced paraphernalia, such as hammers, ashtrays, and toilet seats. Making no apologies for the pun, William W. Kaufmann, a Brookings Institution expert on the defense budget, ventures that these excesses ''have gotten flushed out because so much money's sloshing around.'' The money on the line, says Ogren, has indeed spurred enforcement. As an example, he cites cases that arise from the wrongful billing of employee time-charges to a government contract. Ogren thinks that as of five years ago only one had ever been prosecuted. Today 18 are in the pipeline. Another, the GE case, is out in the open, put there by the U.S. Attorney in Philadelphia, Edward S.G. Dennis Jr., who took over in 1983 saying his priorities were whitecollar crime and public corruption. The case arose out of Minuteman missile contracts at GE's Philadelphia space-systems plant. In one phase of the contracts, the plant hit the ceiling price -- the maximum that could be charged to the Air Force -- before completing its work. So managers phonied up time cards and switched the excess costs incurred to other phases of the contracts, where charges could still be billed to the government. The scheme hoodwinked the Air Force into reimbursing GE for costs it would otherwise have had to swallow. In March two low-level GE managers were charged with perjury in this case. One traded a confession for a lifting of the charge. He has implicated at least one superior, whose identity has not been disclosed. An important battle station in the procurement war is the Defense Procurement Fraud Unit, a joint effort of the departments of Justice and Defense. It weighs the evidence in potential fraud cases, prosecutes some, refers others to U.S. Attorneys or to the fraud section in Washington, and monitors the progress of cases. A leader in the war is Inspector General Sherick, 60, a career government employee who stepped into the post in 1983, when it was created at the insistence of Congress. Sherick's appointment gained him a staff of about 1,000 auditors and investigators and responsibility for reviewing the work of thousands of other Pentagon auditors. Not all these folk accorded Sherick immediate respect. For a time, he says, his auditors had to carry around copies of the law establishing his authority, < so as to counter questions of ''Who are you?'' Too much back talk, Sherick says, ''and I hit them over the head with a baseball bat.'' He carried his bat to a House of Representatives hearing in April, where he said he thought the two top executives of General Dynamics should be ousted for authorizing gifts to Admiral Hyman Rickover; criticized the U.S. Attorney in Miami for delay in pursuing allegations (unproven) that Pratt & Whitney had billed the government for entertainment expenses and other unallowable costs; and said he hoped to see Pratt & Whitney offenders ''go in the slammer.'' A bevy of defense contractors, Sherick thinks, view him as a blood brother of Attila the Hun. The boom in securities trading since 1982 has fattened the caseload of the Securities and Exchange Commission generally. But most of the headlines continue to be about the commission's unremitting war on insider trading. Former Wall Street Journal reporter R. Foster Winans was found guilty in June of fraud, for having leaked advance information about stories scheduled to run in the Journal's ''Heard on the Street'' column. The latest executive headliner in an insider case: Paul Thayer, who in May was sentenced to four years for impeding the SEC's investigation into trades made by his ''tippees.'' Gary G. Lynch, director of the commission's enforcement division, says it discovered a while ago that its investigations of insider cases were being impeded by ''outrageous perjury and obstruction of justice.'' So the Thayer case and others were referred to the Department of Justice for criminal prosecution. The sentence hung on Thayer this spring was meted out by an angry judge, Charles R. Richey, determined, he said, ''to maintain the integrity of our sacred system of justice.'' Until recently the monetary stakes in an insider case were limited: most offenders could be required only to disgorge their profits. But a law signed last August permits fines up to three times that amount. An insider who leaks information, furthermore, can be held triply liable for the profits made by those who trade on his information. ''I think all we need do is bring one major case under the new act,'' says SEC Chairman Shad. ''It will frighten the hell out of people.'' HIS GOAL is deterrence, and certainly the punishments being meted out today are harsh warning. Just ask members of the American Society of Corporate Secretaries, an organization composed of lawyers and other executives who, as / part of their corporate duties, police the rules about insider trading. The society's general counsel, Robert M. Pyle Jr., says the sentence given Paul Thayer was a hot topic of conversation at a recent national conference. Says Pyle: ''People are sitting up and taking notice.'' The American Institute of Certified Public Accountants, whose members are drawn from accounting firms, just mounted its own attack on wrongdoing. Its members have a large vested interest in any solution: they keep getting clobbered in suits charging that they failed to uncover the fraudulent behavior of clients. So the institute has put together a National Commission on Management Fraud, to be headed by former SEC commissioner James C. Treadway Jr. He says the new commission will examine why businessmen go astray. Is there a problem with inadequate auditing standards? Are the people who commit crimes victims of a corporate culture that encourages illegality? Are the penalties what they should be? Perhaps the commission should also examine the role of internal auditors in policing fraud. The topic is particularly timely because GE has long been thought to have the best internal auditing staff in the country -- ''hell on wheels,'' a GE executive calls the team's style. Yet the company's internal auditors did not detect the Philadelphia fraud, nor did they uncover additional labor mischarges that occurred at an Ohio GE plant (some of which the company says were in the government's favor) and that have gone to a grand jury for consideration. Why this ineffectiveness? Could it be that internal auditors do not look as diligently for fraud against customers as they do for fraud against the company itself? Thomas V. Erdos, vice president and general auditor of American National Insurance of Galveston, Texas, and a frequent lecturer on the handling of management fraud, says that's not true at his company but could well be at many others. He also says that internal auditors tend to quake when wrongdoing by higher-ups must be investigated. Erdos recommends that internal auditors secure written authority -- ''It works best if you do this when no one's on the hot seat,'' he says -- to take extreme action when fraud is suspected. Extreme action could include searching an executive's office. Erdos has such authority, and he says he has used it (though he's not saying how or when). After Erdos proposed this aggressive strategy at a 1984 conference of internal auditors, he says, the audience favored him with < cries of ''Gestapo.'' ULTIMATELY, the best hope for curbing corporate crime is internal vigilance. As part of its settlement with the Air Force in the Philadelphia case, GE agreed to appoint an ombudsman. He sits at the end of an 800 telephone number, ready to follow up on any allegations of wrongdoing reported by employees. On a videotape prepared to educate GE employees about the Philadelphia affair, GE Chairman John F. Welch Jr. issues a call for whistle-blowers and says that ''excellence and performance begin with integrity.'' He urges all employees to read and abide by a new company policy, No. 20.10, ''Standards of Conduct in Transactions with the United States Government.'' No. 20.10 has a close cousin, No. 20.5, ''Compliance with the Antitrust Laws,'' issued in the early 1960s when several GE managers went to jail for conspiring with competitors to fix the prices of electrical equipment. Since then, GE has had no significant brushes with antitrust authorities. In 1981, however, two GE officers were found guilty of bribing a Puerto Rican public official to secure business. Now the company is embarrassed again -- by a new form of illegality popping out of a suitcase that won't quite stay fastened.

Alas, that's the nature of white-collar crime: the greed that motivates most white-collar criminals is a powerful force, not easily contained.

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