Economic and Organized Crime: Challenges for Criminal Justice

2. Clarifying the Terms

2. Clarifying the Terms

Before attempting to answer those questions, three preliminary clarifications are essential - namely the role of profit, globalization and technological change in determining criminal behaviour.

2.1 The Myth of Profit Maximization

On the surface, crimes motivated by profit are different from those driven by passion, peer pressure or simple perversity of human nature. The lure of profit is presumed “rational” and profit-driven events therefore seem predictable. That also seems to suggest at least part of the appropriate response - if there is financial motive, it can be removed; and if there is monetary damage, it can be compensated. This assumes that the offender is a cost-benefit calculator who weighs the probable consequences against the possible gain. In that way, the profit-driven criminal can be assumed to behave in a way analogous to the profit-maximizing corporation.

The problem is, the notion of profit maximization may be useful for building mechanistic models to grace the opening chapters of introductory Economics texts, but as an explanation for business behaviour it is a serious oversimplification. A legitimate corporation first seeks survival. Then it may seek to satisfy the shorter term financial goals of its senior employees as well as its investors, something distinct from the long-term profit goals of the corporate per se . Then perhaps it might seek to expand its sphere of indirect commercial influence, engage in political lobbying or raise corporate prestige through community and cultural affairs. These cannot be simply lumped into an attempt to maximize corporate “goodwill.” [1] To the extent that a steady stream of profit is necessary to achieve most or all of these results, it will not necessarily correspond to a theoretical maximum - some notion of a satisfactory profit rate will suffice. [2] Therefore, the corporation's profit goals are more likely to be expressed in terms, not of maximizing the difference between cost and revenue in the short run, but of generating the stream of net revenues to permit survival, expansion and development over the long run. Indeed, if a legitimate firm were really a simple profit maximizer, there would be no reason for it to stay legitimate - yet obviously only a small percentage of entrepreneurs and corporations cross the line.

Much the same applies to a criminal “firm.” Certainly profit is part of the calculation. But the notion that everything is subordinated to the hunt for a maximum of profit is very misleading. Even in profit-driven crimes, many other factors can be at play to determine actions - jealousy, ego enhancement, the search for prestige among peers, or the desire for increased status which in turn might be enhanced more by displays of generosity than cold-blooded pursuit of more wealth. Thus, a criminal firm, too, operates within a social matrix in which all manner of other, not strictly economic, criteria figure in its decision rules.

2.2 Globalization: Fact or Fancy?

Yet a second essential clarification concerns the role of  “globalization.”  Globalization is the modern term for a process that began at least as far back as the time of Marco Polo, if not before, by which information about trade and financial opportunities spreads across national and/or regional frontiers, and goods and money shortly follow. Globalization is a factor in crime since  criminal entrepreneurs, like legitimate business people, expand their geo-political horizons to conform to the opportunities resulting from greater ease of long-distance communication and travel.

This is not to suggest that the broad geo-economic context in which crime occurs is no different today than, say, at the end of the Second World War. There are real differences. One is scale - more people, more goods and more income. This, though, is a long-term trend. Even rapid acceleration of growth rates dates at least back to the early 19th century. It is hard to see how it translates into a qualitative change in the current criminal threat. Certainly there is more economic crime today, but there is also much more legal economic activity, and there is no proof the first is growing faster than the second.

A second difference is complexity of economic interrelations - the fact that more and more economic activity takes place in a market-driven context. But this, too, is a long-term historical trend, it is just as true inside countries as well as outside, and it therefore has only an indirect link at best to “globalization,” whatever that may mean.

A third factor frequently cited as part of the trend to “globalization” is the seemingly remarkable propensity for people today to move across borders. What seems to be forgotten is that the passport was not generalized until after the First World War. Until then the main impediment to travel was the likelihood of being robbed and murdered, together with the fact that most people had neither the inclination nor the income to try. Those who utter platitudes about today's borderless world should try to cross the US-Mexico frontier during a trade dispute or drug alert. The frequently cited example of the EC is remarkable precisely because it is so exceptional.

Furthermore, there is a prevalent idea that a world in which people are increasingly free to travel (relative to the situation 50 years ago, but not to previous centuries) is also a world in which it is easier for serious economic criminals to escape. Each octogenarian Nazi war criminal unearthed serves to belie this simplistic belief. Similarly, the recent tendency of the US government to authorize transnational kidnapping to bring (mainly drug) offenders to American justice suggests that secure places to hide are getting harder to find. Counterfeit is now considerably harder to use. In the past, it relied on information asymmetries (e.g. the fact that births and deaths might not correlate and drivers' license applications were not matched with social security numbers). But today technology has considerably reduced those information asymmetries. It has made crime more difficult, not less.

Thus, the real issue is not a (non-existent) borderless world or the (genuine) growing ease of international travel, but the ability to enforce law across borders - which is scarcely a new problem.

2.3 Modern Information Technology: Hype and History

Modern communications and transportation technology have a major impact on economic exchanges (illegal as well as legal). But the effects of electronic communication and mass-based, cheap and rapid international transport of goods and people today are, quite likely, no greater and arguably significantly smaller than the effects of the railway, steamship and telegraph in the first half of the 19th century.

The extent of change brought about by electronic funds transfers, for example, can be put into perspective with a simple comparison. On the one side, calculate the time required to send a bill of exchange or purse of silver coin by sailing ship across the Atlantic in the period up to the early 1800s, and compare it to the time required to make a telegraphic transfer once the first trans-oceanic line was laid by the mid-1800s. Then calculate the relative time saving from the switch from telegraphic (electrical) funds transfer to electronic funds transfer in the latter half of the 1900s. In the first case the difference was truly revolutionary; it is not in the second.

It is important to distinguish new crime from new methods. To take one common case, frequently “computer crime” is singled out as a prime new area of concern. But it really boils down to a series of traditional criminal acts (e.g. extortion, counterfeiting or fraud) that happen today to be assisted by the use of computers. The crimes remain the same. The only difference is the technique used to commit them, and the ability to do them from much further away than was commonly the case.

Furthermore, even these electronic changes in technique noticeable today can be exaggerated compared to the effects of their analogues a century and a half back. The advent of the telegraph not only permitted the creation of a genuine world market in which all traders had access to the same price information at almost the same time, therefore transcending the constraints of location, but it also gave criminals a fancy new tool. Brokers lost little time in using the fast access to data to trade on privileged and insider information; scam artists and commodity traders alike used it to rig markets. From the start, too, telegraph companies worried about hackers and about the security for telegraphic funds transfers in a manner little different in its essentials than the concerns about Internet commerce and finance today. [3]

This is not to say the techniques are without importance. Clearly, devices like call-forwarding can be used to confuse potential targets in fraud operations. New electronic technologies, too, permit multiple iterations of certain acts that, in the past would have been extremely time consuming, perhaps, impossible. Electronic technologies have certainly been important recently in counterfeiting of cheques, credit cards, securities and currency. But all they represent is the latest stage in an ongoing struggle between issuers of financial instruments and would-be fraudsters that dates way back to the onset of modern credit instruments. [4]

Furthermore, three other factors must be taken into account.

  • One is that the bulk of criminals are scarcely techno-wizards. Most crimes are committed using old-fashioned techniques. Even with money laundering, not a single case of the use of e-money for laundering has been unearthed, while there is ample evidence criminals still cart large amounts of currency notes across borders.
  • Second, on the other side, there seems not nearly so much hesitation by the state to use the new technologies for information exchange and surveillance. Therefore, it is arguable that the new technologies contribute more to detection and resolution than to commission of crimes.
  • Third, and ironically, while the alarmist scenario speaks of technology increasing the opportunities for traditional crime groups by moving into white-collar offences, the truth has seemed to be the opposite - technological changes have had a greater tendency to render larger organizations uncompetitive and unnecessary. Incidentally, this democratization of criminal opportunities argues further for moving the locus of attention away from the offender to the offence.

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