Economic and Organized Crime: Challenges for Criminal Justice

3. Understanding Profit-Driven Crime

3. Understanding Profit-Driven Crime

Traditionally, understanding profit-driven crime has been hampered by weaknesses in the existing paradigms. Not only has the primary concern of criminology always been who offenders are, but the criminal justice system obviously focuses on prosecution of the person deemed responsible for an act, not on the act per se , the growing popularity of in rem forfeitures notwithstanding. Since offenders are all treated under a common criminal code, there is little incentive to investigate what, in terms of economic organization and economic consequences, differentiates contract killing from smuggling cigarettes, purse snatching from peddling child pornography, cracking a safe from pulling off a telemarketing scam. From this perspective, the main distinction between, for example, breaking-and-entry and insider trading is the social class and, presumably, the potential for rehabilitation, of the offender. Yet it is possible to classify profit-motivated crimes into several distinct economic categories without getting bogged down into disputations about the social origins of the offender. [5]

3.1 Predatory Offences

First are crimes of a predatory nature - everything from purse snatching to ransom kidnapping to extortion. Though there may be many complexities (derived, for example, from technological change) in how predatory offences are conducted, their essence is simple and direct.

A predatory crime:

  • involves  redistribution of existing wealth from one party to another;
  • leads to bilateral  transfers involving victim and perpetrator. Though others may be involved in subsequent actions involving the target property, the basic act remains a bilateral transfer;
  • implies transfers that are also  involuntary , generally using force or its threat, though guile may sometimes suffice;
  • creates readily identifiable  victims (individuals, institutions or corporations);
  • generates  losses  by victims which are simple to determine - the robbed or defrauded person or institution or corporation can point to specific money and property;
  • invokes an  unambiguous morality - someone has been wronged by someone else; and,
  • calls for  simple policy responses - over and above direct punishment of the guilty, restitution should be made to the victim of his or her property.

Historically, the justice system and law enforcement apparatus were designed to deal primarily with the predatory form of profit-driven crime, where there was a clear victim, readily identifiable property that had been misappropriated, and a straightforward resolution based on simple moral principles that enjoyed a broad social consensus.

Law enforcement remains heavily biased toward seeing crime as essentially a predatory phenomenon (simply put, a “cops and robbers” worldview). Yet other forms of profit-driven crimes are quite different in nature and in their social and economic impact. In these other categories, the harm is harder to assess, the identity or even the existence of victims more problematic, and the borderline between the responsibilities of economic regulator and police no longer so clear.

3.2 Market-based Offences

The second category consists of market-based (or enterprise) crimes. Although there are isolated incidents of bans on trafficking in occasional goods and services dating back centuries, for the most part these are relatively new. Most of what are today regarded as market-based offences date from decisions (if they really merit the term) in the early part of the 20th century to criminalize personal vice - the consumption of drugs or alcohol, gambling, prostitution, etc. [6]

A market-based crime:

  • involves the production and/or distribution of new goods and services that happen to be illega l by their very nature;
  • leads to exchanges that are  multilatera l involving (among others) producers, distributors, retailers and money managers on the supply side and consumers on the demand side, much like legitimate market transactions;
  • generates transfers that are voluntary ;
  • makes it difficult to define a “ victim ”, unless it is some abstract construct like “society as a whole”;
  • generates  income earned  by the supplier and expenditure by the consumer rather than losses;
  • invokes an  ambiguous morality  that can also be subject to sudden and
    radical change; and,
  • creates  socially divisive debate as to what the appropriate policy response should be.

This last constitutes a very important distinction between predatory and market-based offences. There is not now, nor in the foreseeable future is there likely to be, a credible lobby, including veteran police officers, that calls for the legalization of armed robbery.

Nor should it ever be presumed that because of the lack of formal record keeping or simplicity of institutional arrangements, markets in illegal goods and services are radically different from legal ones, or unsophisticated. There are complex arms-length commercial interactions between various levels on the supply side, and different types of debit and credit relations between suppliers and customers all along the chain. [7] Drugs, arms, gold and a host of other commodities reveal those characteristics. [8]

Market-based offences can be further subdivided into three subsets:

  1. those encouraged by regulatory restrictions;
  2. those driven by taxation;
  3. those that result from prohibition.

In the first case, restrictions on total amount permitted, or administrative rules dictating allocation, cause the emergence of a parallel market in which the “regulated commodity” is available at a higher price than on the legal-but-controlled market. That is the case, for example, with black market steroids diverted from the legal pharmaceutical distribution system, and, to some degree, with the illegal trade in such things as wildlife or ivory.

In the second case, goods subject to excise, sin or luxury taxes may be available on the parallel market at a lower price than on the legal one, the difference being largely (though not exclusively) a function of evaded tax. These can be termed “relative contraband”.

In the third case, where the goods or services are “absolute contraband”, there is no corresponding legal price - the illegal market stands alone.

There are also certain services that could fall into any of the three subcategories, depending on the legal context. Underground gambling, for example, is absolute contraband in areas that ban it completely. It is, however, relative contraband where placing bets is permitted in outlets that pay heavy taxes. And it is a regulated service subject to diversion into a parallel market if the law permits only state-owned or state-licensed establishments to offer citizens the right to ruin themselves financially in the long run in exchange for an adrenaline rush in the short.

Type Created by Price relationship
Regulated commodity Restriction Illegal higher than legal
Relative contraband Taxation Illegal lower than legal
Absolute contraband Prohibition No legal reference point

These differences are important, both for the kinds of policy options that might be called for, and for methods of evaluating success or failure of such policies. For example, a policy that is successful against the first type of good or service will work by restricting the flow onto the parallel market and thereby increase the spread between legal and illegal prices. A policy successful against the second will increase the supply on the legal market relative to the illegal and therefore reduce the spread. A policy successful against the third cannot be evaluated by reference to price alone. With no legal source or substitute, price hikes as a result of increased enforcement may do more to increase the amount of income spent on the banned item than to reduce the quantity consumed.

Nonetheless, all three types fall into the general category of market-based crimes, and are therefore fundamentally different from profit-driven crimes of a predatory nature.

To be sure, in practice the contrast between predatory and market-based offences at times seems murky. Some predatory crimes, for example, require market-based ones to dispose of the merchandise or launder the proceeds. Nevertheless, complex though such transactions might be, they are secondary. The primary act generating the money is unambiguously predatory since it involves an involuntary transfer of existing wealth.

Similarly, some market-based offences are committed in an environment punctuated by force or fraud. Occasionally, drug dealers settle accounts at gunpoint and adulterate their merchandise before sale to final customers. The basic act, however, is usually a consensual contract between the supplier of and customer for new goods and services. And therein lies the problem.

It takes two to commit a market-based offence - there can be no market unless there is a supply side and a demand side. Why, then, should suppliers be singled out for special treatment? That is the usual approach taken today, but it has no basis in morality and logic. With predatory offences, the “supplier”, so to speak, takes the initiative against an unwilling victim. However, an illegal market is almost always demand driven. The customer is, in that sense, more guilty than the supplier - though the criminal justice system works on precisely the opposite assumption.

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