Economic and Organized Crime: Challenges for Criminal Justice

3. Understanding Profit-Driven Crime (cont'd)

3. Understanding Profit-Driven Crime (cont'd)

3.3 Commercial Offences

A third, somewhat messier category might be called commercial crimes (with a more restricted meaning than that usually ascribed to the term by police forces with “commercial crime” divisions). These crimes are committed by otherwise legitimate entrepreneurs, investors and corporations. (Crimes committed against them - for example, an employee embezzling from a purchasing account - would fall into the predatory category.)

Commercial crimes, too, can be subdivided, into crimes of production and crimes of distribution. In the first, an entrepreneur or executive might engage in illegal dumping of toxic waste to avoid the costs of proper disposal, or violate safety standards to save money on equipment. These are crimes whose basic intent is to reduce costs. In the second, the responsible party might falsify data on a contract to pad the bill, or con customers with worthless product guarantees. These are crimes whose basic intent is to increase revenues. Although the range is wide, commercial crimes have certain common characteristics.

A commercial crime:

  • involves the production of goods and services which are inherently legal , but whose methods of production and/or distribution are illegal;
  • creates exchanges within a normal business setting that are multilateral ;
  • produces exchanges that are also superficially voluntary with an involuntary hidden aspect ;
  • leads to clear victims  by virtue of involving fraud against workers, suppliers, customers or, in such things as environmental offences, against the public as a whole;
  • generates  income earned but unmerited by virtue of the illegal methods;
  • invokes, in principle, unambiguous morality , since fraud is involved; and,
  • calls for punishment that logically should involve restitution for misappropriated or damaged property.

Once again, what is clear in theory is not necessarily so in practice. In many cases, it is difficult to be sure where sharp business practice ends and fraud begins. At what point does a high-pressure sales tactic become a confidence trick? At what point does effective advertising become deliberately deceptive? Once the border between pure information and advertising is crossed, the distinction between legitimate advertising and marketing fraud becomes quite problematic.

The result of such ambiguities is that, although some commercial offences may be clear cut enough for traditional criminal prosecution, others may not. The civil courts often seem the most logical way to resolve many disputes that fall into this category. Yet the tendency has been toward criminalization of actions formerly regarded as regulatory problems or issues to be settled by civil litigation. This is particularly evident with some kinds of securities offences. [9]

If a case involves falsifying a prospectus with completed fabricated sales figures or seeding an ore sample prior to announcing an issue of junior gold mine shares, there is clear fraud involved. [10] However, in securities dealing, things are rarely so clear. Most prospectuses are designed to titillate rather than inform. Furthermore, one other major type of security offence, that of insider trading, criminalized in many Western countries following US lead in the 1980s, raises some particularly serious questions.

Insider trading was first conceived as an offence involving officers of corporations about to merge who took advantage of that knowledge to speculate to their own profit. It was then extended beyond its original mandate to embrace employees of law firms planning mergers and acquisitions, merchant banks involved in financing them, reporters for financial newspapers who got leaks, and even janitors who picked up discarded memos in the trash. If any of them used such information to anticipate stock price movements for their own gain, they were guilty of insider trading.[11] It thus became unclear just where the frontiers between “inside information” and the normal search by potential investors for data on which to base a stock purchase really fell. Simultaneously, the core issue ceased to be breach-of-fiduciary-duty, and became simply obtaining profit that other people thought should rightfully be theirs , from correctly guessing stock price movements. This tendency to seek an ever-expanding mandate while blurring the central moral issues seems a danger inherent in all attempts to use the Criminal Code for purposes of economic regulation.

However, even if the offence of insider trading were redefined to accord better with its original mandate, its logic could still be open to question. Insider trading is not a predatory crime - it does not involve the forced transfer of property. It is not a market-based crime - the object of the exchange, securities, is perfectly legal. It is not even clearly a commercial crime - to trade on privileged information to capture the profits from market movements that take place for independent reasons is quite different from rigging the market to make it move in a particular direction. With insider trading there is no victim in the classical sense. What is at issue is a quarrel between two sets of investors over distribution of profit. In the past (and in the bulk of instances also in the present) most such disputes were (are) left to the civil courts. With stock markets as with race tracks, it should never be forgotten that insider tips can provide an advantage but, unless combined with painting the tape or doping the horse, can never guarantee the results.

Type Transfer of Basic act Method
Predatory Wealth Illegal (theft) Illegal (force orguile)
Market-based Illegal goods and services Illegal (trafficking) Legal (market)
Commercial Legal goods and services Legal (market) Illegal (fraud)

Thus, the three types of profit-motivated crimes vary enormously in terms not just of their economic nature and impact, but also in terms of their legal implications. With predatory crimes, the basic act and the method are both illegal. With market-based ones, the basic act is illegal while the method per se (free market exchange for fair value) is not. With commercial, the basic act is legal, while the method is not.

3.4 Social Offences

It is possible to define a fourth, more nebulous category that might be called social crime. Here the offence is the indirect consequence of otherwise legitimate action. The goods and services are inherently legal and the method of production and distribution conforms to established rules and regulations. But accidental or unpredictable “externalities” (the impact of otherwise legal acts on the broader society or environment) lead to powerful anti-social consequences.

In this category, actions have to be judged against a higher standard than that defined in the Criminal Code , and against those actions there is often no well-defined institutionalized recourse. It is a major problem determining just who the responsible party may be - corporate executives and managers in their individual capacity, or the corporation itself as a distinct entity. And if the second, just how can corporations be presumed to have a mens rea without which the application of criminal law becomes hard to justify? [12] Furthermore, the problem of balancing, for example, the loss of employment, income and tax revenues from clamping down on cigarettes against the costs to public health from their consumption is not one with which the criminal justice system is or ever will be equipped to deal.

Date modified: