Thinking About 'Economic Crime'

The London Law Firm Mishcon De Reya invited us last night to a debate, one of a series organised by their International Fraud Group, chaired by Lord Evans of Weardale, former Director-General of MI5 from 2007 through to 2013.

The motion asked whether companies should be penalised for a failure to stop their employees from committing an economic crime and, as one would expect, the senior level speakers showed us that there was no easy answer to the question. The question of corporate responsibility raises significant issues of principle at many levels.

We have to admit here that we left more confused than enlightened but not because the four speakers were anything other than cogent and articulate. The audience too seemed to recognise that this was not a simple either/or that could be judged on mere self interest or self-evident principle. There were serious ideological and cultural as well as social, economic and political implications to the arguments that could not be teased out in an hour in part because this was not a court room deciding a case on a body of actual law but a discussion about the prospect of a law.

Competing values lay in judgments about whether an institution (since private sector corporate liability could be extended far more widely once accepted) could be held to account for the actions of persons in the institution under normal conditions of imperfect information, whether those in charge of an institution might become personally liable because of a presumed or actual duty of care and whether it was permissible for society to use a form of 'soft terror' (the threat of prosecution rather than actual prosecution) to change culture.

It was this last that fascinated us because it brings us back to the very concept of 'economic crime' and both its slipperiness and the role of risk-taking in wealth creation. What are the possibly sclerotic effects on risk-taking of a large-scale politically-inspired regulatory framework for capitalism driven not so much by full enforcement (which is expensive) but by selective enforcement with rare single cases designed to inspire anxiety in board rooms and effect 'culture change'? The link to behaviourial psychology and economics as tool for government should be considered.

Until (say) the 1990s, the notion of 'economic crime' was scarcely understood in the West. If anything, it was associated with the Soviet model where 'economic crime' came to mean anything that did not fit in with the state planning system (though we often fail to recognise that there was a significant regulated private trading system within that system). A tourist buying oranges on a train from Leningrad to Moscow in 1974 from a Georgian petty criminal was committing an 'economic crime'. As with prohibition in the US, regulation created a powerful class of gangsters.

We think we know what 'economic crime' is today because we think that the harms we are dealing with are self-evident (as they would have been to a Soviet official) but the definition remains as ideological for us as it did for the Soviets. It derives from the constant leakage into the rest of the world of specifically American and randomly draconian models of regulating capital which have proved effective for administrators but not necessarily effective in dealing with social harms.  Something is going on here that needs more thought - and, as one speaker stated, more evidence.