Study on Effects of Economic Crimes on

Sustainable Development
(Research Paper)

Submitted to

Prof. Chanjana

Faculty of White-Collar Crimes

Submitted by

Chethan Kumar

BBA LLB (Hons) Semester VII (2020)

Roll No: 17BBLB012

Date of Submission: 16.11.2020

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 INTRODUCTION

Definition

There are multiple definitions of “economic crime” mostly connected to the context they are
applied in, which may create confusion with the types of economic crimes if they are used as
synonyms of the generic term “economic crime.” Within economic crimes we can include
“financial crimes committed by banks, tax evasion, illicit tax heavens, money laundering”,
usually associated with private individuals or businesses, but also “crimes committed by
public officials like bribery, embezzlement, traffic of influences, etc.”, which can be
identified as corruption within public institutions. Other approaches directly focus on the
public sphere, defining economic crimes as “those affecting the economic policy of the
country, breaching its economic system, economic objectives and policies, as well as the
social interests of the community itself”1. A definition that could encompass both the private
and public spheres would be “a criminalised act or neglect, which is committed in the
framework of, or using a corporation or other organisation”2

The following sections will be dedicated to look at some of the most common types of
economic crimes, analysing their consequences, particularly with regard to how they can
affect the achievement of sustainable development

Out of official or institutional documents and reports, and perhaps statistics, the general
public does not hear the wording “economic crime” often. However, many people will be
familiar with cases brought by the media on ‘corruption’, ‘money laundering’, ‘tax evasion’
or ‘fraud’. All these words are part of the jungle that the different types of economic crime
have become.

One classification of economic crimes lists the different types by importance in terms of
reported occurrence, including asset misappropriation, cybercrime, bribery and corruption,
procurement fraud, accounting fraud, human resources fraud, money laundering, intellectual
property (IP) infringement, insider trading, and tax fraud. The variety of crimes goes to show,
on one hand, the extent of the problem and, on the other hand, the surge of modern types of
crime linked to advances in technology.

1
Lawyers Monthly 2017.
2
Alvesalo 2003, as cited in Kankaanranta and Muttilainen 2010.

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Why do economic crimes matter? They may not be as violent as murders, and in some cases,
they appear to be invisible, but they create social damage. They affect democratic institutions,
undermining governance systems and posing doubts about the functioning of justice and the
fairness of society, but also, very importantly, they undermine the resources that state
treasurers can count on to implement public policies. In the context of the sustainable
development goals (SDGs), the lack of funding to implement policies and provide public
services is linked to several SDGs but particularly SDG 16 – Promote Peaceful and Inclusive
Societies for Sustainable Development, Provide Access to Justice for All and Build Effective,
Accountable and Inclusive Institutions at All Levels. Economic crime actions are specially
connected to target 16.4. “By 2030, significantly reduce illicit financial and arms flows,
strengthen the recovery and return of stolen assets and combat all forms of organised crime”
but also to targets 16.3 (rule of law and justice), 16.5 (corruption and bribery), and 16.6
(accountable and transparent institutions). Data indicate that corruption, bribery, theft, and
tax evasion cost around US $1.26 trillion per year to developing countries, and that is money
that could be used to reduce poverty and create progress in many areas. It can be argued then
that economic crimes are an obstacle or barrier to development and, as such, action is
required. The problem is that, apart from “invisible,” many economic crimes are crimes
“without borders,” so the solutions involve actions at a global level and international
cooperation.

The following sections will be dedicated to look at actions and problems related to several
types of economic crimes.

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 CHAPTER: 1

ECONOMIC CRIMES AND THE PRIVATE SECTOR

Most of the information provided above underlines the importance of economic crimes for
the public sector, as they undermine the possibility of public policies’ implementation.
However, it cannot be forgotten that private companies are also subjected to economic
crimes, at an increasing pace. In this case we can use the definition of “crimes of profit that
take place within the framework of commercial activities” 3. Latest global figures indicate that
economic crimes suffered by business organizations in Africa are the highest (62%)
compared to the Middle East (35%), but all regions present increasing figures, with
exceptional growth between 2016 and 2018 in Latin America (53% from 28%) and North
America (54% from 37%). The types of fraud/economic crime reported vary from industry to
industry, with assets misappropriation, consumer fraud, and cybercrime topping most of the
lists.

It becomes apparent that this type of crime is not affecting only developing countries or
regions, and we can find examples in developed countries too. The construction industry in
Finland appears to represent one seventh of economic crime suspicions, mostly related to
dealings with receipts with the purpose of tax evasion. The economic crisis of 2008 unveiled
the problems in the banking sector in Iceland. Fraud in Australia costs business and
government more than $6 billion per year, becoming the highest dollar value of all crime
types in 2011. And the list could continue. In developing countries there is a perception that
corruption issues are mostly a public sector phenomenon, but scholars argue that at least in
Africa, the private sector is as responsible as the government, with some considering that the
private sector is even more corrupt than government. In Latin America, the private sector is
seen more as part of the solution than of the problem, with corruption being directly defined
as “the misuse of public office for private gains”. Some call for the participation of the
private sector in the initiatives to increase transparency and accountability, helping with the
design and implementation of technological solutions. International institutions (OECD) have
included the private sector in Latin America as part of the anti-corruption initiatives for that
area.

3
Korsell 2002 as cited in Croall 2009

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So, what can business do to tackle economic crimes? What should be the role of the private
sector? Companies are spending more money each day to tackle economic crime, particularly
fraud but mainly through technology and data analytics tools while whistle-blower programs
are being expanded, and some steps to keep companies’ leadership on the loop are being
given. However, these are more reactive than proactive approaches. Research suggests that a
preventative approach is necessary, with a positive working environment and ethical
governance at the core. Specific actions would include the implementation of a compliance
risk management program with fraud risk assessments; accessible psychological assistance
programs for employees; regular anti-fraud training; targeted internal controls (with proper
segregation of organizational duties); fair compensation levels and realistic individual
performance goals; user-friendly and anonymous reporting mechanisms; and independent and
regular analyses of abnormal patterns4. Similar suggestions are given by other experts, with
particular focus on fraud risk assessments and cyber-attacks vulnerabilities, and, most
importantly, the ethics governance area, with specific emphasis on the “culture of honesty
and high integrity”.

Another question that arises in this context is who should be responsible for the policing of
economic crimes? In a period of reduced availability of public funding, police forces in
different countries may lack the necessary resources to deal with economic crimes. This has
become apparent for countries like the UK, where a report suggests that police budget should
be increased by £450 million per year just to deal with cybercrime, and research confirms that
even if resources to combat this type of crime have increased, they are nowhere near enough
to deal with the problem. Reality indicates that a new private sector has emerged, specialized
in economic crimes (money laundering and others), with a more prominent role over time,
which has boosted the debate over the question of “should economic crime
enforcement/policing be privatised?”. These companies, called “financial investigative
agencies (FIA)” and grouped into the so-called Forensic Accounting and Corporate
Investigation (FACI) industry, provide a wide array of services, both to the private and public
sector, ranging from risk assessments and legislative compliance consulting to suspicious
transaction detection and reporting or asset tracking and recovery. Given the scale of the
problem, most experts advocate for the collaboration between private and public agencies to
tackle economic crime, and even within the police forces, there has been an increase in the
use of civilian staff specialized in the investigation of economic crimes. The importance of

4
Peltier-Rivest 2018

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tackling economic crimes in the private sector should not be underestimated, as evidence
suggests that particularly the perception of vulnerability to cyber-attacks is one of the main
factors influencing companies’ reputational damage 5, and once reputation is lost, regaining
confidence is extremely difficult, which becomes a big risk for companies’ profitability and
thus their financial sustainability. Looking at the bigger picture and the social damage that
this type of crime can generate, some authors also advocate for the consideration of economic
crimes as a matter of community safety, as they can pose a threat to citizens’ quality of life,
on an individual basis or through impacts in the local neighbourhood.

5
PwC 2014, 2018; Bureau Van Dijk 2015

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 CHAPTER: 2

ECONOMIC CRIMES AND THE PUBLIC SECTOR

As shocking as it may be when the scandal about a company misbehaving becomes public,
for civil society it is usually more striking when their public officials commit this type of
crime. This is related to the fact that citizens situate government and public officials in a
position of trust, and the commission of economic crimes by any of them represents a breach
of that trust. Latest data suggest that bribery is the most common economic crime that
citizens face when trying to access public services and that governments’ anti-corruption
efforts are not perceived to be sufficient. Similar to the reports related to business
perceptions, citizens think that the level of corruption has worsened over time, as much as
62% in the case of Latin America, where Venezuela appears as the worst positioned country
(Transparency International 2017b). Extremely worrying is the fact that police and politicians
are perceived as the most corrupt agents and that in Mexico 51% of people reported having to
pay a bribe to access public services, particularly for schools, healthcare, and ID documents.
These behaviours are in the opposite side of the spectrum with regard to the achievement of
SDG16 and other SDGs such as SDG3 (health and well-being) or SDG4 (education).

In some instances, the change in the economic and/or political regime, in situations where
institutional governance is weak, may contribute to aggravation of the issues. An example of
this could be the collapse of the communist system in Ukraine, since the loss of state control
over businesses, previously run as monopolies where corruption had settled, made it difficult
to implement the right measures. This allowed organized crime to align with those in control
of the political and economic power in order to gain access to the privatization process and
ensure privileges, making bribery of public officials a common occurrence. In Egypt, on the
contrary, the 2011 January revolution increased the demand for higher transparency and
integrity, though literature suggests that the country is still perceived as corrupt, and though
institutions have been established, their functions cannot be considered fulfilled, given the
culture of secrecy of the country, with no proper anti-fraud education system in place.

Corruption by public officials can make the economy of a country plummet, as shown by the
cases of the former Zaire, with the country’s wealth made to disappear by the corrupt regime,
or Albania, where the regime collapsed following the losses of thousands of citizens due to an
investment fraud. In Nigeria, it is estimated that over $200 billion is lost per year due to
corruption and financial crimes. Corruption can be traced to the colonial era, and it is

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embedded in the behaviour of both private and public officials, with figures of economic
crime increasing in size and magnitude. Despite the creation of institutions specifically
dedicated to fight corruption, such as the Economic and Financial Crimes Commission at the
end of 2002, its performance is found to be limited, not because of the lack of legal
instruments but the lack of willpower, weak implementation, and enforcement machinery.

Public intervention to tackle corruption and other forms of economic crime is usually focused
on the approval of regulations and the creation of specialized institutions. In Finland, a
country widely perceived as having low levels of corruption, the first Action Plan to Combat
Economic Crime and the Grey Economy dates from 1996. A wide range of actions, including
new laws and regulations, training and education programs, new control agencies – the
bankruptcy ombudsman, and new working methods, public research and considerable
resources – including public campaigns, gave as result an environment of less tolerance for
economic crimes. Initially designed for 3 years, it was subsequently extended, and the results
can be considered positive, including the collaboration between different agencies. Using a
similar rationale and as a response to several scandals in public officials’ behaviours,
Botswana created the Directorate on Corruption and Economic Crime in 1994. During its first
year, it also organized a campaign to put public opinion against corruption and endeavoured
to get high conviction rates for the cases investigated. Among all the criteria that could be
listed as important to combat corruption, the one that proved fundamental in Botswana’s case
(also deemed key for other African countries) is the credibility of an anti-corruption
watchdog. An identified problem for a continuous success at the time was the lack of
sufficient staff with the relevant skills, with a good number of positions being covered by
expatriated foreign personnel. So, education and training become paramount for the
sustainability of positive results. Sweden, another Scandinavian country, took a few years
later a similar approach. Apart from new powers for the police and public prosecutors, the
philosophy was to prevent the crime before it happened, in trying to increase a perceived
level of risk from committing a crime and to reduce the perceived rewards from said crime 6.
The approach taken was that of preventing economic crime through gaining knowledge about
its causes and to use all the information available, particularly the one coming from tax
audits, to identify patterns of crime. One proposal included the idea of moving from
penalization to self-regulation. This knowledge-based approach could also be used for
countries like Malaysia, where research seems to suggest that the government has paid less

6
Swedish National Council for Crime Prevention 2005

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attention to cases of fraud occurring in small and medium enterprises (SMEs), which means
that only part of the problem is being addressed.

It becomes apparent that different countries are using specific approaches tailored to their
circumstances but with a good number of commonalities. Collaboration between agencies
and sharing of information seem to be part of most initiatives, and their relevance will be
highlighted in the following sections.

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 CHAPTER: 3

MONEY LAUNDERING AND CYBERCRIME

As it has been already mentioned, the types of economic crime are quite varied, but this
section pays attention to two of those types, as they have been recently quite prominent in the
media.

Money laundering can be defined as “transferring illegally obtained money or investments

through an outside party to conceal the true source”. In 2016, a leak uncovered one of the
biggest scandals of money laundering ever known. The so-called Panama Papers unveiled the
fraudulent behaviour of world leaders, politicians, and celebrities, alongside known criminals,
and marked the Latin American country as a money laundering paradise due to its lack of
regulation on bearer shares, which allows the secrecy over their ownership. In the aftermath
of the scandal, countries like Switzerland, also known by its secrecy in financial matters,
have started taking some actions. The intergovernmental Financial Action Task Force
(FATF) called on Switzerland to do more, as apart from the Panama Papers it was also under
scrutiny due to the cases of FIFA chiefs and Vladimir Putin’s favourite cellist. Switzerland is
now proposing changes in its Anti-Money Laundering Act, with stricter rules, including the
requirement from lawyers and others to do due diligence to ascertain whether clients
represent a risk for bribery or other wrongdoing, something not previously required.

The examples presented give an oversight of a problem that is big in scale and international
in its occurrence. So, what can be done to tackle it? Quite early on both the World Bank and
the International Monetary Fund (IMF) acknowledged that they needed to play a role, with
the World Bank assessing countries for the reform of the legal systems, the design and
implementation of capacity building programs, and the promotion of transparency and good
governance principles and practices in the financial sector. The IMF contribution would
focus, among others, on the promotion of said good governance and sound financial systems.
But apart from these overarching roles, literature suggests more specific actions that countries
can implement. Empirical modelling suggests four main policy areas to act against money
laundering: law, institutional framework, duties of the private sector in law enforcement, and
international cooperation, with the latter being the most important to reduce crime.

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This is a discourse that is continuously repeated, from international institutions to academic
research, and could also be applied to the other case to be discussed in this section,
cybercrime.

In May 2017, a ransomware called WannaCry attacked hundreds of targets in multiple

countries, including public utilities and large corporations. One of the services affected was
the National Health Service (NHS) in the UK, causing chaos for many patients, with delays
creating on vital medical procedures. A month later, another malware affected multiple
targets again in many countries, infecting the networks of the US pharmaceutical company
Merck or the Danish shipping company Maersk. However, investigators think that the main
target was Ukraine, with the purpose of disrupting its main infrastructures – power
companies, airports, public transport, or the central bank and the origin of the attack was
Russia. In May 2018, an unknown hacking group stole between $18 and $20 million from
Mexican banks, exploiting the transfer system and using phantom accounts. The Australian
National University (ANU) found that it had been breached by Chinese hackers with the
alleged intention to steal intellectual property. In April, security researchers found out that
Indian hackers had been targeting research institutions and government agencies in China
since 20137.

The examples are multiple and exploit network vulnerabilities using the latest advances in
technology. What can be seen from the above cases is that no country is free from the threat,
and as it was mentioned in a previous section, fighting this type of crime is extremely
difficult, and resources dedicated so far do not seem to be enough. One of the problems to
police cyber-attacks is that being relatively new, the powers that law enforcement agencies
have may not be commensurate with the characteristics of the crime and that can make
investigations and prosecutions almost impossible. This is why many countries are requesting
modifications of the legal system to allow, for instance, remote access or searches of
individuals suspected to be involved in these activities. Cyber-attacks are used, as it has been
mentioned, to obtain money directly, but in other cases, the infection with virus or malware is
used as a threat in itself to demand money from the victims, or the illegally obtained data are
used to steal the money at a later stage.

Whatever the case, it is one of the fastest growing types of economic crimes, and seen that
the targets can be both private and public users, it constitutes a real danger for governance

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Centre for Strategic and International Studies 2018

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internationally. It certainly constitutes one of the greatest challenges to tackle economic
crimes.

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 CONCLUSION

This piece has attempted to depict some of the most relevant economic crimes that countries
experience nowadays. A summary of the main conclusions can be that these crimes affect
countries regardless of their level of development and attack both individual consumers and
public and private institutions. There is agreement worldwide in two aspects: first, that there
is no solution that can be applied for every country, and second, that the most effective
instrument is cooperation, both between agencies in each country and between different
countries, not only to share information but to signify that crimes committed by one country
are not left without punishment in another country.

Given the economic cost that this type of crime entails, its threat to development and the
achievement of the SDGs is clear, with an impact in the governance systems and the
credibility of the institutions. Since developing countries may not have the right resources,
knowledge, technology, or agencies to deal with the problem effectively, it is the
responsibility of developed countries to help, as it becomes apparent that vulnerabilities
would have worst impacts for the weakest nations. Prevention or detection, early action, and
compensation to the victims of these crimes are vital elements in the fight against economic
crimes. Lack of action from governments could be considered complicity with the crime. An
example of a case where this approach was necessary is that of the British company BAE
Systems, who failed to properly keep the books when recording the sale of military air traffic
control systems to Tanzania. Several governmental agencies were involved to ensure that
BAE paid the money it should have previously paid to Tanzania. These became resources to
be used for development projects by the country.

Something remarked by many institutions and researchers is the need in the change of
cultural assumptions that this type of crime is not relevant or is not going to be prosecuted
and to embed a proper system of ethical behaviour in all the agents of society, with honesty
as the main principle. Only with that approach it will be possible to construct resilient
institutional governance frameworks that contribute to sustainable development.

BIBLIOGRAPHY

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 https://link.springer.com/referenceworkentry/10.1007%2F978-3-319-71066-2_47-1
 https://www.unodc.org/pdf/WP%20on%20item%206%20V0581301%20in
%20English.doc
 https://www.oecd.org/dac/accountable-effective-institutions/efc.htm
 https://www.tamimi.com/law-update-articles/the-effects-of-corruption-on-economic-
development/

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