New Perspectives on Economic Crime

New Perspectives on Economic Crime

New Horizons in Law and Economics series

Edited by Hans Sjögren and Göran Skogh

Economic crime is, by definition, crime committed to gain profit within an otherwise legitimate business. Examples are illegal pollution, brand name infringement and tax evasion. The victims of such crimes may be private citizens, businesses and the state. The leading authors in this vital new book survey recent advances in the study of economic crime from a variety of disciplinary perspectives.

Chapter 2: The economics of business crime

Nuno Garoupa


Nuno Garoupa INTRODUCTION Recent developments in business and corporate crimes have sparked new debate on the efficiency of different legal policies, including corporate criminal liability and effective deterrence of business crime. After a series of prominent cases in the 1990s (for example the collapse of Barings, the Drexel affair), governments became increasingly concerned about internal control mechanisms and the growing incidence of large-scale frauds. The imposition of criminal penalties on senior management and on corporations was considered. Nevertheless, in most European countries, corporate criminal liability was not introduced and most reforms were aimed at directors and employees, but not at corporations as legal entities. In some particular cases, as in the EU Money Laundering Directive (1991), the directors become criminally liable rather than the corporation when employees engage in money laundering. In the USA, but not generally in Europe, firms are criminally liable for crimes committed by their employees within the scope of the firm and to its benefit. The nature of corporate crime comprises essentially fraud (usually against the government), environmental violations, and antitrust violations (Cohen, 1996). The recent scandals in the USA (for example accounting frauds by WorldCom, Adelphia Communications, Xerox, the collapse of Enron and Enron’s auditors, Andersen) have reopened the debate on the use of corporate criminal liability in achieving efficient deterrence.1 In fact, given the different legal policies applicable to corporations in the USA and in Europe, an interesting empirical open question is how different European and US corporations are as a consequence of different...

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