I’m job hunting and today I had the pleasure of talking to Cable. They want to tackle financial crime and improve our currently abysmal efforts to reduce financial crime (currently only a tiny percentage of financial crime is caught).
In preperation I watched this talk by Natasha the founder, which really got me thinking about the nature of crime. Natasha’s point is that most crime is financial crime, in that lots of crime involves a financial gain. That means if you can tackle financial crime in some way you make a good dent in all crime.
Why does crime happen?
Laws and law enforcement are deterents to commiting crime because they offer a cost to commiting it. They do that by saying “if you commit this crime and get caught you will go to jail for X years”. For that deterrent to work certain things have to hold true.
- There needs to be a reasonable prosecution rate.
- Criminals need to be doing some kind of cost benefit analysis, to take account of the detterent.
- The punishment needs to be sufficiently unappealing
Taking a massive sidestep on 2. for the moment, let’s assume that there is some kind of cost benefit analysis around the transgression, we can see the factors that would weaken the cost of a crime. If the punishment was quite small it might be such that it’s worth the risk of getting caught. Similarly, even if the punishment were drastic, if the chance of getting caught and punished was very low, we may not be deterred from the crime either.
Traditional law enforcement’s power to deter crime then depends on how often they can prosecute and how bad the punishment is when they do. But law enforcement as it is is naturally constrained in both capacities; there is an upper limit on the people power a society can expend on law enforcement, and there is some kind of limit on the appropriate punishment for a given crime. If you steal something small most people don’t think you should be jailed for life. And what greater punishment can you give but the life in prison, or the death penalty? If that’s what you get for one murder, there is no further incentive to prevent a second if the punishment is the same.
So even in a world where criminals are rational actors who do a cost benifit analyses before comitting a crime (big assumption) there is a limit to the discouragement laws can provide — one on the punishment and one on the prosecution rate. The stick can only be so large.
What about the carrot?
If a large swathe of crime is for financial gain and you can drastically increase the difficulty in realising that gain, you can drastically tip the balance of that cost benefit. Rather than making a bigger stick, you can eliminate the carrot.
So how can we remove the carrot?
- Make it harder to realise the financial gains from financial crime
- Make legal financial gains drastically easier to come by
What’s interesting about 1 is there is no theoretical upper limit to how difficult you can make comitting financial crime. Unlike punishement which may only jail someone for X years, you are not limited to only stopping X% of laundered money.
If you remove a criminal’s ability to benefit from crime you create a system where there is no incentive to commit one. That does not mean all crime would be eliminated because not all crime is financial and not all criminals are rational actors, but it wouldn’t be a bad start.
