The interpenetration of criminal and lawful economic activities: scenarios & policy implications

The four freedoms of the EU Single Market – free movement of goods, services, people, and capital – are invaluable for EU citizens and businesses. These freedoms, however, are also abused by criminal actors, significantly undermining citizens’ quality of life and the lawful businesses’ competitiveness. Further, with the advancement of technologies, citizens and businesses can benefit from new opportunities but they are also confronted with a series of problems, such as insufficient consumer protection, distorted competition, lack of environmental risk assessment or abuse of technologies. The penetration of legal economic activities by criminal actors is a far-reaching, costly abuse, which exploits new technologies developed by themselves or by lawful actors. Clearly, potential victims need to be aware of threats and make their best efforts to protect themselves. Yet self-protection alone is not enough against mighty organised criminal groups. The state needs to apply its tools – especially effective regulations and well-endowed, well-organised law enforcement agencies (LEAs) – to prevent, monitor, and fight the interpenetration of criminal and lawful economic activities. The state also needs to protect itself against corruption, tax evasion, smuggling, human and migrant trafficking, counterfeit of goods and means of payment, etc.

Policy-makers – working on various domains, notably regulations, home affairs, security, science, technology, and innovation (STI) policies –, therefore, need to pay close attention to possible new ways and methods for the interpenetration of criminal and lawful economic activities. With a deep dive report our aim has been to assist these policy-makers by presenting four possible futures (scenarios) on the interpenetration of criminal and lawful economic activities and considering their implications.

The underlying assumption of these scenarios is that the interpenetration of criminal and lawful economic activities – just as most other types of crime – cannot be fully eradicated. There are two competing groups of actors whose capacities, activities, efficacy, and efficiency largely determine the possibilities for, and repercussions of, the interpenetration of criminal and lawful economic activities: criminal actors and LEAs. The scenarios, therefore, are shaped by two main dimensions: i) whether LEAs are well-resourced, strong, and effective or not, and ii) whether large criminal organisations or small-scale ones are the dominant criminal actors. Hence, the four scenarios consider various types of ‘push’ and ‘pull’ factors that influence actors to commit – or not – criminal economic activities; the main types of these activities; features of regulations; research, technological development, and innovation activities by the criminal actors vs LEAs; as well as the activities, capabilities, and resources of LEAs.

Scenario 1 depicts a ‘Neck and neck race’ between large criminal groups and LEAs. The EU’s economy is flourishing, it is characterised by high growth, coupled with high taxes. Due to considerable public revenues, LEAs are strong: they have sufficient resources, as well as the necessary skills, capabilities, and capacities to prevent, monitor, and fight the interpenetration of criminal and lawful economic activities. Lawful economic actors and other potential victims are protected by effective regulations that also support LEAs. While illicit actors have an almost negligible influence on regulatory processes, they nevertheless try hard to influence regulations for their interests – occasionally with some success. Large, well-organised criminal organisations have strong incentives to engage in criminal economic activities via penetrating lawful economic activities. They have massive funds already invested in the EU – in the black, grey, and white segments of the economy. They avoid paying high taxes and launder their sizeable illegal proceeds. Furthermore, they use their substantial resources to develop new technological tools and ‘business models’ to further penetrate their criminal activities into the lawful economy.

Scenario 2 describes the EU as a ‘Safe haven for legal actors’. Large criminal organisations have kept a minimal presence in the EU as they found ample, more profitable opportunities in other regions, where LEAs are weaker, and regulation is ineffective. Stringent and effective regulation in the EU is a further disincentive for them. Some of them operate from ‘criminals’ shelters’ outside the EU and target victims online or commit online crimes mainly outside the EU but to some extent also in the EU. Small-scale criminal organisations do not possess the skills, contacts, and resources to internationalise, and thus they remain in the EU, in search of ways to penetrate lawful economic activities. LEAs are endowed with the necessary resources, skills, capacities, and capabilities to be strong in the EU and they are also supported by effective regulation. Small-scale criminal organisations are unable to influence the regulatory processes. Thus, the EU provides a safe haven for legal actors.

In Scenario 3 lawful economic actors rely on a number of ‘Protected pockets’. Large criminal groups focus their activities outside the EU where they can exploit more profitable opportunities to commit economic crimes. Small-scale criminal organisations take advantage of the low intensity of the large criminal organisations’ activities, as well as the lucrative opportunities for criminal economic activities offered by regulatory loopholes. In particular, new technologies, as well as disruptive business models are exploited by criminals as there are no effective regulations ensuring robust cybersecurity, safety, and health standards. Lawful economic actors try to find protected pockets for their business in those domains where regulation still works. It is a somewhat ‘unstable’ scenario as lawful economic actors would push for more effective protection, and thus stronger LEAs, supported by effective regulation.

Scenario 4 describes a ‘Paradise for criminals’. The economy is flourishing, and thus provides ample opportunities for large, well-organised criminal organisations to conduct profitable business activities in the white, grey, and black segments of the economy. These illicit actors successfully influence the regulatory processes to advance their interests by creating loopholes. They can also afford to fund the development of new technological tools and ‘business models’ to penetrate the lawful economy even more deeply in their criminal ways. Although LEAs are also well-funded thanks to public revenues, they are substantially weakened by ineffective regulations. Lawful economic actors and other potential victims are not protected by effective regulations. Hence, LEAs are faced with even more demanding tasks, and thus their efficacy in fighting economic crimes is reduced.

By considering the nature of the criminal activities that aim at penetrating lawful economic activities, and the options to prevent, monitor, and fight these crimes, the report explores a range of policy implications, especially for STI policies and regulations. Further, it stresses the multi-level nature of policy-making in the EU, as well as the need for collaboration with the willing countries outside the EU. Criminal actors can penetrate lawful economic activities in the EU when commissioned by hostile (‘rogue’) states that aim to weaken and/or undermine the EU and its Member States as part of their geopolitical power games.

The policy brief reflects possible implications for research and innovation as well as for the governance in the EU, particularly in the following areas:

• Monitoring and foresight capabilities of LEAs in the EU and its Member States in cooperation with third countries.

• Technological tools by the EU and its Member States in cooperation with third countries for anticipating, preventing, monitoring, and fighting harmful criminal economic activities identified in the four scenarios.

• Joint social science research projects in the EU and its member states in cooperation with third countries to understand economic and behavioural incentives for crime and develop regulation against it.

• Framework conditions for effective governance and law enforcement in the EU and its member states in cooperation with third countries.

• The cooperation in the EU and with third countries for more effective monitoring and assessment of criminal and lawful activities and law enforcement.

The full brief is available at: https://www.futures4europe.eu/projects/futures-of-interpenetration-of-criminal-and-lawful-economic-activities