Rapid Exploration: The Interpenetration of Criminal and Lawful Economic Activity

This rapid exploration is part of the "Foresight towards the 2nd Strategic Plan for Horizon Europe"  project

As legal order evolves, crime evolves too. Being unbound by the rule of law, crime is a very innovative “sector”, in which innovation is driven by the incentive of high gains as rewards for taking some risks of legal consequences in case the crime is recognised as such and reported to law enforcement agencies. In the case of economic crimes, experts regularly refer to especially low detection and prosecution rates. Among other reasons this is attributable to three particularities being quite special to economic crime:

• Depending on the modus operandi used for commiting the crime, the victim(s) might not even be aware of the incident.

• In fear of e.g. losses of reputation and/or customers' trust that may in future cause revenues to decline, companies that have been victims are reluctant to report crimes to law enforcement agencies.

• Even if crimes are reported, there frequently is a mismatch between the criminal act itself and the offense reported. For example, a business might be aware that a computer has been stolen and reports this incident to the police while the actual target might not be the computer itself but the (sensitive) business information stored on it.

About this topic

The area of economic crime includes a multitude of quite diverse offenses. Thus, the first relevant question is: What ist the aim or target of the offense? Three main areas of economic crime can be distinguished:

• Financial crimes, such as blackmailing, embezzlement and tax evasion, often tied to attempts of cutting social security costs

• Cybercrime, which comprises a wide range of activities from digital scam of sensitive information and spam mails to manipulation of websites and thec onstruction of fake websites or profiles

• Manipulation of stock exchanges (either for economic gain or for creating geopolitical tensions)

A second relevant question relates to who commits economic crime. Next to organised crime groups using criminal proceeds in the legitimate economy (e.g. money laundering, corrupting politicians and government officials, etc.), there are also legitimate businesses facilitating unlawful economic activities (e.g. accountants and lawyers advising criminals) or acting unlawfully (e.g. supporting companies in tax evasion). And there are novel and innovative economic activities that enter new terrain where no clear-cut legal rules exist yet (e.g. in the early days of crypto-currencies).

Another question concerns responsibility for prevention as well as for prosecution. Is economic crime a relevant issue to policy-makers, especially for R&I policy-makers? And if not, who should assume responsibility for it (e.g. law enforcement agencies, private security agencies,...). For instance, data can be stolen either by internal perpetrator or external perpetrators. The responsibility for prevention is likely to be different in these cases. A related issue is to identify the causes of non-detection of these crimes, e.g. lack of legal and other experts.

There are different types of “illegal earnings”, e.g. (i) criminal acts gaining a large amount of money at once, (ii) digitally receiving small amouts of money from many people over a longer period of time, unnoticed but evnatually amounting to a large sum for the criminals, (iii) a legal enterprises engaged in illegal/ criminal activities (on purpose or without noticing that this is illegal or a grey zone).

As the world economy operates more and more through interconnected computerised transactions, new possibilities for intertwining criminal and legal economic activities open up as well as new opportunities for law enforcement.There is a view that the proceeds of crime can be tracked and removed, and thus the interpenetration of criminal markets and legal markets can be controlled.

However, there is also a view that establishing the lawful origins of funds used in every transaction is impossible and even undesirable. What level of control is technically feasible and socially desirable?

There are at least three types of S&T associated with tracking, managing and fighting crime. One is ICT related, from monitoring, analysing, tracking etc. An interesting issue is whether technological solutions to full tracability can be applied to money (e.g. those applied to products using chemicals)? A second is regulatory techniques for preventing “innovators” from moving outside the sphere of lawful activities, from going too far and entering a grey zone that is unregulated. The third is forensics: techniques of reconstituting what took place and thus attributing responsibility for crimes.

Drivers and barriers 

Major drivers for crime are linked to motivation (high gains because of low perceived low risk, that is, the ‘cost-benefit calculation’ suggests that committing a certain crime is going to be profitable). Technological innovation in digitalisation is an essential precondition for further development of new and already existing crime potential in digital fields, from payment systems to crypto circumvention. We can distinguish roughly several types of motivation for crimes: the intrinsic motivation of engineers to research and innovate can be exploited by criminals; the (felt) marginalised individual or government that is searching for its niche to find extra income, even if it comes illegally; the politically motivated wish to spy on or threaten other countries. The primaeval motivations might be the wish for power, influence, and greed.

There are also interesting technological developments emerging that might open up new avenues for criminal activity, often enabled by digitalisation of economic activities. For instance, digitally enabled human enhancement technologies open up possibilities for biohacking, and the ambition to better monitor supply and value chains may open doors to new forms of mis-using this kind of information. Fake profiles and ‘deep fakes” technologies can also be misused to commit digital crimes while staying anonymous on the internet.

It seems to be a competition, a kind of race and mutual pushing and pulling between law-makers, police and criminals of who finds a new niche, that is, new opportunities with software, hardware or regulation, to occupy and exploit. On the side of law enforcement agencies, skills and motivation for long search or detection of crime in cyberspace are often missing. It is a matter of resources that are available and time that may be spent on detecting and fighting this kind of crime.

One facilitating condition for criminal economic activities is the recent deregulation of financial markets. That opens up windows of opportunity for making money in a grey zone or illegally. In addition, the rate of innovation in digitalisation is so high that regulation can possibly be enacted only with a considerable delay - creativity in crime always leads to new means faster than the introduction of appropriate regulation As the complexity of these issues increases, there is a lack of experts to support law enforcement and we observe a skill mismatch in the technical, social, and legal personnel but also a lack of legal entities to follow up.

People are more and more vulnerable to digital fraud and other kinds of crime in the virtual world as new possibilities are constantly emerging. However, if people do not use digital technologies (as a protective measure), they would be excluded from certain economic activities and social life forms. When there is two much security (e.g. with two or more factor authentication), technical hurdles are high and patience is needed.

Futures

• What if criminals are ahead of lawful companies, regulatory bodies, law enforcement agencies, regulatory organisations and other decision-makers in digital innovations?

• What if criminals offer significantly higher “salaries” to experts, e.g. skilled personnel, or personnel for law-enforcement, personnel that is rare or has high specialisation?

• What if criminals become major R&D funders? What if they invest and their investment proceeds from illegal activities directly in R&I and people are dependent on this research?

• What if the full traceability of money poses a risk to creativity and innovation?

• What if the reliance on self-regulation facilitates economic misdemeanour?

• What if the world/ parts of our societies are threatened by crime and prosecution of crime digitally?

• What if the criminal elements control a large part of the economy?

• What if rogue states facilitate illegal activities, e.g. via cryptocurrencies? What if a large number of companies under financial pressure decide to resort to criminal “service providers” in specific fields, e.g. for waste disposal?