Law Enforcement ‘Not Winning’ War on White-Collar Crime

By ANITA RAGHAVAN

CAMBRIDGE, England — The record of combating economic crime is so woeful that governments need a new approach. That was the view of many at a gathering of about 1,600 delegates from academia and the legal and compliance profession here on Monday.

Iceland’s former Prime Minister Sigmundur David Gunnlaugsson resigned in April after the Panama papers revealed he and his wife had set up a company in the British Virgin Islands.CreditBirgir Por Hardarson/European Pressphoto Agency

“If this is a war, we are not winning it,” said Alison Levitt, a partner at the London law firm Mishcon de Reya, speaking on a panel at the University of Cambridge’s Jesus College.
She was not opining on drugs or terrorism, rather on the limited progress law enforcement has made in battling economic crimes like money laundering, fraud and insider trading.

Ms. Levitt, who heads Mishcon de Reya’s business crime group, was among the delegates this week from 90 countries attending the 34th international symposium on economic crime.

Ms. Levitt recommended that the same stigma that is associated with crimes like rape be attached to economic crime.

“We shouldn’t call it white-collar crime or economic crime,” she told the audience, which was gathered in a marquee on the manicured lawn of Jesus College. “We should call it stealing.”

Drawing on a study by PricewaterhouseCoopers, Ms. Levitt said a worrying 18 percent of financial crimes in Britain were committed by members of senior management. Crimes by top executives tend to be more sophisticated and are often harder to detect.

Ms. Levitt said society’s attitude toward financial crimes needs to evolve. Drawing an analogy to the changing view of drunken driving over the years, Ms. Levitt said that two or three decades ago, an individual who was convicted of drunken driving could go on to serve as a judge in England. Since then, attitudes have shifted drastically. Ms. Levitt posited that the same could happen over time to economic crimes.

Her downbeat assessment was reflected formally and informally during this week’s symposium at Cambridge.

“There are not that many deaths of organizations that have done awful things,” said John Mair of the European Bank of Reconstruction and Development. “The law allows too many guilty people to get off.”

Ironically, one participant suggested that the publication of the Panama Papers, which revealed how wealthy individuals used elaborate corporate structures and offshore tax havens to obscure their ownership of assets, would lead to less transparency. The papers have already damaged the former prime minister of Iceland, who stepped aside after revelations that he and his wife had set up a company in the British Virgin Islands. The papers will discourage law firms in the future from naming beneficial owners of assets — those who enjoy the benefits of ownership although the title is in another name — on documents for fear of leaks.

Even American legal practitioners were pessimistic about the headway law enforcement has made in fighting economic malfeasance despite the more aggressive tradition in prosecuting financial crimes.

“We have lost most of the major battles and all of the wars,” said John W. Moscow, the former chief of the frauds bureau and the deputy chief of the investigations division at the New York County district attorney’s office. “The number of people benefiting from large-scale, economic crime is immense, the number of victims is immense, but the number of prosecutions is limited by small and declining budgets.”

Mr. Moscow, who is now in private practice at Cleveland law firm BakerHostetler, said that frequently in large organizations, “the buck stops three levels lower” than where the criminal decision is made. He said it was therefore important “to impose serious fines and penalties on corporations.”

Ms. Levitt of Mishcon de Reya offered a novel solution to the problem that strapped governments face in allocating resources to fighting economic crime.

 She recommended that government involve the private sector. For instance, in Britain, there are nearly £2 billion, or $2.66 billion, in uncollected confiscation orders. The government, she said, could sell these claims to private law firms and investigators at a discount, and they, not the resource-challenged government departments, could work at recovering the money and giving back a portion of it to the state.

Ms. Levitt’s recommendations are most likely to be heard at the highest echelons of government.

Though in private practice today, Ms. Levitt occupied an important position in Britain’s criminal justice system. Before joining Mishcon de Reya, she was the principal legal adviser to the director of public prosecutions, advising on some of the most significant cases of the time and appearing as counsel in the Court of Appeal.

Drawing on data from CCP Research Foundation, Paul E. Hauser, a London-based partner at the American law firm Bryan Cave, said that roughly $250 billion in penalties had been paid by lending institutions to settle financial crimes since 2010.

Speaking on a panel about who should carry the “can,” or take responsibility, for wrongdoing in business, Mr. Hauser said the question focused on the wrong issue. “The system we have is where the compliance department carries the can,” he said. A better system, he argued, would be one where there were incentives for good behavior at financial institutions and disincentives for wrongdoing.

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