Combating financial crime: regulatory versus crime control approaches
DOI | https://doi.org/10.1108/13590790410809031 |
Date | 01 January 2004 |
Published date | 01 January 2004 |
Pages | 45-55 |
Author | Hazel Croall |
Subject Matter | Accounting & finance |
Combating Financial Crime: Regulatory Versus
Crime Control Approaches
Hazel Croall
The relative merits of regulatory and crime control
strategies are a major feature of debates over the
role of law in relation to ®nancial crime, debates
which have moral, political and ideological dimen-
sions. Although these are often presented as alterna-
tive approaches, in practice regulation incorporates
compliance and coercive strategies and there is a
growing consensus that a balanced range of options
which takes account of cost eectiveness and a
moral dimension is necessary to ensure eective
regulation. This paper will start by identifying the
key arguments and assumptions involved in the
`regulatory debate' and their relevance to ®nancial
regulation. It will look at how these competing
claims can be evaluated and will explore areas of
potential consensus including the utility of an enfor-
cement pyramid, the need to incorporate a variety of
strategies directed at dierent kinds of activities and
the signi®cance of a moral dimension, before consid-
ering the potential application of a range of strategies
combining both self and state regulation.
TO REGULATE OR CONTROL?
While the term `regulation' can be applied to many
areas of social and economic life, when applied to
business regulation it refers to the `use of the law to
constrain and organise the activities of business and
industry'.
1
Financial regulation, directed at the
control of fraud and at the regulation of standards
in the market and in business and ®nancial services,
can be distinguished from social regulation, which
incorporates areas such as health and safety at work,
the safety and quality of food, environmental health,
pollution and consumer protection.
The `regulatory approach' is normally associated
with the form of law and enforcement which devel-
oped in areas of social regulation during the 19th and
early 20th centuries with criminal law being consid-
ered necessary to protect the public from dangers
they could not protect themselves from, and criminal
sanctions being justi®ed instrumentally as a deterrent.
Diculties of proving intent led to the develop-
ment of strict liability with regulatory oences being
considered to be mala prohibita rather than mala in
se, as not `really' crime but as `technical' oences.
2
Out of this developed a discretionary enforcement
style in which enforcers used criminal prosecution
only as a last resort. A regulatory approach is therefore
associated with a minimal use of criminal sanctions,
although it is important to recognise that this
emerged out of a long history of negotiation between
business groups, regulators and governments.
The `regulatory debate' hinges around the extent
to which regulatory or criminal law can and should
be used to control the activities of business and
involves a range of theoretical and political positions
which can be broadly summarised as conservative,
liberal and radical.
3
A conservative approach is asso-
ciated with advocates of laissez faire and free market
principles, to whom any form of regulation should
be kept to a minimum as market forces provide su-
cient protection. Liberal views, which incorporate a
range of positions, accept that regulation is necessary,
and should seek a balance between regulatory and
criminal sanctions. To radical views, often associated
with critical criminological or legal perspectives,
law and regulation are inevitably limited by the
pervasive in¯uence of business interests and strong
criminalisation is necessary.
The main arguments can be summarised by focus-
ing on the dierent aims and strategies of each
approach, their supporting arguments and under-
lying assumptions about the activities and businesses
subject to regulation. Table 1 illustrates the broad
parameters of the debate, although it should be
recognised that such a presentation inevitably simpli-
®es complex arguments and that, as will be seen later,
there is considerable common ground and strategies
can be seen as a continuum rather than as mutually
exclusive.
Advocates of each approach place diering
emphases on the aims of legislation. To regulatory
approaches the main aim of law is to secure and
maintain high standards of business and commerce,
and enforcement should ensure an appropriate
balance between the interests of industry and public
protection. Crime control approaches emphasise
Page 45
Journal of Financial Crime Ð Vol. 11 No. 1
Journal of Financial Crime
Vol.11, No. 1, 2003, pp. 45 ±55
#HenryStewart Publications
ISSN 1359-0790
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