by how much could we reduce white collar crime by imposing 30 year jail sentences? “Zero”.

The Honest Politician’s Guide to Crime Control never went into to a second edition, and it may by now be out of print. I studied with its co-author, Gordon Hawkins, whose objective and considered views were as relevant then in those Laura Norder days as they are now.

Sadly, in the years since, I have seen little or perhaps no evidence of the influence of his, and others’, views from governments, and Laura is still around.   

Politicians – I won’t say dishonest – don’t like hearing about what solutions there are to crime. Crime control starts at the wrong end for them. Crime is needed because it provides them with a platform for populist regressive views and good coverage in the yellow press.

Senate Economics References Committee – penalties for ‘white collar crime’

It was therefore welcome to see that the current Senate Committee looking into penalties for white-collar crime had before it an eminent panel of crime experts.[i] The Committee did listen and asked questions, even if at their criminology 101 level. 

While all the panel spoke, and they lodged a submission, it was Professor Mirko Bagaric who summed up issues nicely.  The transcript of his opening words is below. 

Selected comments

Some selected comments from his transcript are these:

“There is absolutely no correlation between what knowledge tells us we can achieve through the sentencing of white-collar offenders and what we actually do. The law in this area has been built up on what feels right as opposed to what is actually right, and that is why it is utterly so ineffective;

“… the harshest penalties in our criminal justice system need to be reserved for the people we are scared of—not the people we are angry at”;

“We and the community are angry at white-collar offenders. Why? Because they are greedy and quite often they are lazy. That does not justify us, in a logical and empirical manner, imposing the harshest penalties in our system—being imprisonment—on these people;

“…we, paradoxically, punish the taxpayer and ourselves even more”.

Australia now imprisons “208 people per 100,000—the second highest in the developed world”.

“When it comes to sentencing white-collar offenders, in most situations, we should not put them in prison. We need to implement other more cost-effective sanctions in order to deal with them”.

It is not that simple. For one thing, the community’s sense of the need for justice not unfairly reacts when there is a lack of parity between personal and financial crime, which then can have impacts in other aspects of human misconduct.  But the use of imprisonment in all areas of crime needs a review, if only because Australia is itself not in parity internationally.  

The Senate inquiry

This inquiry started in 2015 and was interrupted by the election in 2016.  Its title is already a problem – a focus on penalties rather than other means of crime prevention – but as long as its brief is seen in a larger context that should not matter.  The inquiry follows calls from ASIC and others for higher penalties for corporate and financial misconduct. It is also looking at penalties imposed for breach of competition and consumer laws.

While the panel accepted that the $200,000 maximum for civil penalties in corporate law had not been raised for many years, and should be, Professor Bagaric also said that

“… this theory of general deterrence is … an absolute myth. Ninety-three per cent of criminologists around the world know that there is no correlation between the severity of the penalty and a reduction in crime. …. We could escalate white-collar sentences to a mandatory 30 years imprisonment for every white-collar crime. Do you know how much crime that would reduce? Zero. The only thing that will reduce white-collar crime is to increase the perception in people’s minds that if they do something wrong they will get caught”.

Enforcement of the law, or even a perception that it is being enforced, is the more important, hence all the media releases from the white collar regulators when there is a successful outcome; and the warning signs on the roads about police enforcement. 

The full transcript is commended reading.

Bankruptcy

While the Committee took evidence from many others, the submission from AFSA was interesting, and apparently in line with the panel. The approach of imposing a fine on an impecunious bankrupt was questioned. AFSA said that bankruptcy offences should be sanctioned by community service orders, not monetary fines. New Zealand was referred to a having a useful approach. Bankruptcy also has the real sanction of an extended period of bankruptcy, beyond 3 years, for bankrupts who breach the requirements of the Bankruptcy Act. A restriction on directors who similarly fail to co-operate with the liquidator has been rejected by the government in the past. 

ALRC 95

The only other point to re-mention is that penalties were comprehensively examined by the ALRC in 2002, with its Report 95 – Principled regulation, Federal Civil & Administrative Penalties in Australia. Nothing much came from that.

Due date

The Senate committee report is due soon, by 28 February 2017. It will be interesting to see whether some well informed ideas are offered.  Whether anything is done will again be the issue.  

 

—————–

 

Transcript extract – 6 December 2016

Prof. Bagaric: I am going to confine my submissions mainly to the sentencing of white-collar offenders and also to stopping white-collar offences. The starting point here is that the current law regarding white-collar offenders is a normative and a knowledge wasteland. There is absolutely no correlation between what knowledge tells us we can achieve through the sentencing of white-collar offenders and what we actually do. The law in this area has been built up on what feels right as opposed to what is actually right, and that is why it is utterly so ineffective. The starting point regarding any sentencing inquiry or any sentencing disposition is that the harshest penalties in our criminal justice system need to be reserved for the people we are scared of—not the people we are angry at.

We and the community are angry at white-collar offenders. Why? Because they are greedy and quite often they are lazy. That does not justify us, in a logical and empirical manner, imposing the harshest penalties in our system—being imprisonment—on these people. The impact of imprisoning many white-collar offenders is that we, paradoxically, punish the taxpayer and ourselves even more. The reason we do that is that rather than letting these people be gainfully employed in the community and paying tax they become an utter burden on the taxpayer.

Its costs us $102,000 per year to imprison every Australian inmate. Over the past 30 years the incarceration level in Australia has increased threefold. We now imprison 208 people per 100,000—the second highest in the developed world. We are spending $4 billion per year on prisons.

Senator DASTYARI: Can I just quickly go back to that figure. You said 208—

Prof. Bagaric : Two hundred and eight people per 100,000.

Senator DASTYARI: Where is that figure from?

Prof. Bagaric : The Australian Bureau of Statistics.

Senator DASTYARI: It is an ABS figure?

Prof. Bagaric : That is the September quarter prison number. It is the second highest in the developed world. The Australian community can no longer readily sustain the burgeoning imprisonment rate. That is why state governments can no longer readily and properly fund positive services such as education and health.

We have to be far more discerning in terms of who we imprison. When we imprison people we have to make sure that there will be a positive benefit to the community. In relation to white-collar offenders there normally is not. This is money crime. The empirical data shows us that out of money crime, sex crime and violent crime, the harm that causes the most significant damage to individuals comes from sex crimes and violent crimes. Many people never recover from those crimes. The scars go far beyond the particular event. People do recover from property crime—sometimes not readily, sometimes not easily.

The number one principle in terms of how we sentence all offenders is the principle of proportionality that was referred to earlier. What that means in order for the law to maintain its legitimacy and for us to be sentencing in a way which is empirically valid is that the harm stemming from the crime has to be matched to the hardship associated with the penalty. We need to, as best as possible, match those two things. The punishment must fit the crime. That is a term that most lay people are familiar with. Philosophically, empirically, it also works.

When it comes to sentencing white-collar offenders, in most situations, we should not put them in prison. We need to implement other more cost-effective sanctions in order to deal with them. When it comes to looking at white-collar crime and the assessment of damage of white-collar crime we need a bifurcated model. There are two forms of white-collar crime: crime that hurts individuals really hurts individuals. A solicitor that takes $100,000 from an individual client causes far more damage than an insider trader or a tax dodger who avoids paying their tax. They are profoundly different consequences associated with those two crimes. The principle of proportionality needs to be observed.

The other thing we need to recognise is that this theory of general deterrence is a myth. It is an absolute myth. Ninety-three per cent of criminologists around the world know that there is no correlation between the severity of the penalty and a reduction in crime. Common sense tells us that there is. We all think that people act rationally and prudently when they are considering what actions to do next. We make the assumption that when people are about to commit a crime, whether it is an assault or a white-collar crime, that they sit back and reflect, ‘If I do this, what is going to happen to me?’ and that if the consequence is really bad—it could be jail for 10 years—they will not do it. It does not work. The empirical evidence shows that it does not work.

We could escalate white-collar sentences to a mandatory 30 years imprisonment for every white-collar crime. Do you know how much crime that would reduce? Zero. The only thing that will reduce white-collar crime is to increase the perception in people’s minds that if they do something wrong they will get caught. That is why speed cameras are effective—not because they are always there; it is because people think that if they do something wrong they will get caught. That is why people do not commit offences in police stations; people do not commit offences in airports. They know that if they do something wrong they will get caught. So this theory of general deterrence does not work.

What we do know is that, when people make a prudential assessment regarding committing a crime, it is a one-step not a two-step process. The step they take is: if I commit this crime—the assault, the theft or the insider trading transaction—will I get caught? If the answer to that is that they think yes then they do not do it. They do not take the next step and think: if I do get caught, what is going to happen? You need to focus on the first step. That is what you need to do. The solution to reducing white-collar offenders is not to put more in jail; the solution is that we need to have greater enforcement and detection.

CHAIR: Professor Bagaric, I understand the point you are making. But isn’t it a combination of the two factors: the likelihood of being caught as well as the level of penalty. My question is: if you know you are going to get caught but the penalty is just the cost of doing business—

Prof. Bagaric : Absolutely

CHAIR: To take your argument to its logical extreme, we are going to see lots of people getting caught, but they are just going to keep doing it.

Prof. Bagaric : Absolutely. If people, when they got caught, were given lollies, what would happen then? They would commit more crime. What you have alluded to there is what I have alluded to in our submission—the difference between marginal general deterrence, which is what the law assumes, that there is an association between high penalties and less crime and absolute zero deterrence. You are referring to the fear of absolute general deterrence, which is absolutely right. That contends that, in order for the risk of detection to be effective, people need to understand that if they are caught there needs to be a hardship and unpleasantness that is going to be associated with that. But the unpleasantness does not have to be something that is going to damage the taxpayer even more by five years imprisonment. The unpleasantness can be a community-based order. That would be sufficient. The unpleasantness can be stripping of their assets. That would be sufficient. The unpleasantness just needs to be something that the person would seek to avoid. It does not have to be grotesquely over the top compared to the level of harm of their crime. Deterrence does work in an absolute sense but not in a marginal sense. That is unequivocal. It is unarguable on the basis of the evidence.

[i] Mr Theo Alexander, Lecturer, Deakin University; Ms Jenny Awad, Academic, Deakin University; Professor Mirko Bagaric, Professor of Law, Swinburne University of Technology; Professor Fiona Sally Haines, private capacity; and Dr Juliette Overland, private capacity.

 

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