Globalisation and Transnational Corporate Crime

Using academic literature and examples from your chosen case study topic, critically analyse the role of globalisation in the rise of transnational corporate crime. Why is it that such crimes remain beyond the reach of the law.

A number of studies in the past have noted that there is a link between globalisation and corporate crimes, with this link being derived from the characteristics of globalisation that facilitate the commission of transnational corporate crimes (Bratsis, 2003; Dörrenbächer & Geppert, 2011; Barak, 2015). In a study by Williams (2013), it has been noted that the “increase of international trade in the second half of the twentieth century, the information and communications revolutions, and the development of a truly global financial system have all provided conditions facilitating the growth of business, whether licit or illicit” (p.67). Thus, processes of globalisation which include communications, transportation, technology, and financial systems, allow the facilitation of transnational crimes, including corporate crimes of financial nature. This essay critically analyses the role of globalisation in the rise of transnational corporate crime using the case study of financial fraud, and discusses the reasons why such crimes may go undetected or unpunished. The essay argues that the very nature of corporation and corporate crime, read with the features of national criminal law, make it challenging for regulators to control and prosecute corporate crimes through criminal law.

The processes of globalisation have been instrumental in the rise of transnational corporate entities due to a multiplicity of factors that aid transnational trade and businesses. At the same time, the same processes of globalisation make it easier for criminal actors to use technology, financial processes and corporate entities to commit crimes such as financial fraud and money laundering. Corporate corruption and crime is a wider area which affects both Multinational Corporations (MNCs) and Small and Medium-Sized Enterprises (SMEs) (Sullivan, 2009). Transnational corporate crimes are also being perpetrated due to processes of globalisation, which make it easier for goods, services, and money transactions to have cross border movements (Bratsis, 2003). Their presence across the many countries of the world, also makes it possible for MNCs or actors within MNCs to take advantage of the corporate entity with transnational operations to commit financial fraud and even escape the processes of law because the national and international law has not been able to formulate adequate responses (Dörrenbächer & Geppert, 2011).

At the outset, it would be useful to define globalisation and also identify the characteristics of this phenomenon that makes it easier for corporate actors to commit crimes through the processes of globalisation. Although, not a concept that is amenable to easy defining (Kellner, 1998), it is a term that has been defined in different ways and by reference to different contexts with an emphasis on transnational events and effects of the phenomenon; for instance it is defined as “local happenings are shaped by events occurring many miles away and vice versa” (Giddens, 1990, p. 64) and as a complex range of processes influenced by political and economic factors (Stiglitz, 2015). A more comprehensive definition is as follows:

“Globalisation is a multi-faceted phenomenon, and each facet may have different effects on employment, varying by country, time, industry, policies and the like. It comes as a part of large array of economic, technical, social, legal and policy changes, each with interactions and feedbacks, making is difficult to separate the effects of globalisation” (Lall, 2002, p. 2).

Lall (2002) indicates that the nature of globalisation is complex and multifaceted and it relates to structuring of relations between actors in different parts of the world. How this relates to criminal activity that may be transnational in nature is explained by OECD (2001):

“The globalisation of industry is reflected in the evolving pattern of cross-border business activities involving international investment, transnational production and related trade, technology transfer and sourcing and complex cross-border networking for product development, production, sourcing and marketing” (OECD, 2001, p. 13).

OECD (2001) is clear on the link between globalisation processes and transnational criminal activity by noting the interlinking of global commercial networks and global criminal networks because much as global commercial activity is facilitated through global networks, global criminal activity can also be facilitated by the same networks. Economic globalisation and the consequent transnational trade of commodities and services, is also related to flow of international capital and technologies, which can also facilitate transnational corporate crime (Shangquan, 2000).

Financial fraud is a part of what are called as white collar crimes, a term that was first defined by criminologist Edwin Sutherland as the “crime committed by a person of respectability and high social status in the course of his occupation” (Payne, 2016, p. 24). White collar crimes have come to be associated with companies and executives and include crimes that may include criminal as well as environmental crimes (Gobert & Punch, 2003, p. 1). The significance of white collar crimes is that it has the potential to impact large populations of people (Morrison, 2014, p. 169). Financial fraud can also include money laundering, which is defined as “the attempt to conceal or disguise the ownership or source of the proceeds of criminal activity and to integrate them into the legitimate financial systems in such a way that they cannot be distinguished from assets acquired by legitimate means” (OECD, 2008).

There are different kinds of financial frauds. One of the prominent kinds of corporate fraud is a ‘Ponzi scheme’, which is a fraudulent investment scheme offering attractive returns to investors, but instead of providing returns from actual investments, it is paid out of the principal of other investors (Efrati & Amir, 2009). A recent example of a Ponzi scheme fraud was by Bernie Madoff, a New York financier, who defrauded $18 billion from investors over a period of twenty years (Efrati & Amir, 2009). Insider trading is another kind of corporate financial fraud. Yet another kind of corporate fraud in the recent times has involved ‘mis-selling’, which involves systematic theft and fraud related. In the UK, this has taken place with regard to pension fraud, endowment mortgage frauds and Payment protection insurance (PPI) policies fraud (Tombs, 2013). In fact, one of the most important financial scandals in the UK involve pensions mis-selling cases when after the privatisation of pension provision, more than 2 pensions were sold on the basis of false or misleading information accumulating estimated costs of £11 billion by 1998 (Croall, 2007). The pension mis-selling frauds were perpetrated by corporations (Croall, 2007).

Organised crime groups are able to exploit global processes and technology to commit financial fraud across borders (Jaspal, 2010). Financial systems that include banking and allied services, are now globalised and this serves as a link between globalisation and criminal activity because digital financial transactions now make it easy to enter into transactions that are fraudulent in nature or involve money laundering as well. MNCs, which are global corporations with presence across the world, have resources at their disposal and also exercise a significant amount of power (Dörrenbächer & Geppert, 2011). The nature of the crime committed by corporates is generally white collar crime, but the scale of their functions means that there are macro effects of corporate crimes (Barak, 2015). Globalised white collar crimes perpetrated by multinational are categorised into different kinds of crimes, including but not limited to environmental crimes and financial crimes (Barak, 2015, p.108). An example is the Enron scandal which led to loss of billions of dollars for the employees and shareholders (Barak, 2015).

Research suggests that SEC enforcement actions against publicly traded firms for financial misrepresentation have trended up since the 1970s and have only turned flat since 2003 and that securities-related class action lawsuit filings against financial misconduct have increased over time (Karpoff, 2021 ). This points to the continuing significance of financial fraud as a corporate crime. The question is how the processes of globalisation aid the rise of transnational corporate crime. Becker (1968) posits that individuals commit fraud when the expected benefits exceed the expected costs. In the context of globalisation and corporate crime, Becker’s (1968) argument can be supported in the light of changes that have happened in the technology, such as, anonymity afforded by blockchain applications, that lower the costs for individuals who indulge in financial fraud, while also increasing the profitability of fraud (Karpoff, 2021 ). Thus, there are advantages offered by the processes of globalisation that aid in the commission of financial fraud and also aid in the evasion of legal liability or detection in the law.

It is important to identify the globalisation drivers of transnational corporate crime; in this context, reference may be made to the drivers of organised crime that were identified by Galeotti (2014), and may also be relevant to transnational corporate crime. These drivers are categorised as technological, political, economic, enforcement, and internal drivers (Galeotti, 2014). Technological drivers relate to changes in communication and commutation technologies, that facilitate the transfer of illicit products, commodities and services (Galeotti, 2014). These technological drivers also include internet banking, mobile phone technology, blockchain technologies that are particularly relevant to financial fraud and money laundering as well.

The political drivers relate to ease of trade and opening of markets, such as, the Schengen agreement in the European Union, which ease or do away with visa restrictions (Galeotti, 2014). In the context of financial fraud, these processes can provide opportunities in open markets to businesses for licit as well as illicit activities including financial fraud. Economic drivers include increased prosperity, and consequently, demands for illicit commodities and services in the grey markets (Galeotti, 2014). While this may not be directly a driver for financial fraud, the proceeds of financial fraud may be used for the purpose of gaining these services. Enforcement drivers are related to the enforcement of laws and policies against crime (Galeotti, 2014). In this context, enforcement actions against financial fraud may lead individuals and companies to adopt technologies like blockchain technologies to evade detection. Internal drivers are specific only to organised crime syndicates and do not have particular significance to corporate crime because internal drivers are related to evolution of tight knit, hierarchical crime syndicates into looser groups of affiliations (Galeotti, 2014).

There are laws to address corporate crime; for instance, in the UK the Financial Services Act 2012 was enacted with the purpose of creating regulatory mechanism for controlling corporate crimes and to that end the Prudential Regulation Authority has been established to keep a check on the banks, investment firms and building societies. Fraud related offences are tried by Serious Fraud Office (SFO) the Financial Conduct Authority (FCA). Prior to the passage of the Financial Services Act 2012, crimes related to financial frauds and financial crimes were tried under Section 6 of the Financial Services and Markets Act 2000, which included fraud and money laundering. Nevertheless, it is challenging for regulators to address corporate financial fraud because of the difficulties involved in tracking down large frauds that are set up or are run from many countries. Limited access to information and difficulties in getting staff with experience in finance may compound the challenges faced by the regulators to address financial fraud.

In particular, challenges in addressing transnational financial fraud is related to the multinational corporations in that the latter is structured and ordered within the social and economic order in a way that is able to evade regulation (Tombs & Whyte, 2003). In this context, it has been noted that for the purpose of addressing corporate crime control efforts via criminal law have not been very effective (Tombs & Whyte, 2003). Enforcement activity generally focusses on the smallest and weakest individuals and organisations so that those that are bigger and more powerful are generally able to escape the control mechanisms (Tombs & Whyte, 2003). Therefore, it has been said that in the “capitalist world, this past quarter of a century has witnessed a key series of economic, social and political trends emergent on an international scale – trends usually summed up in the catch-all shorthand that is ‘globalisation’ – which have potentially important consequences for the ability, or otherwise, of nation-states to manage and mitigate the risks produced ubiquitously by corporate activity” (Tombs & Whyte, 2003, p. 10).

What can be surmised here is that the reasons why corporate crimes of the nature of financial fraud remains outside the reach of the law are related both to the nature of the multinational corporation itself, as well as the nature of criminal law control methods which lack the ability to address corporate crime. This needs further unpacking because it may be central to the issue why companies often escape the control mechanisms of criminal law. Transnational corporate crime can be difficult to address because there are certain principles of criminal law, such as, mens rea, which are difficult to establish in case of legal persons, which means that criminal law cannot engage with corporate crime in much the same way as it does with crimes committed by natural persons.

Conventionally, corporations were not subject to the scope of criminal law until the early 20th century, when the proliferation of corporate entities led to some responses in criminal law (Simpson, 2002). Corporations were generally dealt with through strict liability doctrine and not criminal law (Simpson, 2002). Even after criminal law has come to address corporate crime, particularly in the area of financial crimes, there are several challenge faced by regulators, which include jurisdictional issues where it may become difficult to pinpoint the jurisdiction of a particular legal system when the actions of the corporates are spread across the globe (Lamy, et al., 2016 , p. 189). Corporate crimes also become challenging for criminal law to address because by their very nature, corporate crime are distinct from ordinary crimes, and therefore need control mechanisms that may be different from those designed to control crimes by individuals or even white collar crimes like embezzling where an individual may be involved in the commission of the crime as opposed to crimes that are committed through the corporation (Clinard & Yeager, 2011). Furthermore, even when corporate crimes are committed in the name of the corporation, they are actually committed by specific individuals, which makes it difficult to establish mens rea for the corporation. Because the legal personality of the company is separate from the individuals who own or control it, it is difficult to delineate corporate and individual culpability for the crimes.

Due to the reasons discussed above, corporate crimes are not adequately controlled by legal measures in national as well as international laws (Gobert & Punch, 2003). National laws and regulatory agencies often face jurisdictional issues in addressing specific instances of corporate crime whereas there is not adequate attention to complicit liability of corporations in international law, which creates challenges in dealing with corporate crimes of a transnational nature (Gobert & Punch, 2003). It can be surmised that the nature of corporate crimes, the nature of criminal law, and the nature of corporate personality is such that corporate crimes are not easy to address in national laws and while international forums may be more appropriate for addressing corporate crimes, there is not sufficient attention given to it in international law (Gobert & Punch, 2003). Furthermore, even when companies are charged with crimes, the principal sentencing option for companies is usually the payment of fine and compensation, which even though may be substantial in amount, may still not be deterrent enough for companies to not commit such frauds as the benefits may often exceed the costs (Croall, 2007). Corporate offenders often have the resources and expertise to make substantial reparations as compared to individuals (Croall, 2007). This has significant ramifications of victims of such corporate crimes, which according to one study are usually repeat victims of financial frauds (Croall, 2007). Indeed, Croall (2007) points out that one of the characteristics of financial frauds and similar corporate crimes is that such crimes continue for years before discovery, so that the victims are subjected to long periods of victimisation before the law even detects that such frauds are being perpetrated and prosecution often follows after a long period of crime commission.

The inability of the criminal law to respond to corporate crimes of financial nature is also reflected in the increased use of deferred prosecution agreements (DPAs) in the UK following the application of this method in the United States. The Crime and Courts Act 2013, Schedule 17 introduced DPAs, which are agreements entered into between prosecutor and corporation facing prosecution for bribery or corruption for deferring prosecution in exchange for the corporation’s agreement to cooperate in investigation (Wan, 2016, p. 228). DPAs were promoted because they can be useful for increasing incidence for fine collection for fraud, bribery and money laundering offences and helping investigators navigate the difficulties with evidence collection against MNCs with transnational operations (Lord, 2014). Some high profile DPAs entered into between Serious Fraud Office and MNCs in the UK include Standard Bank, which was made to pay a fine of 25 million USD (Serious Fraud Office, 2021). Similarly, XYZ Limited was made to pay 6.5 million GBP as fine and Tesco was made to pay 129 million GBP as fine (Serious Fraud Office, 2021). This suggests use of fines and compensation through DPAs as a possible route to bypass the difficulties associated with prosecuting transnational corporate crimes.

In conclusion, globalisation has created conditions which facilitate transnational trade as well as transnational corporate crimes. Galeotti (2014) has explained the drivers of transnational crime which have been applied in this essay for understanding the processes of globalisation that facilitate even transnational corporate crime. Dörrenbächer and Geppert (2011) and Shangquan (2000) also explain how processes of globalisation can aid transnational crime. The use of technologies like block chain technology is likely to make it easier to commit financial crimes, which the transnational MNCs and financial service providers allow for easy movement of goods, services and money. Financial fraud is also particularly challenging because it can be perpetrated over years before it is discovered and acted upon. Even when discovered, criminal law controls may not offer adequate means to address such corporate crimes as Croall (2007) points out. Difficulties in investigation and prosecution along with jurisdictional issues make it difficult for regulators to respond adequately to this problem. In the recent times, the regulators have sought to use mechanisms like deferred prosecution agreements to address corporate financial fraud, which signals that there is a distinction in how regulators address corporate crime as compared to addressing ordinary crimes.

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