Crime and Corruption in the Digital Age.

• Author: Shelley, Louise I.

CRIME, CORRUPTION AND TECHNOLOGY IN A WORLD WITHOUT BORDERS

Once crime was primarily local and regional in character.(1) Today, thanks to computer and communications technologies, crime and corruption are no longer limited by geographic boundaries. Moreover, technology has transformed the very

nature of crime itself.

An important conceptual shift is underway in terms of the costs of criminal behavior and the forms of criminality which merit state attention. With the globalization of the world's economy and the growth of transnational crime and corruption, more attention should be paid to costly economic crimes than to traditional forms of violent crime that currently command the vast share of state law enforcement resources.

In addition, crime is no longer territorially based but may also exist in cyberspace, where access is controlled by corporations that serve computer and telecommunications networks.(2) Transnational groups, through their access to such technology, pose grave threats to the integrity of the world financial system, undermine the ability of states to protect their citizens and are themselves a major threat to human rights. Clearly, computer and communications technologies enhance the capacity of criminals to perpetrate serious offenses with a greatly diminished risk of apprehension.

When it comes to high technology, telecommunications and cyberspace, no state possesses defensible borders. Jurisdiction cannot be exercised over an individual whose identity exists only as an address on a computer network. The 21st century will therefore bring greater technological innovation, but a legal and law enforcement community unprepared for the cyberspace criminal.(3)

The ever-expanding financial resources of criminals will render them increasingly important players in global financial markets. The illicit financial community, already using the Internet to move money to offshore havens, will capitalize on its current strategic advantage and provide a greater challenge to the stability of financial institutions worldwide. Offenders will also challenge the ability of states to ensure the safety of their citizens.

This paper focuses on three problem areas that exemplify the changing nature of crime as facilitated by the growth of high technology: corruption in financial markets, encryption and child pornography on the Internet. These three areas are fundamentally different from earlier problems that were linked directly to technology itself, such as the introduction of viruses into computer systems, the alteration of files and deliberate sabotage through system crashes. These issues are serious in that they jeopardize the functioning of institutions and the maintenance of databases and records. They also raise questions of policing, privacy and state sovereignty. Yet they are merely the first generation of "computer crimes."

The case studies that follow highlight new forms of cybercrime that include issues of self-policing by telecommunications firms and computer service providers. They raise problems of cooperation between industry and government. And, more than raise first-generation computer crimes, they questions of privacy, personal expression and intellectual freedom.

The focus of this article is on the capacity of criminal or corrupt actors to undermine the quality of life of millions of the worlds' citizens by means of technology Citizens of diverse states remain defenseless because criminals exploit the gaps between corporate control of technology and states' capacity to regulate it.

The investigation and prosecution of these crimes raise fundamental questions about sovereignty, legal jurisdiction and the obligations of states to protect their citizens. Investigation is expensive, particularly in cases where records are encrypted. However, the costs must be balanced against the benefits of mitigating the high personal and financial toll of the offenses.

CORRUPTION IN FINANCIAL MARKETS

Facilitating the increasingly integrated international capital markets are the numerous wire transfers, faxes and Internet connections that move money with increasing speed around the world. Ironically, the illegitimate side of world financial markets may be the greatest beneficiary of the globalization of the world economy.(4)

A shift in focus to costly economic crimes may be necessitated by the fact that crime in the global markets has the ability to victimize individuals on a truly international scale. U.S. Justice Department officials estimate that sophisticated computer techniques permit thieves to steal U.S. $10 billion annually from American financial institutions.(5) The devastating impact of the pyramid schemes of the 1990s that affected many Eastern European countries could be magnified when many more players are drawn into elaborate fraud schemes facilitated by high technology. Millions lost their savings in the MMM pyramid scheme in Russia, at least two million lost their savings in Romania and Albania was totally destabilized by a pyramid scheme that went sour.(6) As Blum has noted, "International financial fraud, commercial fraud, money laundering and tax evasion will be the most important enterprise crimes of the future."(7)

Such offenses, committed by criminal organizations and legitimate businesses searching for ever larger profits in highly competitive global markets, will force us to reevaluate the severity of crime. The multimillion dollar costs of Japanese organized crime penetration into Japan's financial markets have been all too apparent, as evidenced by the fall 1997 Asian financial crisis, which is only the most recent example.(8)

ESTIMATING THE DIMENSIONS OF ILLICIT CAPITAL

The share of the world's economy attributable to illegitimate capital has grown significantly. The largest share of this trade is in drugs, where annual turnover is estimated at U.S. $500 billion by the United Nations Drug Control Programme (UNDCP).(9) Illegal trafficking in arms,(10) people and endangered species has also reached high levels. For example, the International Organization of Migration estimates that people smuggling is now a U.S. $5 to $7 billion business.(11) Each of these areas of illicit commerce represents a multibillion dollar business annually

Illicit drug-related financial flows also represent a significant portion of international economic activity. According to the International Monetary Fund (IMF), international drug trafficking now represents 2 percent of the world's economy If the value of other organized crime, money laundering and illicit capital flight is added, these sources may total as much as 6 to 8 percent of the world economy.(12)

In the future, illicit capital will assume a more prominent share of the world financial markets. These sums will grow faster than legitimate capital because returns are higher on illicit business. Frequently, due to the high-technology resources of crime groups, the money remains in off-shore banking centers where it is outside the reach of state tax authorities.(13) This allows the money to compound more rapidly than legitimate capital, which has lower profit margins and is taxed by sovereign states. The need to move ever larger sums ensures that technology will assume a greater role in criminal groups' manipulation of financial markets.

MOVEMENT OF CAPITAL

Prior to the technology revolution the movement of illicit capital was more complicated. Cash needed to be physically moved in large quantities. Valuables such as stamps and coins, which were not easily traceable, were often used to launder money Disposal or transfer of these goods was slow and awkward.

The technological revolution has enabled money to flow from banks and financial institutions throughout the world in a matter of seconds. One result has been the increasingly larger volumes of transactions on the world's principal stock exchanges.

But there is evidence of significant illicit capital movement as well. The UNDCP estimates that U.S. $1 billion of illicit capital moves through the world's financial system on a daily basis.(14) This sum may seem startling, but is not illogical if one considers the extent of illicit capital presently in circulation.

Criminal groups and...