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We need an amnesty for financial crimes

Financial crime in its various manifestations is the principal reason many societies around the world remain impoverished and subjected to the most dehumanizing conditions. It seems therefore befitting that those found guilty of financial crimes such as the theft of public resources face the most stringent penal sanctions. In fact, there have been calls, even here at the FCPA Blog, to have grand corruption classified as a crime against humanity pursuant to Article 7 of the Statute of Rome that establishes the International Criminal Court.

There is no doubt that corruption, as a type of financial crime, is a major contributing factor to much of the word’s misery. This sort of crime is commonly associated with embezzlement of public funds but is also manifested in abuse of office, misallocation of public resources, and distortion of procurement systems for personal gain in the public sector. In the private sector it includes insider trading, bribery, financial misstatement, among others.

In the developing world, anti-corruption laws are legion. They include the Corrupt Practices and Other Related Offences Act (Nigeria), The Prevention of Corruption Act (India), Prevention of Corruption Act (Bangladesh,) and even the PRC Criminal Law (China). It is difficult to find a single country in the developing world that has not enacted anti-corruption laws.

These laws have one common characteristic — they establish harsh penalties in the hope of deterring others who may be so inclined. But I submit that these laws are severely handicapped in combating corruption or deterring fraudsters from committing further criminal acts. Why? Because the laws are too often a reaction to public anger and intended as show pieces to mollify the public rather than achieve the intended objectives of fighting corruption. In the haste to produce “show-legislation,” governments fail to consider the differences between ordinary crime and corruption.

Many white collar criminals can only avoid detection by remaining fully in control of the “crime scene.” An accountant in a public office who defrauds the public can only avoid detection if he:

(i) remains in his position

(ii) remains in charge of maintaining the books of account, and

(iii) commits further corrupt acts to cover up the initial crime.

In contrast, an ordinary criminal can only limit the possibility of detection and therefore punishment by severing all links between him and the crime scene. A murderer can only escape apprehension if he:

(i) leaves the crime scene

(ii) terminates any link that may connect him thereto, and

(iii) desists from committing further crimes.

This dichotomy is crucial. It tells us that severe penalties can deter the ordinary criminal because it is in his best interests not to commit further crimes, in order to minimize the chances of detection. Conversely, the active white collar criminal who “stays at the crime scene” won’t be deterred from more criminal activity by harsh penalties. He could in fact be motivated to commit further crimes in order to avoid apprehension and the consequent sanctions.

Every white collar criminal knows that the quickest way to get caught is to lose his position — to leave the scene of the crime — and not sustain the cover up of the original criminal activity. Harsh penalties can therefore be said to be an incentive for the active white collar criminal to continue his corrupt activities.

What then should be done? White collar criminals can’t be allowed to pursue their criminal careers unpunished. But how can the law fight corruption?

We need to segregate white collar criminals into three categories based on their criminal experience. These categories, as identified by Prof. Miriam H. Baer in her paper ‘Linkage and the Deterrence of Corporate Fraud,” are:

(i) persons who’ve committed no fraudulent acts in the past (Potential Perpetrators)

(ii) persons who are in the process of committing white collar crimes (Mid-Fraud Perpetrators), and

(iii) persons who committed white collar crimes in the past (Past Perpetrators).

Deter Potential Perpetrators with harsh penalties. But temper these with an amnesty for Mid-Fraud and Past Perpetrators. The amnesty would only extend to those who fully disclose their criminal acts and surrender the proceeds of their acts to their rightful owners, and cease any further criminal acts immediately.

The amnesty would give the Mid-Fraud and Past Perpetrators an opportunity to avoid having to commit further criminal acts to cover up past or ongoing crimes, and allow proper restitution of the proceeds of corruption. It should be coupled with stiff penalties for any person who takes advantage of the amnesty but does not make a full disclosure or later commits criminal acts. This would act as an incentive to own up.

While we would like to express our collective displeasure at white collar criminals by punishing them severely, we need to understand that it is prevention of future corruption as well as restitution of the stolen wealth that would be more beneficial to society. Punishment for the sake of punishment is merely sadistic and has limited utility.

But even as we deal with Mid-Fraud and Past Perpetrators, how do we effectively deter Potential Perpetrators from embarking on a corrupt career? This will be the subject of a future post.


Michael Ndichu Kuria is a contributing editor of the FCPA Blog. He’s a counter-fraud and counter-corruption consultant currently active in the East, Central and Horn of Africa regions. He conducts anti-bribery compliance reviews, forensic audits, fraud and misconduct investigations, integrity reviews, fraud risk management, procurement policy compliance reviews, and controls assessments. He has also designed and reviewed anti-money laundering and counter terrorist financing systems for various public sector and private sector clients across the East African region. He can be contacted here.

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