110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERSECONOMIC CRIME AND THE GLOBAL ECONOMY:UNDERSTANDING THE THREAT AND IDENTIFYINGEFFECTIVE ENFORCEMENT STRATEGIES AND
COUNTERMEASURESJohn D. Arterberry*
I. THE GLOBALIZATION OF
ECONOMIC CRIME“Laws stop at borders, but crime does not.”Speaker at 1997 World Economic Forum,
Davos, Switzerland

During the 1990s, we have witnessed theemergence of the Global Economy from alargely theoretical concept, to a vital andgrowing force in the affairs of nations.
Evidence of that growth can be found in
the airline industry. According to a recent
news report, passenger volume ininternational commercial flights soared
from 26 billion passenger miles in 1960 to
3.5 trillion miles in 1990.
While the Global Economy has
developed, we have experienced acorresponding globalization of crime.
Whether engaged in traditional organizedcrime activities like narcotics trafficking or
sophisticated economic crimes like the
BCCI scandal, criminals and their crimes
now show no respect for politicalboundaries or geographic barriers andexploit the jurisdictional complexities both
to expand and to conceal their crimes.
Increasingly, experts and leading law
enforcement officials are sounding
warnings about the threats posed by the
globalization of crime. Economic crime
stands at the forefront of this new wave oflawlessness that threatens the stability*

and prosperity of global commerce. Thoseof us in law enforcement face an urgent
challenge: effectively countering this global
crime wave by overcoming barriers
presented by institutional rigidity andnational political considerations.
A. Defining the Threat
Often termed “white collar” or “financial”
crime, economic crime inflicts its harms inmany ways. Most directly, there are thefinancial losses suffered by fraud victims.
Other harms are less apparent. At ameeting of police officials from 23 countries
in September, attendees were told that theinvestment by criminals of their illicit
funds in the world economy is generating
annual profits of some $500 billion, about
2% of the global financial activity. These
funds may not only corrupt otherwise
legitimate enterprises through which theyflow, but also provide seed money for new
and more damaging frauds.
1. A Menu of Economic Crimes
Economic or white collar crime presents
itself in many forms. The crimes range
from investment frauds that target the lifesavings of senior citizens to sophisticatedbank frauds that use computers to divertbank funds to hidden accounts. No matterthe degree of sophistication, there will
always be common elements in the crime:
lying, cheating or stealing will be at theheart of the scheme.

Deputy Chief, Fraud Section, Criminal Division,
United States Department of Justice, U.S.A.

139

RESOURCE MATERIAL SERIES No. 55(i) Financial Institution Fraud
During the 1980s and 1990s,
financial institution fraud has beena prominent and persistent problem.
In the United States, we experienced
a crisis in our savings and loan
industry that resulted, in part, frompervasive fraud and other abuses
requiring a massive government
response. To date, the federal
government has suffered losses inexcess of $200 billion resulting fromthe savings and loans (S&L) debacle.
Although the S&L crisis is behindus, financial institution fraudcontinues to be an economic crimepriority for the federal government.
Mortgage fraud inflicts losses
estimated at $60 billion each year.
Cheque fraud involving counterfeit
cheques is conducted by organizedrings that range across the UnitedStates and cause losses to banks ofabout $6 billion yearly.
On a more global dimension, the
BCCI scandal demonstrated thevulnerabilities in regulation ofmultinational financial instruction.
It also demonstrated the benefits
obtained through international
cooperation. Even though its citizens
were not victimized, the UnitedStates successfully prosecuted BCCI
for defrauding its banking regulators.
Through that prosecution the UnitedStates has forfeited more than $1
billion of BCCI-controlled assets, anaction that has enabled the worldcommunity to compensate many of
the individual depositor victims.
(ii) Insurance Fraud
Insurance fraud schemes may
victimize either the insurer or the
insured. Many schemes seek to tap
the immense reservoir of assets held140

by legitimate insurance companies.
Arson for profit, staged accidents
creating sham-injury and property
damage claims, and inflated
automobile body repair bills areexamples of schemes aimed at theinsurance companies.
A l t e r n a t i v e l y, i n s u r a n c ebusinesses may simply be a cleverfacade for massive fraud schemes.
Unscrupulous promoters will
establish insurance operations using“rented” or fraudulently inflated
assets to satisfy governmentestablished capitalization andreserve requirements. These
operations often use off-shore shell
entities to facilitate and conceal theirfrauds. The perpetrators collectpolicy payments from unsuspecting
individuals and businesses before
abruptly ceasing operations anddeparting with the scheme proceeds.
(iii) Government Program Fraud
Government programs andoperations also are vulnerable tofraud. Dishonest claimants ingovernment social welfare programs
undermine citizen support for thiseffort and cause losses to thetaxpayers of billions of dollars eachyear.
Health care presents a dramatic
example of this problem. In the
United States, health care has
government programs and private
sector components that are equallysusceptible to fraud. In addition toindividual, corporate and private
insurance expenditures for healthcare, the federal government provides
various health care programs thatentail federal outlays of hundreds ofbillions of dollars annually.

110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
Some estimates place spending on
health care in the United States atmore than $1 trillion each year, andas much as 10 percent of that amount,or about $100 billion, resulting fromfraud and related abuses. With suchenormous sums of money spent eachyear, it is not surprising that frauds
have proliferated. Health care fraudin the United States thus has
emerged as one of the most serious
domestic crimes in this decade.

than the credit card. Accepted
universally, the credit card has
revolutionized commerce andtransformed business and personal
travel. The credit card industry
tallies billions of dollars in worldwide
commerce annually. On the negativeside, the industry suffers billions ofdollars in fraud losses each year. Visa
alone acknowledged in 1997 annual
worldwide fraud losses at well over$700 million.

The Department of Justice has
instituted an aggressive enforcement
campaign against health care fraud.
Convictions in health care fraud cases
have increased over 300 percent since
Fiscal Year 1992 and hundreds ofmillions of dollars have been returnedto the federal treasury through these
prosecutions and related civil cases.

Closely akin to credit card frauds
are schemes in which victims’
identification is appropriated bycriminals and used to obtain funds
and property through credit cards
and bank accounts. Approximately
25 percent of credit card losses in the
United States can be traced to thisrelatively new crime known as“identity theft”. Identity thieves
obtain, through various fraudulentmeans, the personal identifying dataof their victims, including names,
addresses, telephone numbers andfederal Social Security numbers,
which they then employ to gain
unauthorized access to bank andcredit card accounts. A consumer
magazine reports that more than
1000 cases of identity theft occur each
day in the United States. Just thisyear, federal law was amended toaddress this abuse.

(iv) Commercial Bribery and Foreign
Corrupt Practices
In the private sector, one of themost corrosive and costly abuses iscommercial bribery. Businesses are
victimized by dishonest employees
who, in exchange for bribes, cause
their companies to purchase defective
goods, enter into inflated or bogus
contracts or otherwise cheat theiremployers.
Closely related to commercial
bribery is bribery of foreign officials
by corporations seeking to obtain or
retain business in foreign countries.
In the United States, the Foreign
Corrupt Practices Act expressly
prohibits such conduct. Efforts areunderway to obtain international
agreement on similar prohibitions.
(v) Credit Card Fraud
Nothing symbolizes the global
economy in personal terms better(vi) Securities/Investment Fraud
Investment and securities fraud
blossomed during the boom years of
the world’s equities markets in thelate 1990s. The mutual fund industry
in the United States, with assets ofabout $5 trillion, is now larger than
the nation’s banking industry.
The euphoria created by enormous
gains in the market prices of141

RESOURCE MATERIAL SERIES No. 55
securities has led investors to discard
caution and place their hard-earned
funds, often representing theirretirement savings, to promoters who
promise unrealistic profits to their
victims. The securities industry
estimates about $6 billion annually
in investor losses to securities fraudin the United States.
2. Costs of Economic Crime
Beyond the direct losses inflicted byfraud, which total in the tens of billions ofdollars each year, there are less apparent
costs. For example, businesses incur
substantial expenses stemming from
efforts to prevent and detect fraud. These
precautions include comprehensive audits,large security staff, and sophisticatedmonitoring and other high-tech preventive
measures. An official of a private security
firm stated, in remarks at an international
conference, that there has been an
explosion in the private security industry,
which currently employs 1.6 million
individuals and consumes $65 billion inresources. The speaker estimated that by
the turn of the century the industry willgrow to $100 billion and employ 2 million
persons. Ultimately, these costs are passed
on to the consumer or are absorbed bybusinesses as profit reducing expenses.
Fraud also exacts less tangible losses.
It distorts the flow of commerce anddisrupts the development of global trade.
Its staggering costs stifle developing
economies and can undermine the stabilityof banks and other commercial enterprises.
Economic crime, simply stated, is one of thegreatest threats to the realization of avibrant and healthy global economy.

142

II. COMBATING ECONOMIC
CRIME: STRATEGIES AND
COUNTERMEASURES FOR AN
EFFECTIVE GLOBAL RESPONSE
A. Criminal Enforcement Measures
Success in fighting white collar crime
requires a focused and coordinatedresponse that blends the domestic effort
with the broader international response.
On the domestic front, available resourcesmust be applied to the most pressing
economic crime problems. These priorities
can be set through a consultative processthat includes the investigative andprosecutive authorities, as well as all
relevant government departments andagencies.
International cooperation and mutual
legal assistance treaties and agreements
are essential tools in fighting global
economic crime. As countries focus theirattention on transnational crime, the needto modernize the methods by which we
obtain legal assistance from othersovereigns becomes more apparent.
1. Domestic Strategies(i) Investigative Techniques
During the past two decades, theDepartment of Justice has
formulated varied approaches ininvestigating and prosecuting
economic crime. We have moved
away from the traditional practice ofstrictly separating investigators andprosecutors. Instead of keeping theprosecutor away from theinvestigative process, we regularly
team agents and prosecutors toinvestigate cases jointly. Thisencourages closer collaboration andconsultation in developing an
investigative plan and leads to more
expeditious completion of that phasein the development of a criminal case.
At the same time, this collaboration

110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
ensures that promising avenues ofinvestigation are not overlooked, thatsuccessful strategies for prosecution
are fully exploited and that legal
pitfalls are avoided.

not only reduces the burden of
preparation and presentation for theprosecutor but also facilitates a better
understanding of the case and theevidence by the adjudicatory body.

Undercover operations (UCOs),
originally developed as a means ofinfiltrating traditional organizedcrime groups like the Mafia, are now
an important part of our arsenal ofanti-fraud weapons. UCOs areespecially valuable in exposing
corrupt firms and individuals
imbedded in regulated sectors of theeconomy. UCOs provide additional
deterrence by keeping the criminal
element off balance. White collar
criminals can never be certain thatthe apparent collaborator may notactually be an undercover agent
ready to expose their criminal
activity.

Prosecutors and investigators may
be grouped together in specialized
units, or task forces, to concentrate
on a particular economic crimep r o b l e m . Ta s k f o r c e s p r o v e despecially effective in addressing thefrauds uncovered during the savingsand loans (S&L) crisis in the UnitedStates earlier in this decade.

(ii) Prosecutive Strategies
Prosecuting economic crimes
presents many challenges. The
schemes are often complex andpotentially confusing. Thus,
presenting the evidence necessary toprove criminal conduct may require
numerous witnesses and voluminous
documentary exhibits.
Experience gained by federal
prosecutors over the past decadesuggests that there are certain
strategies that significantly enhanceprospects for success. For example,
charging decisions can sharpen thetheory of prosecution and reducesome of the evidentiary burdens
inherent in these cases. Rather thanfocusing charges on the entire episodeof criminal conduct, our experiencehas shown that selecting the mostegregious acts or those transactions
for which the evidence is strongest

Denying criminals the fruits of
their crimes through the forfeiture of
their assets is one of the mostdramatic and effective economic
crime prosecutive tools to gain
prominence during the 1990s.
Forfeiture eliminates the profit incrime and also serves to remove
valuable instrumentalities of crime,
whether aircraft, office buildings or
the criminals themselves.
At the end of 1997, approximately$450 million had been deposited into
the Department of Justice Asset
Forfeiture Fund. The funds areshared with state and local law
enforcement agencies to supplement
their crime-fighting assets. In
addition, the fund assists incompensating crime victims.
2. International Strategies
Established and predictablemechanisms for obtaining evidence fromforeign jurisdictions is essential to fighting
economic crime on the international front.
Mutual legal assistance treaties (MLATs)
are one of the most common means ofachieving this goal. Rather than relying
on the cumbersome process of lettersrogatory, which invokes time-consuming

143

RESOURCE MATERIAL SERIES No. 55
diplomatic processes for conveying
assistance requests, nations are turning
increasingly to the MLAT to ensure thatborders are not barriers to pursuingeconomic criminals.
Treaties for extraditing individuals
charged with economic crimes are being
renegotiated in order to incorporate, as
covered crimes, more modern versions offraud and related offenses that may nothave existed in domestic law when thetreaties were first executed.
(i) Regulation
A key component in combating
economic crime is effective
regulation. Regulation helps by
suppressing practices that invite orconceal fraud. Regulation can also
deter migration of undesirable
individuals into positions of trust or
substantial financial responsibility.
In the United States, all federally
insured financial institutions are
required by law to file reports withlaw enforcement agencies wheneverthey have reason to believe thatcrimes may have occurred at theinstitutions. The federal bankregulatory agencies recently revised
the reporting procedures toincorporate the benefits of
information technology. Under therevised system, known as theSuspicious Activity Report (SAR)
system, the reports are filed at one
central point where they are enteredinto a computer database. Law
enforcement agencies access the SAR
database and retrieve all SARs fortheir respective jurisdictions. In
addition, the computerized databaseenables law enforcement andregulatory agencies to analyze the
SARs and identify emerging crime
trends.

144(ii) Regulation of Currency Transactions
Because money laundering
facilitates criminal activity, Congressenacted statutory provisions thatcreate a paper trail for currency that
resembles the document trail createdby other financial transactions
involving bank cheques and money
wire transfers. Essentially, thelegislation creates reporting
requirements when currency entersor leaves the country and whenever
cash transactions take place at banks
and certain other businesses.
On the international level, several
organizations are engaged insponsoring money laundering
enforcement programs. The
Financial Action Task Force (FATF),
an organization comprising oftwenty-six nations, issued revised
recommendations in 1996 thatbroadened the scope of the original
recommendations to include monies
derived from all serious crimes andto mandate the reporting of
suspicious transactions by financial
institutions. FATF also conducts
mutual evaluations and assessmentsof member states’ anti-money
laundering measures byrepresentatives from fellow
members.
The United Nations Global
Program Against Money Laundering(GPML), based in Vienna, Austria,
uses technical cooperation andresearch projects aimed at providing
member states with the means tocombat money laundering. GPML
is working with other internationalorganizations to develop an Internet
website on money laundering
matters, including a database of law
and regulations.

110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
A relative of the credit card, thestored value or smart card, may
someday replace currency entirely.
But the stored value card adds
another dimension to money
laundering. Simply loading thestored value card with a value of $5
million in credit renders it thefunctional equivalent to several
suitcases of hard currency.
(iii)Coordination and Working Groups
The presence of government
regulation is an important step in
helping to protect an industry or
sector of a country’s economy. To
maximize the benefits of regulation,
however, another ingredient must be
added, coordination with the law
enforcement community. We havefound that interagency bodies, which
we call working groups, are aneffective means of developing andmaintaining that coordination. For
example, during our recent savingsand loan (S&L) crisis, we reliedheavily on our national Interagency
Bank Fraud Enforcement Working
Group to ensure that our law
enforcement and regulatorycommunities were working intandem to fight fraud against our
financial institutions. In addition to
the Bank Fraud Working Group, theDepartment of Justice currently
maintains at least five other working
groups for insurance, health care andtelemarketing fraud, as well as formoney laundering and securities andcommodities fraud.
III. TRENDS AND STRATEGIES
A. The Challenges of the Next
DecadeMany of today’s fraud schemes are
simply repackaged versions of classic
frauds. We can expect, however, that

tomorrow’s frauds will continue to embraceadvances in technology and to exploit gaps
created by the absence of international
agreements and coordination.
(i) Cybercrime
Cybercrime, a term that has cometo embrace computer-related crimeand other high-tech offenses, seems
certain to be the crime of the next
decade. Computers may be used asa storage or communications device
in the execution of a fraud scheme.
As an example, a fraudulent
telemarketing firm could store names
and relevant data concerningprospective victims to be telephoned
in a systematic execution of thescheme.
Computers may be used more
directly in the scheme as an
instrumentality of crime, a tool
facilitating the fraud. For example,
personal computers have been usedsuccessfully to gain unauthorized
entry into bank computer systems
and then to transfer bank funds toaccounts controlled by the cybercriminals.
The computer also serves as a weapon
for the theft of data, telephone or computer
services, or for damage to computers andcommunications systems. Recent media
reports described precautions being taken
by some governments against the threatof a computer terrorist attack on vital partsof a country’s infrastructure.
B. Effective Countermeasures
1. Prevention
The United States Attorney General has
placed high priority on crime prevention.
In the white collar crime arena, this is anespecially cost-effective approach tofighting crime. It has great potential not
only to prevent billions of dollars in fraud

145

RESOURCE MATERIAL SERIES No. 55
losses but also to conserve precious law
enforcement resources.
Crime prevention enlists the private
sector and citizens in the campaign to fighteconomic crime. The preventive measuresneed not be expensive or rely heavily on
high-tech solutions. Our experience withprevention programs suggests great
promise. For example, the banking
industry, plagued by mounting losses fromcounterfeit cheque schemes, recently
adopted a straightforward preventive
measure. When a non-customer seeks to
cash a cheque, the bank requires that the
non-customer place his/her fingerprint on
the cheque using an inkless fingerprint
pad. In states in which this practice has
been adopted, cheque fraud has been
reduced by 60% or more.
Credit card companies are experiencing
success in fighting fraud through the useof neural network technology that uses
computers to track individual cardholder
spending habits. Visa reported this yearthat fraud, as a percentage of volume,
reached an all-time low in 1997 as a resultof the neural network and related fraud
detection measures. “Smart” cards, thenext generation of credit cards, employ
embedded computer chips to store a wealthof information about the cardholder,
including biometric information that
includes the cardholder ’s physicalcharacteristics.
Government benefit fraud has been
reduced through the use of electronic
benefit cards that create a computer trail
to detect illegal usage of the welfare
benefits.
2. International Cooperation
The Global Community has come torealize the critical need for coordinationand cooperation in meeting the threat ofglobal economic crime. Some groups, like

146

UNAFEI, operate under the auspices of theUnited Nations. Others are based onregional or economic relationships.
Although their precise missions may differ,
all of these organizations share one
common goal, ensuring that borders do not
remain barriers to effective law
enforcement cooperation.
3. Training
Training is an essential ingredient inmounting a successful law enforcement
response to economic crime. White collar
criminals are clever and resourceful andoften operate in sophisticated segments ofindustry and finance. Moreover, many
white collar crimes occur in regulated
business environments. Investigators andprosecutors require specialized training inorder to navigate these difficult areas.
Commerce is exploding on the Internet.
Stocks can be bought and sold,merchandise and airline tickets purchased,
and banking transactions conducted fromthe home personal computer. Our law
enforcement agencies must expect financial
crime to gravitate to the Internet as it
becomes the global marketplace. Thus,
investigators and prosecutors will facedifficult issues, both technical and legal,
as we confront cybercrime. Only throughformal, structured training programs will
we be able to develop the necessary
expertise to meet the challenge.
IV. THE FUTURE : PROMISING OR
PROBLEMATIC?
As we prepare to enter the newmillennium, the law enforcement
community faces the dual challenges ofe v e r- e v o l v i n g e c o n o m i c c r i m e a n dtechnological innovation that constantly
accelerates the pace of change in the Global
Economy. Technology serves as a powerfultool in the hands of criminals, but it also
can be a devastating weapon against thesesame criminal forces. Through training

110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
and professional development ofinvestigators and prosecutors, the law
enforcement community can continue tosuppress the global white-collar crime
threat. International cooperation andcoordination are central to enforcement
responses and to ensuring that a tidal waveof global crime does not engulf the many
benefits of the Global Economy.

147