Legislation and Unintended Consequences for Crime

Abstract

A literature review undertaken for the EU Crime Proofing Steering Group identified a set of legislative crime risk indicators. These are intended to assist in scanning summaries of new legislative proposals to identify regulation that might contribute to fraud, corruption, illegal trade, or environmental crime. The case studies reviewed suggest that any regulation carries the risk of such unintended crime consequences, which: (1) introduces product disposal requirements or any other new or more burdensome fee or obligation; (2) introduces a concession on a tax, or a concession on any other fee or obligation; (3) introduces a grant, subsidy, or compensation scheme; (4) introduces or increases the tax on legal goods, or in any other way increases the costs of legal goods; (5) prohibits or restricts a demanded product or service, or in any other way decreases the availability of demanded goods and services; (6) introduces or removes a law enforcement capacity, increases or decreases funding for enforcement activity or in any other way impacts the intensity of law enforcement activity; and (7) provides officials with regulatory power.

Appendix: The 24 Case Studies

	Jurisdiction and legislation	Details	Intended consequence	Unintended consequence	Mechanism	Evidence	Source
	Risk indicator 1: Introduces fees or obligations
1.	U.S.-Resource Conservation and Recovery Act 1976 and other legislation	Requires hazardous waste to be disposed of through environmentally friendly disposal system	Promote recycling of potentially environmentally dangerous products	Dumping or destruction of waste (e.g., in waterways or setting on fire) and involvement of organised crime groups (OCG) in dumping or destroying hazardous waste through their participation as transporters and operators of landfills or treatment facilities	Greater cost for generators increased incentive for dumping or dealing with illegitimate operators to reduce the cost of disposal and generators not responsible for waste or disposal	Authors cite law enforcement reports and other official material as evidence for dumping and organised crime involvement following the introduction of the regulation	Scarpitti and Block (1987); Szasz (1986)
		Introduces permit system for operators and registration system for generators, defines hazardous waste and introduces log-book system			Poor controls provided the opportunity for dumping, e.g. easy to obtain licence
					Log books not checked
					Poor enforcement where detected
2.	Japan	Law introduced requiring the return to manufacturers of end-of-life electrical equipment	Promote recycling of potentially environmentally dangerous products	Author suggests increase in illegal dumping in month after law introduced	New law meant that end-users paid a fee for disposal and thus provided incentive for dumping	Cites as evidence for increased dumping a government report finding a 25% increase in dumping after law introduced (report unavailable)	Hutton (2001)
3.	Europe	Law introduced prohibiting the dumping of untreated fridges in landfill sites	Promote environmentally friendly disposal of CFCs in fridge foam	Increase in fridge dumping and truck drivers illegally dumping fridges for smaller fee	Implementation of law meant that end-users paid an increased fee, and this provided incentive for dumping or for paying others smaller fees to dump	Anecdotal, no cited evidence	Brown (2002); Clover (2001)
4.	U.K.–forthcoming legislation to implement Directive 2000/53/EC of the European Parliament and of the Council	The legislation when implemented will mean that last owners of end-of-life vehicles pay increased fees to cover the cost of disposal	Promote the environmentally friendly disposal of vehicles and parts	Increasing abandonment of vehicles	Increased fee to increase incentive for dumping and existing problems with vehicle licensing and registration system provide opportunity for dumping–exemplified by the current high abandonment of vehicles	Predicted, no evidence	Jill Dando Institute of Crime Science (2003)
	Risk indicator 2: Introduces concessions
5.	E.U.–Council Directive 92/12/EEC	As part of Single European Market reforms, duty suspension system set up, i.e., registered traders not required to pay excise duty until dispatched for consumption or to non-registered trader	Facilitate business and provide for excise to be paid closer to the time of consumption	Increase in excise diversion fraud, i.e., duty suspended goods (i.e., without excise paid) diverted to market when represented to be sent to other registered traders or outside EU as required	Introduction of system provided incentive to mis-represent destination of goods and inadequate new controls (e.g., reliance upon AAD document, which is difficult to verify, traders not vetted) and simultaneous decrease in pre-existing controls (e.g., customs inspections) provided opportunity for excise diversion fraud	Reports note investigations finding excise diversion fraud occurring following the introduction of the system	Bourn (2001a, b); Roques (2001)
6.	Argentina	Law allows physically handicapped person to import car without paying import duty and in 1988 financial inquiries ceased and limit raised from 10 K to 19 K		Handicapped persons retained to ‘front’ the purchase of motor vehicles for others and evidence of some car dealers operating in an organised manner to exploit tax concession	Law provides opportunity for exploitation, particularly after financial inquiries removed	Author reports anecdotal information from law enforcement officials that exploitation occurred	Kamm (1991)
7.	E.U.–Council Regulation 2007/2000/EC	Introduces preferential (zero) import tariff for sugar from certain Eastern European (Balkan) countries and legislation allows the tariff to be suspended if fraud detected	Part of stabilisation and association process	Circumstantial evidence of carousel fraud, i.e., sugar being exported to Balkan counties (with export subsidy) and then imported into EU without tariff	Regulation provided benefit that could be easily claimed fraudulently because of poor certification controls (i.e., difficult to verify origin of sugar)	Anecdotal	Europa (2003a)
	Risk indicator 3: Provides benefits
8.	U.K.	Regulations introducing subsidies and grants under the Common Agricultural Policy	Make exports competitive; induce production of certain products	Large-scale fraudulent claims associated with the schemes	Schemes provide incentive for fraud; weak controls provide opportunity (i.e., poor cross checking between schemes, map references not verified)	Report cites government investigations that revealed fraudulent claims under the system	Bourn (2002)
9.	U.K.–Animal Health Act 1981; Schedule 3 and other regulations	Provides for compensation to be paid to farmers whose animals are slaughtered and farmers allowed to select own valuer	One intended consequence to quickly contain disease	Large number of frauds associated with the compensation scheme (i.e., falsely claiming stock slaughtered or inflating claims and farmers deliberately infecting stock) and possible collusion between farmers and valuers	Scheme provides incentive for fraud and conditions conducive to corruption; weak financial controls provide opportunity;	Government report notes government investigations finding frauds occurring under the system	Bourn (2003); Hetherington (2002)
10.	U.K.-Representation of the People Acts and Regulations	Regulations allow proxy votes and postal votes on demand and sending of postal votes to secondary addresses	Making voting easier to encourage voting	Fraudulent voting through postal and proxy vote systems, i.e., impersonation	Increased opportunity for fraud through regulatory changes combined with ineffective monitoring of new regulation (e.g., only check on postal votes is registration, which is also suggested to be open to fraud)	Authors cite a small number of prosecutions as evidence for fraud under the system	Davies (2001); Howarth (1999)
11.	AUS–Worker’s Rehabilitation and Compensation Act 1986	Providers for compensation to be paid to workers who suffer injury during the course of their employment and employers contribute to fund based upon number of workers, etc.	Protect workers and stabilise industry	Author reports the existence of false claims by workers, false declarations by employers (i.e., for the purpose of reducing their levy payable) and overcharging, over-servicing and false claims for treatment by health care providers, and author reports some examples of collusion between stakeholders in system, e.g., claimants and doctors	System design provides incentive for claimants to stay on system (i.e., full pay) and provides for claims where it is difficult to verify criteria objectively for claim (e.g., non-demonstrable injuries), and conflicts of interest are inherent in the system (e.g., health care providers increase incentive to continue to declare claimants unfit for work and claimants allowed to select own doctor)	No evidence cited	Wait (1997)
					Weak controls (e.g., medical certificates forged)
12.	U.S.	Health care regulation introduced in 1965 that introduced Medicare and Medicaid systems	Provide health care for financially challenged	Over-servicing, overcharging, and false claims identified under the system	Structural problems such as the fee-for-service mechanism (i.e., doctors paid for service to patient) and the reimbursement mechanism (i.e., provides larger than normal fee) provides incentive for over-servicing; scheme difficult to control	No evidence cited	Pontell et al. (1984)
13.	U.K.-London Local Authorities Bill to amend Hotel Proprietors Act 1956	LLAB increases limit (£50–£1,000) on absolute liability for hotel where guests’ possessions are damaged or stolen	Increase in crime prevention activity undertaken by hotel owners	Suggested potential increase in fraudulent claims by hotel guests	Guests aware of the provision may believe fraud claim easier, less risky and more rewarding	Law to be introduced, currently no evidence	House of Lords (2002)
14.	U.S. - Illegal Immigration Reform and Immigrant Responsibility Act 1996 (IIRIRA) amended Immigration and Nationality Act (INA)	IIRIRA amended definition of ‘refugee’ in INA (which an asylum seeker needs to come under to claim asylum) to expressly include persons subject to persecution related to a population control program, e.g., abortion, sterilisation or those subject to persecution because of failure to do these or those who fear such persecution or “for other resistance to a coercive population control program”. Also, cap on number admitted under this provision of 1,000 per year		Increase in the numbers of Chinese smuggled into the USA	Not totally clear, but author suggests that because the amendment provides “prima facie eligibility for political asylum” for those expressing opposition to “coercive population control programs”, this allows fraudulent claims and possible release. The author also notes that “smugglers assure the migrants that if they are apprehended on arrival they can claim asylum and still be released” and therefore, “acts as a safety net”	No evidence cited in paper, but it cites other papers as evidence for increased smuggling following amendment (papers not available)	Kung (2000)
	Risk indicator 4: Alters the cost of goods
15.	U.S. and Canada	State and province laws set taxation rates on tobacco products at differing levels		Inter-state smuggling of cigarettes and involvement by organised crime groups and terrorists to fund activities	Inconsistency provides the easy opportunity for persons to purchase cigarettes in one state and sell for profit in another	Authors report that information provided by law enforcement authorities that such smuggling taking place	Bartlett (2002); FIA International Research Ltd. (2001); National Association of Convenience Stores (2002); Schneider (2000)
16.	U.S., Canada, Sweden	Laws increasing excise tax on tobacco products		Increase in tobacco smuggling from other jurisdictions	Increasing the cost of legal cigarettes increases both demand by consumers and the potential profit for smugglers	Anecdotal and some empirical evidence for change in smuggling following the change in taxation levels	Korsell (2002); J. G. Thursby and M. C. Thursby (1997); Schneider (2000)
	Risk indicator 5: Prohibits
17.	Montreal Protocol on Substances that Deplete the Ozone Layer (the Protocol to the Vienna Convention of 1987)	Restricts the use and production of ODS	Reduce damage to ozone layer caused by ODS	Illegal trade in ODS, i.e., ODS being sold within and between countries	Although non-ODS alternatives are cheaper, equipment needs to be re-fitted to be able to use non-ODS substances and therefore demand for illegal ODS. Design of system problems include: phase-out schedule: Article 5 countries permitted to produce ODS for longer period than non-Article 5 countries, thus providing ODS for diversion	Authors cite law enforcement experience as evidence for trade in ODS following the introduction of the protocol	Clapp (1997); United Nations Environment Programme (2001)
		Article 5 countries, mainly developing countries, allowed additional grace period to produce ODS under protocol
		Exceptions allowing production for internal use, for the use of recycled ODS and export to Article 5 countries			Non-Article 5 countries allowed exemptions, e.g., for export to Article 5 countries and for internal domestic needs, and thus allow for diversion of ODS
					Recycled ODS not covered by regulation, thus difficult for authorities to verify goods as recycled
					Inadequate monitoring and enforcement
18.	U.S.	Increase in legal drinking age from 19 to 21	To reduce prevalence of drunk driving by young persons	Increased use of fake ID cards and the ID cards of others; increased demand for black market alcohol, i.e., underage drinkers report more association with possible black markets suppliers	Previously, 19 year olds able to legally purchase alcohol and following change persons use ID cards to obtain products restricted by regulation	Based upon survey findings, therefore some empirical evidence for unintended consequences	Lanza-Kuduce and Richards (1989)
19.	U.S.–Energy Policy Act 1992	Act makes it illegal for manufacturers to distribute or sell 3.5-gbf toilets in U.S. and sets standard of 1.6 gbf, but U.S. citizens permitted to purchase toilets in Canada for home installation	Reduce water consumption	Detroit contractors purchasing toilets and taking into U.S. for customers	Demand for high-performance toilets in U.S. because of poor performance of smaller 1.6-gbf systems and Detroit contractors filling the demand, and difficult for customs to enforce as difficult to establish whether toilet for resale	Author reports law enforcement officials anecdotal evidence that trade occurring	Heselbarth (1998)
	Risk indicator 6: Impacts law enforcement
20.	U.S.-Illegal Immigration Reform and Immigrant Responsibility Act of 1996	Requires increased enforcement at border, e.g., the hiring of more agents, improvements to fencing	Decrease number of illegal immigrants	Author suggests more clients for professional smuggling groups and increase in fees charged	Increased enforcement means that illegal immigrants perceive the need to use professional smuggling groups and/or to cross at non-protected areas or to move less frequently between countries	Some empirical evidence for unintended consequences following the increased enforcement	Cornelius (2001)
				Also suggests increased attempted crossings at other unprotected points and increased permanency of illegal immigrants
21.	U.S.–the federal Contraband Cigarette Act 1978	Prohibited at federal level the shipping, purchase or sale of greater than 60 thousand cigarettes without tax indicia	Create federal jurisdiction and enforcement powers	Increase in interstate cigarette smuggling	Authors suggest that the federal enforcement activity associated with the Act, which was perceived to be effective due to a decline in smuggling (pre-existing), resulted in a decrease in enforcement activity by the states	Model developed provides some evidence for the increased smuggling following the introduction of federal jurisdiction	J. G. Thursby and M. C. Thursby (1997)
22.	U.S. Kentucky	Federal funding provided for the detection and destruction of marijuana crops	Intended to reduce the supply of marijuana in state	Some consequences reported include increased potency of marijuana crops, increased organisation of operations, increased sophistication of offending (e.g., grew product indoors or in smaller amounts across larger areas) and increased corruption of officials	Increase profitability whilst growing less marijuana to decrease risks	Evidence for unintended consequences from official law enforcement documents (these likely to be anecdotal)	Potter et al. (1990)
					Organised groups more resilient and the therefore dominate market
					Traders need to become more organised and sophisticated to survive enforcement activity
23.	Canada	Federal funding of Anti-Smuggling Initiative-enforcement program involving increased detection and prosecution of tobacco and liquor smugglers	Reduce size of contraband market and target organised crime groups	Displacement of smuggling activity to inter-provincial smuggling, increased concealment and new techniques utilised and offenders more selective in timing the movement of goods	Smugglers aware of increased enforcement and adapt methods	Evidence for unintended consequences based upon anecdotal information from law enforcement agencies	Schneider (2000)
	Risk indicator 7: Provides officials with power
24.	U.S. –introduction of Land Use and Building Regulation	Regulations govern “the uses which can be made of parcels of land, the construction of new buildings, and existing buildings”, e.g., various types of codes and planning regulations	Land-use and zoning regulations introduced to minimise “incompatible uses in adjoining areas” and to promote safety in buildings	Bribery of officials involved in administering system	Regulatory systems created authority for officials, which those regulated paid to obtain preferential exercise of that power	Corruption under regulations identified from court transcripts and interviews with those with local knowledge of the corruption	Gardiner and Lyman (1978)