Advances in Police Theory and Practice Series Series Editor : Dilip K Das Financial Crimes: A Global Threat Maximillian Edelbacher, Peter Kratcoski, and Michael Theil Police Integrity Management in Australia: Global Lessons for Combating Police Misconduct Louise Porter and Tim Prenzler The Crime Numbers Game: Management by Manipulation John A Eterno and Eli B Silverman The International Trafficking of Human Organs: A Multidisciplinary Perspective Leonard Territo and Rande Matteson Police Reform in China Kam C Wong Mission-Based Policing John P Crank, Dawn M Irlbeck, Rebecca K Murray, and Mark Sundermeier The New Khaki: The Evolving Nature of Policing in India Arvind Verma Cold Cases: An Evaluation Model with Follow-up Strategies for Investigators James M Adcock and Sarah L Stein Policing Organized Crime: Intelligence Strategy Implementation Petter Gottschalk Security in Post-Conflict Africa: The Role of Nonstate Policing Bruce Baker Community Policing and Peacekeeping Peter Grabosky Community Policing: International Patterns and Comparative Perspectives Dominique Wisler and Ihekwoaba D Onwudiwe Police Corruption: Preventing Misconduct and Maintaining Integrity Tim Prenzler Financial Crimes A Threat to Global Security Edited by Maximillian Edelbacher Peter Kratcoski Michael Theil CRC Press Taylor & Francis Group 6000 Broken Sound Parkway NW, Suite 300 Boca Raton, FL 33487-2742 © 2012 by Taylor & Francis Group, LLC CRC Press is an imprint of Taylor & Francis Group, an Informa business No claim to original U.S Government works Version Date: 20120525 International Standard Book Number-13: 978-1-4665-6793-1 (eBook - ePub) This book contains information obtained from authentic and highly regarded sources Reasonable e orts have been made to publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials or the consequences of their use The authors and publishers have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright holders if permission to publish in this form has not been obtained If any copyright material has not been acknowledged please write and let us know so we may rectify in any future reprint Except as permitted under U.S Copyright Law, no part of this book may be reprinted, reproduced, transmitted, or utilized in any form by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying, micro lming, and recording, or in any information storage or retrieval system, without written permission from the publishers For permission to photocopy or use material electronically from this work, please access www.copyright.com (http://www.copyright.com/) or contact the Copyright Clearance Center, Inc (CCC), 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400 CCC is a not-for-pro t organization that provides licenses and registration for a variety of users For organizations that have been granted a photocopy license by the CCC, a separate system of payment has been arranged Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the CRC Press Web site at http://www.crcpress.com This book is dedicated to all of the organizations and agencies, both public and private, that are diligently working to assist those who were victimized by financial criminal activity and to develop national and personal strategies for financial security Contents Series Editor’s Preface Financial Crimes Preface Foreword Acknowledgments Editors Contributors Section I NEW SECURITY CONCEPTS PETER C KRATCOSKI Changing Concepts of Security: The Preventive Turn in Defensive Design GÜNTER STUMMVOLL History of Crisis and the Quest for Security GERALD SCHÖPFER Development toward a “Security Society”: The Case of Austria MAXIMILLIAN EDELBACHER AND GILBERT NORDEN The Concept of Security in the European Union ALEXANDER SIEDSCHLAG Human Security and the United Nations Security Council WALTHER LICHEM Section II FINANCIAL CRIMES: A GLOBAL THREAT MAXIMILLIAN EDELBACHER AND MICHAEL THEIL White Collar Crime MAXIMILLIAN EDELBACHER AND MICHAEL THEIL Cyber Crime and Economic Crime ALEXANDER SEGER Organized Crime, the Mafia, White Collar Crime, and Corruption ARIJE ANTINORI Rule of Law versus Financial Crime BOJAN DOBOVŠEK 10 The Financial Crisis and the Haphazard Pursuit of Financial Crime ROMAN TOMASIC 11 Fighting Corruption: The Role of the Media in the Broader Global Context ANTHONY MILLS 12 Financial Crisis or Financial Crime?: Competence and Corruption WOLFGANG HETZER Section III PREVENTING ANOTHER FINANCIAL CRISIS: ROLES OF CONTROL MECHANISMS MAXIMILLIAN EDELBACHER AND MICHAEL THEIL 13 Dealing with Insurance: What Can Be Learned MICHAEL THEIL 14 Police Detectives and Investigative Reporters Working Hand in Hand against Organized Crime BOJAN DOBOVŠEK AND MATIJA MASTNAK 15 Human Factors Analysis: How to Build Resilience against Financial Crimes CHRISTIAN FELSENREICH 16 Stronger Oversight of the Financial Sector: Lessons from Institutional Reforms in Developing Countries KATHARINA NOUSSI 17 Business Angels: Can They Help to Prevent Another Financial Crisis? CLEMENS FATH 18 Legislative and Programming Initiatives to Prevent and Control Financial Crimes in the United States PETER C KRATCOSKI 19 Financial Crime: Past, Present, and Future MAXIMILLIAN EDELBACHER, MICHAEL THEIL, AND PETER C KRATCOSKI Epilogue Index Call for Authors Series Editor’s Preface While the literature on police and allied subjects is growing exponentially, its impact upon day-to-day policing remains small The two worlds of research and practice of policing remain disconnected even though cooperation between the two is growing A major reason is that the two groups speak di erent languages The research work is published in hard-to-access journals and presented in a manner that is di cult for a lay person to comprehend On the other hand, police practitioners tend not to mix with researchers and remain secretive about their work Consequently, the two groups exchange little dialogue and rarely attempt to learn from one another Dialogues across the globe among researchers and practitioners on di erent continents are, of course, even more limited I attempted to address this problem by starting the International Police Executive Symposium (IPES) where a common platform has brought the two together IPES (www.ipes.info) is now in its seventeenth year The annual meetings that constitute most major annual events of the organization have been hosted in all parts of the world Several publications have resulted from these deliberations, and a new collaborative community of scholars and police o cers has been created whose membership runs into several hundreds Another attempt was to begin a new journal, aptly called Police Practice and Research: An International Journal (PPR) that opened the gate to practitioners to share their work and experiences The journal attempts to focus upon issues that help bring the two to a single platform PPR completed its rst ten years in 2009 and continues to evidence the growing collaboration between police research and practice PPR began with four issues a year, expanded to five in its fourth year, and is now issued six times a year Clearly, these attempts, despite their success, remain limited Conferences and journal publications help create a body of knowledge and an association of police activists but cannot address substantial issues in depth The limitations of time and space preclude larger discussions and more authoritative expositions that can provide stronger and broader linkages between the two worlds It is this realization of the increasing dialogue between police research and practice that encouraged many of us connected closely with IPES and PPR across the world to conceive and implement a new attempt in this direction I am now embarking on a book series titled Advances in Police Theory and Practice that seeks to attract writers from all parts of the world The need is for practitioner contributors The objective is to make the series a serious contribution to our knowledge of the police and improve police practices The focus is not only on work that describes the best and successful police practices but also work that challenges current paradigms and breaks new ground to prepare a police for the twenty- rst century The series seeks a comparative view that highlights achievements in distant parts of the world and encourages an in-depth examination of specific problems confronting police forces Financial Crimes: A Threat to Global Security examines the e ects of these types of crimes on nancial infrastructures throughout the world and the mechanisms various countries are using to counteract these threats to national security The white collar crimes of fraud, corruption, and illegal business transactions are rampant The role of organized crime in nancing terrorism and preying on the vulnerabilities of persons caught up in the nancial crises is described Government o cials contributed to the nancial crises by failing to control the corrupt practices of nancial institutions, even though they were aware of them It is hoped that through this series it will be possible to accelerate the process of building knowledge about policing and help bridge the gap between the two worlds of police research and police practice This is an invitation to police scholars and practitioners across the world to come and join in this venture Dilip K Das Founding President, International Police Executive Symposium (IPES) www.ipes.info Founding Editor-in-Chief, Police Practice and Research: An International Journal (PPR) www.tandf.co.uk/journals Global financial crisis, 30, 105 bailouts; see Bailouts banks’ role in, 247–248, 251–252, 336, 337 causes, 31–32, 105, 358 change, as catalyst for, 183–189, 338; see also Reform of financial regulation corruption, role of, 179–180, 181–182, 182 criminal sanctions, 178 cultural elements contributing to, 179–180 mortgaged-backed securities, 243 overview, 334–335 prosecuting responsible entities, 178–179, 183, 184, 240–241 regulatory agencies, 177, 178, 183, 261, 263, 336 speculation, role of, 105 systemic view of, 236–237, 242 worldwide effect, 395 Global risk society, 27 Globalization, Goldman, Sachs, 258, 303, 310 Goodwin, Fred, 184 Great Depression See Depression, Great Great Wall of China, 10 Greenspan, Alan, 192, 338 Grey finance, 148 Group of Eight, 106 Group of Twenty, 106, 338 Gründerkrise, 30 H Hadrian’s Wall, 10 Hedge funds, 190, 191, 303 Hierarchy of Needs, High reliability theory (HRT), 307, 308, 310, 311 Hollnagel, Eric, 305 Holy Roman Empire, 29 Homeland Security, Department of, 385 Honduras, corruption in, 206 Hong Kong, corruption fight in, 111 Hongjie, Sun, 206 Human factors, 323, 324 Human rights-based approach to development (HRBA), 348–350 Human security, 67, 394 Human trafficking, 87–88, 149 Hypo Group Alpe Adria Bank, 310 I Identity theft, 133–134 Illusion of Control, 322 Imperial Age, 158–159 Incident reporting systems, 325 Information security, 104 Information sharing and analysis centers (ISACs), 141 Innovation theory, 28 Insider trading, 92 Institutional capacity theory, 344 Insurance chance events, 274–275, 280 companies, overview of, 279–280 compulsory, 274 concreteness, 276, 283 defining, 271 fraud of; see Insurance fraud full, 273 independent events, 275, 280–282 limited transfer of risk, 273 loss sizes, estimation of, 275 overview, 270 premiums, 271–272 pricing, 271, 278–279 probabilities, estimation of, 275 regulation of, 273–274 risk management; see Risk management risk transfer, 278 risk types, 281, 282 risk loss distributions, 282–283 risks, 271, 272 security loading, 273 size, 276, 284 Insurance fraud, 89 history of, 100 overview, 100, 101 Shalam Weiss, case of, 112, 113–115 sociological/psychological aspects of, 101–102 widespread nature of, 101 Interest rates, 240 International Money Laundering Abatement and Anti-Terrorism Financing Act, 376–378 International Organization of Supreme Audit Institutions (INTOSAI), 341–342 Interpol, 143, 386 Investment capital fraud, 93 Iron Curtain, 10, 40 Italy, corruption in, 149, 208–209 See also Mafia; Mafia J Justice, Department of, 381 K Katrina, Hurricane, 26 Kempf, Eberhard, 249, 250 Kernbery, Otto F., 316 Kerviel, Jerome, 310, 320, 321 Khaddaffi, Muammar, Khmer Rouge, 74 Kondratiev, Nikolai, 28 KPMG Forensic, 181–182 Krugman, Paul, 338 L Law, Johan, 29–30 Lee, Matthew, 314 Lefebvre, Henri, 19 Legal Attaché Program, 385–386 Legnaro, Aldo, 39 Lehman Brothers, 310, 314 Lemert, Edwin, 90 Libya, Life expectancy, 27 Lippmann, Greg, 258, 259 Liquid and maturity risk, 281 Lisbon Treaty, 51, 52, 106, 395 Lloyd, Edward, 26 Long Beach Corporation, 254, 255 M Madoff, Bernard, 95, 96, 179, 189–190, 191, 192, 194, 302–303 Mafia See also Mafia mafia, versus, 148 organized crime in other countries, ties to, 148 overview, 148 securities owned by, 85 threats of, 159–160 Mafia See also Mafia corruption, relationship between, 151–152, 153, 154, 155, 156, 160 ecomafia, 151 economic and financial ecosystem, 151 effects of, 156 enterprises, 149, 150 evolution of, 150, 151 extortion, use of, 154–155 father figures, 318 fight against, 155, 157, 160 financial worth of, 149 goal of, 149 Italy’s gross domestic product, worth in, 149 jelly system, 152–153 Mafia, versus, 148 mafiamorphosis, 150 overview, 148 payoff system, 155 peculation, use of, 155 power of, 149 white collar nature of, 152, 154 Maginot Line, 10 Malthus, Thomas, 31 Malware, 125, 126 Markopolos, Harry, 191 Maslow, Abraham, Mass marketing fraud, 135 Media reporting of corruption Africa, 208 China, 206 dangers of, 206 Honduras, 206 impediments to, 208–209 information gathering, 293 investigative reporting, 290–291 judicial system, role of, 212–213 kidnapping of journalists, 206 methodology of journalists, 291 Mexico, 206 Philippines, 207 police, relationship between, 295–296 public sector, relationship between, 210–211 qualities of journalists, 211–212 risks of, 209 Russia, 207 silencing of, 206 Slovenia, 292 Somalia, 208 sources, 210 Tunisia, 208 United Kingdom, 209 Mexican-U.S border, Mexico, corruption in, 206, 392 Mill, John Stuart, 31 Modernization theory, 343 Modus modendi, 129 Money laundering, 99–100, 108, 377 Money mules, 128 Moody’s, 256, 258 Mortgage crisis, U.S., 238, 243 Moser, Joseph, 341 Motivation trap, 309 N Narcissism, 316–317, 321 NASDAQ, 302 National Central Reference Points (NRCP), 143 National Commission on Terrorist Attacks upon the 375United States National Heritage Life Insurance Company, 112 Natural disasters costs of, 26, 28 forecasting, 28 Ndrangheta, 228 Neo-liberalism, 10 New Financial Architecture (NFA), 337 Ngota, Cyrille Ngota, 208 Nodal governance, 14–15 Non-government organizations (NGOs), 205 Normal accident theory (NAT), 308, 311 Normalization of deviance, 305–306, 327 Northern Rock, 190, 193 O Obama, Barack, 253 OLAF, 43, 102–103 Omerta, 227 Opportunity cost, 96 Organization for Economic Cooperation and Development (OECD), 220, 347 Organized crime active assimilation of, 166 complexity of, 227–228 corruption, relationship between, 164–166, 167 cyber crime, role in; see under Cyber crime overview, 147 passive assimilation of, 166 power of, 227 proactive phase, 166 reactive phase of, 165–166 state capture by, 166–167 Osmani, Foteh, 207 P Paccioli, Luca, 25 Patriot Act, 376 Patronage systems, 157–159 Paulson, Henry, 310 Paulson, John, 303, 304, 327 Penal welfarism, Pharmaceuticals, counterfeit, 136 Philippines, corruption in, 207 Phishing, 134, 135 Picard, Irving, 303 Picower, Jeffrey, 302 Pisano, Leonardo, 25 Plato, 171 Police investigation of corruption investigative reporters, relationship between, 295–296 methodology, 292–293 statutory powers of, 296 Politic, 171 Ponzi schemes, 179, 189, 190, 192, 194, 259 Population, world, 86 Posen, Adam S., 338 Postal Inspection Service, 384 Poverty overview, 27 Price Waterhouse Coopers profile of criminal employees, 104–105 Proksch, Udo, 398 ProNEIGHBOR, 43–44 Pseudo-reflectiveness, 322 Public financial management, 342 Public space dialectic view of, 18, 19 inner and outer space, blending of, 47–48 psychology of, 15–16, 17 social phenomenon of, 18 social production of, 19 sociological view, 18 Punitive segregation, 44 Punitive turn, 44 Pyramid schemes, 93–96, 189 R Randa Gerhard, 303 Rationality, 12 Rationality, myth of, 311 Raumgebilde, 18 Raumqualitäten, 18 Re, Aachen, 26 Re, Frankfurt, 26 Re, Munich, 26 Rechtsstaat, 168–169 Reform of nancial regulation See also Global nancial crisis; Supreme audit institutions (SAIs); specific agencies and acts accountability, 321, 339, 340, 344 demand for, by public, 345, 347 institution building in developing countries, 343–344 key areas, 334 oversight systems, 336 overview, 333–334 public control, increasing, 339 public financial managemen reform, African, 342 Reformation, 25 Reinsurance, 26 Relativisation, 66 Representations of space, 19 Republic, 171 Residential mortgage-backed securities (RMBS), 256, 257, 258 Resilience engineering, 305, 306–307 Ricado, David, 31 Right to Financial Privacy Act, 378 Risk communication, 277–278 Risk diversification, 28–29 Risk management concept of, 276–277 financial sector, in, 140, 276 speculative risk, 276, 277 Risk transfer, 278 Risks symptoms of, business, 33 types of, 32 Road safety, 27–28 Roman Empire, Holy, 29 Rostow, Walt Whitman, 28 Rule of law, 165 See also British Rule of Law defining, 167 features of, 167–168 principles of, 168 Russia, corruption in, 207 Rwanda, 74 S Safety culture, 307, 322–323, 325–326 Sants, Hector, 186 Sarbanes-Oxley Act, 183 Schulmeister, Stephan, 302 Schumpeter, Joseph A., 28 Secret Service, 380, 383, 384 Securities and Exchange Commission (SEC), 93, 185, 191, 302, 303, 374–375, 392–393 Securities, stolen and counterfeit, 97 Securitization, 9–10 Security defining, 1, 38 guaranteeing, history of, from ancient times, 23–24 liberty, balance between, 32 types of, 1–3 Security Council See United Nations Security Council Security loading, 273 Security society Austria, case of; see Austria secure society dangers to, 40 description of, 39, 40 origins of, 39 See-saw time, 29 Self-actualization, Self-enforcing equilibrium, 346 Self-structuration, 19 Separation of powers, 168 September 11th attacks, 120, 260, 375–376 Seventh European Union Framework Program, 60 Shadow economics, 90–91 Shoplifting, 89 Sierra Leone, 74 Sigmund Freud Private University, 41–42 Simmel, Georg, 18 Sincerus, Anastasius, 24 Situational prevention, Smith, Adam, 31, 318 Social order, stability of, 19 Social prevention, Somalia, corruption in, 208 Space, public See Public space Spaces of representation, 19 Spatial practice, 19 Standard & Poor, 256, 258 State capture, 166–167, 171–174 Steep hierarchy, 321–322 Stock market manipulation, 136 Stockholm Programme, 52–53, 395 Stress test, 310 Sub-prime mortgage crisis, 30 Suburbs, 17 Success factor model, 367–368 Sunshine Foundation, 310 Supreme audit institutions (SAIs), 341, 342 Sutherland, Edwin H., 89 Synergistic hierarchy, 322 System safety, 323, 324 Systemically important financial institutions (SIFIs), 335 T Target hardening, 13–14 Ten Requirements for Combating Corruption, 222 Terrorist cells, Thirty Years’ War, 29 Tipper, 29 Title III, 376–378 Trading companies, 29–30 Traffic deaths, 27–28 Transaction fraud, 96 Transactional analysis (TA), 313–316 Transparency International, 205 Transparency, governmental, 111 Treaties of Rome, 226 Trojan horses, 125 Tunisia, corruption in, 208 Turner Report, 185 Turner, Adair, 183, 185 Twenty Suggestions for a Clean Republic, 220 U U.S.-Mexico border, UCLAF, 102 Underground economies, 127–128 UniCredit, 303 United Nations, 205 United Nations Convention against Corruption, 340 United Nations Police (UNPOL), 386 United Nations Preventive Deployment Force (UNPREDEP), 68 United Nations Security Council achievements of, 66, 67 agenda of, evolution of, 67–68 climate change positions, 70 conflict prevention, 68 criminal tribunals, 74–75 deliberations, 71–72 focus of, 67 formation, 65–66 human security, 67–68 interactions with other institutions and UN organs, 73 overview, 65–66 peace operations, 69–70, 73 responsibilities of, 66, 75 sanctions, 70–71 state security, 67 subsidiary organs, 73–74 terrorism issues, 68 United Nations Preventive Deployment Force (UNPREDEP), 68 Urbanization, 343 V Vaughn, Diane, 320 Venture capitalists, 358 See also Business angels VIenna Convention, 99 Viruses, computer, 125 W Walker review, 187–188 Wardle, Robert, 180, 181 Warsaw Convention, 139 Washington Mutual Bank, 254, 255, 256 Weber, Max, 25 Weiss, Shalam, 112, 113–115 Weltrisikogesellschaft, 27 Whistle blowers, 314, 322 White collar crime, 30–31 See also specific crime types aggressive behavior behind, 317–318 complexity of cases, 233 defining, 89, 90 financial losses of, 80 intangible losses from, 233–234 qualitative nature of problem, 233 WHOIS database, 140 Wiretapping, 208–209 Women in labor market, 17 World Bank, 106, 182, 343 World Health Organization (WHO), 27 World Risk Society, 39 WorldCom, 179, 183, 374 Worms, 125 Z Zone in transition, 18 A Call for Authors Advances in Police Theory and Practice AIMS AND SCOPE: This cutting-edge series is designed to promote publication of books on contemporary advances in police theory and practice We are especially interested in volumes that focus on the nexus between research and practice, with the end goal of disseminating innovations in policing We will consider collections of expert contributions as well as individually authored works Books in this series will be marketed internationally to both academic and professional audiences This series also seeks to — • Bridge the gap in knowledge about advances in theory and practice regarding who the police are, what they do, and how they maintain order, administer laws, and serve their communities • Improve cooperation between those who are active in the eld and those who are involved in academic research so as to facilitate the application of innovative advances in theory and practice The series especially encourages the contribution of works coauthored by police practitioners and researchers We are also interested in works comparing policing approaches and methods globally, examining such areas as the policing of transitional states, democratic policing, policing and minorities, preventive policing, investigation, patrolling and response, terrorism, organized crime and drug enforcement In fact, every aspect of policing, public safety, and security, as well as public order is relevant for the series Manuscripts should be between 300 and 600 printed pages If you have a proposal for an original work or for a contributed volume, please be in touch Series Editor Dilip Das, Ph.D., Ph: 802-598-3680 E-mail: dilipkd@aol.com Dr Das is a professor of criminal justice and Human Rights Consultant to the United Nations He is a former chief of police and, founding president of the International Police Executive Symposium, IPES, www.ipes.info He is also founding editor-in-chief of Police Practice and Research: An International Journal (PPR), (Routledge/Taylor & Fra n cis) , www.tandf.co.uk/journals In addition to editing the World Police Encyclopedia (Taylor & Francis, 2006), Dr Das has published numerous books and articles during his many years of involve-ment in police practice, research, writing, and education Proposals for the series may be submitted to the series editor or directly to – Carolyn Spence Senior Editor • CRC Press / Taylor & Francis Group 561-998-2515 • 561-997-7249 (fax) carolyn.spence@taylorandfrancis.com • www.crcpress.com 6000 Broken Sound Parkway NW, Suite 300, Boca Raton, FL 33487 ... Police Practice and Research: An International Journal (PPR) www.tandf.co.uk/journals Financial Crimes Preface A Global Threat? The world nancial crisis started in 2007, was expected to have ended... criminal activities on the nancial security of the country Financial Crimes: A Threat to Global Security deals with the e ects of these activities on the nancial sector and the threats they pose to. .. wider nancial and economic security of a nation These threats are considerable In globalized nancial markets, organized crime, white collar crime, and corruption are also globalized E ective strategies