Money and information
Money and information- MONEY AND TROUBLE-
An analysis of motive within Europe
Wolfgang Stoltzenberg�s business Castor Holdings displayed the illusion of being a very successful company and the large banks of the world continued to lend to Stoltzenberg despite the fact that in reality the business had not made a profit in years. Castor Holdings was a parent company to York-Hannover that was run by Kersten Von Wersebe. Eventually when the banks began to foreclose and call back their loans Stoltzenberg had to file for bankruptcy. It is believed by independent auditors that Wolfgang may have siphoned off as much as 200 million pounds and deposited it over a large number of bank accounts throughout the world. Still lives in Belgravia and as yet no real money has been found or traced to him.
Colombian cartels use corporate criminals in Europe to launder their drug money.
Introduction
The intention of this paper is to highlight the different levels of computer crime in Europe and to examine the various motives involved. One interesting factor, from my point of view, is how the �traditional� organised economic crime has adapted to the worldwide potential of globalisation. Although globalisation has led to the blurring of the distinction between economic crime and organised crime residual elements remain. The global network has made economic crime more lucrative, more anonymous, and therefore less risky. The focus of this essay will be on the part that European countries play in facilitating global computer crime and the role and motivation of corporations and individual actors within a European setting.
In order to present this essay with some element of clarity it is necessary at first to distinguish between the different areas of computer crime that I will be discussing. Crime committed with the aid of computers can be separated into four distinct categories. First of all, crime which is committed by corporate business. This type of crime is committed either for the benefit of the corporation itself, i.e. tax evasion, or the corporation is used as a �front� in order to legitimise or launder �dirty� money. I shall refer to this type of crime as �corporation crime�. The second category is corporate crime on an individual level, i.e. the perpetrator is either defrauding the company that he is working for or he is using the company as a legitimate front with which to defraud other companies. This category will be referred to as �white-collar crime�. The third distinct category of computer crime is independent financial hacking where an individual or gang use a computer to gain access to a separate business or bank and transfer funds to accounts that they control. The fourth category is the information hacker. The individual or group in this context has no interest in financial theft and instead seeks information or at least access to information.
This is the point at which any analysis of motive becomes problematic. To offer clearly demarked lines between the motives of one computer criminal and another is a near impossible task. All we can do in an analysis of this nature is to examine the crimes that the individual was charged with and the subsequent sentence that was imposed. The aspect of motive that I am referring to in this paper is purely the obvious distinction between an individual who has been charged and convicted of a crime of financial theft, whether it is fraud, embezzlement, or illegal transfer, and an individual who has been charged and convicted of an illegal act of computer misuse, i.e. hacking. The intention of this paper is to explore the differing levels of punitive measures that have been imposed on individuals and to show a correlation between excessive punishment and �information crime�. The inference that information is more highly valued than money is not a new concept nor a necessarily respected one however this paper will be discussing this issue in relation to recent convictions in Europe as well as recent policy changes.
The essay will be primarily focussed in Europe for several reasons. Firstly, the countries of Western Europe in particular Switzerland and Luxembourg are well known for anonymity in financial dealings therefore presenting ideal money havens for tax cheats or illegal transfers. Other tax havens in Europe include the Isle of Man, Jersey, Guernsey Alderney and Sark, Lichtenstein, Monaco, the Vatican, Malta, Cyprus, Gibralta, and Andorra. Secondly, organised crime and corruption is rife in Italy and Spain and the traditional methods of criminal activity are rapidly giving way to the comparatively easy and anonymous methods of financial manipulation that computers can provide. Business �fronts� can be set up on the World Wide Web in a few hours thus rendering the task of money laundering extremely simple. European organised crime factions have become masters of global finance.
FINANCIAL MOTIVE
To begin this chapter I would first like to set the scene with a brief look at the modern economy and the potential for fraud and embezzlement in the global market place.
Electronic-Based Production
The stages of development of capitalism are defined by specific developments in the productive forces; the microchip defines the current stage of the development of the productive forces. Introduced in the early 1970s, the microchip is a light, tiny, cheap device that can be widely deployed to control production processes. It was the result of an effort to satisfy the growing demand for devices to reduce production costs and to cheapen the cost of coordinating the growing world economy.
The microchip and its sister developments in electronics made possible practical robotics. It cheapened the cost of the instruments of scientific production, paving the way for breakthroughs in other fields like "smart" materials, biotechnology, and digital communications; and it dramatically reduced communication costs. The introduction of the microchip threw a radically new quality into an already global economy. Twenty-five years after its introduction, the power of the microprocessor continues to double every 18 months. As chips develop, they infiltrate new areas of production, increasing output and replacing the need for living labour - workers - in production.
At the same time, as The Economist noted, "by reducing the cost of communications, [new technologies] have helped to globalise production and financial markets. In turn, globalisation spurs technology by intensifying competition and by speeding up the diffusion of technology through direct foreign investment. Together, globalisation and [new technologies] crush time and space." (July1997: 34) Cheap transportation and communication have also created a global commodity market, including a global labour market.
The Internationalisation of Capital
The drive toward cheap production - cheap labour (whether it be at gunpoint, in prison, by children or slaves), lax environmental laws, low taxes - drives capital across the globe and provides a profitable niche for criminal professionals that have learned all the rules of modern management. Capable of flexibility unmatched in the formal economy, they are able to exploit instability anywhere in the world. This can be seen with the constant exodus of refugees whom whilst fleeing a war zone are held to ransom by mafia-organised clandestine emigration networks. Or a country whose underprivileged resort to the synthetic paradise of drugs makes millions of addicts easy prey for suppliers. We see countries where the gap between rich and poor is so great that the most wretched who have only their bodies to sell are swooped upon by traders in women, children, workers or sources of transplant organs. Governments were quick to lower the barriers to trade and the movement of goods and capital. They cared little for what they were letting loose.
With the internationalisation of these markets in labour and commodities comes internationalised capital. While new technologies made the rapid movement of capital technically possible, the freeing of capital from national controls came from the growing power of the multinational corporations (MNCs). The intense concentration of productive capacity in a handful of corporations has carried forward from imperialism and grown more intense. William Greider estimates that the 500 largest MNCs produce one-third of the world's manufacturing, three-fourths of all commodity trade, and four-fifths of the trade in technology and management services.
These capital flows are not just from the former imperial powers to the former colonies. Foreign direct investment increased almost fourfold in the 1980s, with the largest part being invested in the United States. "Hong Kong" capital is invested in the United States, "U.S." capital is invested in Russia, "Russian" capital is invested in who-knows-where. (Some $150 to $300 billion has left Russia in the past five years, according to one Russian government official - The Nation, March 31, 1997). It is silly to speak of this capital belonging to any nation anymore. The new global regime creates an international class of investors with no tie to countries, only to stable havens where money can be parked and from which it can be moved rapidly.
Under imperialism, capital was "national" in the sense that it was deeply connected to a multinational state. There was U.S. capital and German capital and British capital. This fed the recurring territorial conflicts. Under the new globalisation, capital is trans-national, or even supranational. Capital has been increasingly successful in freeing itself from national restraints - from restricted markets, tariffs, taxes, environmental restrictions, and organized labour. Freedom from national controls allows this capital to roam everywhere - freely and quickly - in the search for the highest rate of return. Some $1.2 trillion flows through New York currency markets each day.
As Greider notes:
" [T]hese transactions are carried out by a very small community - the world's largest 30 to 50 banks, and a handful of major brokerages. ... The new communications technology has created a small, elite community of international finance - perhaps no more than 200,000 traders around the world who all speak the same language and recognize a mutuality of interests despite their rivalries." (Greider1997: 245-246)
New Polarities, New Possibilities
The process of globalisation is driven by the dynamics of capitalism. Capitalism's survival rests on the extraction of profit on a constantly increasing scale through the extension of production. While electronics has enabled the unification of the world commodity market (including the labour market) and the financial market - by dramatically cheapening communications and transportation - it also introduces a radical new quality - electronic production. This new element attacks the very foundation of capitalism - the extraction of surplus value from workers - by introducing �labour-less� production.
To maintain profits, capitalists seek out the cheapest production costs (regardless of whether production is done by robots or by human muscle, or whether it takes place in Detroit or in Jakarta). So, as electronics extends throughout the global economy, workers around the world are compelled to compete not only with each other but with their electronic counterparts - robots and automated machinery of increasingly diverse types.
For a number of reasons, employment under these circumstances can actually increase while electronics is at the same time destroying the value of labour power. With electronics driving down the value of labour power, and therefore wages, more members of the household are compelled to enter the job market, or to work past retirement age, or to take on multiple jobs in unsuccessful attempts to maintain a slipping standard of living. Others are being driven to the bottom of the job market by the end of welfare. This is temporarily providing a cheaper alternative to technology.
The capitalist does not care if production is done by the "gratuitous labour of machines" or by the "free" labour of slaves. The critical indicator of the impact of electronics on production is not "employment" statistics, but the polarization of wealth and poverty. With the destruction of the value of labour power and wages, wealth polarizes and the economic centre disappears. In this process, capitalism is compelled to destroy whatever social base it may have maintained in the old imperialist centre.
London, I would point out, is, of course, the biggest international financial centre in the world and the biggest foreign exchange centre. Consequently, it is crucial that the UK leads the way when it comes to the regulation of financial markets and the criminal process for fraudsters. Frauds are increasingly multi-jurisdictional in scope � 80% of all cases investigated by the SFO during the 1996/97 reporting year had a significant foreign element, involving more than one jurisdiction. The fact that every country constitutes a separate and distinct criminal jurisdiction is a complicating factor in any investigation. Fraudsters exploit territorial boundaries and differing legal systems to make the process of investigation and prosecution more complicated and difficult.
What part does the SFO play in the fight against the international criminal?
Lord Roskill's fraud trials Report of 1986 led to the setting up of the SFO in the following year. His vision of a dedicated organisation, with a unique combination of lawyers and accountants working alongside police officers, has proved a durable and effective one. For those of you today not familiar with our role and our work, the SFO fits into the post-Roskill architecture as a unique, focused agency with the task of investigating and prosecuting the tip of the fraud iceberg: those cases which are exceptionally serious and complex. This means that we are limited to a small number of very significant cases � at the moment, we have 82 active cases, under investigation or going through the trial process. The combination of the investigation with the prosecution function enables "precision tailoring" of enquiries in a major investigation at a much earlier stage than would be the case if the two functions were separated. The SFO model has been adopted by a number of overseas authorities � New Zealand, South Africa and Norway among them, for their own initiatives in tackling serious fraud.
WAYWARD CAPITALISTS
Too many transactions
Even in those countries that have many controls there are a lot of problems fighting money laundering.
Italy, for instance, has adopted the whole directive and has also lowered the EU's limit for controls on financial activities from 15,000 Ecu to 10,000.
But although Italy has a system of identification of suspected transactions it does not work well. There are so many transactions that it is very hard to identify the illegal activities.
Another difficulty is that the rules do not guarantee confidentiality to the bank worker who informs the police. A modification of Community law on this is being discussed at the European Parliament.
Italy is now experimenting with an important new method for fighting money laundering, called Gianos. It is a computer system that is already used by more than 300 banks which automatically identifies anomalous operations and traces suspect transactions.
Mafia moves
Organised crime in the former Eastern Block has become a major concern since the iron curtain fell in 1990.
"The situation of organised crime in Eastern Europe is directly connected with economic differences between the East and the West," said Raimond Edward Kendall, the Secretary general of Interpol, at a visit in Slovakia in April 1995. As the country's society has undergone transformation it has seen changes on the criminal scene too: an unprecedented rise in the crime rate and the emergence of new elements in criminal activity, like organised crime. "Because of the high figures involved in illegal operations, certain people are able to commit large-scale criminal activities in an indirect way, using others entrusted with specific assignments. Such groups show a clear tendency to engage in criminal activities in a well-planned and systematic manner," Jozef Holdos, President of Police Corps in Slovakia said as he explained the complexities of the almost impenetrable structures.
The Italian mafia boss Toto Riina in court 1993.
Organised crime has all the features of illegal business. Dirty money is invested to increase the dimensions of crime or it is legalised through money laundering. Although organised crime existed before 1989, it inevitably lacked the strong international character of today. It has been only too visible since the borders were opened.
A go-between country
According to the Slovak police, former Yugoslavians seem to be prominent organisers of the new forms of criminal activities in Slovakia. They use Slovakia as a go-between country, where they stay after committing offences in western countries. Before 1989 their practices were eased by there being no cooperation with Interpol. Nor were international warrants valid in Slovakia or the other Central and Eastern countries. That all changed in 1990. Organised crime was then able to reflect the situation in a given country. Within the country changes have been made that have benefitted criminals. Since it was re-written, Slovak law has included loopholes that are favourable to the rise in organised crime. As the economy moved towards a market economy it became easier to commit economic crime, but it has not yet reached the dimensions of the advanced economic countries.
Computers used for criminal activities of a financial nature are merely a means to an end. By this I mean that to this type of criminal the computer is just a tool with which to illegally access funds which otherwise would be completely unavailable. This apparently obvious statement becomes relevant when compared with the informational motivated computer criminal whose interest is primarily focussed upon the computer and its interaction with other computers. A large percentage of financial computer crime takes place within the boundaries of a legal occupation. Green (1990: 13) defines as occupational crime �any act punishable by law which is committed through opportunity created in the course of an occupation that is legal�. He specifies that the term legal occupation is necessary because without it the term �occupational crime� could conceivably include all crimes.
Occupational crime can include
INFORMATIONAL MOTIVE
�It�s as if big companies and their suck-up lawyers think that computing belongs to them, and they can retail it with price stickers, as if it were boxes of laundry soap! But pricing �information� is like trying to price air or price dreams.� (Sterling1992:85)
The quest for information can be taken as a direct rebellion against those who wish to package and sell it. Richard Stallman identified this anti-authoritarian stance; when asked if he thought that some hacking was undertaken in a spirit of political rebelliousness he replied: �I don�t see a connection directly with abuse of power by governments, but abuse of power on a smaller scale by sysadmins (system administrators) seems directly relevant� (Stallman: email interview). He emphasised as a contributory factor behind hacking the behaviour of grass-roots system managers and administrators, and he contended that it is not enough just to prosecute and/or fix holes that hackers draw attention to, because: �neither of these would eliminate the motive for cracking. The way to do that is to stop the fascist behaviour which inspires blind resistance to stop treating disobedience as if it were evil� (Stallman: email interview).
Hacking as a form of anti-bureaucratic rebellion can take both macro and micro forms (Taylor1999: 62). On a macro-level Steve Hardin argues, �most law-abiding people fantasise about breaking the law big-time and getting away with it. We �ordinary folk� are intrigued by the little guy who beats the big corporations or governments� (Hardin: email interview). The anti-authoritarian outlook of hackers that is needed as part of their �free information� ethos tends to encourage little empathy with governmental agencies.
"The public perception of people who break into computer systems, unfortunately, is that they are either geniuses or misguided kids showing off," noted Eugene Spafford, Internet Security Expert and Professor at Purdue University, he also stated, "Nothing could be further from the truth. They are criminals, plain and simple."
The 1960s saw the beginning triumph of computers, and in many Western countries it was realized that the collection, storage, transmission and connecting of personal data endangers the personality rights of citizens. Orwellian visions and the mistrust of the revolting youth of the late sixties inspired the discussion about the dangers of the "Big Brother". However, today the old paradigm of the computer as an exotic instrument in the hands of the powerful became at the latest obsolete with the massive spreading of personal computers.
According to official statistics, data protection offences are only of limited importance today. The cases that became known show different degrees of endangerment: The misuse of "STASI" documents, i.e. the documents of the Ministry for State Security of the former GDR, or the possible blackmailing of AIDS-infected patients prove that in the information society of the 20th century, data protection has become a central matter of concern. The storing of information about defaulting debtors by credit investigation agencies or the transmission of data within criminal prosecution authorities also show, however, that the ascertainment of infringements of privacy in numerous cases depends on a difficult assessment and evaluation of conflicting principles: The underlying discussion on values does not only have to deal with the protection of privacy, but also with the freedom of information, which is the driving force of the cultural, economic and political development of an "open society".
"Clear" infringements of privacy became known especially in the area of traditionally protected (also by criminal law) professional secrets, especially concerning official secrecy as well as the requirement of confidentiality for officials, doctors, lawyers and banks. Such data constituted the object of the offence in a South-African case, in which the offender - presumably through theft of magnetic tapes - obtained medical data of persons that had undergone an AIDS-test; the data were passed on to the employers of the persons affected.
Another clear case of infringement of traditional regulations on protection of secrets happened in 1989 when two employees of one of the biggest Swiss banks helped the French tax authorities to decode magnetic tapes containing customers' data for a compensation of 500,000 FF.
In contrast, difficult problems on evaluation and assessment with regard to the ascertainment of infringements of privacy are illustrated by an Italian case. In 1986 IBM was accused that its security system RACF represented an inadmissible control over employees.
a) The term "computer hacking" traditionally describes the penetration into computer systems, which is not carried out with the aims of manipulation, sabotage or espionage, but for the pleasure of overcoming the technical security measures. In practice, this kind of offense can be frequently found. As far as damage is concerned, a differentiation must be made: In numerous cases, the attacked computer user is not actually harmed, but only endangered. Contrary to this, considerable damages occur in other cases especially when the perpetrators later use their knowledge for committing espionage and sabotage. In any case the "formal sphere of secrecy" or the integrity of the concerned computer systems is violated.
The most severe case of sophisticated "hacking" involved a group of German teenagers. They had managed to get access to various American computer systems and then sold the knowledge obtained in their data-journeys to the former Soviet secret service KGB. The case was discovered because one of the hackers sought help at the author's former Bayreuth chair, and a deal was agreed on with the prosecution authorities: The hacker revealed his knowledge and the investigation against him was suspended. The case was of particular interest because information on new techniques of computer manipulation was revealed in the course of this proceeding. The resolving of this case confirms the effectiveness of a "self-revelation" for cases of hacking already called for before.
b) Recent developments of telephone and telecommunications technology have led to the fact that nowadays, hacking does not only affect classic computer systems but increasingly also telephone lines, answer-phones and voice-mail-systems. By using the "blue boxes" and signal devices described above, young "telephone hackers" dial themselves into the local telephone exchanges of the telephone company and are thus able to listen in on the digitally led conversations in the respective part of town. In the US, besides other confidential information, especially the numbers of telephone access cards (so-called calling cards) are listened in on, which are then resold. The digital ISDN-network and the combination of telephone and computer technology will make new forms of crimes possible in future.
An example for the new form of telephone hacking is a 1992 case: Young Germans penetrated into the speech computer of the Barclays Bank in Hamburg to which the clients of the bank reported the receipt of their credit cards including the corresponding secret personal identification numbers as well as announcements in case of loss or - by giving the respective secret number - when asking for an increase of their credit limits.
Legislation and Prosecution
Computer crime and criminal information law are relatively young phenomena. A first historical analysis indicates that each new development of computer technology was followed by a corresponding adaptation of crime as well as by legislative changes. A short overview - using the example of Germany - illustrates this adaptation of crime and information law to the new information technologies. It also indicates that this process started gradually at first, but then continued at an increasing pace:
- From the beginning of the 1950s computers were introduced in industry and administration to control routine processes. As late as 20 years after that time, the first cases of computer manipulation, computer sabotage and computer espionage became known. Only in 1986 did the German legislator react with the Second Act for the Prevention of Economic Crime.
- On the other hand, the mass processing of personal data in electronic data banks since the 1960s was soon regarded as a danger to privacy. In Germany, the first law that took this development into account was enacted in 1970.
- The open networks of the 1970s soon led to corresponding misuses in the form of "hacking", which the Law Committee of the German Parliament could still consider in the Second Act for the Prevention of Economic Crime in 1986.
- The mass phenomenon of program piracy came along simultaneously with the spreading of personal computers in the 1980s, forcing the legislator to carry out different reform measures from 1985 onwards.
- The use of automated teller machines in the 1980s, too, was immediately followed by new ways of code card misuses, which already represented criminal offenses due to the reforms of the Second Act for the Prevention of Economic Crime.
- Today, electronic post services, mailboxes, ISDN as well as the development of close links between data processing and telecommunication are used by neo-nazi groups, perpetrators in the field of economic crime and organized criminals: Computer technology and telecommunication have not only become part of general life, but also of general crime. The changes that these new technologies caused in criminal procedural law do therefore not only concern traditional computer offenses, but all kinds of crime.
Conclusion
The criminological part of this paper has shown that the spreading of computer technology into most areas of life, especially the increasingly close relationship between data processing and data telecommunication technology, has made computer crime more diverse, more dangerous, and more international. The legal part of the article could trace back the multitude and the complexity of the resulting legislative reactions to six groups of problems and "waves" of reform: the protection of privacy, the fight against computer-related economic criminal law, the protection of intellectual property, the fight against pornography and other communication offenses, the reform of procedural law as well as new regulations concerning safeguard measures and the recognition of an electronic signature.
These developments of crime and the law are based on the underlying social changes and shifts of paradigms which will continue to exert crucial influence on our law in future:
- The emergence of the information society with its new objects of protection under criminal law,
- The changes of the risk society in which non-criminal measures deserve greater attention but in which measures of criminal law and criminal procedural law will also play an important role, as well as
- The growing together of the citizens in a "global society" in which new challenges can only be coped with by means of international cooperation.
These changes entail a loss of power of the classic national state both in favor of regional and supranational governmental organizations as well as in favor of multinational companies. Therefore, the effective protection of the citizen in the newly emerging information and communication society is only possible if these basic changes are considered and shaped positively. We need an intensified cooperation of national states and supranational organizations, new prevention and prosecution measures of information technology, as well as adequate control strategies of data protection law.
Bibliography
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Punch, M. (1999), Dirty Business (Sage: London)
Ruggiero, V. (1996), Organised and Corporate Crime in Europe (Dartmouth: Aldershot)
Taylor, P. (1999), Hackers (Routledge: London)