Sunday, 2 December 2012

My Reaction to Starbucks' Reaction to the Public Reaction to Starbucks not paying tax.

It is a hard thing to live a moral life. I have vegan friends, who would insist that the delight I take in [eating] a melting slab of pork belly is depraved. There are difficulties in both utilitarianism and deontology, the two major competing schools of moral philosophy. And what happens when morals run out, and you have to choose between ‘fighting the Nazis’ and ‘saving your grandmother’[1]?

And there’s always the temptation of a gingerbread latte in a red cup, a sweet elixir that the fourth wise man brought Jesus 2000 years ago.

The Starbucks story is well known. Through internal corporate group transfers and payments, Starbucks can manipulate where profits end up. Usually, they end up in countries with lower rates of corporation tax, so that the Starbucks family can cream off the biggest chunk of money that it can. This is a standard sort of ‘tax avoidance’, a perfectly legal way of arranging your finances. But as we know, what is legal is not always what is moral.

Another time, I will look at two ways a state can deal with tax avoidance in law  - retrospective law making and a ‘general anti-avoidance rule’ (or GAAR).

For present purposes, I am more interested in the corporate communications of Starbucks. To me, they look stupendously ill advised.

The initial Starbucks reaction was hilarious. In it, Starbucks claimed to be acting not only to the letter of the law, but in its spirit as well. The ‘spirit’ of taxation, in my view, is that those who benefit from society contribute to it. Not that you move your money away to low tax jurisdictions which are not realistically your key business centres so you can benefit handsomely  Starbucks also claimed to pay £160m in the UK in tax, including in National Insurance, business rates and VAT. Forgive me, but isn’t VAT a consumer tax, paid at the very end of the supply chain? I paid some VAT for Starbucks; give me a medal.

A month or so on, and it’s now reported that Starbucks has acknowledged the ”feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more”.

I like many things about this statement. One, that it’s taken a month or so, and public feedback, for Starbucks to see that their approach sticks in the craw of your average UK taxpayer. Jimmy Carr could have told them tax avoidance isn’t popular. Second, is that it reeks of the corporate sentiment of maintaining customer loyalty, when really what is needed is an appreciation that paying tax is a good thing for society. Capitalism does not necessitate that you forget the world outside your direct business chain. Finally, the ‘need to do more’. No, the need to do the right thing. It’s not more. It’s standard.

[1] I have no idea if this is a common example. I’ve lovingly borrowed it from John Finnis. 

Monday, 19 November 2012

Phone Hacking Charges: What do we need to prove?

It’s been widely reported that eight people related to News International are facing charges relating to the phone hacking scandal. This post details what the prosecution will have to prove to secure a conviction. The charges are for conspiracy to commit an offence under section one of the Regulation of Investigatory Powers Act 2000, regarding ‘unlawful interception of communications’.

For a defendant to be convicted, they will need to be:
1.       A person
2.       Who agreed
3.       With another person to
4.       Intentionally and
5.       Without lawful authority
6.       Intercept
7.       ,In the UK,
8.       A communication
9.       Made by a private telecommunication system
10.   In the course of its transmission
11.   Without having the right to control the operation or the use of the system; and
12.   Without consent to make the interception

The first three tests are the ‘conspiracy’ requirements. By the Criminal Law Act 1977, a person guilty of conspiracy to commit crime X is liable to be punished as harshly as a person who actually committed crime X. A conviction here could result in a prison sentence of up to two years.
Crib sheets like these are useful things. They let you see where argument in court really happens. No one will argue in this case that they aren’t a person, aren’t in the UK, or that a victim asked them to tap phones. I imagine some or all of the defendants will argue that they had nothing to do with phone tapping, that it happened where they were working but they didn’t know about it and weren’t involved.

It’s interesting that the prosecutors have gone for the ‘inchoate’ offence of conspiracy. Inchoate offences are the step behind the actual commission of an offence. Attempted murder or conspiracy to defraud. The attraction for a prosecutor is that you don’t need to show that the thing happened. Here, the actual phone tapping will be excellent evidence that the defendants conspired to do it, but prosecutors don’t need to show that Rebekah Brooks sat down one day and hacked phones.

Inchoate offences are interesting because it makes us wonder about why things are bad. Attempted murder can result in the same sentence as murder, because why should an incompetent or unlucky assailant get off lightly? But, the reality is, a conspirator need not necessarily have caused any harm. When we decide what crimes are, should we be more concerned with harm caused or the intrinsic naughtiness of an action? If one pushes the boundaries of conspiracy too far, you can end  in the realms of fantasists. Which is exactly what this policeman is arguing – he says he never actually intended to do the thing (my step 2). 

Saturday, 10 November 2012

Unfair or Unread Standard Terms

I’ve not long moved into a flat. To get to stay in the flat, I signed a lease agreement. Because I’m a man who likes some law, I read my lease. One of the terms was that I have to regularly iron my net curtains for the duration of my stay.

I doubt very much that anyone will notice if I do, or do not, iron the net curtains. In fact, there are no net curtains. Or indeed curtains. So I’m almost certain no one will mind that I don’t iron the non-net not-curtains. The terms in the lease were standard terms, used by our estate agent, and likely others, when they rent out residential property for short periods to normal, average people.

These standard term agreements abound. You buy a plane ticket, update iTunes, sign up to phone contracts, change bank accounts, and all the time you’re ticking boxes or signing forms saying you agree to terms and conditions. And you’ve not read them. Easyjet have tickets, I have money, and I can’t negotiate with them. Their terms will have to do, and so I’ll tick the box.

There is statutory protection for us little Droogs when dealing with Fyodor Ltd’s standard terms. Landlord and tenant law is a peculiar area that I won’t delve into here. But the main protection for consumers dealing on standard terms with companies come from two pieces of legislation.

The Unfair Contract Terms Act deals with clauses that exclude or restrict liability under the contract, but applies to all contracts. The Unfair Terms in Consumer Contracts Regulation deals only with standard form consumer contracts, but with all types of clauses in them. If a clause is unfair, then it doesn't bind the consumer. The UTCCR can’t be used to challenge clauses dealing with the price in the contract, or the key subject matter. That why the (controversial) banks charges case in failed[1]. The charges on letters sent by banks form part of the price you pay for their services.

But I’d like to think that another bit of law could apply. When you sign a contract it is immaterial if you’ve read it[2]. In cases where there is no signature, then terms must be reasonably brought to the attention of the party accepting those terms[3]. But there is doctrine of ‘non est factum’. It allows those who are faultlessly unable to read a document from being bound to its terms by their signature. Traditionally, that’s blindness and illness. Further, the key case of Saunders[4] says that the doctrine would only be available to such a person when they were held to a contract radically different from that which they thought they were entering into, and would not be available to a careless person. So the capable but lazy man who misses the small point in the standard terms but signs anyway decidedly cannot plea non est factum[5].

I can’t help but think that the old cases lay down principles that apply at a very different time. Now, it is simply not plausible that anyone (including the Supreme Court Justices) read standard terms every time they book a flight. Are terms buried in reams of small print reasonably brought to our attention before we tick the box? Should the principle behind non est factum apply? I think there is, therefore, an argument to say you should only be taken to agree to standard terms that you could have realistically actually read.

It’s hard to say how big an issue this is. It’s not like Dostoevsky Ltd.’s terms give them an interest in your house, or permission to enslave your first-born. And unfair terms law prevents them introducing too onerous charges and exclusions. But no obligations should be imposed on anyone lightly. And contract law is generally about the agreement of intentions. So why should Mr Droog be bound by stuff he could not reasonably be expected to put his mind to?

[1] [2010] 1 A.C. 696
[2] L'Estrange v F Graucob Ltd [1934] 2 KB 394
[3] Parker v South Eastern Railway Company [1877] 2 CPD 416
[4] [1971] A.C. 1004
[5] Non est factum means not my deed. 

Saturday, 6 October 2012

What is Insider Trading?

This story broke on Monday 1st October 2012. The linked article talks of intrigue involving senior bankers, stock brokers, foreign businessmen and an investigative operation codenamed ‘Tabernula’. A tabernula, apparently, is a small booth. Welcome to the small booth, in the back of a City tavern, wreathed in cigar smoke, and to the murky world of insider dealing.

Insider dealing is bad. But what is it? Quintessentially, it is the trading of shares based on secret ‘inside’ information. If I work for Fyodor plc, and I know that Fyodor is about to announce huge profits, or a potential acquisition, or the resignation of its charismatic chairperson, and I trade my shares on the basis of that knowledge, I am guilty of insider dealing. The regime exists to create parity in share trading – how can Mr Droog hope to compete in the stock markets with me (and others like me) when we know so much more than he does?

Interestingly, insider dealing is subject to two parallel sets of rules. One is criminal (and is in s52 of the Criminal Justice Act 1993), and one is civil (set out in s118 FSMA).
This is a curious situation. The rules that these contain are, whilst not identical, substantially similar. Yet, a breach of s52 is a criminal offence, punishable by up to 7 years in jail; whereas a breach of s118 is only punishable by a fine.

So why the difference? As I’ve mentioned before, it is up to us as a society what we consider ‘criminal’, and what we regulate in other ways. Here, we have a rather pragmatic fudge. Insider dealing is a dishonest way of me taking money out of Mr Droog’s pockets. It is pretty much the same sort of thing as theft, and should be criminal. But, as the linked article implies, catching and prosecuting insiders who deal is hard. Shares are traded often, and their price necessarily fluctuates. How to spot the insider needle in the haystack of trades? And, critically, how to prove that to the criminal ‘beyond reasonable doubt’ standard?

This gets to a point key to ‘white collar crime’. It is often hard to spot, hard to investigate and hard to prove. To do so costs money. The resulting rarity of enforcement means the deterrent effect of punishment is unlikely to be high. High-rollers don’t think they’ll get caught. That’s where the civil regime comes in. A lower standard (‘on balance of probabilities’) allows for more successful enforcement, but the trade-off (‘scuse the pun) is that we can’t punish the insiders so harshly.

Tuesday, 25 September 2012

Vicarious Liability 1: What it is.

People prefer to sue companies over individuals if they can. Companies generally have more money – Tesco has more cash kicking around than its staff on the shop floor. Sometimes, Mr Droog can sue Fyodor Plc because Fyodor Plc did something wrong in its corporate capacity. It has breached some obligation that it had.

An alternative route that might be available is opened up by the concept of ‘vicarious liability’. This is where an employee[1] (Alex)  does something that causes loss to Mr Droog. If Alex is an employee of Fyodor, and does the act that causes loss in the scope of his employment, then Fyodor is ‘vicariously’ liable. Mr Droog can sue Fyodor, even though Fyodor has itself done nothing wrong. This is no-fault, ‘strict’ liability.

The above paragraph raises a lot of questions.Who counts as an employee for the purposes of vicarious liability? What if someone is an employee of more than one employer? What on earth is the ‘scope of employment’[2]? What link between the work and the act is required? Lawyers would reckon that a London law firm wouldn’t be liable for one of its trainees negligently damaging a fence in Banff on a stag do, but a dry-cleaners will be liable for one of its staff nicking a mink stole at work[3].

Critically, I wonder about the justification of vicarious liability at all. Generally, it is seen as a way of putting economic risk on those who can afford (through insurance) to bear it; and allow tort victims a claim against a defendant who can pay out[4].

However, that rationale is far from satisfactory. Tort comes from the Latin 'tortum' meaning wrong. It is about the claims of a wronged party against a wrongdoer. In vicarious liability, we have claims between the wronged and an innocent party who can afford to pay. But only sometimes. Vicarious liability transforms tort into a most imperfect system of insurance.

This legal imperfection leads to real life moral issues. Currently, vicarious liability is being considered by the Supreme Court in a case relating to child abuse by a Catholic organisation[5]. There have been quite a few such cases in recent years. These cases lead to discussions of whether priests are employees and whether child abuse can be in the course of being a priest. Which is all horrible in itself.

Recent decisions seem to favour Diocesan liability. That may be welcomed – we might think that someone should pay. But what of cases where Mr Droog was molested by his uncle in his own home, not a priest in a church (or, a house master in a boarding school)? In the former case, Mr Droog has no claim against any rich organisation. He will unlikely recover any damages. In the latter cases, he will (remember, the church or the school has done nothing wrong).

Which makes it appear that it is better to be molested by a priest than your uncle. Our law should not let me type that.

[1] I use this term loosely here –  it is not synonymous with employee in an employment law sense.
[2] Another time, I’ll look at these two (linked) issues of employee and scope of employment.
[3] Morris v C W Martin & Sons Ltd [1966] 1 QB 716
[4] Another time, I’ll run through the different grounds considered as justifications.
[5] The Institute of Christian Brothers case. 

Friday, 14 September 2012

Letter of Complaint: Thames Water

Below is a slightly redacted version of a letter I emailed to the Chief Exec of Thames Water. It worked: I got an apology, a partial refund (for my wasted time), and a contact at Thames Water I can call directly about any future account.

Lesson: normal customer complaint procedures are too slow and frustrating. The head honchos of big organisations often have staff to deal with emails like these.

Dear Sir,

My name is [Alex]. My customer reference number is [6655321]. I pay my water bill at a fixed rate. Critically, I pay my water bill. I have done so in strictest accordance with the advice I've been given by your employees, whom I've had cause to deal with on your premium rate phone services.

My tenancy expires in the middle of the year for which your company tried to charge me (Date 2012; the bill running between Month 2012 and 2013). As such, the bills I got were for amounts that I was never going to pay (anything post Date was irrelevant). I explained that to every single advisor I spoke to at every time I called to deal with Thames Water.

I paid for three months’ worth of water on A Day. I had agreed with the advisor on the phone that that would not quite cover me to the move out date, but as that date had not yet been fixed (although certainly 'in the month of Date'), paying for three months would be fine. I checked that paying the rest later (at Date) would have no ill-effects. I was told that it wouldn't. I asked, again, for a note of the situation to be put on whatever records your company holds about me. I was told that they would. 

On A Later Day I received a red letter from Thames Water. It was quite scary, for someone who had tried very hard to do as he needed to do, and who had made it easy for you to know what the situation was.

Thankfully, it said "If you have paid your bill in the last seven days, please ignore [this letter]". As I had paid my bill in the past 12 days, and had been so assured by the advisor on the phone that I had behaved properly and didn't need to get worried again until I moved out, I ignored the letter.

Today I got a very scary letter from a debt collection agency. I had to call another premium rate number. I was, now that the move out date is certain, able to pay off the £xx.xx I owed (not the £xxx.xx requested alongside threats of legal action and depleted credit ratings).

Clearly, at some point your systems have not worked. They have not worked because your advisors gave incorrect advice about when I had to pay, or because they didn't make the right notes on my file, or because those notes did not stop threatening letters being sent or my details being passed to a debt collection agency.

It wasn't nice to get a scary letter in the post. I don't much care for paying premium rate numbers to deal with scary letters that are not correct (or if they were correct, I don't much care for being told incorrect things by your employees).

I suppose you'll regard the whole operation as a success. I've paid.

You would be wrong though. Because I'm your customer and I am very angry at the way I've been treated, and that your flawed systems have put me at discomfort. And all at my cost.

You might not care. Who else can I get water from? But when Tube adverts tell me to be scrupulous about how long I shower for, it is galling that your company has not been scrupulous with the way it deals with its customers/income streams.

I would very much like you to consider what action by Thames Water would be appropriate to let me know that you do, in fact, care about how customers are treated; and I look forward to your response detailing those actions.



Sunday, 29 July 2012

Visiting Court and Watching Cases

I went to the Supreme Court to watch a very interesting case on vicarious liability. Vicarious liability is a doctrine that I studied at Uni, and was one of my very favourite undergraduate topics. I think I read more on that topic than I did for almost anything else. Of course, when I opened my Tort Final paper, there wasn’t a single question on it. Typical.

You might be like me, and find vicarious liability fascinating. But most people are either not fascinated by it, or don’t really know what it is. Which is fine.

What gets me is that some of those people visited the UKSC on the day in question, popped into Court 2, sat for about 5 minutes, and then ran off again.

I’m not surprised they found it boring. Counsel quoting from cases they’ve never heard of on a principle they don’t care about in the middle of a legal hearing based on facts they don’t know is not a rough-and-tumble Garrow’s Law spectacle.

What I am surprised by is that they thought the Supreme Court would be engrossing theatre. It is usually Counsel quoting from cases you’ve never heard of on a principle you don’t care about in the middle of a legal hearing based on facts you don’t know. If you didn’t know that, now you do. If you didn’t know it, and visited the UKSC, the TV screens showing the happenings of the court rooms should let you know.

The idea of seeing justice being done is a great one. But, unless you’re a person interested by any particular legal idea, my advice is this. Go to a criminal court. The stories will (generally) be better. The questions more factual and more tangible. You’ll find it hard to not form a view. When you go, ask to see the start of something, because that way you’ll hear the facts[1]. If you go to a magistrates court, you may well see a full trial, because they are shorter. (I saw a man defend himself by saying he had no intention of going to Disneyland Paris to hurt Donald Duck).  

I’m not trying to put you off going to court. Going to the wrong court will put you off going to court. Leave the dry stuff to those who know why it’s not dry.

[1] You really can, and should, ask any member of court staff “What’s on that’s good?” and they’ll let you know. 

Sunday, 22 July 2012

Plain Vanilla

I’m not hugely against legalese or industry jargon. Lawyers have words and phrases that we use because they are handy, descriptive shorthand. Lawyers say rights in rem rather than rights in a thing, because we use the Latin to get round our English ambiguities. It’s also shorter. We say judges’ comments were made obiter because the Latin means we can avoid saying ‘the judges were just giving their opinion on something they didn’t really have to deal with’, which would sound a bit rude, and a bit long. In competition law, we say ‘hard core’ when talking about a certain set of actions that are particularly bad. It’s just a useful handle (if a bit vulgar sounding).

But I am against jargon that is contrary to good sense or cookery. ‘Plain vanilla’ is one such term. It’s used in finance to mean ‘straightforward’, ‘simple’ or ‘without finials’, as in a ‘plain vanilla bond issue’. Now, I know bankers are not renowned for their soft, homely skills. But surely we all now know that vanilla is an interesting, complex flavour and so should never be described as plain? And certainly should not be tarnished by its association with bond issues. I don’t want to be thinking of the Eurobond market when I’m having my crème brulee. Hence forth, I’m replacing plain vanilla with John Smith

Monday, 16 July 2012

What is IP?

I think young lawyers-to-be quite like IP. IP stands for Intellectual Property, so it reassures you that you have to be intellectual to understand it. But the concept is pretty easy to grasp.

Think back to the Vodkat case described in a previous post. There, Diageo were concerned that some other company was getting the benefit of the goodwill built up in ‘vodka’. Someone else was piggybacking on the hard work of the vodka industry to sell their own lower-strength spirit. Or think of rip-off football shirts. No one buys a knock off football shirt because they think it’s a pretty tee-shirt – they buy it because it associates them with the club and their brand. The rip-off shirt manufacturer has piggybacked on the reputation of the club.

The same applies to trademarks. If I mixed sugar, ink and fizzy water and sold it in a bottle labelled ‘Coca-Cola’ then I am using the trademark’ of Coca Cola to sell my concoction. Another aspect of IP is patents. If you work for ten years developing a wonder drug and then I just make cheap copies (because I’m not trying to pay back ten years’ worth of research), then I am piggybacking on your efforts.

Intellectual Property, then, is the fruit of one’s labours that is not tangible. You can’t steal the money I earned, or live in the house I built, so you can’t just ‘steal’ the value in a brand, a reputation, a trademark, an artistic creation, a formula or a code.

Of course, a company needs to try and protect its IP. That’s why they get copyrights and patents and trademarks. Disputes get costly when no one knows what brand belongs to who. For example, you may have come across Budweiser, in both American and Czech forms. They are beers brewed by different companies, and they have argued over who owns the name for ages. In one of the judgements, an English Court of Appeal judge suggested they should maybe just chill out and stop arguing about it (my words, not his)[1]

One question must be relate to whether and when any IP should be freely available, or what should be freely available to some. For example, should academics be allowed freer access to certain material than commercial organisations?

Another problem is where there are so many patents that it is hard for companies to know what they can do – a ‘patent thicket’. As the 2011 Hargreaves Report said:

“businesses working at the leading edge of a particular technology may find it difficult or even impossible to know with whom they are in conflict, or whom they should approach for a licence. A current generation smartphone, for example, may well be covered by hundreds of patents owned by tens of rights holders.”

And you might have spotted a legal/policy tension. IP lets companies make money. You can’t just sell my new wonder drug at cheaper prices. Usually we like companies undercutting each other on price – that’s why we have competition law. So where competition law promotes competition, IP seems to set restrictions on it. That’s so that companies have an incentive to innovate. Why put in the hard yards if someone else takes the money in the end? The interface between IP and competition is a tough one to negotiate. 

[1] Ward LJ, para 65 of [2009] EWCA Civ 1022 I would like to say the dispute is all over; a CA judgement of July 2012 [2012] EWCA Civ 880seems to put paid to it all (and both get to carry on as they were). But given that between them, the parties have let the whole thing rumble on for so long, I’m not entirely sure!

Saturday, 7 July 2012

Are Contracts About Morality?

Law and morality can be an unhappy double act; as if Ant had slept with Dec’s mother. Legal theorists have a great time deciding if law in its central case is moral, or if legal validity depends on morality, or if there is de facto moral good in having law, or if a judge should think in moral terms when deciding hard cases, or if they are entirely unconnected. And many other links, non-links and permutations.[1]

One area that has also received a lot of attention is the basis of contract law: why do we have legally binding contracts that can be enforced? Is there a moral reason for it?

The argument (in simple form) runs that breaking a promise is morally bad. Therefore when you make a promise that you intend to be bound by, the law of contract creates a legal obligation to match the moral compulsion.

This is not a standard and accepted reason for why contracts are enforced. A diametrically opposite view would be one like that of Oliver Wendell-Holmes, who said “the duty to keep a contract at common law means aprediction that you must pay damages if you do not keep it, and nothing else”. This view is predicated on the idea that contracts are a matter of economic usefulness. When a breach is more efficient (i.e. I break my contract with you because I can make a better deal elsewhere that covers the cost of my breach and makes me money too) then breach is A-OK.

Other views include a great emphasis on notions of reliance, or  take alternative and composite views.

But the point here is that contract law is often (and not improperly) thought of as a dry topic, where dull men of business make boring things happen. To think of a breach as an immoral act, and damages for breach as in some way the penalty and the compensation for that immoral act, stands at odds with aspects of contract law that treat contracts simply as hardnosed, arms-length agreement.

Finally, the theory of contract law is a tangly mess. There is no one accepted theory. One reason is that theories match up with different parts of legal realities. How, for example, does the morality of promising as a basis for contract law fit with the need for ‘consideration’ (i.e. both parties need to give the other party something for a contract to be valid)? If promises are morally important, is it right that you can’t make punitive provisions in a contract for breach? If promises are important, why is specific performance not a normal remedy?  Equally and oppositely, if contracts are just about economic efficiency, why do we have doctrines to protect weak and vulnerable contractors? Why do we abhor misrepresentation?

This sort of stuff keeps academics awake at night. Commercial solicitors don't normally worry about it too much!

[1] Anybody doing any legal theory could do worse than having  a play around on this website. The example theories cover (in an embarrassingly rough way) Finnis, Fuller, [many theories in many ways], Legal Positivism and Dworkin. 

Thursday, 21 June 2012

The Maths of Deterrence

One reason we punish is to deter the offender and others from doing naughty things. But how does deterrence work?

The simple idea is that if the punishment (pain) is worse than the gain achieved by doing a naughty thing (pleasure), than we, as rational people, won’t do that bad thing. I won’t steal a loaf of bread if my hand would get chopped off. Deterrence works where Pain > Pleasure.

Add a complication. What if we don’t expect to be punished? Fines for smoking inside in public places are relatively high to mitigate against the fact that it might not be applied in all cases. This is the maths of probability. A fine of £50 that is applied in (say) 25% of cases creates a probable pain of £12.50[1]. Deterrence works where Probable Pain > Pleasure.

Add another complication. What if I don’t know smoking in a museum is wrong, or if I think the punishment for stealing bread is community service, or if I wrongly guess that only 2% of offenders get caught? My calculation is skewed by my misinformation. So, Deterrence works where Expectation of Probable Pain > Pleasure.

My last complication. Humans aren’t rational. I’ve been reading a book by Daniel Kahneman, the psychologist who has made behavioural economics a thing. He writes about (among other things) how humans assign weights to probabilities incorrectly (overplaying small chances, or negating them entirely), about how they are risk averse when it comes to losses, and how people have optimistic views about how their own plans will work out. Apply that to our formula, and we can see that our irrationality mucks up our calculation[2]. A 5% of apprehension might loom larger, and feel like 10%. I might be really worried about the cost of the fine. I might think that I am such a good loaf stealer that I won’t get caught. Therefore, Deterrence works where (Expectation of Probable Pain > Pleasure) (as affected by Human Irrationality).

And this is all unapplied theory. Criminologists don’t know how well punishments deter, because it’s very hard to do controlled experiments. Further, Pain and Pleasure might be felt differently by different people. Finally (for now), a lack of other options (the hungry loaf-stealer) must have effects. With calculations this hard, who’s to say whether punishment X will deter Mr Droog or Fyodor Plc from offending or reoffending?

[1] Which is more than you’d pay for a license to smoke one cigarette inside.
[2] Kahneman doesn’t like to say humans are irrational. But he does say they aren’t rational in the sense economists use it. So I’m going to be all blasé, use words normally, and call humans irrational. 

Tuesday, 22 May 2012

Freeganism, Crime and Supermarkets 1: Are freegans criminals?

Freeganism is this. What’s the law’s view on it? That was my question, and I found a very good article on the topic by Dr Sean Thomas in Legal Studies[1]. He suggested that a freegan accused of theft (Mr Droog) could argue that you cannot steal abandoned goods, but noted that in some theft cases rubbish has not been treated as abandoned. He therefore suggested a more fruitful defence would be to say that Mr Droog has not been dishonest under the Ghosh test[2], because there is no requisite ‘moral obloquy’ attached to freeganism. He suggested these things in a very full and nuanced way.

Dr Thomas is obviously sympathetic to freegans, and I must say that I am too. But I’m not sure his article which answers “Do freegans commit theft?” with “No” is all that beneficial to freegans. One, he argues that the ‘crux’ of the matter is that ‘freegans cannot be understood to be harming anyone’. This isn’t as obvious as Thomas seems to suggest. If I own a shop, I want you to buy from me. When you take things from my bin, you don’t buy them from my shelf. My economic interests are harmed. And also, harm is not the crux of the matter. No harm is a good reason not to criminalise an act, but is not correct to say that "no harm" means that a crime cannot have been committed, even when the conditions for criminality are fulfilled.

His analysis of the relationship between abandonment and honesty is more important. The person who openly takes the car that he honestly thinks is abandoned and the scuba-diving, dead-of-night golf ball taker look very different. But if the balls were abandoned, there can be no theft. Thomas points out how honesty and abandonment have been (wrongly) conflated by the courts to just be about naughtiness.

But herein lies the problem. Thomas makes it easier for Fyodor Plc to argue theft. They just need to put signs over there bins saying “this is not abandoned”. This would seal the deal on the abandonment point, and would make it harder for Mr Droog to argue that he was acting honestly.  Freegans would be left only with a “we’re good people doing no harm” 'defence', which I reckon is shoogly at best.

This is an issue of real interest. Freegans probably do a good thing. It would be a shame if they were thieves (and a recent case suggests they are). It’s also a shame that interfering with bins is an offence, as Thomas puts in a footnote. It must be true that in reality, prosecutions aren’t brought very often (it’s not great PR for Fyodor Plc to report freegans to the police). But, in my opinion, what we’re left with are policy questions, because the legal situation does not favour dear old Mr Droog. 

[1] Legal Studies, Vol. 30 No. 1, March 2010, pp. 98–125

Wednesday, 16 May 2012

Executives in Prison

Some Bad Businessmen[1] do go to jail. But what’s that like? I am yet to find an academic paper, or even a decent newspaper article, that discusses actual experience of executives in prison in an in-depth way. The Guardian makes do with pictures of business people who are, or have been, in prison. The issue I'm interested in here is the bite of punishment. Does prison hurt executives more or less than the ordinary man-of-crime?

The argument for prison hurting businessmen more is that they had more to lose in the first place. They can be disqualified from being the directors of companies, ruining their working life before they hear the cell door shut. Even if they are not disqualified, one must assume it’s far harder to get a high-powered position when you’ve done time. Further, the typical image of a businessman conjures up family life and community respect, both of which are liable to be broken by a stint in jail. Maybe just being branded a criminal - and it's associated shame and career damage -  is punishment enough in their sphere of existence.

The counter argument could just run the way Sir Ken Macdonald put it on a (very interesting) BBC Radio show (now offline). On it, he said it was disgusting to argue that as richer people came from communities where family and reputation counted more, corporate criminals should be treated more leniently. But with respect, until studies are done, that’s not a ridiculous starting point. If prison is part-and-parcel of your community’s life, going inside is not the same culture shock as if it is really alien. Of course, you can say that if you have done something really bad, you deserve it, and elsewhere we will discuss the metrics of badness of white collar crime. But here, assuming Mr Businessman and Mr Carjacker have done equally bad things, maybe prison is a worse experience for Mr Businessman. This of course must be caveated - this general idea has to be applied on a case-by-case basis. 

Other, more nuanced, complaints about the treatment of Bad Businessmen exist. Some include the idea that white collar criminals ‘get away’ with an easy life in open prisons, find it easier to conform with prison rules, and get more respect from staff than common-or-garden criminals. But then, conforming to rules should be rewarded, should it not? And, once in prison, it’s hard to see what danger is being posed by white collar criminals such that they should be in cells.

We come across scenarios all the time where wrongdoers’ means and backgrounds are considered in their punishments. Fines from the FA are set very high, because fining a footballer £200 is like fining me 2p. It might be unpalatable that to inflict equal punishment, white collar criminals should have more lenient sentences, but that is an indictment on social inequality, not a reason to punish in a de facto harsher way. 

[1] My use of ‘executives’ and ‘businessman’ is broad and loose, as defended here. And if anyone finds an in-depth article on this idea, let me know!

Saturday, 5 May 2012

Name Calling - 'White Collar Crime'

When I was checking that calling this blog ‘business behaving badly’ wasn’t an unintentional rip-off of any other regular blog/journal/feature, I came across this interesting and broad ranging speech by Christopher Craige, the Director of the CDPP in Australia. It covers many interesting ideas, and is aimed at an audience who knows a thing or two about law and/or crime, but not a huge deal about corporate crime. It is therefore aiming at the same market as I am, and with the same name. I’m pretty sure he won’t mind me using the title for a blog 4 years later.

I also hope he won’t mind me disagreeing with him on one issue. He writes:

In the early 21st century I suggest we can be far more robust in adopting a language that defends and nurtures the free market system whilst saving it from its own excesses. The continued currency of the term “white collar crime” is now unhelpful in this task. Any lingering implication that there is a more benign variety of crime, arising from genteel origins of some corporate perpetrators can surely now be dismissed. Language of this kind is an impediment to retaining community confidence that we have clear-eyed legislative, regulatory, prosecutorial and judicial responses to what are in essence very serious and harmful crimes committed by people in positions of trust and advantage. It is an aggravating fact in a contemporary setting when such crimes are committed by people in the course of occupying very high positions of authority in business.

To have a problem with the term white collar crime is not unique. I didn’t want it in the title of my blog, but not for his reasons.

First, I would argue that the ‘lingering implications’ of ‘genteel’ or ‘benign’ crime are not all that strong. As the trend of developed nations is to take firmer stances towards such behaviour, the umbrella name must matter less. Relatedly, the words ‘white collar’ don’t need to mean gentility.

In fact, the reason I disagree with Craigie is part of the reason I didn’t want to use the term myself. It is vague and its parameters are unclear. David Nelken[1] devotes some time to working out what white collar crime might be. He shows very clearly why the ‘original’ definition given in 1949 by Sutherland[2] pretty hopeless. A crime committed by a ‘person of high status in the course of his occupation’ tells us so very little about what might be going on – it could be financial crime, competition law offences, manslaughter, or whatever. Some scholars have included non-criminal behaviour in ‘white collar crime’ -Sutherland among them. The definition doesn’t help us decide whether any given practice falls within the definition.

If then, the definition is vague, and we can’t apply it easily, because it’s so nebulous, then I find it hard to believe there can be much in the way of lingering connotation. Because it is at once definitive sounding and nebulous in reality, I didn’t want it in the title of my blog. I didn’t want to try and defend whatever I discussed as falling within its ‘meaning’. Instead, I’ve used my own (and Craigie’s!) title.

We could do away with the ‘white collar’ term, if we could convince everyone to rip up lots of textbooks. I don’t think we really need to. In all its cloudy fug, devoid of strict academic meaning, it does at least wave us in the general direction of a group of offences. With time, what comes under white collar crime may well crystallise. And it is useful to have a name or label for a set of offences. The set that Craigie wants to refer us to is not so easily caught within a definitional parameter like, say, sexual offences or traffic offences. If we do away with ‘white collar’ crime (or ‘corporate crime’ – which arguably isn’t a great name either) then we are just left with ‘crime’, which is more useless; or we have to think of a new name. 

Given how hard it is to define the contents of the rather flexible title ‘white collar crime’, one runs the risk of naming something into definition. For example, something like ‘elite crimes’ looks like it rules out any struggling businessman, where ‘white collar’ does not. Further, terms like ours (BBB) are equally nebulous. I only used it because it was nebulous enough that I didn’t have to compare my definition to anyone else’s!

And whatever we call it, who’s to say that lingering genteel and benign connotations would be banished – in talking about competition law it was once said it’s theft by men in nice suits[3]. If there is an element of gentility in these types of behaviours, we can’t oust it simply by using a different name!

[1] In the Oxford Handbook of Criminology. His discussion is very much fuller than mine.
[2] In a book called ‘White Collar Crime’
[3] I can’t now remember by whom. 

Sunday, 29 April 2012

Ethical Question of Economic Competition

I read an article by Jonathan Wolff in an applied ethics textbook. There, he tackles the 'seldom asked' question of the ethical difficulties created by having economic competition, the hallmark of free market capitalism. Why is it OK to intentionally inflict economic harm by opening a shop next to your rival’s, but not OK to steal?

Wolff ponders the idea that when we act as consumers, we might be exploiting producers. We only want them to compete to provide the side effect of lower prices and better quality. It’s a competition we want no one to win (as monopolies affect our own interests).

He rejects the defence that producers are voluntarily taking part in the competition; exploitation often includes some sort of willingness. He doesn’t think that it’s a defence to say producers also act as consumers. He only sees a defence in the idea that we, as consumers, don’t sufficiently disregard producer interests to make us exploiters. The welfare state and bankruptcy laws support those producers (business owners and employees) who fail or flounder.

He then goes on to say that we, as consumers, do exploit those producers who, for reasons of their own domestic situation (read: live in developing countries), don’t have sufficient safety nets. Those are the people whose lives we sufficiently disregard as we pursue our own ends.

I hope Wolff is right when he says the questions he tackles are usually unasked, otherwise I have a bit more reading to do before I can comment on his article. But here are my thoughts.

First, is that the ethical side to capitalism is not always ignored. Wolff recognises that socialists and Marxists do consider it, and they consider it well – see G.A. Cohen for an exemplary piece about how fear and jealousy are the driving capitalist emotions.  Second, I don’t think he deals well enough with the idea that the exploited employees and the exploiting consumers are the same people. How can a society all be exploiting itself? Maybe this criticism works less well in his true exploitation scenario. My third criticism would be that Wolff starts off thinking about the ethics of competition generally, a big and interesting topic, and moves to say that we exploit third world producers, a point that, however well made here, has been made many times before. My fourth criticism is that he’s a tiny bit wrong when he says we don’t want anyone to win the competition. Current competition law (in theory and practice) has no problem with monopolies per se. This leads to the fifth problem. Competition rules are to try to benefit society, and he doesn’t  really engage on what is the better option. Are minimum wages really enough to salve our consciences? There is still, on his account, a degree of exploitation. My sixth (and a very minor) issue is that he never makes explicit why stealing is worse than competition (there are no or few beneficial side effects of letting people steal).

But more importantly, I think, is where he places the blame. If me buying a shirt from Fyodor Ltd is part of a global system of capitalism whereby Mr. Droog in another country loses out, why am I to blame? If Mr Droog is Fyodor’s employee, then surely the primary exploiter is the one who is paying under-the-odds for labour so as to make profit for themselves. And if Mr. Droog works for Dostoyevsky Ltd, and they go bust in some other country because I bought a shirt from their rivals, are there not sufficient other actors to blame before going to consumers? Directors at Dostoyevsky for failing to take the best decisions? Directors at Fyodor for gaining an unfair advantage by undercutting or being anti-competitive? The civilians and politicians of the other country for failing to provide the safety net? The international political community for failing to find globally applicable minimum standards that are enforced?

I think the problem is his focus on exploitation. He explicitly recognises that it is the competitors who do harm to each either, and we encourage it. But it is that encouragement that is exploitation as he defines it. The initial harm doesn’t fit the exploitation definition that he’s discussing.

Business ethics are a tricky field, and it’s not a bad thing for consumers to remember the knock-on impact of their choices. But to focus on them, and forgetting the other actors, seems to me to be focussing on the addicts, not the dealers. 

(Discussion of 'Economic Competition: Should We Care about the Losers?', Wolff, in Hugh LaFolette (ed) Ethics in Practice, 3rd Ed.)

Tuesday, 10 April 2012

Scrapping 'Dishonesty' from the Cartel Offence

Section 188 Enterprise Act 2002 provided that:
An individual is guilty of an offence if he dishonestly agrees with one or more other persons to make or implement, or to cause to be made or implemented, [cartel] arrangements [between at least two companies].
I wrote last time about the different situations in the US and UK. I mentioned that the UK wasn’t a great criminal enforcer of competition law infringements, and that this ‘cartel offence’ wasn’t doing a great job.
Well, maybe that’s about to change. The Government has decided that it wants to scrap the ‘dishonesty’ element of the offence. This might be good news in that:
  •   We might see more prosecutions.
  •   Those prosecutions are more likely to be successful.
  •  As such, the offence will have more ‘bite’ and thus be a better deterrent.

This is because the dishonesty test is one that comes from case law (R v Ghosh[1]), and it is arguably a bit tricky to apply to ‘complex’ commercial agreements. Ghosh needs the defendant (D) to fall below the normal standard of honesty (objective test) and to know he was being dishonest by that standard (subjective test). A jury member knows what he thinks of theft, he might not know how dishonest he considers cartelling. And this will affect both whether he believes cartelling is dishonest by reasonable standards, and also whether he thinks D would know that.
On the other hand, we could be worried, in a couple of different ways:
  • Serious offences should always have a ‘mens rea’ element – D needs to have a sufficiently guilty mind. This isn’t a parking ticket, this is five years in jail – D needs to be wilfully bad.
  • The reason we weren’t prosecuting often or successfully enough was because the body responsible (the OFT, soon to be merged with the CC) lacked expertise and experience.

These skirt the fundamental issue. It is the more woolly issue of to what extent we should criminalise anti-competitive conduct. Getting rid of dishonesty widens the offence, both in law and in fact. Some conduct that previously wasn’t criminal now would be. Some conduct that was criminal but too difficult to prove will be easier to prove. I don’t know where the limits should be. But I am a little worried that the global trend to tougher enforcement means that we’re making tougher and tougher laws without fully exploring how well the original law could ‘work’ at limiting anti-competitive conduct whilst still being careful that we don't over-penalise those who engage in that conduct.
 Further, in this particular case, we’ve bypassed the need to explain to the public, or persuade a jury, that price fixing is dishonest. As a result, the cartel offence makes scant effort at earning its place in the public conception of what is ‘wrong’. Another time, I’ll write a comment on public attitudes to anti-competitive practices. It will be tightly related to this piece.

[1] [1982] EWCA Crim 2

Wednesday, 4 April 2012

Competition Law and Criminal Enforcement (on either side of the Atlantic)

Competition law is one of the major reasons why this blog is called Business Behaving Badly, and why I try to focus on naughtiness, harms and wrongdoing rather than corporate (or white collar) crime. In Europe, competition law is largely a regulatory scheme based on fines, and with a few individual carved-out exceptions, is not ‘criminal’ law. However, in other jurisdictions, notably the US, criminal enforcement of competition law is far more widespread.
This reminds us that crime is ‘socially constructed’; that we have to think very carefully about what conduct we want to consider as criminal; and the fine distinctions between systems that can yield different results.
Here, we’ll simply look at the competition/criminal law interface either side of the Pond, and I’ll speculate as to why those differences exist.
The US
The US is the granddaddy of competition law – the law that regulates practices contrary to the market competition that is fundamental to a capitalist system[1].
According to the US Department of Justice (DOJ), cartelists are ‘generally prosecuted criminally’, whereas those who, in EU parlance, abuse a dominant position are generally dealt with in civil law. Criminal prosecutions can lead to corporate fines of up to $100million (or twice-the-gross-gain resulting from the violation), individual fines up to $10million, and up to 10 years in jail (I often wonder what the world would look like with a base-12 counting system).
In the US in 2010, the average jail term for these offences was 30months, and a total of 26,046 days were spent in federal jails for antitrust violations, equivalent to 71 people spending their whole year in jail. Fines reached $555million, down from $1billion the year before.
The UK and the EU
In Europe, criminal law plays a far smaller role. The European Commission is the major competition law enforcer, and it does not impose criminal sanctions. Instead, it administers fines (or sometimes behavioural and structural orders) to companies that violate the relevant provisions.
Member states still have a role to play, and indeed, the national competition authorities (NCAs) increasingly work better with each other and with the Commission. And some states have criminal sanctions available.
The UK has one – the Cartel Offence. It originally provided that an individual who dishonestly agrees to engage in hard-core cartel activity (price fixing, bid rigging, etc) could face five years in prison, and/or an unlimited fine. So far, there has only been one successful prosecution, in R v Whittle (Peter) [2008] EWCA Crim 2560, and in that case, all three defendants admitted guilt. In fact, the case is more interesting in looking at difficulties where actors violate competition laws of different countries. In Whittle, the three defendants had been arrested in the US, and had made plea bargains there. The dishonesty element is being scrapped, which we’ll talk about next time.
Why the Differences?
So why are the Americans keener on criminalisation? I will suggest four reasons, all quirks of history. No doubt other reasons could be found.
  1. The US got their first. The DOJ says, criminalisation is the best deterrent to cartelists. The global trend in enforcement is to states using ever tougher deterrent. It is unsurprising that the first big economy to deal with competition law got to the fiercer deterrents first.
  2. The EU. The EU is the prime actor in European competition law, but it doesn’t have competence to create and enforce criminal law. This stems from the EU’s history as an economic union, and so certain issues of political sovereignty have not been ceded. Criminal law is one of the most sensitive. Instead, various countries have begun their own piecemeal processes; but they have not been the prominent enforcers in the past, and there remains concern about how varying offences can co-exist in the EU – both as to consistency and the problem of double (or multiple) jeopardy.
  3. Criminalising culture. The US is more predisposed to locking people up. It has, by far and away, the highest rate of incarceration in the world. Land of the Brave, maybe, but a lot of US ‘homes’ aren’t all that fussed with ‘freedom’. That may or may not be a good thing.
  4. The US has more private enforcement – my Uni notes say that in the US, 90% of competition cases are not brought by the regulators, versus about 15% in the EU. This must affect the balance of enforcement, and maybe pushes the state away from adding fines to damages, and instead encourages penal enforcement.

[1] That is sweeping. The economics underneath competition law is complicated, and some argue competition law is contrary to the guiding hand of a true free market. Less extreme positions still challenge some competition law rules, which, it can be and is argued, actually chill or prevent competition and could harm consumers. In a quiet moment, I'll try and summarise competition law on here.