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Linkage and the Deterrence of Corporate Fraud


Miriam H. Baer


Brooklyn Law School


Virginia Law Review, Vol. 94, 2008
Brooklyn Law School, Legal Studies Paper No. 123

Abstract:     
Corporate fraud is often presumed to be the type of crime that can be deterred. Those who embrace deterrence as a goal of law enforcement, however, often ignore the tradeoffs between the deterrence of potential offenders and the deterrence of those "mid-fraud perpetrators" who are already mid-way through illicit schemes when the government announces a change in policy. Unlike potential offenders, mid-fraud perpetrators have no incentive to cease criminal conduct in response to increases in sanctions or likelihood of detection. This is true because a "link" exists between the offenders' cessation of future misconduct and the probability that their prior conduct will be detected and punished. If a CFO has lied to a company's shareholders in Quarter 1 about the company's profits, his cessation of lying in Quarter 2 substantially increases the chances that someone will focus on and detect his previous lies in Quarter 1. The problem with this linkage between cessation of conduct and increased probability of punishment is that criminal sanctions aimed primarily at deterring new offenders may also encourage perverse reactions from perpetrators in the midst of frauds. Policymakers contemplating changes in law enforcement policy therefore should consider the linkage problem in calculating the benefits and drawbacks of different law enforcement strategies.

Number of Pages in PDF File: 72

Keywords: fraud,deterrence, corporate crime, white-collar, law enforcement, law and economics

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Date posted: October 27, 2008 ; Last revised: October 19, 2009

Suggested Citation

Baer, Miriam H., Linkage and the Deterrence of Corporate Fraud. Virginia Law Review, Vol. 94, 2008; Brooklyn Law School, Legal Studies Paper No. 123. Available at SSRN: http://ssrn.com/abstract=1290710

Contact Information

Miriam H. Baer (Contact Author)
Brooklyn Law School ( email )
250 Joralemon Street
Brooklyn, NY 11201
United States

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