Linkage and the Deterrence of Corporate Fraud

Article — Volume 94, Issue 6

94 Va. L. Rev. 1295
Download PDF

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 their cessation of future misconduct increases 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 linkage is that criminal sanctions aimed primarily at deterring new offenders may also encourage “ongoing” offenders to invest in techniques that decrease the likelihood of detection. Policymakers contemplating changes in law enforcement policy should therefore consider the linkage problem in calculating the benefits and drawbacks of different law enforcement strategies. 

Click on a link below to access the full text of this article. These are third-party content providers and may require a separate subscription for access.

  Volume 94 / Issue 6  

A Tribute to Earl C. Dudley, Jr.

By John C. Jeffries, Jr. and George Rutherglen
94 Va. L. Rev. 1281

A Tribute to Glen O. Robinson

By John C. Jeffries, Jr. and Kenneth S. Abraham
94 Va. L. Rev. 1289

Linkage and the Deterrence of Corporate Fraud

By Miriam Baer
94 Va. L. Rev. 1295

State Action and the Thirteenth Amendment

By George Rutherglen
94 Va. L. Rev. 1367