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THE INVESTIGATION AND PROSECUTION OF REGULATORY OFFENCES: IS THERE AN ECONOMIC CASE FOR INTEGRATION?*

Published online by Cambridge University Press:  15 March 2011

Nuno Garoupa ,
Anthony Ogus  and
Andrew Sanders
Nuno Garoupa
Affiliation:
University of Illinois.
Anthony Ogus
Affiliation:
University of Manchester and Erasmus University of Rotterdam.
Andrew Sanders
Affiliation:
University of Birmingham.
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The Cambridge Law Journal , Volume 70 , Issue 1 , March 2011 , pp. 229 - 259
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Copyright © Cambridge Law Journal and Contributors 2011

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References

1 For the sake of exposition, we assume the duality of the two functions of investigation and prosecution. We recognize that it is difficult to make a pure separation between investigation and prosecution because investigators are sometimes involved in prosecution decisions while prosecutors are sometimes involved in investigation. In fact, as we explain later, in most systems there is a continuum of arrangements from full separation to full integration. In addition, we refer to “criminal justice” as a short-hand for police-initiated processes. We recognise that in the UK many “regulatory” bodies (e.g. the HSE) sometimes prosecute in the criminal courts and that the full range of criminal sanctions then become available.

2 This is already the case in many civil law jurisdictions. Note the police also have similar sanctions, on a more modest scale (see later).

3 Again for the purpose of exposition, we assume that there is a clear distinction between “regulatory” crimes and “mainstream” crimes, but the qualitative conclusions still hold in the more realistic context of a convoluted and debatable distinction. See, for example, Lamond, G., “What is a Crime?” (2007) 27 O.J.L.S. 609CrossRefGoogle Scholar and A. Ogus, “Regulation and its Relationship with the Criminal Justice Process” in H. Quirk, T. Seddon and G. Smith (eds.), Regulation and Criminal Justice: Innovations in Policy and Research (Cambridge 2010) for advocates, and S. Tombs and D. Whyte “A Crisis of Enforcement: the Decriminalisation of Death and Injury at Work” (2008) (Centre for Crime and Justice Studies Briefing no 6, Kings College London) and A. Sanders “Reconciling the apparently different goals of criminal justice and regulation: the ‘freedom’ perspective” in H. Quirk et al., op.cit. for opponents, of these distinctions.

4 See, for example, A. Ogus, Costs and Cautionary Tales: Economic Insights for the Law (Oxford 2006).

5 See N. Garoupa (ed.), Criminal Law and Economics (Aldershot 2009).

6 In the second half of the 18th century in Staffordshire, for example, only 13% of the prosecutions were brought by anyone in public office: D. Hay and F. Snyder (eds.), Policing and Prosecution in Britain, 1750–1850 (Oxford 1989).

7 D. Philips, Crime and Authority in Victorian England (London 1977), ch. 4; J. King, Crime, Justice and Discretion in England, 1740–1820 (Oxford 2000), p. 75.

8 For example, many thieves in Essex sold stolen goods in London at that time. But the London-based Bow Street Runners charged Essex victims for their services if they became involved: the usual rule was “parties must pay” (L. Radzinowicz, A History of English Criminal Law and its Administration, vol. 2: The Movement for Reform (London 1956), p. 263).

9 King (2000), note 7 above, ch. 2 and 3.

10 C. Emsley, Crime and Society in England, 1750–1900, 2nd ed. (Longman 1996), ch. 8.

11 As indicated by the fact that by the end of the 18th century the majority of prosecutors were still not legally represented:J. Beattie, Crime and the Courts in England, 1660–1800 (Oxford 1986).

12 Hay, D., “Controlling the English Prosecutor” (1983) 21 Osgoode Hall Law Journal 165–186Google Scholar.

13 Quoted by L. Radzinowicz, A History of English Criminal Law and its Administration, vol. 4: Grappling for Control (London 1968), p. 196.

14 Hay and Snyder, note 6 above; Phillips, note 7 above, p. 114.

15 Emsley, note 10 above, ch. 8.

16 Bodkin, A., “Prosecution of Offenders: English Practice” (1928) 1 Police Journal 353CrossRefGoogle Scholar.

17 However, a refusal or failure to investigate can be held to be Wednesbury-unreasonable or a breach of a tortious duty under common law. See A. Sanders, R. Young and M. Burton, Criminal Justice (Oxford 2010), chs. 7, 13.

18 Uglow, S., “Independent Prosecutions” (1984) 11 Journal of Law and Society 233–245CrossRefGoogle Scholar.

19 Hay, note 12 above.

20 Ibid.

21 Royal Commission on Criminal Procedure, The Investigation and Prosecution of Criminal Offences in England and Wales: The Law and Procedure (HMSO 1981), para. 155–164.

22 For a survey see M. Weatheritt, Survey of Prosecuting Solicitors' Departments (RCCP Research Study no. 11) (HMSO 1980); for general discussion see Sigler, J., “Public Prosecution in England and Wales” (1974) Criminal Law Review 642Google Scholar.

23 Sanders, A., “Prosecution Decisions and the Attorney-General's Guidelines” (1985) Criminal Law Review 4Google Scholar.

24 Royal Commission on Criminal Procedure, Report of the Royal Commission on Criminal Procedure (HMSO 1981).

25 Hay, note 12 above.

26 Sanders, note 23 above.

27 Kurland, P.B. and Waters, D.W.M., “Public Prosecutions in England 1854–9” (1959) 9 Duke Law Journal 493CrossRefGoogle Scholar.

28 Sanders, Young and Burton, note 17 above, chs. 7, 12.

29 R. Flanagan, Review of Policing: Final Report (SO 2008).

30 See generally Sanders, Young and Burton, note 17 above, passim.

31 Royal Commission (1981), note 14 above.

32 Ibid., para. 6.29.

33 Sanders, Young and Burton, note 17 above, ch. 7.

34 Ibid.

35 R. Young, “Street Policing after PACE” in E. Cape and R. Young (eds.), Regulating Policing (Oxford 2008).

36 White, R.M., “Investigators and Prosecutors or, Desperately Seeking Scotland: Re-formulation of the ‘Philips Principle’” (2006) 69 M.L.R. 143CrossRefGoogle Scholar.

37 D. Hay, Albion's Fatal Tree: Crime and Society in Eighteenth Century England (Harmondsworth 1977).

38 H. Arthurs, “Without the Law”: Administrative Justice and Legal Pluralism in Nineteenth-Century England (Toronto 1985).

39 Royal Commission on Practices and Proceedings of the Courts of Common Law, 5th Report (1833–34).

40 Bartrip, P. and Fenn, P., “The Administration of Safety: the Enforcement Policy of the Early Factory Inspectorate, 1844-1864” (1980) 58 Public Administration 87CrossRefGoogle Scholar.

41 Arthurs, note 38 above.

42 This prosecutes for Her Majesty's Revenue and Customs (HMRC). See C. below.

43 Dickens, B.M., “Control of Prosecutions in the United Kingdom” (1973) 22 I.C.LQ. 1Google Scholar.

44 K.W. Lidstone, R. Hogg and F. Sutcliffe, “Prosecutions by Private Individuals and Non-Police Agencies” (Royal Commission on Criminal Procedure, Research Study 10, 1981).

45 See White, note 36 above.

46 Lidstone et al.), note 44 above.

47 K. Hawkins, Law as Last Resort: Prosecution Decision-making in a Regulatory Agency (Oxford 2002).

48 J. Rowan-Robinson, P. Watchman and C. Barker, Crime and Regulation: A Study of the Enforcement of Regulatory Codes (Edinburgh 1990); R. Kagan, Regulatory Justice (London 1978).

49 C. Abbot, Enforcing Pollution Control Regulation (Oxford 2009).

50 Details of both cases (the L&G case, and Paul Davidson & Ashley Tatham v the FSA, aka “the Plumber” case) can be found on the FSA website: http://www.fsa.gov.uk/pages/Library/Communication/PR/2005/082.shtml.

51 FSA, Enforcement Process Review (The “Strachan Report”) (2005). The report is available at http://www.fsa.gov.uk/pubs/other/enf_process_review_report.pdf

52 Ibid.

53 Lidstone et al., note 44 above.

54 See e.g. Abbot, note 49 above.

55 A. Robens, (1972) Report of the Committee on Safety and Health at Work 1970–1972 (HMSO 1972).

56 Australian Law Reform Commission (ALRC), Principled Regulation: Civil and Administrative Penalties in Australian Federal Regulation (1995), paras. 6.26, 6.35.

57 The Revenue and Customs Prosecution Agency (RCPO). For details see White (2006), note 36 above. In January 2010 the RCPO became a Division of the CPS (see the CPS website for details).

58 M. Levi, “Policing Fraud and Organised Crime” in T. Newburn (ed.), Handbook of Policing (Cullompton 2008).

59 P. Hampton, Reducing Administrative Burdens: Effective Inspection and Enforcement (HM Treasury 2005).

60 Whyte, D., “Gordon Brown's charter for corporate criminals” (2007/8) 70 Criminal Justice Matters 31CrossRefGoogle Scholar; Tombs and Whyte, note 3 above.

61 R. Macrory, Regulatory Justice: Sanctioning in a post-Hampton world, Consultation Document (Cabinet Office 2008).

62 Department for Business Innovation and Skills, Statutory Code of Practice for Regulators (2007).

63 Ibid., para. 3

64 Abbot, C., “The Regulatory Enforcement and Sanctions Act 2008” (2009) 11 Environmental Law Review 38CrossRefGoogle Scholar.

65 T. Krone, “The Limits of Prosecution Authority” (Australian Law Reform Commission) (2003) (http://www.aic.gov.au/conferences/other/krone_tony/2003-11-regnet.html) identifies six different possibilities. Our dual model is about integration (types 1, 5 and 6 in his notation) and separation (types 2 to 4 in his notation, where the different control exercised by the prosecutor is a palliative to the shortcomings we have identified). See also Guerrieri, F., “Law and Order: Redefining the Relationship between Prosecutor and Police” (2001) 25 Southern Illinois University Law Journal 353Google Scholar (arguing for empowerment of prosecutors to supervise police behaviour and ensure proper standards of disclosure, that is, for further integration in our model).

66 The economic literature on vertical integration goes back to the 1930s, but the main foundations of the current theory were established in the late 1970s and early 1980s. For a comprehensive survey and critical discussion of the literature, see Lafontaine, F. and Slade, M., “Vertical Integration and Firm Boundaries: The Evidence” (2007) 45 Journal of Economic Literature 629–685CrossRefGoogle Scholar.

67 On the empirical literature about transaction cost theory, see also Lafontaine and Slade, note 66 above.

68 See, for example, Richman, D., “Prosecutors and their Agents, Agents and their Prosecutors” (2003) 103 Columbia Law Review 750–832CrossRefGoogle Scholar and R. Barkow, “Institutional Design and the Policing of Prosecutors: Lessons from Administrative Law” (2009) Stanford Law Review 61. Krone, note 65 above identifies the costs of having the prosecution relying on the information solely gathered and provided by the police as a major disadvantage of separation (the Prosecutor Fiscal's Office in Scotland is the example provided and discussed in his article). However, the same was true of the pre-CPS model in England and Wales. The SFO is an example of an integrated approach that does not suffer from these problems.

69 For example, the jurisdictional conflicts between industry-specific regulatory agencies and antitrust authorities can be understood from this perspective. See P. Barros and S. Hoernig, “Sectoral Regulators and the Competition Authority: Which Relationship is Best” (2004) CEPR Working-Paper 4541.

70 We are considering the extreme case here. For intermediate arrangements, the benefits and problems detected with fast track interventions are mitigated.

71 In terms of harmful consequences, it is obvious that certain regulatory crimes can have much more harmful effects than certain kinds of pretty crime. Nevertheless, there is a general perception that crime, on average, is more harmful than regulatory offences.

72 Since plea-bargaining is prevalent without “monopoly power” the latter is clearly not a necessary condition, but one that simply enhances diversionary power. See, further, Garoupa, N. and Stephen, F., “Why Plea-Bargaining Fails to Achieve Results in So Many Criminal Justice Systems: A New Framework for Assessment” (2008) 15 Maastricht Journal of European and Comparative Law 319CrossRefGoogle Scholar.

73 Although potentially related, we should make a clear distinction between errors in prosecution (as mentioned explicitly in the text) and errors in adjudication (defendants inappropriately convicted and defendants inappropriately acquitted).

74 Notwithstanding that the costs of errors in terms of damage to human health and property resulting from regulating civil use of, for example, nuclear energy may be very high.

75 Regulatory action consisting of inappropriately issuing notices to stop an industrial process under environmental legislation can generate significant type I error costs.

76 Capture refers to situations where an agency created to pursue public interest goals acts in favor of private interests or adopts the agenda of special interests. Corruption is an extreme example of capture. For a broad discussion, see Hylton, K.N. and Khanna, V., “A Public Choice Theory of Criminal Procedure” (2007) 15 Supreme Court Economic Review 61CrossRefGoogle Scholar.

77 These consequences are aggravated if adjudication is also controlled by the integrated agency.

78 On the economic literature on accountability within the principal-agent model, see Sappington, D.E.M., “Incentives in Principal-Agent Relationships” (1991) 5 Journal of Economic Perspectives 45–66CrossRefGoogle Scholar.

79 This known by economists as “rent-seeking activity”: unproductive activities for which an economic rent is sought, that is, an income or profitability above (perfectly competitive) market equilibrium.

80 See, among others, the canonical articles by Holmström, B., “Moral Hazard and Observability” (1979) 10 Bell Journal of Economics 74–91CrossRefGoogle Scholar and Shavell, S., “Risk Sharing and Incentives in the Principal Agent Relationship” (1979) 10 Bell Journal of Economics 55–73CrossRefGoogle Scholar.

81 For example, by considering the extensive literature on intrinsic and extrinsic motivation. See R. Bénabou and Tirole, J., “Intrinsic and Extrinsic Motivation” (2003) 70 Review of Economic Studies 489–520Google Scholar.

82 Following Krone, note 65 above, other examples include the Special Prosecutor's Office in the USA as a body of investigation and prosecution for independent pursuit of complaints against high office holders; the reform of the South African National DPP's Office for organized crime, or white collar crimes involving complex accounting transactions in Australia.

83 I. Ayres and J. Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (Oxford 1992).

84 Hawkins (2002), note 47 above; Abbot (2009), note 49 above.

85 When a criminal conviction results from a regulatory offence, the stigma might apply equally. However, regulatory crimes are viewed by many (e.g. Lamond, note 3 above) as not “real” crimes. While we do not necessarily subscribe to this view, the fact that it is held by many affects the stigma attaching. Further, our argument also concerns the penalties imposed by regulatory enforcement that are “administrative”, and not criminal in nature.

86 Black, J., “Talking About Regulation” (1998) Public Law 77–105Google Scholar.

87 N. Gunningham and P. Grabosky, Smart Regulation (Clarendon 1998); Baldwin, R. and Black, J., “Really Responsive Regulation” (2008) 71 M.L.R. 59CrossRefGoogle Scholar.

88 For a detailed economic analysis, see Garoupa and Stephen, note 72 above.

89 The main problem here is “undercover” policing where the police by definition integrate, to some extent, with the policed. See Sanders, Young and Burton, ch. 6, note 17 above.

90 P.J. Quirk, Industry Influence in Federal Regulatory Agencies (Princeton 1981); G. Slapper and S. Tombs, Corporate Crime (London 1999).

91 Maggetti, M., “De facto Independence after Delegation: A Fuzzy-set Analysis” (2007) 1 Regulation and Governance 271–294CrossRefGoogle Scholar. But see Garoupa and Stephen, note 72 above discussing the problems posed by prosecution of wealthy defendants.

92 Abbot, note 49 above.

93 FSA, note 51 above.

94 Sanders, Young and Burton, note 17 above ch. 7.

95 Scott, C., “Accountability in the Regulatory State” (2000) 22 Journal of Law and Society 38–60CrossRefGoogle Scholar.

96 C. Graham, “Is There a Crisis in Regulatory Accountability?” (1995) Discussion paper 13, Centre for Regulated Industries.

97 A. Ogus, Regulation: Legal Form and Economic Theory (Oxford 2004), pp. 86–87.

98 Sanders, Young and Burton, note 17 above, ch. 13; D. Whyte, “Victims of Corporate Crime” in S. Walklate (ed.), Handbook of Victims and Victimology (Cullompton 2007).

99 Abbot, note 49 above.

100 See Barkow, note 68 above, for a discussion about the appropriate design of policing and prosecution activities in the United States.