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Tuesday, August 24, 2010

Rewarding illegal informant activity -- a German example

The government often rewards informants for their illegal activity. A petty drug dealer is not prosecuted if she provides information on her supplier, information she would not have were she not involved in the drug trade. A member of an organized crime family receives leniency for his crimes in exchange for testimony against a crime boss. An informant is paid to assist in planning a terrorist attack and testify against the other planners. But few American cases parallel a recent incident in Germany:
German authorities in the state of Baden-Wuerttemberg are examining tax information offered by an informant detailing what may be illicit funds stashed in Swiss accounts, though they said they won’t buy stolen data.
This is only the latest in a string of cases (detailed here) in which insiders at banks in Switzerland, Luxembourg, and Liechtenstein have stolen bank account data and attempted to sell it. The potential buyers are the home countries of the owners of the accounts, to whom significant quantities of tax revenue are owed. In the best-known incident, Germany's foreign intelligence service paid an employee of a subsidiary of Liechtenstein's largest bank more than 4 million Euros for stolen account information on 600 Germans, many of whom were evading German tax laws. As I will attempt to explain, these cases raise interesting and important questions about the ethics and wisdom of rewarding criminal activity.

But before getting there, it's helpful to see how the bank informants differ from the informant examples listed above. I see at least three difference. First, the bank informants stole the records for the sole purpose of profiting from them. This situation is thus different than that of the petty drug dealer or the organized crime family member, because the latter groups obtain the information they provide to the government tangentially to their initial purpose of successfully engaging in criminal activity. As a result, the connection between the illegal activity and the reward is less direct. Put another way, the government doesn't reward the drug dealer for dealing drugs, it rewards her for information she happened to acquire while dealing drugs. It's a fine distinction morally, but as a policy matter it's much less likely that paying the drug dealer will encourage more drug dealing than it is that paying the thief will encourage more similar thefts.

Second, the bank informants stole the records prior to any contacts with the purchasing government entity. This differentiates them from the informant hired to infiltrate a terrorist organization who helps plan an attack, because in the latter case, but not the former, the government can play some role in authorizing, guiding, and restricting the informant's illegal activity. In the bank informants case, on the other hand, that illegality runs unchecked until the informant chooses to come forward.

Third, the bank informants stole the records from their employers who were doing business legally in their home jurisdictions. This means that unlike in the other informant cases, there is an "innocent" victim, or at least a victim who played by the rules of its home jurisdiction. Though the banks almost certainly knew that they were assisting in criminal behavior in other jurisdictions, they at least has a colorable argument to justify their activities. The mid-level drug dealer, organized crime boss, and terrorist organization member have no such argument. Thus, the government, in purchasing the assistance of these informants, is immune from a claim that an innocent victim has been hurt alone the way.

With these distinctions in mind, the best analogy I can come up with to the current situation is that of a hacker who steals information from a credit card company that reveals illegal transactions by the card users for the purpose of selling the information to law enforcement. Such a case would raise questions somewhat different from those usually at issue in U.S. informant cases: Is it morally proper for the government to pay an informant for the proceeds of an illegal act committed without previous authorization against an entity engaged in legal activity in its own jurisdiction and for the sole purpose of obtaining such a payment? And is it good policy to do so?

With respect to the more question, the issue calls to mind other circumstances where the ends are found to justify immoral means by law enforcement. For instance, police are permitted to deceive defendants in order to obtain confessions. And prosecutors may authorize the commission of minor crimes in order to catch more significant offenders. In particular, this question reminds me of the observation that my host here has made that police often look the other way when informants engage in petty criminal activity, like theft, that harms innocent victims. But these cases are even worse in a sense, as the government is not just ignoring criminal activity against innocents, but rewarding it. On the other hand, the banks are international corporations that are aware that they are flouting the laws of other jurisdictions and not innocent residents of high-crime neighborhoods, thus indicating that the victims may not be so innocent. But regardless of exactly how the case of the bank informants compares to current police practice, paying for stolen information in this context seems to be another small expansion of the use of informants that reinforces the notion that the road to hell may well be paved with good intentions.

With respect to the policy question, the answer seems to be clearer. By paying a thief for committing a theft, one encourages more thieves to do the same. And indeed after Germany paid for the Liechtenstein records, more thieves came out of the woodwork. From a purely monetary standpoint, in an individual case the benefits, at least in terms of the lost tax revenue recovered, may outweigh the cost of the reward, but the harm caused by those future thieves who uncover minimal or no additional wrongdoing through their crime may well tip the scale in the other direction. And this calculus does not even consider the significant harm that paying these thieves would cause to the public perception of law enforcement and to their moral standing in the community as it reinforces the sense that the police are frequently in cahoots with law breakers.

Finally, to bring it home, the issues facing Germany are also facing the U.S. government, only in a less public venue: the same individual who sold account information stolen Liechtenstein's largest bank to Germany has filed a claim with the IRS to collect a bounty for revealing information garnered from these same records about individuals dodging U.S. tax laws. But unlike in Germany, IRS regulations keep the agency's deliberations relatively secret, meaning that the US is making its decision without the public oversight currently causing headaches to politicians in Germany.