Towards a comprehensive business integrity system
From rules to enforcement: regulators’ resources and enforcement action Transparency International Any law, regulation or policy is only as good as its enforcement. Perhaps this fact is so obvious, though, that it often seems to be overlooked. Both the analysis of governance systems and the related advocacy efforts are typically focused on putting in place the appropriate rules and regulations that should apply to businesses and markets. Governance is often assumed to be ‘good’ when all the right rules are in place and the reporting lines of regulatory agencies guarantee truly independent oversight. Good laws and institutions do not automatically translate into adequate oversight and enforcement, however. The enforcement of rules in the private sector is no different. Monitoring complex, intertwined and fast-moving markets and business operations that transcend jurisdictions, innovate continuously and have grown to unprecedented scale is extremely time- and resource-consuming. Investigating and prosecuting white-collar crime requires specialised knowledge, tenacity and time, with the outcome often far from certain. In the United States alone, the combined budget of financial regulatory agencies as of 2002 exceeded US$5.6 billion, with staffing levels of more than 43,000 employees.1 Making business regulation and market oversight work is therefore as much a matter of the right rules and mechanisms as it is about available resources for enforcement, as well as the political will to bring these resources to bear on priority issues.2 The more limited the resources the larger the gap between rules on the books and their monitoring and enforcement.
Resource constraints translate into enforcement shortcomings The global financial crisis that began to unfold in 2007 has brought the issue of resource constraints in enforcement to the forefront. The US Federal Bureau of Investigation (FBI) warned as early as 2004 that rising mortgage fraud posed a considerable threat to the stability of financial institutions. Despite repeated requests for more staff, the FBI’s white-collar crime investigation unit shrunk by more than a third between 2001 and 2008, as resources were dramatically reallocated to fighting terrorism. As a consequence, the number of cases related to financial institution fraud had all but halved by 2007 compared to 2000.3 1 H. Jackson, Variation in the Intensity of Financial Regulation: Preliminary Evidence and Potential Implications, Discussion Paper no. 521 (Boston: Harvard Law School, 2005). 2 For a rare glimpse into the internal rules for case selection that a regulator applies, see the US Securities and Exchange Commission’s first ever published enforcement manual: SEC Enforcement Division, ‘Enforcement Manual’, Office of the Chief Counsel, October 2008. 3 New York Times (US), 18 October 2008.
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