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Monday, April 7, 2014

Strategic CSR - Crime pays

Some quotes from a fascinating article from The Economist in the url below about how criminal gangs seek out illicit trade for massive profits with little associated risk:
"Commodities such as rhino horn and caviar offer criminals two benefits rarely found together: high prices and low risk. Rhino horn can fetch up to $50,000 per kilogram, more than gold or the American street value of cocaine. Get caught bringing a kilogram of cocaine into America and you could face 40 years in prison and a $5m fine. On January 10th, by contrast, a New York court sentenced a rhino-horn trafficker to just 14 months."
"… though traditional trafficking in drugs, guns and people is still lucrative, gangs are increasingly moving into lower-risk, higher-reward areas—not just wildlife, but fraud and illegal waste-disposal. The [UN Office on Drugs and Crime] says the value of cross-border trade in counterfeit goods could be as much as $250 billion a year."
"Gangs in Britain make around £9 billion ($14.8 billion) a year from tax, benefit, excise-duty and other fraud—not much less than the £11 billion they earn from drugs. In America cigarette-trafficking deprives state, local and federal governments of $5 billion in tax revenues annually. The European Union estimates that losses within its borders from cigarette smuggling, tax fraud and false claims on its funds by organised groups total €34 billion ($46.5 billion) a year. But member states bring fewer than ten cases each a year for defrauding the EU, and sentences tend to be light."
What I found most interesting about the article, however, is what is driving the criminal activity—the twin forces of consumer demand and government regulation. In other words, the more governments try and regulate a product that is in demand, the more valuable the illicit trade of that item becomes:
"The appeal of such trade is increased, however unwittingly, by governments trying harder to protect what is precious and rare. 'When we finally get it together to agree that we'll only take ten tuna out of the water this year because that's all we can afford to take, that 11th tuna will be worth a lot of money,' says Theodore Leggett of the UN Office on Drugs and Crime (UNODC). As with tuna, so with ebony, ivory and rhino horn—all being regulated more tightly, and all still desirable."
And, where we are creating distorted incentives, the motivation to clear things up is also lacking:
"If a network of Nigerian scammers based in Amsterdam defrauds French, Australian and American credit-card holders, where does the crime occur? And who has the motivation, not to mention the jurisdiction, to prosecute?"
Although governments are increasingly trying to work together, essentially, policing efforts amount to little more than a tax on what is otherwise an incredibly lucrative business:
"One [U.S. Fish and Wildlife Service] inspector estimates that for all the peering, prodding and chirping, for all the rewards promised and rhino-horn traffickers caught, the agency picks up perhaps 5% of wildlife brought illicitly into America. For criminals, that is merely a light tax on the profits from the rest."
Take care
David Chandler & Bill Werther
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Earning with the fishes
January 18, 2014
The Economist