TACKLING ORGANISED CRIME: New insights into designing an effective amnesty programme for whistle-blowers

New research explores how policy-makers can design programmes of judicial leniency that encourage low-level criminals with inside information on crime bosses'' activities to blow the whistle.

The study by Salvatore Piccolo and Giovanni Immordino, published in the November 2017 issue of the Economic Journal, reveals the trade-offs involved in deciding who gets access to opportunities for lenient treatment and the degree of protection that informants can be offered against potential retribution by their former bosses.

The researchers note that successful prosecution of criminal organisations often rests on the testimonies of cooperating accomplices (whistle-blowers). This is because the most culpable and dangerous individuals rarely do the dirty job themselves: even if they are ultimately responsible for the crimes committed by their foot soldiers, these people hardly ever get convicted because they mainly deal through intermediaries and push their own participation up to behind-the-scenes control and guidance.

As a result, many countries have introduced innovative legal rules (leniency programmes) facilitating the use of insider information in criminal proceedings, in exchange for lighter sanctions for criminals who offer assistance to the judicial authority.

The new study shows that when ''low-rank'' criminals are offered the opportunity to cooperate in exchange for judicial leniency, their information generates rents that may actually favour their bosses and increase the profitability of crime.

Hence, an optimal leniency policy must trade off the positive impact of insider information and the externality that these rents exert on the organisation''s returns from crime. Due to this tension, the amnesty that minimises the probability of crime induces legislators to restrict access to the programme, by excluding informants that have potentially useful knowledge.

The analysis involves a hierarchical criminal organisation. After the crime has been committed, some evidence about the involvement of the boss in the crime materialises. This evidence is observed only by the criminal organisation''s members but not by the judicial authority; but if the evidence is disclosed, it enhances the prosecutors'' ability to jail the boss.

The crime triggers an investigation and, at this stage, a low-rank criminal can opt to blow the whistle by disclosing his private information in exchange for an amnesty. When he does so, the boss will want to punish his disloyalty: the whistle-blower will face retaliation.

When low-rank criminals have useful insider knowledge about the involvement of their bosses in criminal activities, legislators must grant rents to whistle-blowers to elicit such information. These rents increase the expected utility of low-rank criminals, thereby exerting a positive vertical externality on the return from crime.

The point is that more valuable testimonies imply a higher probability of conviction for the boss, whose ability to take retributive action weakens when convicted and jailed. Hence, accomplices with better information enjoy a rent that stifles the wage they need to be offered by the boss to accept the illegal deal, thus increasing the overall profitability of crime to the detriment of society.

To mitigate this dark side of judicial leniency, legislators are forced to design a policy that purposefully restricts the access to the programme by excluding informants with potentially useful knowledge: a result that hinges both on the hierarchical nature of criminal organisations and on the hypothesis that cooperating criminals have insider knowledge.

The researchers also find that legislators are less interested in restricting access to the programme when potential whistle-blowers are exposed to smaller retaliation. Interestingly, a reduction of the retributive power of the boss can be interpreted as an improvement in the protection effort of the state.

This implies a clear policy implication: the introduction of a well-functioning protection programme may be a necessary condition for a leniency programme to be welfare-enhancing. Protecting low-rank criminals more intensively reduces their exposure to the risk of being punished, and thus tends to reduce the bonus required to blow the whistle.

This allows legislators to put fewer restrictions on access to the programme by choosing an amnesty that induces potential whistle-blowers to talk in a larger set of contingencies.

''Organised Crime, Insider Information and Optimal Leniency'' by Salvatore Piccolo and Giovanni Immordino is published in the November 2017 issue of the Economic Journal. Salvatore Piccolo is at the Universita Cattolica del Sacro Cuore (Milano). Giovanni Immordino is at the University of Naples Federico II.