No Cop on the Beat: Underenforcement in E-Commerce and Cybercrime

1. No Cop on the Beat:Underenforcement in E-Commerce and Cybercrime Peter P. Swire Ohio State University & Center for American Progress Silicon Flatirons February 11, 2008

2. The Puzzle • Policy for the next Administration • Today grows from ongoing research about the Internet and consumer protection • Old paradigm of mostly local enforcement: • Local enforcement, county & state – a cop on the beat • Information is local • Punishment & deterrent effects are local • Evidence is local

3. What Changes on the Internet? • Information problem • Commons problem • Forensic problem • Basic answer: non-local answers needed for non-local problems • More federal – FTC (Cmmr. Leibowitz yesterday) • More federated – networks of state AGs

4. The Information Problem • Physical world: a cop on the beat • A consumer complaint comes in • Honest Amy’s Used Cars & Shady Sam’s Used Cars • Local enforcers have insight/expertise from previous complaints & use discretion

5. The Information Problem • For online commerce, a complaint comes in to the county consumer protection office • Web site typically far away • The county has a tiny fraction of all consumer problems with the site • The county has weak information for exercising discretion • Likely result is underenforcement • “Underenforcement” means less enforcement than we would expect/prefer if purely local

6. The Commons Problem • No commons problem where bad action and victim are local • Enforcers get credit for stopping local bad guys • Local victims are protected • Deterrent effects are local

7. The Commons Problem • Online, enforcement incentives change • “Why should I spend my scarce prosecutorial resources when most of the protection goes to victims outside of my jurisdiction?” • Deterrence – I’d rather prosecute where strong deterrence locally • Public choice – I’d rather prosecute where mostly local people are protected • “Let someone else go after them” – a classic commons problem -- underenforcement

8. Forensics Problem • This problem has been recognized in the literature • It’s harder to enforce where the evidence is outside of the locality • Harder to get cooperation from distant officials • Harder to trace where you don’t have compulsory process or other sources • Result is underenforcement

9. Responses to Underenforcement • Information problem • Information sharing: Consumer Sentinel • Commons problem • Cross-border task forces • Organize around subject matter – ID theft, spam, etc. • Forensic problem • COE Cybercrime Convention for criminal • US SAFE WEB Act for FTC

10. Responses to the Problem • More generally, recognize the need to match solutions to the scale of the problems • National (and international), so have national solutions • FTC role for spam, spyware, and other consumer protection • FTC staffing still far below 1980 levels • Federated – NAAG and other efforts to match geography with the problems

11. Some Objections • “The Internet hasn’t really changed anything” • “Enforcement works better on the Internet” • “We don’t really want to enforce the law” • “States need to be laboratories of experimentation” • “The Feds don’t do small potatoes”

12. Conclusion • The paper highlights the information and commons problems that exist for local enforcement and non-local fraud & crime • Likely need to shift to federal or federated enforcement • For whatever level of enforcement we want for each type of law, the next Administration should design strategies that address these problems