03 December 2015


'Judgment-Writing: An Academic Perspective' (Oxford Legal Studies Research Paper No.16/2014) by Andrew Burrows, initially presented to a seminar for the judiciary, examines the question
what are legal academics looking for in a good judgment? From an academic perspective, what is good judicial writing style? It stresses the importance of the 3Cs (clarity, coherence and conciseness) and examines why judgment-writing is a particularly difficult form of legal writing. It goes on to consider whether shorter judgments are possible but rejects the idea that there should be single judgments in civil cases in the UK Supreme Court. Finally it looks at the merits of a judge’s imposing his or her own style on a judgment.

02 December 2015


From 'The Nature and Structure of the State' by Hermann Heller (David Dyzenhaus trans) in (1996) 18(3) Cardozo Law Review 1139 to 1216
The question of the "purpose" of the state has been a permanent and fundamental problem of all theories of the state ever since Aristotle opened his Politics with the theory of the purpose of the state and placed this sentence at its head: pasa koinonia agathou tivos heneka sunesteken. It was left to the Romantics to contest for the first time the appropriateness of this question and to maintain that the state "just as the plant and the animal" is self-directed. From that time on, theories have neglected the question of the purpose of the state. They decline to deal with it, alleging that it is a fake problem, or redundant, or unanswerable. And, insofar as the question is recognized as an appropriate one, the theories give answers that are for the most part thoroughly unsatisfactory from a scientific standpoint. In any case, the theory of the state does not find its fundamental problem to be the question of the purpose of the state.
Indeed, the justification for excluding the purposive moment from the concept of the state had to be conceded insofar as the natural law of the Enlightenment proposed an understanding of the state which rationalistically put aside the question of purpose. For it misunderstood the state as the arbitrary creation of individuals, conscious of their own purposes. However, the objection is well taken that it is not associations but only real people who can set subjective purposes. Further, one cannot contest the claim that the state has no unitary purpose in the sense that all its members pursue in it and with it the same purposes. And one must also concede that those who claim that there can be no scientific answer to an inquiry which seeks an objective determination of the concrete political "mission" of a particular state have it right. For this mission, like any psychological purpose, consists in the hardly unitary ideologies of particular groups of people within the state. And this is so even when, in the allegedly objective manner of the contemporary practitioners of geopolitics, the mission is deduced from the geographical situation of the pertinent states. Finally, one must also recognize as inappropriately posed the question which seeks an objective, transcendental "purpose" of the state, which it possesses either in regard to the divine will or to the ultimate vocation of the entire human race. For this question merges into one of the universal, true or right meanings of the state, and thus becomes one about the problem of justifying the state; and that should not be confused with the question of the so-called "purpose of the state."
Once the force of all these objections has been conceded, one should still not fail to see that behind these questions of the purpose of the state is concealed a problem which, once appropriately posed, is not merely significant for the theory of the state but is the most fundamental of all. For even though it is right that only people are in a conscious position to set purposes, the state still, like all human institutions, has an objective social function which never coincides altogether with the subjective purposes of the people who form it. The natural law of the Enlightenment proposed an inference which thenceforth led the natural and social sciences into error. It inferred a phenomenon's inner purposefulness from its creation by a purposively rational will. But science is as little permitted to infer the conscious action of a creator from the inner lawfulness of the natural organism, or to infer from the intrinsic logic of speech its creation by the spirit of the people, as one is barred from explaining the organization of the state by means of a purposively rational interaction, such as a contract between people.
But still the theory of the state can legitimately ask, indeed it must, about the meaning of the state which is expressed in its social function, in its objective social operation. This objective, material meaning of the state should be precisely distinguished from the subjective, psychological meaning. To be sure, the state, like all humanly created cultural phenomena, can also be made the subject of a psychological interpretation. Such an interpretation enquires after the subjectively intended purpose which people set for themselves in a concrete instance or which they commonly tended to set for themselves in most instances. But no road leads from subjective purposes to the objective efficacious unit of the state. And this is so even if, in the cause of psychological generalization, one prefers to comprehend the purpose of the state altogether formally and without differentiation; for example, one follows Jellinek in speaking of a purpose "of preserving individual existence and individual welfare." For such a purpose is neither, as Jellinek even concedes, specifically of the state, and thus not an authentic purpose of the state, nor is it demonstrably the psychological situation of all members of the state.
In truth, the great theorists of the state, particularly Aristotle and Hobbes among their number, did not want, by their theories of the purpose of the state, to give a subjective, psychological explanation but rather, on the contrary, an objective, material one. The institution of the state generates above all homogeneous effects which provide a sensible, objective meaning for the entirety of social life. The interpretation of this objective functional meaning should not be confused with either a psychological interpretation or with the question of what is the right or valid value to be awarded to the state institution.
The effects which the state causally brings about within the totality of society are ascertainable with the same objectivity as the functions of nourishment, reproduction, or defense possessed by the particular organs of animal or plant organisms. There is no contradiction in principle between causality and teleology in the understanding of social reality. The state is not possible without the purposive activity of people within the state. These people set purposes which become causally efficacious for others within the state - the motivators of the others' wills. The reality of the state, which at this point must still be presupposed to be a unit, resides in its operation or function, which, need not, as a purpose, be desired by either all or a single one among those who contribute to it. The only existence of the state is in its effects. "Function is being conceived in activity." The objective operation of the state on people and things is detachable from the physical acts which make up its origin and its objective meaning can therefore be understood without regard to its psychological origins. The immanent function of the state should be understood in terms of its objective operation as something clearly distinct from both the subjective purposes and tasks set by the ideologies of some of its members and from any transcendental meanings to do with its foundation in law.
Like all social functions which come about and are maintained only though socially effective acts of human will, the function of the state is both the product of and an imposition on human will. The function of the state is of necessity given to us by a particular natural and cultural situation. But it is never a mere natural situation which necessitates the function of the state. It is first in a particular cultural situation, namely with the settlement of peoples, that this function becomes a necessity which dominates our activities. This process of settling a geographic area, one bounded by the proximity of other peoples, makes necessary an effective unit for the protection of this area as well as for its eventual expansion. This requirement of a territorial solidarity is established for the external tasks that arise from time to time but is still far from amounting to that function which we have known since the Renaissance as the state. To reach that point requires a much higher level of social division of labor and therefore a certain constancy and concentration of social market relationships and reciprocal dependencies. It is this intensity of an enduring, interactive structure that necessitates the permanent, unitary, territorial organization, intrinsically connected to an area, which, since Machiavelli, we have termed the state. The modem territorial states were unknown to antiquity and to the Middle Ages. An organization comparable to the contemporary political status could formerly develop only in the cities; that is, where markets caused a division of labor and exchange to concentrate itself in a confined area. Thus we find the beginnings of the modem state first in the city where labor and exchange exhibit the highest level of development, namely in the city states of upper Italy.
Hence the function of the state, while territorially determined, becomes necessary only at a particular level, one defined by settlement and a highly developed division of labor. Since this function of the state is a necessity which constrains our imaginings and activities, it precludes us from seeing the state as an invention of free human will. But it does not prevent us in the slightest from recognizing it as the necessary product of human will operating in the given natural and cultural situation. As soon as that degree of social interdependence in a particular territory comes about, a unitary order of social relationships is required and therewith a common order of power, one which must simultaneously assert it- self externally. But this given necessity translates into the social reality of the state only when it is experienced and brought into being as the self-imposed end willed by groups of people living in a particular territory. Where a state power capable of maintaining itself both internally and externally is not wanted, no state can emerge or maintain itself. But wherever that natural and cultural situation exists, and one prefers one's own order of power within a territory to an alien one, there exists the will to form a state. If that will succeeds in organizing social cooperation within a territory as an autonomous force, then we have before us as an actor the supreme power of a territory, a state; and that invests the political activity of the powerholders with a political necessity which is prior to any international law and autonomous of all normative jurisprudence.
Thus, the function of the state consists in the autonomous organization and activation of social cooperation within a territory. Its basis is the historical necessity of a common status vivendi (life situation) for all the antitheses of interest in one all-encompassing geographical area which, so long as there is no world state, is bounded by other similar associations which rule over a territory.
It is of crucial significance to ascertain the immanent social function of the state in all its detail. All theories and concepts of the state and law are senseless if they are not related to the social function of the state. The agnosticism that declares even the appropriate form of the question about the "purpose" of the state to be unanswerable ends eventually with the bleak opinion that the political association should be defined exclusively in terms of its medium - its coerciveness. This theory, more accurately the countless theories which maintain9 that, as a matter of conceptual necessity, the "purpose" of the state is power, are absolutely empty rather than simply false. For power develops all human institutions, and unless one ascertains a social function for the specific power of the state, one cannot distinguish it from either a robber band, a coal cartel, or a bowling club.
B. Distinguishing the Political from other Social Forms
We can get a concept of the political only from the social function which the political exercises within the entirety of social life. The singularity of the political distinguishes itself from other social functions only in that, on the one hand, politics is an efficacious structure which comes into being and maintains itself in accordance with laws which are relatively peculiar to it, and, on the other hand, because politics, though but a part of social life, has a certain significance for the whole.
The concept of the political is much more encompassing than that of the state. There were political activities and forms of activity before there were states, just as today there are still political associations within and between states. However, common usage has ultimately widened immeasurably the ideas of politics and the political. One speaks of a politics of the church, the military, business, unions, and so on, and one does not have in mind thereby only the state and other political institutions, but also the private as the bearer of this politics. One cannot determine the specific function of the political with such an amorphous concept. After all, these are all forms of "politics" since they all develop and apply organized social power. That is, in this situation power manifests itself and is maintained by a cooperation between people, which orientates itself to a common order of rules, and in this situation particular people take care of the establishment and security of this order as well as of the unitary activation of the power accumulated in it. But the power, organized and activated by particular organs, such as a church, a trust, or even a military organization, is not what we call political.
A clearer basic concept will be achieved only through relating the political to the polis and to its most developed form, the state. Therefore, the independent organization and activation of social cooperation within a territory is political in an exemplary sense. Once again, we should emphasize that it is by no means the case that the objective political function always has to correspond with a subjective intention of those who contributed to it. The subjective intention with which someone does military service, pays taxes, and so on, is not decisive. Like any social power, the political is a power which is also a structure of cause and effect; it is mainly a matter of objective operation and not, at least not solely, one of subjective will and conviction. Hence it may well be the case that the leading politician is intent on economic gain; but if he makes use of politics to achieve these ends, then he must subordinate his actions to the laws peculiar to politics, or he will fail economically as well as politically.
But not everything the state does is to be regarded as political activity. The understanding of a social power as political is not something that persists for all time. It depends on the social circumstances, namely on the greater or smaller degree of social and political homogeneity of the people of the state as well as on the concrete form of the state. In general, one designates as political only that power in states which is directive and not executive. As a rule, one regards as holders of political power only those who, on the basis of their autonomous decisions, have the capacity (or who strive to have it) to bring about a material change, internal or external, in the distribution of power within the state. Thus, the subordinate organs of the state whose executive activity follows firm prescriptions are not ordinarily counted as political. Also, large parts of the social politics and cultural activity of the state are often not designated as political. To be sure, all social relationships are eventually politicized wherever strong political tensions exist. Then, even constructing a water pipe, a factory, or a hospital, not to mention establishing a school, are evaluated as political acts. For all these acts have a relationship, even if it is a very tenuous one, to the political function. But in calm times, when the basic organizational principles of social cooperation within a territory are not in doubt, there is no awareness of this. On the other hand, in the system of division of powers in the Rechtsstaat, only that state activity which is directive properly counts as political and not, or at least not in the same degree, the executive activity done on the basis of these directions. Hence, only the government and the legislature count as intrinsically political, and not the administration and the judiciary. The "total" state of the modern dictator, who politicizes all social relationships, must use the judiciary as well as the administration as direct instruments of power.
Admittedly, politics and state are conceptually and in reality always reciprocally related, but they should not be identified with each other. For it is not the state alone which develops genuine political power, but also political associations within and between states, such as parties, alliances, the League of Nations, and also such associations whose function is in itself not at all political, such as churches and employer and worker associations. Hence, not every power which is politically effective is a state power. But what determines our formation of the concept is that each, by virtue of its social function, desires to become such. That is to say, each effective political power desires to organize and activate social cooperation within a territory in accordance with its intentions. But each political power, even those that exist between states, can eventually achieve this end only through transforming itself into a state power. For the state power is distinguished from all other forms of political power in that at its disposal is the legal order, which is established and guaranteed by the organs of state. The state manifests the political optimum, namely, the political organization which, in its own territory, is generally the most powerful, precise, and practical. Hence, it is evident that each political force must, by virtue of its immanent social function, strive not to conquer the entire power of the state. Rather it is clear that it must strive to make its way within the state through its components. In this sense, politics can be defined as the art of "transforming social tendencies into legal form."
In general, each act of political power has its own recognizable effects, even if microscopic, on social life-that of the church, the military, education, the art world, and so on. The converse is also the case. Politics affects all other social functions and is, on its part, affected by them all. And for this very reason, the concept of the political can be grasped only through an objective, material interpretation of the entire social order. Every psychological understanding must presuppose this objective meaning of the political function if it does not want to remain empty. Thus, it must of necessity start with the methodical hypothesis that in every meaning-conferring act is "at once contained all the basic forms of meaning-conferring acts; the totality of spirit rules in each act."" Hence, a concrete act of social reality (which is everywhere in a state of flux) always gets its political character only in accordance with its dominant qualities and not through its pure ones.
Recently, a view has been shaped under the influence of vital- istic philosophy which is antithetical to the interpretation of the objective social function of the political represented here. It is that all politics amounts to nothing more in principle than an irrational and senseless struggle for power. Sorel, Pareto, and Oswald Spengler are in complete agreement that the lawless basic law of all politics consists in the exercise of power without any determinable content. The idea of this politics is best described by the characteristic which a pro-fascist theoretician of fascist politics allowed to be shared: "To want activity for the sake of activity, a kind of l'art pour l'art on the political terrain.” The concept of the political as it is understood by Carl Schmitt, the influential advocate of German fascism, comes out the same way. It is obvious that he must remain stuck in a contentless psychologism, since he claims that the distinction between friend and enemy is properly distinctive of politics, where the enemy is supposed to be the one who, in the case of conflict, is the alien who should be exterminated. Schmitt can only exclude, for example, an intense erotic or any other friend-enemy distinction, by immediately, though incomprehensibly, making the state into the bearer of every such distinction. The end result is that we are the recipients of a hardly original teaching that the distinctions of the state are political distinctions. Besides the fact that the creation and maintenance of the state, and therewith the entirety of internal politics, escapes the friend-enemy distinction with its bellicose intent, nothing besides the polemos (war) remains of the entire external politics of polls, and it is from the former alone that Schmitt openly deduces his concept of politics. Even should one want to define politics exclusively as the continuation of war, it is still the case that its hallmark clearly remains the employment of other means; and it is still the case that the greatest part of all politics consists in the efforts to avoid the existential conflict of friend and enemy. Schmitt's contentless friend-enemy activism, which has not without justification been subjected to a psychoanalytical treatment, is in the end the hallmark of any scuffle. For that very reason it leads not to a specific hallmark of the political, but at the most to the trivial observation that all life is a struggle. Of course, one should not overlook the irrational urge towards expanding power, which, particularly in the era of imperialism, is characteristic of many, though by no means all, political powers. But this urge is not an adequate basis -for arriving at a concept of the political because it is senseless in a way not confined to the political power which is characteristic in capitalism, but even more for capitalism's characteristic economic power.
However, it would be an unfulfillable task to set out microscopically all the effects which affect the political function and which it brings about. We must therefore confine ourselves to a macroscopic approach, one which highlights the structure of the political and its distinction from the social functions which are otherwise most important for our situation.
Besides the function of religion and the church and the legal function (which we will examine separately), all other intellectual powers also have the strongest political effects and are for their part fundamentally influenced by politics. Every political power is the more stable the more it succeeds in bringing to recognition the obligatory nature of its own orders of ideas and norms-of the customary, ethical, as well as legal rules of which it approves and which are foundational of it. Its political prestige is enhanced through the acceptance of the culture as an exemplary form of life which it would otherwise represent as political. Circumstances permitting, even the forms of speech, of literature, of music and educational art, and of science and technology, are capable of working effectively to win political power. Hence, the contemporary state places great weight on both internal cultural politics and external cultural propaganda. No state can manage without winning over the intellectual powers to its ends. It is true that the Rechtsstaat, with its division of powers, imposes on itself a particular restraint in regard to the intellectual powers, since it constitutionally guarantees a free development of art, science, and church. But even it can manage this restraint only so long as the intellectual cleavages within the people of the state do not endanger the unit of social cooperation within a territory and thereby its necessary social function. The modem dictators treat all intellect entirely as a mere function of politics. They want to create political solidarity through using direct coercion to produce an intellectual uniformity and thereby an allegedly new culture.
Here, as in countless other - in particular academic-pronouncements of the present, it is clear how much the ability has withered to make distinctions between the historical and systematic autonomy of the intellectual and the political function. Yet the superstition of a preestablished harmony of intellectual and political power fills the majority of our theoreticians and practitioners of politics, despite the fact that history from the Greeks and the Romans until the Germans and Italians of the eighteenth and nineteenth centuries proves the exact opposite. It is only an intellectual and social situation of intellectual "disillusionment" and anarchy that makes possible the explanation of how the autonomous laws of political operations got confused with the laws of intellectual values which were, whether transitory or more permanent, of no social efficacy. The organization and activation of social cooperation within a territory can produce nothing more than certain organizational presuppositions of an intellectual culture. Conversely, it is in no way necessarily the case that a Plato and a Praxiteles, a Shakespeare and a Goethe, are politically effective. That their reputation is, circumstances permitting, effective in gaining political power is, as a worthy poet put it, for the most part the embodiment of the misunderstandings which with time have been heaped on their great names.
The relationship of the political function to physical, that is, military force, is a problem of the utmost importance for practice. We have characterized the military as, technically speaking, the most thoroughgoing way of forming the power to rule. This fact often misleads a technically one-track way of thought to regard it as the most thoroughgoing form of the political function. But in contrast to political power, the military is merely a technical power, which has its purpose determined and gets its legitimation first of all from the state. It is above all only by virtue of being a part of the state power that it has a social function. A military power which does not subordinate itself to the task of organizing and activating the social cooperation in an area is nothing more than a robber band. But military force is an irreplaceable existential condition of any state power, because it guarantees the political function both internally and externally. However, physical force is always only the ultima ratio (ultimate basis) of political power, for political power needs force only exceptionally and could not for even a moment maintain itself exclusively by force. But one should remember that it is not only the application of armed force but also its threat which guarantees the existence of political power.

Data Territoriality

'The Un-Territoriality of Data' by Jennifer Daskal in (2015) 125(2) Yale Law Journal comments
Territoriality looms large in our jurisprudence, particularly as it relates to the government’s authority to search and seize. Fourth Amendment rights turn on whether the search or seizure takes place territorially or extraterritorially; the government’s surveillance authorities depend on whether the target is located within the United States or without; and courts’ warrant jurisdiction extends, with limited exceptions, only to the borders’ edge. Yet the rise of electronic data challenges territoriality at its core. Territoriality, after all, depends on the ability to define the relevant “here” and “there,” and it presumes that the “here” and “there” have normative significance. The ease and speed with which data travels across borders, the seemingly arbitrary paths it takes, and the physical disconnect between where data is stored and where it is accessed critically test these foundational premises. Why should either privacy rights or government access to sought-after evidence depend on where a document is stored at any given moment? Conversely, why should State A be permitted to unilaterally access data located in State B, simply because technology allows it to do so, without regard to State B’s rules governing law enforcement access to data held within its borders?
This Article addresses these challenges. It explores the unique features of data and highlights the ways in which data undermines longstanding assumptions about the link between data location and the rights and obligations that should apply. Specifically, it argues that a territorial-based Fourth Amendment fails to adequately protect “the people” it is intended to cover. Conversely, the Article warns against the kind of unilateral, extraterritorial law enforcement that electronic data encourages—in which nations compel the production of data located anywhere around the globe, without regard to the sovereign interests of other nations.

Sweeping Powers

The High Court in Northern Territory Aboriginal Justice Agency Ltd and Anor v Northern Territory of Australia [2015] HCA 41 has dismissed an application for a declaration that Police Administration Act (NT) Pt VII Div 4AA is invalid.

Div 4AA features 'drying out' provisions, criticised by some observers as an inappropriate mechanism for social sweeping.

Section 133AB(2) provides that a member of the Northern Territory Police Force may take a person into custody and detain that person for a period of up to four hours or, if the person is intoxicated, until the member reasonably believes that the person is no longer intoxicated.

Section 133AB(3) provides that at the expiry of the relevant period in sub-s (2), the member may release the person unconditionally, with an infringement notice or on bail, or may bring the person before a justice of the peace or court.

Section 133AB(1) in Div 4AA, provides that the section applies if the member has arrested a person without a warrant in accordance with s 123 because the member believed on reasonable grounds that the person had committed, was committing or was about to commit an infringement notice offence.

In the current judgment the second plaintiff, an Indigenous person resident in the Northern Territory, was arrested by members of the NT Police Force on 19 March 2015 and was detained under Div 4AA for almost 12 hours. She was issued with an infringement notice recording two alleged offences. One was designated "use obscene/indecent behaviour" contrary to s 53(1)(a) of the Summary Offences Act (NT). The other was designated "bring liquor into restricted area" contrary to s 75(1) of the Liquor Act (NT)[2]. The infringement notice provided for payment of fines of $144 and $50 respectively and a levy of $40 with respect to each offence, ie an aggregate $274.

The Northern Territory Aboriginal Justice Agency, which provides legal services to Indigenous people, commenced proceedings in the original jurisdiction of the High Court, joined by the second plaintiff.

The plaintiffs sought a declaration that Div 4AA is invalid. Their contention was that Div 4AA is invalid because it confers penal or punitive powers on the Northern Territory Executive, beyond the legislative power of the NT because that power is subject to the same doctrine of the separation of judicial power which limits the legislative power of the Commonwealth.

The plaintiffs also contended that Div 4AA is invalid because it confers powers on the NT Executive which interfere with or undermine the institutional integrity of the Northern Territory courts.

The High Court, by majority, held that Div 4AA is valid.

A majority of the Court held that, upon the proper construction of Div 4AA, the powers conferred on members of the NT Police Force are not penal or punitive in character. The powers  do not impair, undermine or detract from the institutional integrity of the Northern Territory courts. Div 4AA, properly construed, does not authorise members of the Police Force to detain a person for longer than is reasonably practicable for the member to make a determination about which one of the options under s 133AB(3) is to be exercised.

The Court ordered that the matter be referred to a single Justice for further directions.

01 December 2015


'A Theory of Whistleblower Rewards' by Yehonatan Givati in Journal of Legal Studies (forthcoming) comments 
To enforce the law, the government must learn about violations of the law. One way of obtaining such information is by employing police officers and investigators. An alternative way is by rewarding whistleblowers. In this paper I consider two basic questions relating to whistleblower rewards. First, what is the optimal size of whistleblower rewards? Second, how should we choose between employing police officers and rewarding whistleblowers? I develop a model which highlights two features of the whistleblowing context: whistleblowers bear a personal cost, and a reward may encourage false reports. I find that there is a non-monotonic relationship between the personal cost to whistleblowers and the optimal reward, and between the risk of a false report and the optimal reward. Furthermore, offering a whistleblower reward dominates the employment of police officers and investigators when the risk of a false report is small. 
Givati argues
To enforce the law the government must know, at least in some cases, when the law is violated. Since Becker (1968), a central assumption in the literature on the public enforcement of law is that information about violations of the law can be obtained only by investing real resources in the employment of police officers and investigators. Violations of the law, however, are almost always known to non-violators, such as employees, neighbors or family members of the violator. Therefore, an alternative way of obtaining information on such violations is simply to pay those people a whistleblower reward for reporting this information.
A central advantage of obtaining information on violations of the law from whistleblowers rather than from police officers and investigators is that the employment of police officers and investigators consumes real resources, whereas whistleblower rewards are mere wealth transfers. Despite this advantage, relative to the use of police officers and investigators, whistleblower rewards seem to be infrequently used. Still, their use has been increasing in recent years.
To illustrate, in 2006 the Internal Revenue Service (IRS) made fundamental changes to its informant awards program. Under the new law the payment of rewards to whistleblowers is no longer discretionary, and rewards were increased to 15-30% of the collected proceeds. In 2010, The Dodd-Frank Act directed the Securities and Exchange Commission (SEC) to reward individuals who provide original information that leads to successful enforcement actions resulting in monetary sanctions. Rewards were set to equal 10-30% of the monetary sanctions collected, and an Investor Protection Fund was established to fund those rewards. In 2012 the IRS awarded $104 million to a whistleblower for divulging schemes used by UBS to encourage American citizens to evade taxes. In 2013 the SEC paid $14 million to a whistleblower for reporting a Chicago-based scheme to defraud foreign investors seeking U.S. residency.
Despite the increased reliance on whistleblower rewards, we know little about their desirability and design. In this paper I address two basic questions regarding the use of whistleblower rewards. First, what is the optimal size of whistleblower rewards? Second, when rewards are set optimally, how should we choose between employing police officers and rewarding whistleblowers?
To address these questions I develop a simple stylized model, with an employer and an employee. The employer decides whether to violate the law. The employee may blow the whistle on the employer's violation of the law, to obtain a reward. Though the model uses the employer-employee relationship for concreteness, it can easily be applied to other settings.
Two important features of the whistleblowing context are captured in the model. First, the employee bears a personal cost when blowing the whistle. This captures the idea that whistleblowers bear a personal cost, because of social ostracization, a psychological toll, or due to a reduction in their future employment prospects. Second, the employee may falsely report a violation of the law by the employer, and this false report has some chance of succeeding. This captures the idea that whistleblower rewards may tempt people to make false reports of violations of the law, which they may be able to support because of their relationship with the person they are reporting.
With this basic setup I analyze the optimal, social welfare maximizing, whistleblower reward. First, I show that there is a non-monotonic relationship between the personal cost to whistleblowers and the size of the optimal reward. The reason is that, as the personal cost of whistleblowing increases, a higher reward is required to induce reports and maintain deterrence. However, when the personal cost to whistleblowers is very high, it is desirable to provide no whistleblower reward. Though this means the law will be violated, the high social cost of whistleblowing will be avoided.
Second, I show that there is a non-monotonic relationship between the risk of false report and the size of the optimal reward. This is because, as the risk of a false report increases, the relative benefit to the employer from not violating the law decreases. To induce the employer not to violate the law the relative cost of violating the law must be increased. This can be achieved by increasing the reward for whistleblowing, which increases the risk of a violation being reported. However, when the risk of a false report is sufficiently high, the reward that is required to deter the employer is so high that it is very likely to induce a false report. In such a case it is therefore desirable to provide no whistleblower reward. Though this means that the law will be violated, the social cost of a false report will be avoided.
How should we choose between employing police officers and rewarding whistleblowers? I show that, when the risk of a false report is sufficiently small, whistleblowing dominates policing as a law enforcement strategy. The reason for this is that, as the risk of a false report decreases, false reports are less likely to be made, which means that the social cost of the optimal whistleblower reward, which deters the employer from violating the law, is reduced. Accordingly, as the risk of a false report tends to zero, so does the social cost of rewarding whistleblowers. By contrast, the employment of  police officers and investigators always involves a social cost.
The law and economics literature has devoted much attention to the question whether laws should be enforced by a public authority or by private competitive firms that are paid for performance (Becker and Stigler 1974, Landes and Posner 1975, Polinsky 1980). This paper, by contrast, assumes the public enforcement of law, and asks when the public authority should employ whistleblower rewards as an alternative to the employment of police o¢ cers and investigators.
The costs and benefits of rewarding whistleblowers have been analyzed informally by Howse and Daniels (1995) and Ferziger and Currell (1999), who discuss a long list of issues relating to the design of whistleblower programs and the effect of whistleblower rewards. Others have compared a court-centric mechanism for rewarding whistleblowers to an agency-centric mechanism (Casey and Niblett 2014, Freeman Engstrom 2014). Different mechanisms designed to promote whistleblowing are also compared by Feldman and Lobel (2010), who use experimental surveys to examine the outcomes of anti-retaliation protection, duty to report, liability fines, and monetary incentives. Dyck, Moore and Zingales (2010) investigate empirically who blows the whistle on corporate fraud using data on all reported fraud cases in large U.S. companies between 1996 and 2004. They Önd that corporate fraud is often reported by employees and the media, who are driven by ease of access to information, and by monetary and reputational incentives.
Formally, Heyes and Kapur (2008) analyze a model of whistleblower policy in which, unlike in this paper, whistleblowers are not rewarded. They present three behavioral theories as to why whistleblowers report violations of the law, despite it being against their self interest (conscious cleaning, social welfare maximizing, and cost imposing). For each theory they consider the determination of two policy variables: the responsiveness of the enforcement agency to whistleblowers and the size of the sanction for violating the law.  Outside economics there is an extensive literature on whistleblowing in the areas of sociology, psychology, business, and public administration (see surveys in Miceli and Near 1992 and Miceli, Near and Dworkin 2008).
There is a small informal literature on paying witnesses. Posner (1999) discusses expert witnesses who are paid by parties, noting the risk that they may mislead judges and juries, but concluding that this risk is low since expert witnesses are repeat players and therefore have a financial interest in preserving a reputation for being honest, and because they must satisfy the methodological standards in their field and be subject to intense scrutiny by the opposing party. Friedman and Kontorovich (2011) argue that fact witnesses should be paid, since this will increase the number of people actually witnessing an event. Though they acknowledge the risk that such payments may lead to increased incentive for perjury, they argue that the incentives to perjury may already be high under the current regime, where the primary producers of testimonial evidence are interested parties, and therefore witness payment could reduce the proportion of perjured testimonies. Furthermore, they argue that unlike expert witnesses, fact witnesses do not need to curry client favor, since they are not repeat players, and that the increase in the number of people witnessing an event due to the payment may reduce the likelihood of perjury. Levmore and Porat (2012) discuss the prohibition on monetary payments to witnesses, noting that such payments may induce false testimonies, but arguing that the most useful explanation for this prohibition is that monetary payments give witnesses monopoly power.
The paper proceeds as follows. Section 2 provides an overview of the different whistleblower laws in the U.S., showing a trend towards an increased reliance on whistleblowing as a law enforcement strategy. Section 3 develops the model, and analyzes the optimal whistleblower reward and its determinants. Section 4 analyzes the choice between employing police officers and rewarding whistleblowers as law enforcement strategies. Section 5 extends the analysis in the paper, and considers the joint employment of whistleblower rewards and police officers, a sanction for unsuccessful whistleblower reports, the employer bribing the employee not to report a violation of the  law he witnessed, and the payment of a whistleblower reward in an equilibrium in which the employer is deterred. Section 6 offers three concrete policy implications of the model, and Section 7 concludes.

30 November 2015


From the explanatory memo to the Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Bill 2015 (Cth), which features provisions regarding vetting and information sharing -
1. This Bill amends the Proceeds of Crime Act 2002 (POC Act), Criminal Code Act 1995 (Criminal Code), Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), and the AusCheck Act 2007 (AusCheck Act).
2. The Bill contains a range of measures to improve and clarify Commonwealth criminal justice arrangements, including:
  • · amending the POC Act to clarify the operation of the non-conviction based proceeds of crime regime in response to recent court decisions 
  • · amending the Criminal Code to insert two new offences of false dealing with accounting documents ï‚· amending the serious drug offences in Part 9.1 of the Criminal Code to clarify the definitions of the terms 'drug analogue' and 'manufacture' and ensure that they capture all relevant substances and processes 
  • · clarifying and addressing operational constraints identified by law enforcement agencies with the AML/CTF Act, and expanding the list of designated agencies authorised to access AUSTRAC information to include the Independent Commissioner Against Corruption of South Australia 
  • · clarifying and extending the circumstances under which AusCheck can disclose AusCheck background check information to the Commonwealth and to state and territory government agencies performing law enforcement and national security functions. 
4. Schedule 1 will amend the POC Act to clarify the operation of the non-conviction based confiscation regime provided under that Act.
5. The non-conviction based forfeiture scheme is an essential tool under the POC Act, which is designed to target those who distance themselves from commission of offences, but profit as a result of illegal activity. Under the POC Act, a proceeds of crime authority (the Commissioner of the Australian Federal Police or the Commonwealth Director of Public Prosecutions) may apply to restrain property reasonably suspected of being the proceeds of crime, without requiring any person to be charged. The restrained property may later be forfeited if the court is satisfied on the balance of probabilities that the property is proceeds of crime.
6. The non-conviction based scheme operates in addition to the conviction-based forfeiture scheme. Section 319 of the POC Act provides that the fact that criminal proceedings have been instituted or have commenced (whether or not under the POC Act) is not a ground on which a court may stay proceedings under this Act that are not criminal 2 proceedings. This reflects the Parliament's intention that the non-conviction based scheme could operate even where criminal proceedings are on foot.
7. The measures in Schedule 1 of the Bill address issues relating to the non-conviction based forfeiture scheme raised in two court decisions - Commissioner of the Australian Federal Police v Zhao [2015] HCA 5 ('Zhao and Jin') and In the matter of an application by the Commissioner of the Australian Federal Police [2015] VSC 390 ('Zhang').
8. Schedule 1 of the Bill contains amendments to the POC Act following these decisions to: ï‚· clarify the principles a court may consider when granting an application for a stay of proceedings under the POC Act, including providing grounds on which a stay is not to be granted ï‚· strengthen protections against disclosure and use of material related to the confiscation proceedings in subsequent criminal proceedings ï‚· clarify that where an exclusion application has been made pursuant to Division 3 of Part 2-1 (dealing with restraining orders) of the POC Act, this application must be heard and finalised prior to the hearing of a forfeiture application.
9. Schedule 2 will amend the Criminal Code to create two new offences of false dealing with accounting documents. These offences implement Australia's obligation as a party to the Organisation for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the Convention). Article 8 of the Convention requires parties to create offences of false accounting for the purposes of concealing or enabling bribes to a foreign public official.
10. The two new offences are inserted in a new Division of the Criminal Code titled 'Division 490-False dealing with accounting documents', in a new Part titled 'Part 10.9- Accounting records'. The first of the two new offences, at section 490.1 of the Criminal Code, applies where a person makes, alters, destroys or conceals an accounting document, or where a person fails to make or alter an accounting document that the person is under a duty to make or alter, with the intention that the person's conduct would facilitate, conceal or disguise the receiving or giving of a benefit that is not legitimately due, or a loss that is not legitimately incurred. The second offence, at section 490.2, applies in the same circumstances as the first offence, but where the person is reckless as to whether the benefit or loss would arise.
11. Schedule 2 provides for penalties proportionate to the differing fault element structure of each offence. The offence at section 490.1 imposes a maximum penalty for an individual of 10 years' imprisonment, a fine of 10 000 penalty units ($1.8 million), or both. The maximum penalty for a body corporate is the greater of: (a) 100 000 penalty units ($18 million); (b) (where the court can determine the value of the benefit) three times the value of the benefit obtained by the body corporate and any related body corporate from the offence; and (c) (where the court cannot determine the value of the benefit) 10 per cent of the annual turnover of the body corporate during the 12 months ending at the end of the month during which the conduct constituting the offence occurred. For the second offence, at section 490.2, to which the lower fault element of recklessness attaches, the penalties are half of the penalties for the offence at section 490.1. 3
12. The offences will apply both within Australia and overseas, in prescribed circumstances where constitutional power permits. Section 490.6 provides that it is necessary to seek the Attorney-General's consent to commence proceedings where the alleged conduct occurs outside Australia and where the alleged offender is not an Australian citizen, an Australian resident or a body corporate incorporated by or under a law of the Commonwealth or of a state or territory. This requirement to seek the Attorney-General's consent seeks to ensure that, in circumstances where the nexus between the offending conduct and Australia may not be obvious, the Attorney-General is given the opportunity to review relevant considerations concerning international law and comity prior to deciding at his or her discretion whether to consent to the commencement of proceedings. It is intended that the Office of International Law in the Attorney-General's Department would be consulted prior to seeking the Attorney-General's consent.
13. Schedule 3 will amend the serious drug offences in Part 9.1 of the Criminal Code to clarify the definitions of the terms 'drug analogue' and 'manufacture' and ensure that they capture all relevant substances and processes. The Schedule makes make two amendments to the definition of 'drug analogue' in section 301.9 of the Criminal Code.
14. First, it clarifies that the terms 'addition' and 'replacement' have their ordinary meaning, not their scientific meaning. This change is necessary to remove ambiguity in the section and ensure that it operates to capture all substances that are structurally similar to listed controlled and border controlled drugs.
15. Secondly, the Schedule clarifies that a substance will be a drug analogue of a listed controlled drug even if that substance is also listed as a border controlled drug (and vice versa). These amendments are necessary to remove ambiguities in the section, highlighted by the decision of the ACT Supreme Court in R v Poulakis (No. 3) [2015] ACTSC 191.
16. The Schedule also amends the definition of the term 'manufacture' in section 305.1 to ensure that it applies to processes where a substance is converted from one form into another, but which do not necessarily create a new substance or change the chemical structure of the substance. These changes are necessary to remove ambiguities in the definition, highlighted by the decision of the Victorian Court of Appeal in Beqiri v R (2013) 37 VR 219.
17. Schedule 4 will amend the AML/CTF Act to clarify and address operational constraints identified by law enforcement agencies, and enable a wider range of designated officials and agencies to access and share information obtained under the AML/CTF Act. These amendments will:
  • · list the Independent Commissioner Against Corruption of South Australia (ICAC SA) as a 'designated agency' under section 5 of the AML/CTF Act, which will enable it to access AUSTRAC information (subject to the requirements of section 126 of that Act) 
  • · enable the AFP and the ACC to share AUSTRAC information with the International Criminal Police Organisation (INTERPOL) and the European Police Office (Europol), and provide for a regulation-making power to enable additional international bodies to be prescribed in future 
  • · clarify the circumstances in which entrusted investigating officials of the Australian Federal Police (AFP), the Australian Crime Commission (ACC), the Department of  Immigration and Border Protection (DIBP), and the Australian Commission for Law Enforcement Integrity (ACLEI) may disclose information obtained under section 49 of the AML/CTF Act.
The AusCheck amendments are described thus -
18. Schedule 5 will make amendments to Part 1 and Division 1 of Part 3 of the AusCheck Act to clarify and extend the circumstances under which AusCheck can share AusCheck scheme personal information. Specifically, the amendments in Schedule 5 will enable AusCheck to directly share AusCheck scheme personal information with a broader range of Commonwealth agencies and with state and territory government agencies performing law enforcement and national security functions.
19. AusCheck scheme personal information is defined in subsection 4(1) of the AusCheck Act and includes information relating to an individual's identity and information obtained as a result of an AusCheck national security background check. The purpose of these amendments is to support Commonwealth and state and territory agencies performing law enforcement and national security functions by providing access to AusCheck scheme personal information, as appropriate.
20. AusCheck is a branch within the Attorney-General's Department (AGD) that provides national security background checking services for the Aviation Security Identification Card (ASIC), Maritime Security Identification Card (MSIC), and National Health Security (NHS) check regimes. This background check is intended to identify individuals who should not be allowed access to secure areas of Australia's airports or seaports or to security sensitive biological agents (SSBA). A background check, defined in section 5 of the AusCheck Act, is an assessment relating to an individual's identity, criminal history, security assessment, and citizenship status, residency status or entitlement to work in Australia. Background checks are conducted under the Aviation Transport Security Act 2004 (ATSA), the Maritime Transport and Offshore Facilities Security Act 2003 (MTOFSA), or other primary legislation or legislative instruments.
21. AusCheck undertakes background checking activities within a legislative framework comprising the AusCheck Act and the AusCheck Regulations 2007 (AusCheck Regulations). This framework is supported by Guidelines for Accessing Information on the AusCheck Database (AusCheck Guidelines).
22. AusCheck uses information provided by an applicant for an ASIC, MSIC or NHS clearance to request a security assessment from the Australian Security Intelligence Agency (ASIO), a criminal history check from CrimTrac (which accesses all state and territory criminal convictions) and, if necessary, a citizenship status check from the Department of Immigration and Border Protection. Providing a centralised government background checking mechanism for these sectors means that private organisations and industry bodies do not need to deal with sensitive information, including personal and criminal history information. The vast majority of AusCheck activities relate to the ASIC and MSIC schemes, which are established under the Aviation Transport Security Act 2004 and Maritime Transport and Offshore Facilities Security Act 2003. The Department of Infrastructure and Regional Development (Infrastructure) administers these schemes.
23. The information handling provisions in AusCheck's legislative framework are primarily addressed at obtaining, using and disclosing information for purposes connected to background checking. There is some scope for information sharing for other purposes-- section 14(2)(b)(ii) and (iii) allow AusCheck to use or disclose information in responding to a 5 national security incident and for law enforcement or security intelligence purposes by the Commonwealth, or by Commonwealth authorities with law enforcement or national security functions.
24. AusCheck is limited in its ability to share AusCheck Scheme personal information. Currently, AusCheck can share with Commonwealth and relevant Commonwealth authorities (bodies incorporated) with functions relating to law enforcement or national security. These restrictions limit the flow of relevant information to other Commonwealth agencies dealing with national security and crime threats. They also prevent AusCheck from sharing relevant information with Commonwealth agencies which are not traditionally considered to be law enforcement agencies but which may require access to the information for law enforcement or national security purposes. AusCheck is also unable to directly share information with state and territory agencies with functions relating to law enforcement or national security, including state and territory police. These restrictions are at odds with the significant role these agencies play in law enforcement and national security, and the collaborative approach that is necessary to combat the cross-border threats of terrorism and serious crime. This also causes particular challenges for agencies that undertake law enforcement and national security operations at secure airport and maritime port areas, such as state and territory led police taskforces targeting drug importation.
25. In order to address these challenges and support the efforts of agencies performing law enforcement and national security functions, Schedule 5 to the Bill amends the AusCheck Act to enable AusCheck to directly share information with state and territory authorities and with a broader range of Commonwealth authorities. This sharing will continue to be limited to the performance of functions relating to law enforcement or national security, and be subjected to strong safeguards.
26. Appropriate safeguards are in place to protect the disclosure of AusCheck scheme personal information under the AusCheck Act.
27. Criminal offences are included in section 15 of the AusCheck Act which makes it an offence to unlawfully disclose AusCheck scheme personal information. An offence under this section is punishable by up to two years' imprisonment. These offences provide additional protections for information obtained by AusCheck and create an obligation on AusCheck staff to ensure information is shared appropriately at all times.
28. AusCheck issues privacy notices to applicants advising them how their information will be used and to acquire consent for the collection and disclosure of their personal information. Each applicant receives a privacy notice and the privacy policy is also published on the AusCheck web page of the AGD website.
29. The Secretary of the AGD issues the AusCheck Guidelines under regulation 15 of the AusCheck Regulations which establish a compulsory framework for AusCheck staff to consider in determining the legality of requests for personal information under subparagraph 14(2)(b)(iii) of the AusCheck Act. The AusCheck Guidelines implement recommendation 46 of the AusCheck Privacy Impact Assessment for the development of a protocol relating to the disclosure of AusCheck scheme personal information.
30. The AusCheck Guidelines are developed in consultation with agencies that will be receiving information, to ensure appropriate contact officers and authorisations are in place. The AusCheck Guidelines are published on the AusCheck webpage. They require Commonwealth agencies seeking access to AusCheck scheme personal information to be a 'recognised Commonwealth authority' or accredited as an 'authority to use information for law enforcement and national security purposes'. In order to be accredited, agencies must provide information to AusCheck establishing its law enforcement or national security functions and legislative or other authority supporting this function. Information is only shared with nominated Senior Executives, and written undertakings outline the law enforcement or national security purposes for the information.
31. The AusCheck Guidelines will continue to apply how information is shared with Commonwealth authorities under subparagraph 14(2)(b)(iii).
32. To ensure appropriate accreditation and protections for information shared with state and territory authorities under new subparagraph 14(2)(b)(iiia), state and territory authorities will also be subject to AusCheck Guidelines established under regulation 15 of the AusCheck Regulations.
33. AusCheck has memoranda of understandings (MOUs) in place with relevant authorities that set out the key principles and obligations relating to the sharing of AusCheck scheme personal information. The MOUs outline the purposes for which AusCheck information may be shared, and place obligations on receiving agencies to manage and control access to AusCheck information at all times so as to protect the privacy of individuals and the confidentiality of the information received.
34. These safeguards will continue to apply to information disclosed under new subparagraphs 14(2)(b)(iii) and (iiia) to ensure AusCheck scheme personal information is only accessed by Commonwealth, state and territory agencies performing law enforcement or national security functions, and this information is dealt with appropriately within these receiving agencies. Agencies that receive AusCheck scheme personal information are also required to comply with all relevant privacy, recordkeeping, records disposal, auditing and reporting requirements.