Axis 3 - Economic intelligence and new financial crimes

Professors supervising the research axis : Lcl. Rémy Février & Pr. Hervé Boullanger

Associate researcher: Alexis Collomb (CNAM), Pr. Pythagoras Petratos (formerly Dynamics of Innovation)

Associate expert: Hugo Zsolt de Sousa

In the face of terrorist or criminal acts, an understanding of the financing circuits, while not solving everything, most often makes it possible to trace the culprits and/or dismantle the network responsible for criminal acts that are likely to be repeated. In some cases, the ex-ante detection of "abnormal" financial movements can even anticipate and prevent crimes and attacks. The advent of crypto-currencies, while it holds many promises of financial inclusion, transactional efficiency and cost reductions (both for individuals and institutions) is not without risks. On the one hand, detractors of these new technologies argue that these systems, most often pseudonymous, encourage criminal acts such as money laundering and illegal trafficking.

The famous example of the Silk Road site, where one could buy weapons and illegal substances online, paid for in bitcoins, is often cited. On the other hand, supporters of these crypto-currencies point out that cash is still the most common way to finance all kinds of prohibited activities and that the development of certain crypto-currencies, especially when they have objectives of traceability and total transparency, could have many advantages of reliability and security of use that should be encouraged.  It is therefore this central question of how to improve the traceability of financial transactions and the detection of illicit financing, particularly in the era of crypto-currencies, that this axis should study.

In the wake of Jensen & Meckling's (1976) seminal article on the Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, we will look at the governance of organizations and the mechanisms and incentives that need to be put in place to reduce the risk of fraud and so-called "white-collar" crimes. Although many "best practices" in corporate governance, mostly inspired or derived from a "principal/agent" analysis framework, have been introduced over the last twenty years in many jurisdictions, the results are still far from perfect. And the recent financial crisis has underlined how important the risks of individual fraud, collective failure (e.g. of a team or a set of risk controls), or even - and perhaps especially - the coupling of the two, remain (e.g. the Kerviel affair, where a future position of about 50 billion euros gradually built up by a trader - well beyond the official risk limits - was eventually discovered by the highest authorities of the bank, and was unwound in a hurry, resulting in a loss of almost 5 billion euros).

By analyzing various reports (e.g. AFEP-MEDEF, Bouton or Viénot for France) or legislation (e.g. Sarbanes-Oxley or Dodd-Frank for the United States), this research intends to study how to improve corporate governance in general, and that of financial institutions in particular. And by focusing on individual incentive and sanction mechanisms (and the risks that some continue to pose), compliance and risk management procedures, and organizational architecture, this project aims to strengthen corporate security and reduce the risk of fraud (individual or collective).