Modern Criminal Law Approach Criminology Essay

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The purpose of the article is to present modern criminal law approach to computer-related fraud. Modern concept of fraud in criminal law includes deceiving a computer system and is becoming an established concept in the developed countries. However, the Slovenian Criminal Code has not yet adapted to the changes the new technology has brought. We still cling to the traditional concept by which only a physical person can be deceived (and not a computer system).The Slovenian Criminal Code has not implemented the demands of the Convention on Cybercrime and should, therefore, be amended. My conclusions regarding computer fraud could also prove useful to some other countries coping with the same criminal legislation as Slovenia. After a careful examination of the term computer fraud and its forms, I will use a comparative method that includes examination of international documents, surveys and Criminal Codes. Comparative research is one of the essential methods of criminal law methodology, since it allows comparison with the achievements and approaches favored by other Legislatures and criminal law theorists. Compared to numerous other countries having already overcome the traditional concept of fraud, Slovenia and its law experts have, so far, neither faced the problem of computer-related fraud nor the need to overcome its traditional concept. In this regard, the article can contribute to domestic as well as comparative criminal law theory.

Keywords: Fraud, Deceit, False representation, Modern concept of fraud, Traditional concept of fraud, Computer system, Information system, Cybercrime, Criminal Law.


The concept of "fraud" is one of the oldest criminal offences and has been around in the human society since the beginning of trade and commerce. In today's information age, where vast amount of trades, commercial services, and payments are made by means of the Internet and computer systems, the traditional offence of fraud has gained newdimensions. Therefore, law theory soon realized that the traditional concept of fraud could not cover the new forms of computer related frauds. Due to the development of information technology, a modern concept of computer fraud was formulated - a concept

that we will try to present in this paper. Fraud in its essence basically means a willful misrepresentation of truth or concealment

of material fact in order to induce another person to act to his or her detriment (Black's Law Dictionary, 2004). Albrecth et. al., (2011) argues that fraud is a deception that includes a representation about a material point, which is intentionally or recklessly false, and which is believed by the victim. Fraud, therefore, consists in taking advantage of a person or in misleading that person, regarding specific facts with the purpose of property or monetary gain. Deisinger explains (2002) that basic element of fraudulent criminal act is to create false representation in the victim's state of mind or to let the victim in this state.

False representation of facts means, that the perpetrator creates a wrong idea of the circumstances and facts. Error in the victim's thinking process is created due to the offender's false claims about the actual circumstances.

The Slovenian Criminal Code (KZ-1, 2008) defines fraud in Article 211 as: "Whoever with the intent of obtaining for himself or a third person an unlawful material benefit, damages the property of another by causing or maintaining an error by pretending false facts or by distorting or suppressing true facts." It is clear that fraud can be executed by a commission ("causing or maintaining an error by pretending false facts") or by an omission ("suppressing true facts"). An essential element of fraud is the financial purpose of the offender. His goal is to gain material benefit or originate property loss. With no financial purpose involved, the offender's act cannot be termed as fraud but as deceit, which is often a statutory element of other offences. As Deisinger (2002) explains, deceit conceptually means cheating, but from the criminal law perspective this is not equivalent to the criminal offence of fraud. In case of fraud the fraudulent intent has to be present before the conclusion of a contract; in

case of deceit, on the other hand, this intent can also occur later. Moreover, deceit is not necessarily connected with a direct financial gain of the offender; it can be a leading motive, though. The Anglo-American criminal law system makes a clear distinction between fraud and deceit.2 Unlike false representation (which is one-sided), deceit is a two-sided concept.

The first requirement is a false representation by the offender. The second is that someone was deceived by this untrue representation. "The victim must have been taken in or "conned" by this false representation, so that the victim believed it to be true. False statement must have operated on the victim's mind" (Heathon, 2006, p. 327). On the other hand, fraud is a general term for a criminal offence that always includes a financial motive of the offender. Theorists also refer us to the problematic definition of fraud and deception in the economy and business world. In 1919, Page wrote that failure of one party to notify the other of the known facts, does not always constitute a fraud or affects the validity of an agreement. It is considered that there is an exception to the duty to disclose information, when that information was obtained deliberately. According to Kovač (2010) this is clearly seen in Neil v. Shamburg (1983), where the buyers of a real estate ordered an expensive investigation of the estate, which showed that there was oil under the estate. They did not notify the seller about their findings. The court ruled that there was no fraud by omission committed by the buyers - they had no duty to inform the seller about the properties of his estate.


The 1983 film War Games starred Matthew Broderick as a computer whiz kid who unwittingly uses his home computer to hack into NORAD's computer system. Broderick's chicanery brought the United States to the brink of nuclear war with the Soviet Union. 5War Games introduced much of the country to the "hacker," and its influence was not lost on members of Congress, who already were trying to decide what to do about traditional property laws that were ill-equipped to deal with network trespassers and intangible property that "may exist only in the form of magnetic impulses."6 Recognizing that many states already had their own computer crime laws, Congress stepped in gingerly with the Counterfeit Access Device and Computer Fraud and Abuse Act of 1984 (1984 Act).7 The police crime statistics have many gaps in contents and methodology. In spite of that it is almost the only source of information, which informs public and political opinion about crime activity in the country. The police have a strong administrative and technical mechanism for influencing the size of crime records. In last 20 years there was a great variation of crime statistics. In the years 1981-1982 (1), 1991-1992 (2) and 1998-2000 (3) the crime statistics greatly increased, but in the years between it decreased. This total variation of crime was mainly the result of the variation of thefts and burglaries and partly of the offences of damage to property, thefts of cars and frauds. The number of other offences, which are often used in the crime index, such as murders, robberies and assaults, didn't increase in the years 1991-2000 with the exception of drug offences, which increased in these last years. Clearly, online auction fraud is a serious problem with far-reaching ramifications. If prevalence is any indication, current methods of preventing and adjudicating this type of crime appear to be ineffective. Prevention strategies must be based in sound theories supported by empirical evidence. From a theoretical perspective, we can examine causation and motivations of offenders like Ghighina to create comprehensive prevention strategies that include micro- and macro-level deterrents, enforcement guidelines, and sanctions. Protecting consumers from online auction fraud is no simple task, but according to Kyung-shick Choi (2010), we can address prevention by examining the routine activities theory and its three components: the presence of motivated offenders, the presence of suitable targets, and the lack of capable guardianship. To reduce the number of motivated offenders, the crime of online auction fraud must be made to appear less attractive by either increasing the risk associated with the crime or reducing the reward. Because of the popularity of e-commerce and online auctions, it is safe to assume that the availability of rewards will stay constant. Therefore, we should focus on decreasing the number of motivated offenders by effectively increasing their perception of risk.Beyond mathematical and computational methods, thedevelopment of cyber and computer crime has also transformed the way criminologists study crime and delinquency. Historically, criminologists have focused on traditional forms of crime (e.g., murder, assaults, kidnapping, etc.); however, during the past few decades, crime has moved to the Internet, opening the door to new types of crime and delinquency, as well as, new methods of engaging in crime. This section briefly describes how the study of criminology has shifted to include the Internet through advancements in technology and the use of computers. Although cyber crime research is relatively new to criminology, this area of research is gaining momentum [15]. As a result, the literature on this topic is extensive and summarizing it is beyond the scope of this article. As a result, we provide only a snapshot of the research, taken from the journal that pioneered the field, to demonstrate this new avenue of research emerging from the development and growth of computer and cyber crime. Thus, the purpose of this section is to clarify the way in which computers have become central to the commission of many categories of crime. Specifically we review and discuss three categories of computer crimes that illustrate this emerging pattern and point to the need to prioritize the intersection of computer science and the traditional study of criminology and criminal justice. Cyber and computer crime have emerged as new areas

of research for criminologists and in doing so have provided new opportunities to apply theory to help explain such crime. Crimes that are associated with the prevalence of computers target the technological industry, its customers, and others [16]. Some of the crimes that are incorporated into this category include counterfeiting, identity theft, corporate theft, component theft, and piracy. Digital piracy is the act of copying digital goods (i.e., software, documents, audio, and video) without permission from and compensation to the copyright holder using computer technology [17-19]. Digital piracy is one area of research that has emerged within cyber criminology and covers topics such as music, gaming, and other computer programs.

Types of computer-related frauds

Clough (2010) divides types of computer-related fraud into the following categories:3

a) Fraudulent sales online

b) Advance-fee schemes (Nigerian fraud)

c) Electronic funds transfer crime

d) Fraudulent investments

e) Identity crime

a) Fraudulent sales online

Despite its simplicity, fraudulent sales online are still the most common type of fraud in the Internet space. Crime Complaint Center, working with the FBI, reports that in the year 2010, the number of frauds, where goods where not delivered or paid, are still at the top with 14.4 percent (Crime Complaint Report, 2010). The buyer commits a fraud by not transferring money for the goods, by sending counterfeited money or cheque without coverage. On the other hand, the seller commits a fraud when he undertakes to send the goods after the payment, but they are never sent or are of substantially lower quality than agreed.4

This is the most basic form of fraud where we must prove that the perpetrator intended to defraud the opposite side, that he intentionally misled the other party (that the goods will be sent, even though he never had any intention to do so, or that such goods do not even exist, or are not attainable) and that the inability to pay or dispatch the goods is not due to market or any other economic condition the »guilty« party had no control over (e.g. goods were destroyed in transport or lost in mail). These forms of fraud have been around since the beginning of trade and commerce. Information and computer 3 There are of course numerous criminal classifications of computer-related frauds. Vriesde (2001), for example, classifies fraud in cyberspace into the following categories: In-company fraud, Virtual ghost shop, Telephone card fraud, Trade in hot air, Credit card fraud, Internet auctions, Stock exchange fraud and Diskette fraud

b) Advance-fee schemes (Nigerian fraud)

Electronic mail users treat the Nigerian fraud or Scam 4196 as synonymous with the Internet fraud. The Nigerian fraud consists of e-mails in which the offender dishonestly makes a false representation and with it deceives the victim by promising huge benefits, but only after the victim has sent a certain amount of money to the perpetrator (for the purposes of bribery of officials, overcoming official barriers, airline tickets, payment of taxes, etc.). When the perpetrator receives the money, he cuts all connections with the victim or tries to swindle even more money out of the naïve victim with new excuses and lies. According to PerÅ¡ak (2002) scam 419 is a relatively simple adaptation of the traditional advance-fee fraud in a highly complex organized criminal activity. The perpetrators rely on greed and naïveté of the people and sometimes on the mercy and willingness to help (the offender presents himself as a poor man having suffered a severe accident and is now collecting money for heart surgery, tumor, or as a miserable man taking care of his sick child). This is certainly the most commonly practiced type of fraud today. There is basically no individual user of e-mail who has not received numerous Nigerian fraud attempts. Despite the simplicity and sometimes the stupidity of such emails, the investigations conducted in this sphere disclose (Ultrascan Advanced Global Investigations, 2009) that fraudsters are successful in about one message out of every ten thousand sent. As to Modic (2009) fraudsters can expect that individuals will respond to one letter out of every hundred. Among the respondents, at least, one person in every hundred will send the money. Dragičević (1999) notes that such frauds can be performed without significant expertise or technical knowledge.

c) Electronic funds transfer crime

Today money flows through credit and paying cards. Account balance is presented by a digital record of one's bank account. Various forms of fraud and theft of this money are therefore taking place in a digital form. There is often a link with an identity theft - the offender presents himself (with a forged or stolen document) as the owner of a bank account and thus defrauds the banking system or the employee of the bank and has the money drawn for him from the victim's bank account. More recent forms of fraud include fictitious investments in funds where perpetrators pose as bank or insurance agents collecting money for their investments. They collect money from several victims who deposit money on a certain bank account (set up with a false identity), then they empty the account and disappear.7 5 We have lately been witnessing the so-called "scareware" programs which offer a free inspection of our system to verify if it is "infected" with malware (damaging codes like viruses). Free inspection reveals that the system is severely infected and that it needs to be cleaned. We are then offered to buy the program that eliminates the infection (which of course was never there, since it was generated by the program itself). Thus, the misled customers who are afraid that their system contains malicious codes, purchase the program, although there was really no need for it. It is quite clear that this is an example of a cyberspace fraud.

d) Fraudulent investments

Various forms of fraud connected with investments, stock trading and business practice are included in this segment. Clough (2010) lists examples of using the Internet to influence the stock price - the so-called "pump and dump" or "trash and cash" scams. Perpetrators operate on Internet forums, where they affect the stock price with false statements. Clough (2010) describes a well-known example of eleven offenders who with the usage of e-mail and Internet forums artificially raised the price of shares of Chinese "penny stock" companies and thus earned about 3 million dollars. Various forms of fraud on WebPages are also included in this segment. Perpetrators create an Internet page that is supposed to be an on-line store with excellent prices. Such websites usually "operate" only a week or two - just enough to defraud a certain number of customers. The website (together with the perpetrators and the money) will disappear before being reported to the police.

e) Identity theft

Identity theft is a new type of crime similar to fraud, where the offender steals the identity of the victim and presents himself as the victim, causing in this way damage to the person whose identity has been stolen. Adequate safeguards of personal data of the individuals are provided by the Article 38 of the Slovenian Constitution. Personal data define the characteristics of a person distinguishing him/her from the other individuals. The use of foreign personal data represents a serious intervention into one's identity, which can cause tremendous emotional or material damage. We should remember a BBC journalist who spent two days in custody in Slovenia, because a crime was committed abroad under his name (the real offender had used the passport of the journalist). There is no internationally recognized definition of identity related crime. The Australian Centre for Police Research (2008) adopted some general definitions which are worth mentioning:• Identity crime is a generic term to describe activities/offences in which a perpetrator uses a fabricated identity, a manipulated identity or a stolen/assumed identity to facilitate the commission of crime. • Identity fraud is the gaining of money, goods, services or other benefits or the

avoidance of obligations through the use of a fabricated identity, a manipulated identity, or a stolen/assumed identity.

• Identity theft is the theft or assumption of a pre-existing identity (or a significant part thereof), with or without consent, and whether, in the case of an individual, the person is living or deceased. Identity theft in practice is committed in the following forms: • Credit card scams • Theft of information from databases • Social engineering: manipulation of people to trust the perpetrator with confidential information


Let us take a look at the Criminal Codes and legislations of other countries to see how they deal with the problem of computer-related fraud and deception. Comparative approach is an essential method of criminal law methodology, since it provides a comparison of achievements and approaches of other Legislators and criminal law theorists. As indicated above the criminal law is to follow the changes of the new technology and adapt to the new forms of crimes this technology brings. The solution to computer fraud dilemma in Germany is therefore the same as in Croatia. Furthermore, Austria has also added a new Article to the Criminal Code (Strafgesetzbuch, 1974) regarding computer fraud. Article 148.a - Fraudulent misuse of data processing (Betrügerischer tenverarbeitungsmißbrauch) was added as a needed response to the demands of the Convention on Cybercrime. The first paragraph of the Article stipulates that whosoever, with the intent of obtaining for himself or a third person an unlawful material benefit harms the property of another by affecting the outcome of data process by a reconfiguration of a program, entry, amendment, deletion or by concealing of data or other similar effect or impact on the data, shall be liable to imprisonment of not more than six months or a fine. It is evident that the legislation text is quite similar to that of Germany.


Frauds in computer systems are extremely common offences where offenders pursue economic interests. Most common forms of computer-related frauds today are divided into the following categories: fraudulent sales online, advance-fee schemes (also called Nigerian frauds), electronic funds transfer crime, fraudulent investments and various forms of identity crime. The identity theft is, primarily, a constantly evolving crime, becoming more and more of a threat to information systems and everyday on-line life. There are two basic appearances of fraud related to computer systems. The first one is where computer systems are used only as assets to commit a fraud (the so-called direct computer fraud) - which is conceptually not different from the traditional form of fraud. On the other hand, there are frauds committed against a computer system. The offender deceives or defrauds a computer system in order to obtain financial gain (without any personal deception whatsoever - which is an essential element of a traditional fraud). The so-called indirect computer fraud should, therefore, be recognized by a modern Criminal

Code as a criminal offence. This can be achieved by implementing a special offence of computer fraud into the Criminal Code or by broadening the concept of a traditional offence of fraud so that it is not limited to a mere deceiving of another person. If the Legislator does not implement the computer fraud as a special criminal offence and fails to adapt the traditional concept of fraud, the law practice is forced to find a way around such a poor legislation. Since the Slovenian Legislator has failed to recognize the indirect computer fraud (unlike all modern comparative criminal codes), the established law practice now defines the indirect computer fraud as grand larceny. This is an interesting approach, however, it is methodologically questionable and will not work in all situations. Cybercrime is the fastest developing form of crime in today's society. If the criminal law is to keep up with the advances of computer technology, it has to be more open to new criminal concepts and more receptive to further amendments to criminal legislation. Computer-related fraud is a typical example of a new cyber crime offence. The traditional criminal law concept of fraud that was developed in the pre-computer era, must therefore adapt to this new phenomena. This is fairly evident in the Slovenian Criminal Code. Slovenian legislation as it stands today, does not meet the demands of the Convention on Cybercrime, and hinders the prosecution of computer-related frauds and calls, therefore, for the need to be amended.