> (size of fine * chance of being caught) > profit from not being caught

But that's precisely the problem, isn't it? How can you ensure the risk is too high for the company unless you take into account its financials?

Because the question isn't whether the fine will bankrupt the company but whether the expected value of the illegal transaction is negative. Illegal transactions that lose you money are a generally bad idea regardless of whether your net worth is ten dollars or ten billion.

That's the profit part. It could be the following:

  * $x of fines for every $y of wire fraud
  * $x of fines for every individual instance of wire fraud

The point is if a company that makes a billion dollars does $100k in fraud they should probably pay the same fine as a company that makes a million dollars and does $100k in fraud.

>>Important to remember that fines should match the severity of the violation, not the wealth of the violator. The purpose of the fine is to discourage the behavior...

Most of Scandinavia determines fines based on income, because they recognize that fines that constitute pocket change don't actually act as deterrent.

http://www.theatlantic.com/business/archive/2015/03/finland-...

Fines that constitute "pocket change" are sufficient to discourage crimes that would generate something less than pocket change. It's not as if scamming $250 becomes a cost-effective bet when you're independently wealthy.

No, but say, the fine for speeding becomes "pocket change" if you're independently wealthy.

Sure. That's not relevant for illegal activity undertaken for profit though.

Scaling up fines based on wealth might help reduce minor crimes like speeding. I'm not sure how effective that really is, though, since low income people still speed.

I remember hearing about this. Seems like an interesting way to prevent traffic fines from becoming a regressive tax. And obviously it points out one of the many ways in which my comment oversimplifies the criminal justice system :-)

In this case the "profit" part of my equation would change based on individual circumstances.

The "profit" of speeding to your finance job where you make $500/hour is much higher than that of speeding to your minimum wage job at McDonalds.

I think that's why we punish serious crimes with time in prison, not fines.

It's not enough to discourage only rational people from committing crimes.

This is true, which is why we also invest in preventing crimes in addition to punishing crimes. We should proactively have safeguards for things like wire fraud (I'm sure we do). The equation is only how to punish people that escape prevention.

If we granted that such a precisely calculated fine might discourage people who do a precise calculation of expected profit, and who know the odds that they'll be caught...

Is this something we can really calculate so closely? What if it turns out the banks are better at such calculations than the government, and crime is profitable?

I don't think anyone proposed that we attempt to make the penalty precisely offset the profit. Penalties can be scaled up by 50 or 100 percent to offset whatever ineptness you assume the government will possess.

The comment I replied to was arguing against high fines, with a recommendation to use that formula.

Personally, I feel there's a disparity here between punishment for the rich (make the fine slightly higher than the expected profit) and the poor (put them in a cage for years).

> The comment I replied to was arguing against high fines, with a recommendation to use that formula

No he wasn't. He was arguing against scaling up fines based on a company's general profits. The formula given simply said that the fine and the chance of being caught should be greater than the profit from the illegal activity. How much greater was unspecified.

> Personally, I feel there's a disparity here between punishment for the rich (make the fine slightly higher than the expected profit) and the poor (put them in a cage for years).

I agree with that, but don't feel that scaling fines resolves the issue that poor criminals land in jail while wealthy criminals don't even pay their own fines (instead the corporation does). You don't fix this discrepancy by raising fines on the wealthy.

> How much greater was unspecified.

However great the difference between the expected profit and the fine, a purely financial penalty for crime will always encourage three things: gambling, trying outsmart the government by finding ways to make more profit or reduce the chance of being caught, and rich people ignoring the law and committing the crime for non-financial reasons (for example: thrill seeking, as a favor to someone, to enable another crime, or from pure malice) with no real penalty to them.

I think we both agree jail is a more appropriate punishment, though we're making the argument in different ways.