[Draft] Repeal GAR #177 “Concerning Financial Fraud"

[Huyland]

Description: General Assembly Resolution #177 “Concerning Financial Fraud" (Category: Free Trade, Strength: Significant) shall be struck out and rendered null and void.
Argument: The General Assembly,
Recognizing the value of General Assembly Resolution #177 in combating financial fraud and the compensation of its compensation of its victims,

Alarmed that the broad definition of “victim(s) of fraud” as defined in Article 2, defining the term as any entity “that suffers a loss of fiscal and/or material assets due to financial fraud” does not establish a distinction between losses as direct consequences of fraud those that are indirect consequences of fraud, leading to an larger numbers of entities that are covered under "victims of fraud,"

Noting that the method of acquiring compensation in Article 4 is flawed, as compensation must given to “all victims of fraud,” which is nigh impossible due to its broad definition, and that it should be both “equal to or greater than the value of the loss,” and “derived from the fiscal and/or material assets of the perpetrator of the act of financial fraud,” which is only possible if the perpetrator retains all assets derived from fraud and all assets are fully seized,

Concerned that this results in inadequate compensation of victims of fraud, due to the requirements of the distribution of compensation being impossible to adequately comply with,

Believing that, while the resolution provides immense benefit in combatting financial fraud, the contradictions regarding compensation of victims makes the resolution as a whole untenable,

Hoping that an adequate replacement to the resolution will be passed to address its problems,

Hereby repeals General Assembly Resolution #177 “Concerning Financial Fraud”.

[Tinhampton]

The General Assembly cannot even repeal the Clean Prostitute Act - which is at least twenty-five years out of date. Why do you think it can or should repeal 177 (much as I support its repeal)?

(More to the point, where - if anywhere - is the "adequate replacement" you support?)

[Huyland]

The General Assembly cannot even repeal the Clean Prostitute Act - which is at least twenty-five years out of date. Why do you think it can or should repeal 177 (much as I support its repeal)?

(More to the point, where - if anywhere - is the "adequate replacement" you support?)

The main difference is that unlike #179, which has relatively straightforwards requirements, 177 - Concerning Financial Fraud, has immense flaws in its mandates that cause an immense burden on nations while being extremely difficult to be fully compliant. At the moment, there is no adequate replacement, although the GA could pass another resolution to combat financial fraud. However, leaving it up to individual nations to deal with financial fraud as they see fit would also be an adequate solution.

[Imperium Anglorum]

The General Assembly cannot even repeal the Clean Prostitute Act - which is at least twenty-five years out of date. Why do you think it can or should repeal 177 (much as I support its repeal)?

(More to the point, where - if anywhere - is the "adequate replacement" you support?)

The main difference is that unlike #179, which has relatively straightforwards requirements, 177 - Concerning Financial Fraud, has immense flaws in its mandates that cause an immense burden on nations while being extremely difficult to be fully compliant. At the moment, there is no adequate replacement, although the GA could pass another resolution to combat financial fraud. However, leaving it up to individual nations to deal with financial fraud as they see fit would also be an adequate solution.

Could you construct your arguments more clearly, stating the claim, the warrant, and the impact?

[Huyland]

General Assembly Resolution 177 should be repealed because it requires compensating all victims of financial fraud with values equal to or greater than their loss, while also taking this compensation from the perpetrator. This stipulation as it stands becomes increasingly harder to fulfill in cases when the fraud is larger in scale. For example, accounting fraud can result in massive losses, not just for a corporation, but for the shareholders and employees of said corporation. When this type of fraud becomes public, stock prices fall for that company, leading to losses that, in most cases, exceed the gains of the parties perpetrating the fraud. Even if the perpetrator has all their assets seized, it is unlikely that all the victims can be reimbursed. The resolution assumes that the losses taken by victims would be equal to the gains received by perpetrators, which only happens in the most optimistic of cases. This means that in the most severe cases, the cases which the resolution aims to prevent the most, it becomes impossible to follow all the stipulations of the resolution.


Even when sufficient compensation is acquired, the language of the resolution means that nations are obligated to compensate with a value equal to or greater to the loss. However, there is no mechanism to determine how much value was lost through financial fraud, especially when one considers assets like stocks. This means that the amount victims receive is ultimately up to how nations determine loss, which effectively nullifies the beneficial intentions of this clause.

[Imperium Anglorum]

General Assembly Resolution 177 should be repealed because it requires compensating all victims of financial fraud with values equal to or greater than their loss, while also taking this compensation from the perpetrator. This stipulation as it stands becomes increasingly harder to fulfill in cases when the fraud is larger in scale. For example, accounting fraud can result in massive losses, not just for a corporation, but for the shareholders and employees of said corporation. When this type of fraud becomes public, stock prices fall for that company, leading to losses that, in most cases, exceed the gains of the parties perpetrating the fraud. Even if the perpetrator has all their assets seized, it is unlikely that all the victims can be reimbursed. The resolution assumes that the losses taken by victims would be equal to the gains received by perpetrators, which only happens in the most optimistic of cases. This means that in the most severe cases, the cases which the resolution aims to prevent the most, it becomes impossible to follow all the stipulations of the resolution.

Why do you believe that people who suffer from fraud are actually made whole? From where would you suggest they should be made whole, if not from the fraud perpetrators?

Even when sufficient compensation is acquired, the language of the resolution means that nations are obligated to compensate with a value equal to or greater to the loss. However, there is no mechanism to determine how much value was lost through financial fraud, especially when one considers assets like stocks. This means that the amount victims receive is ultimately up to how nations determine loss, which effectively nullifies the beneficial intentions of this clause.

Where is the first portion underlined asserted in the resolution? Why is the second portion underlined not assessible by means of something like fair market value before and after the fraud event becomes public?

[Huyland]

Where is the first portion underlined asserted in the resolution? Why is the second portion underlined not assessible by means of something like fair market value before and after the fraud event becomes public?

In article 4 of GAR 177, it states that "Member-state shall ensure that all victims of fraud shall receive compensation for their loss equal to or greater than the value of the loss" and further stipulates that "this compensation shall be derived from the fiscal and/or material assets of the perpetrator of the act of financial fraud which resulted in the loss". While the first part of the article can be left to the member-state to implement, the second part requires the intervention of the nation to seize those assets, in order for those assets to be put towards compensation. Even if the victim is uninsured, then the nation must still ensure that they receive compensation.

I'll have to concede to your second point.

Why do you believe that people who suffer from fraud are actually made whole? From where would you suggest they should be made whole, if not from the fraud perpetrators?

As the resolution states that the compensation must be equal to or greater than the loss, the victims of fraud must be made whole. While perpetrators must be held accountable for fraud, insurance would be better suited to compensation of victims. Perpetrators may not have the means to make whole the victims, especially if the fraud involves covering up losses, as this would mean that the perpetrator did not gain much in comparison to the losses caused.

[Imperium Anglorum]

In article 4 of GAR 177, it states that "Member-state shall ensure that all victims of fraud shall receive compensation for their loss equal to or greater than the value of the loss" and further stipulates that "this compensation shall be derived from the fiscal and/or material assets of the perpetrator of the act of financial fraud which resulted in the loss". While the first part of the article can be left to the member-state to implement, the second part requires the intervention of the nation to seize those assets, in order for those assets to be put towards compensation. Even if the victim is uninsured, then the nation must still ensure that they receive compensation.

You cite this in terms of "the language of the resolution means that nations are obligated to compensate with a value equal to or greater to the loss". But the resolution itself qualifies the form of compensation, which is inherently capped by the perpetrator's assets, under my reading. The meaning of "compensation" is governed by the explanation beginning with "this compensation".

Why do you believe that people who suffer from fraud are actually made whole? From where would you suggest they should be made whole, if not from the fraud perpetrators?

As the resolution states that the compensation must be equal to or greater than the loss, the victims of fraud must be made whole. While perpetrators must be held accountable for fraud, insurance would be better suited to compensation of victims. Perpetrators may not have the means to make whole the victims, especially if the fraud involves covering up losses, as this would mean that the perpetrator did not gain much in comparison to the losses caused.

This is where I'm now confused. Do you believe that victims should be made whole or not? And if the perpetrator lacks the liquidable assets to make the victim whole, who do you believe should be on the hook? Secondarily, on the latter portion, how would you calculate the loss for a company which is legitimate but then turns to fraud and is then discovered? Would not the actual loss be the difference in the discounted value between the actual and the counterfactual?