The E↵ectiveness of White-Collar Crime Enforcement: Evidence from the War on Terror

This paper studies the deterrent e↵ect of criminal enforcement on white-collar criminal activities. Using the 9/11 terrorist attacks as a shock to the FBI’s allocation of investigative resources and priorities, and variations in the Muslim population in the United States as a measure of geographic variations in the shock, I examine two questions: (1) Does the bureau’s shift to counter-terrorism investigations after 9/11 lead to a reduction in the enforcement of laws targeting white-collar crime? (2) Does white-collar crime increase as a result of less oversight? Using a di↵erence-in-di↵erences estimation approach, I find that there is a significantly greater reduction in white-collar criminal cases referred by FBI field o ces that shift their investigative focus away from white-collar crime to counter-terrorism. I also find that areas overseen by FBI field o ces that shift their attention from white-collar crime to counter-terrorism experience a significantly greater increase in wire fraud, illegal insider trading activities, and fraud within financial institutions. ⇤I am grateful to my advisers: David Larcker (dissertation committee chair), Anne Beyer, Lauren Cohen, Maureen McNichols and Joseph Piotroski. I would also like to thank seminar participants at Stanford University for helpful suggestions. I thank Daniel E. Ho, Rebecca Lester, Quoc Nguyen, and Eugene Soltes. I am grateful for the Transactional Records Access Clearinghouse (TRAC) and Susan Long for data. I have benefited from conversations with former SEC lawyers, retired FBI agents, US assistant attorneys, and legal academics. I thank my fellow Ph.D. students for support. All errors are my own. I can be reached at [email protected].