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Cash, Crime and Anti-Money Laundering

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The Palgrave Handbook of Criminal and Terrorism Financing Law

Abstract

Despite the increasing use of electronic payments, cash still plays a crucial role in most criminal and terrorist financing activities. This chapter provides a review of the numerous facets of the relationship between cash and (anti) money laundering. It shows how cash is spread in the criminal economy—but also in the legitimate one. It discusses what criminal activities are more prone to generate cash proceeds, and why cash is still crucial for smuggling illicit funds across borders. It shows why cash-intensive assets and businesses are preferred for laundering money, and it discusses the challenges for public authorities in seizing illicit cash. Finally, it provides a review of the regulatory measures introduced, internationally, to reduce the use of cash, discussing key policy and research implications of cash restriction.

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Notes

  1. 1.

    Intended here to denote the amount of banknotes and coins in circulation: one of the two components, with bank sight deposits, of the narrow money supply (M1).

  2. 2.

    Europol, ‘Why is Cash Still King? A Strategic Report on the Use of Cash by Criminal Groups as a Facilitator for Money Laundering’ (2015) <www.europol.europa.eu/publications-documents/why-cash-still-king-strategic-report-use-of-cash-criminal-groups-facilitator-for-money-laundering> accessed 21 March 2017.

  3. 3.

    Obviously, there have been experiments in marking notes as part of undercover operations, and following the £26.5 million robbery from the (Irish) Northern Bank, the bank went as far as changing the design of the Northern Irish notes to prevent them from helping the terrorist cause. See Darwin Templeton, ‘The Provos Got So Much Cash From Northern Bank Heist They Could Not Handle It’ Belfast Telegraph (Belfast, 15 December 2014) <www.belfasttelegraph.co.uk/news/northern-ireland/the-provos-got-so-much-cash-from-northern-bank-heist-they-could-not-handle-it-30833641.html> accessed 21 March 2017.

  4. 4.

    European Central Bank, ‘The Use of Euro Banknotes. Results of Two Surveys Among Households and Firms’ (2011) 82 <www.ecb.europa.eu/pub/pdf/other/art2_mb201104en_pp79-90en.pdf> accessed 21 March 2017.

  5. 5.

    Heike Mai, ‘Cash, Freedom and Crime: Use and Impact of Cash in a World Going Digital’ (2016) Deutsche Bank Research <www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000427044/Cash,_freedom_and _crime%3 A_Use_and_impact_of_cash_in.pdf> accessed 21 March 2017; Alessia Cassetta, Alberto Di Filippo, and Valeria Roversi, L’Utilizzo delle Banconote di Taglio Elevato Come Potenziale Strumento di Riciclaggio: Lo Studio del 2011 con una Nota di Aggiornamento (Banca d’Italia Quaderni dell’Antiriciclaggio 2016).

  6. 6.

    Federal Reserve Bank of San Francisco, ‘The State of Cash: Preliminary Findings from the 2015 Diary of Consumer Payment Choice’ Fednotes (2016) 2 <www.frbsf.org/cash/publications/fed-notes/2016/november/state-of-cash-2015-diary-consumer-payment-choice> accessed 15 January 2017.

  7. 7.

    Cassetta, Di Filippo, and Roversi (n 5) 23.

  8. 8.

    European Central Bank (n 4). According to another survey carried out in Germany, this share can be even lower, around 5%. See Deutsche Bundesbank, ‘Where Does the Cash in Your Wallet Come From?’ (2010) <www.bundesbank.de/Redaktion/EN/Downloads/Publications/Studies/cash_management_2010_where_does_the_cash_in_your_wallet_come_from.html> accessed 9 January 2017.

  9. 9.

    European Central Bank, ‘Consumer Cash Usage. A Cross-Country Comparison With Payment Diary Survey Data’ (2014) ECB Working Paper Series, no 1685 <www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1685.pdf> accessed 28 February 2017.

  10. 10.

    Federal Reserve Bank of San Francisco (n 6).

  11. 11.

    Guerino Ardizzi and others, ‘Measuring the Underground Economy with the Currency Demand Approach: A Reinterpretation of the Methodology, With an Application to Italy’ (2014) 60(4) Review of Income and Wealth 747; Michele Riccardi, Riccardo Milani, and Diana Camerini, ‘Assessing the Risk of Money Laundering in Italy’ in Ernesto Savona and Michele Riccardi (eds), Assessing the Risk of Money Laundering in Europe: Final Report of Project IARM (Transcrime-Università Cattolica Sacro Cuore 2017).

  12. 12.

    European Central Bank (n 9).

  13. 13.

    European Central Bank (n 4) 89.

  14. 14.

    Cassetta, Di Filippo, and Roversi (n 5). This might be viewed as an irrational reaction and/or fear of systemic bank failure.

  15. 15.

    Friedrich Schneider, Konrad Raczkowski, and Bogdan Mróz, ‘Shadow Economy and Tax Evasion in the EU’ (2015) 18(1) Journal of Money Laundering Control 34.

  16. 16.

    Riccardi, Milani, and Camerini (n 11).

  17. 17.

    Richard Wright and others, ‘Less Cash, Less Crime: Evidence from the Electronic Benefit Transfer Program’ (2014) IZA Discussion Paper Series <http://ftp.iza.org/dp8402.pdf> accessed 20 January 2017. We note that it reduces the expected reward per mugging, and so on.

  18. 18.

    Europol (n 2) 11.

  19. 19.

    Ibid.; Melvin Soudijn and Peter Reuter, ‘Cash and Carry: The High Cost of Currency Smuggling in the Drug Trade’ (2016) 66(3) Crime, Law and Social Change 271.

  20. 20.

    Douglas Farah, ‘Money Laundering and Bulk Cash Smuggling: Challenges for the Merida Initiative’ (2011) 158 <www.wilsoncenter.org/publication/money-laundering-and-bulk-cash-smuggling-challenges-for-the-us-mexico-border> accessed 28 February 2017.

  21. 21.

    Soudijn and Reuter (n 19); Petrus C van Duyne and Michael Levi, Drugs and Money: Managing the Drug Trade and Crime-Money in Europe (Routledge 2005).

  22. 22.

    Farah (n 20) 155.

  23. 23.

    UNODC, World Drug Report 2016 (United Nations 2016); Stijn Hoorens and David Décary Hétu, ‘Dark Web Likely Isn’t Fuelling International Drug Sales’ The RAND Blog <www.rand.org/blog/2016/09/dark-web-likely-isnt-fuelling-international-drug-sales.html> accessed 21 March 2017. For discussion of ML and virtual currencies, see Chap. 8 (Chambers-Jones), and for the regulation of virtual currencies see Chap. 9 (Egan) in this collection.

  24. 24.

    Maurizio Lisciandra, ‘Proceeds From Extortions: The Case of Italian Organised Crime Groups’ (2014) 15 Global Crime 93; Patricio Rodrigo Estevez-Soto, ‘Factors Associated With Extortion Compliance in Mexico: Who Pays and Why?’ American Society of Criminology Conference (New Orleans, November 2016).

  25. 25.

    European Central Bank (n 4) 89.

  26. 26.

    For example UNODC, Corruption in the Western Balkans (United Nations 2011); Giang Ly Isenring, Giulia Mugellini, and Martin Killias, ‘Assessing the Areas of Vulnerability for Swiss Firms in International Business Activities: The Swiss International Corruption Survey’ (Universität St. Gallen and KRC 2016).

  27. 27.

    In the European Union, threshold is set at 10,000 euro <http://ec.europa.eu/taxation_customs/individuals/cash-controls_en> accessed 28 February 2017; as regards the United States, threshold is set at US$10,000 <www.ice.gov/bulk-cash-smuggling-center/faq> accessed 28 February 2017. See below for more details.

  28. 28.

    Soudijn and Reuter (n 19) 3.

  29. 29.

    Financial Acion Task Force, Money Laundering Through the Physical Transportation of Cash (2015) 39.

  30. 30.

    Regalado Cuellar v United States 553 US 550 (2008). See also David Stout, ‘Court Rules on Money Laundering’ The New York Times (Washington, 3 June 2008) <www.nytimes.com/2008/06/03/washington/02cnd-scotus.html> accessed 21 March 2017.

  31. 31.

    18 USC s 1956.

  32. 32.

    Cited in Farah (n 20) 45.

  33. 33.

    Ibid. 160.

  34. 34.

    Soudijn and Reuter (n 19).

  35. 35.

    FATF (n 29) 56.

  36. 36.

    Ibid. 54.

  37. 37.

    Ibid. 61.

  38. 38.

    Farah (n 20) 158.

  39. 39.

    Soudijn and Reuter (n 19).

  40. 40.

    Ibid. 9.

  41. 41.

    For a review on the issue of criminal infiltration/investment in legal businesses see Ernesto Savona, Michele Riccardi and Giulia Berlusconi, Organised Crime in European Businesses (Routledge 2016); Michael Levi, ‘Money for Crime and Money from Crime: Financing Crime and Laundering Crime Proceeds’ (2015) 21(2) European Journal on Criminal Policy and Research 275.

  42. 42.

    Riccardi, Milani, and Camerini (n 11).

  43. 43.

    Nicholas Gilmour and Nick Ridley, ‘Everyday Vulnerabilities. Money Laundering Through Cash Intensive Businesses’ (2015) 18(3) Journal of Money Laundering Control 293; Transcrime, Gli Investimenti delle Mafie (Transcrime—Università degli Studi di Trento 2013) <www.transcrime.it/pubblicazioni/progetto-pon-sicurezza-2007-2013/> accessed 28 February 2017.

  44. 44.

    Michele Riccardi, Cristina Soriani, and Valentina Giampietri, ‘Mafia Infiltration in Legitimate Companies in Italy’ in Ernesto Savona, Michele Riccardi, and Giulia Berlusconi (eds), Organised Crime in European Businesses (Routledge 2016) 119; Michele Riccardi, ‘When Criminals Invest in Businesses: Are We Looking in the Right Direction? An Exploratory Analysis of Companies Controlled by Mafias’ in Stefano Caneppele and Francesco Calderoni (eds), Organised Crime, Corruption and Crime Prevention (Springer 2014).

  45. 45.

    Riccardi, Milani, and Camerini (n 11): the ML risk is estimated by author combining a variety of risk factors, all operationalised into proxies, such as connections with offshore jurisdictions, opacity of business structure, level of organised crime infiltration and of tax evasion and, indeed, cash intensity.

  46. 46.

    See for a review Savona, Riccardi, and Berlusconi (n 44) and Levi (n 41).

  47. 47.

    Joras Ferwerda and Edward Kleemans, ‘Assessing the Risk of Money Laundering in the Netherlands’ in Ernesto Savona and Michele Riccardi (eds), Assessing the Risk of Money Laundering in Europe: Final Report of Project IARM (Transcrime-Università Cattolica Sacro Cuore 2017).

  48. 48.

    See <www.government.nl/latest/news/2011/02/21/public-administration-act-bibob-will-be-extended-to-intensify-the-fight-against-organized-crime> accessed 28 February 2017.

  49. 49.

    BVfK, ‘Position Paper to the German Ministry of Finance’ (2016) <www.bvfk.de/wp-content/uploads/2016/02/Positionspapier-des-BVfK-zur-Bargeldobergrenze-2016-02-151.pdf> accessed 21 March 2017. Unfortunately no details are available on how this figure—which is very surprising—is calculated. However, it likely applies to the segment of used or re-imported cars sold from businesses to consumers by multi-brand car dealers.

  50. 50.

    European Consumer Centre, ‘Cash Payment Limitations’ (2017) <www.evz.de/en/consumer-topics/buying-goods-and-services/shopping-in-the-eu/cash-payment-limitations/> accessed 28 February 2017.

  51. 51.

    UK Government, ‘Guidance—Money Laundering Regulations: High Value Dealer Registration’ (2013) <www.gov.uk/guidance/money-laundering-regulations-high-value-dealer-registration> accessed 28 February 2017.

  52. 52.

    See <http://www.irs.gov/businesses/small-businesses-self-employed/irs-form-8300-reference-guide#required> accessed 28 February 2017; <www.irs.gov/pub/irs-pdf/f8300.pdf> accessed 28 February 2017.

  53. 53.

    Interview to France’s Finance Minister Michel Sapin, cited in Ingrid Melander, ‘France Steps Up Monitoring of Cash Payments to Fight ‘Low-Cost Terrorism” Reuters (18 March 2015) <www.reuters.com/article/us-france-security-financing-idUSKBN0ME14720150318> accessed 28 February 2017.

  54. 54.

    Philip Oltermann, ‘German Plan to Impose Limit on Cash Transactions Met with Fierce Resistance’ The Guardian (London, 8 February 2016); BVfK (n 49).

  55. 55.

    “Bargeld ist die Möglichkeit zur Anonymität bei Alltagsgeschäften und diese Freiheit muss in einem Rechtsstaat verteidigt warden” from a Tweet on 5 February 2016 by Konstantin Von Notz, MP of the German Bundestag for the green party.

  56. 56.

    Financial Action Task Force, ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations (2012)’ <www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf> accessed 21 March 2017.

  57. 57.

    See European Commission, ‘What Are the Rules?’ <http://ec.europa.eu/taxation_customs/individuals/cash-controls/what-are-rules_en> accessed 28 February 2017.

  58. 58.

    European Consumer Centre (n 50).

  59. 59.

    See US Immigration and Customs Enforcement, ‘FAQ: Bulk Cash Smuggling’ <www.ice.gov/bulk-cash-smuggling-center/faq> accessed 28 February 2017.

  60. 60.

    To be noted that when the 500 euro bill was issued, only two EU member states had higher denominations in their own currencies: Germany (with the 500 Deutsche Mark bill) and Latvia.

  61. 61.

    European Central Bank, ‘ECB Ends Production and Issuance of €500 Banknote’ ECB Press Releases (4 May 2016) <www.ecb.europa.eu/press/pr/date/2016/html/pr160504.en.html> accessed 28 February 2017.

  62. 62.

    Among them, the already mentioned Cassetta, Di Filippo, and Roversi (n 5); Europol (n 2); Soudijn and Reuter (n 19); Farah (n 20); FATF (n 29).

  63. 63.

    Dominic Casciani, ‘Organised Crime Fears Cause Ban on 500 Euro Sales’ BBC News (London, 13 May 2010) <http://news.bbc.co.uk/1/hi/uk/8678886.stm> accessed 21 March 2017. Mentioned also in Cassetta, Di Filippo, and Roversi (n 5).

  64. 64.

    These percentages refer to the number of movable assets (including cash seizures) out of the total number of confiscated goods. Obviously in terms of value these figures may be lower, as a single property could be worth several millions euro. But data on assets’ values in most countries are lacking or are questionable. Depending on the country, they refer to different stages of the asset recovery process, since there are variations in asset recovery processes and predicate offences. For more details, see Priscilla Standridge and Michele Riccardi, ‘A Comparative Analysis Among the Seven OCP Countries’ in Ernesto Savona and Michele Riccardi (eds), From Illegal Markets to Legitimate Businesses: The Portfolio of Organised Crime in Europe. Final Report of Project OCP (Transcrime—Università degli Studi di Trento 2015) 249.

  65. 65.

    Richard Dubourg and Stephen Prichard (eds), ‘Organised Crime: Revenues, Economic and Social Costs, and Criminal Assets Available for Seizure’ (2008) 74 <www.gov.uk/government/uploads/system/uploads/attachment_data/file/99094/9886.pdf> accessed 28 February 2017; David Wall and Yulia Chistyakova, ‘United Kingdom’ in Ernesto Savona and Michele Riccardi (eds), From Illegal Markets to Legitimate Businesses: The Portfolio of Organised Crime in Europe. Final Report of Project OCP (Transcrime—Università degli Studi di Trento 2015) 282.

  66. 66.

    Farah (n 20).

  67. 67.

    Standridge and Riccardi (n 64).

  68. 68.

    For example in Italy cash is transferred to FUG—Fondo Unico Giustizia, which 50% is held as bank deposit, and the other 50% is used for social purposes or to finance LEAs activities. In the UK, money recovered from criminals’ assets is shared among different public authorities as part of the ‘Asset Recovery Incentivisation Scheme’. For a review of management practices of seized cash in Europe see EU ARO (Asset Recovery Office) Platform Sub-group on Asset Management, ‘Draft Internal Report’ (2015). For further discussion, see Chap. 29 (Vettori) in this collection.

  69. 69.

    On this debate see the recent article ‘Police in Britain Want to Keep More of the Loot They Confiscate’ The Economist (London, 19 January 2017) <www.economist.com/news/britain/21715069-others-worry-it-would-tempt-them-pursue-rich-crooks-not-harmful-ones-police-britain> accessed 21 March 2017.

  70. 70.

    According to Roberto Escobar, Pablo’s brother, the Medellin Cartel was losing about 10% of the generated cash each year due to physical degradation. See Roberto Escobar and David Fisher, The Accountant’s Story (Grand Central Publishing 2009) 5.

  71. 71.

    Interviews with second author.

  72. 72.

    Heike Mai (n 5).

  73. 73.

    Bankers inform the second author that unless there is a good business reason, they regard the deposit of €500 notes with considerable suspicion and would be inclined to make a SAR.

  74. 74.

    Michael Levi ‘Assessing the Trends, Scale and Nature of Economic Cybercrimes’ (2017) 67(1) Crime, Law and Social Change 3.

  75. 75.

    Terrence Halliday, Michael Levi, and Peter Reuter, ‘Global Surveillance of Dirty Money: Assessing Assessments of Regimes To Control Money-Laundering and Combat the Financing of Terrorism’ (2014) <www.lexglobal.org/files/Report_Global%20Surveillance%20of%20Dirty%20Money%201.30.2014.pdf> accessed 28 February 2017.

  76. 76.

    The last survey at EU level is dated 2011 (but on 2008 data). A 2014 ECB report (n 9) compared payment diary surveys of seven countries (Canada, Australia, US, Austria, France, Germany and the Netherlands) but based on data from 2009 to 2012. Cash payment surveys in Eastern European countries are almost absent.

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Authors and Affiliations

  1. Transcrime – Joint Research Centre on Transnational Crime, Università Cattolica del Sacro Cuore, Milan, Italy

    Michele Riccardi

  2. School of Social Sciences, Cardiff University, Cardiff, UK

    Michael Levi

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  1. Michele Riccardi
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Editors and Affiliations

  1. University of Sussex, Falmer, United Kingdom

    Colin King

  2. University of Leeds, Leeds, United Kingdom

    Clive Walker

  3. Notre Dame Law School, Notre Dame, IN, USA

    Jimmy Gurulé

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Riccardi, M., Levi, M. (2018). Cash, Crime and Anti-Money Laundering. In: King, C., Walker, C., Gurulé, J. (eds) The Palgrave Handbook of Criminal and Terrorism Financing Law. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-64498-1_7

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