Abstract
This article summarises briefly what is known internationally about how ‘organised crimes’ are financed and how this differs from the financing of licit businesses. It shows how illicit financing might and does operate, noting that a key issue is the social capital of offenders and their access to illicit finance which ironically, may be easier if controls make it harder to launder money. It then reviews international evidence on how proceeds of crime are laundered, concluding with an examination of the implications of these observations for the study of organised crime and the effects of anti-money laundering efforts. In money laundering cases internationally, the most commonly prosecuted cases are not complicated. This is not evidence that there are no complicated cases, since the proportion of crime proceeds and crime financing that have been subjected to serious investigation is modest. There is a core contradiction between general economic policy pushed hard multilaterally for liberalisation of financial flows and a crime control policy intent on hampering them. No-one could rationally think that AML controls in general or financial investigation in particular will ‘solve’ organised crime completely or eliminate high-level offending: for there even to be a chance to achieve that, there would need to be a step change in transparency and effective action against high-level corruption along all possible supply chains. However more action (not just legislation) on these could facilitate interventions against the more harmful individuals, networks and crime enablers. The less complex financial activities of local drug-dealing gangs can be intervened against, without needing international cooperation or familiarity with sophisticated money laundering typologies.
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Notes
In addition, there are offences of financing terrorism and the weapons of mass destruction, but these are not germane here except to the extent that this finance comes from proceeds of other, non-terrorist crimes.
If only Capone had paid taxes on his illicit income! It is an open question that should be investigated to what extent contemporary criminals do declare all their illicit and licit income and pay tax on it. If they do not do so, they have not fully legitimised it.
Though elites and some faith communities may take trustworthiness for granted, focusing on the downside risks arising from low competence and from market conditions rather than low trustworthiness.
For discussion of precursor chemicals controls, see for example the International Narcotics Control Strategy Report (2014), US State Department, and the annual reports of the International Narcotics Control Board. As with money laundering, chemical precursor ‘suspicious transactions’ are more properly conceived as ‘purchases/purchasers that they suspect’, since the suspicion is not an inherent property of the transaction.
This was also true of the illicit market in the UK during the Second World War, when controls were evaded (Roodhouse 2013).
A famous gangster, Willem Holleeder, served 6 years in prison for blackmailing him, and a Dutch tycoon, Paarlberg, was jailed for 4.5 years and ordered to pay a fine of €25.7 million to the state for tax fraud and laundering the proceeds of Endstra’s blackmail (http://www.nltimes.nl/2013/03/19/e25-7m-fine-after-holleeder-cohort-convicted-of-fraud/).
What is interesting here is that the trafficker is best situated to assess the credit risk associated with the wholesaler because they will tap into the same network of potential informants on credit worthiness. I am grateful to Peter Reuter for this observation. If the wholesaler or intermediaries are busted or the drugs/money forfeited, this presumably would lead to the wholesaler’s debt being deferred. But this is not a frequent occurrence.
Though ‘old money’ elites persist, it is important not to underestimate the shift in social composition of securities traders and other financial services personnel, now accounting for a substantial percentage of working populations.
Nor, actually, is the production of cocaine restricted to one region (see e.g. Thoumi 2003).
Author interviews, 2013. See further, FATF Methodology (2013).
We can attack criminal organisations without reducing levels of crime — indeed, after disturbances in established organisations, violence may be expected to increase as rivals jockey for dominance.
http://www.financialfraudaction.org.uk/money-mules.asp; http://www.bbc.co.uk/news/business-21578985 (accessed 30/12/2014). No data are available from the study beyond media reports.
We do not know how many ‘money mules’ then go on to embrace or be blackmailed into subsequent criminal careers.
Though there has never been any suggestion that Enron-related accounts were used for any criminal purpose other than the wholesale looting of its own funds by senior staff.
A judge and/or jury might see such conduct as obviously evasive, though if the investigators had not in fact been able to follow the trail and show that they had, the evidence would not have been there against them.
Though criminal record flows across borders are often uneven, and the reluctance to prosecute corporations even in those jurisdictions that have corporate criminal liability means that there are often only administrative records of ‘corporate criminal careers’. Flows of administrative records across jurisdictions are also uneven. As recent scandals involving the takeover of some English soccer clubs (e.g. Birmingham City, Leeds United) shows, the actual application of ‘fit and proper person’ rules can be quite problematic.
This does not mean that others were undeterred, but the scale of such deterrence is unknown. Research on the impact of suspicious transaction reports, financial investigation, money laundering prosecution and even asset recovery/confiscation is sparse and is not cited or relied upon in AML assessments by FATF and FATF-style bodies. A rare exception is the March 2012 Proposal for a Directive of The European Parliament and The Council on the freezing and confiscation of proceeds of crime in the European Union. This did contain an Impact Assessment to which this author contributed — see: Matrix Insight (2009). For an interesting study of Italian Mafia Investments based on case files, see: http://www.investimentioc.it/
Author interviews with convenience-sampled bankers internationally, 1998-present.
The extent to which other banks behaved differently to Mexicans or actively solicited non-Americans for tax evasion is unknown, but it is not a reasonable assumption that they all behaved the same — competitive pressures notwithstanding, there may be individual bank and sub-unit cultures in the pursuit of new clients.
In US Federal law, even spending for immediate consumption can constitute money laundering if the party has the requisite knowledge that the funds and proceeds of crime.
The history of illegal drug price and availability measurement gives ground for caution on the likelihood of empirical adequacy. Indeed, the rise of synthetics and artisanal production makes finding price points even harder.
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Acknowledgments
The author is grateful to the anonymous reviewers for their thoughtful critiques of an earlier version, though he respectfully disagrees with the view of reviewer 2 that there is little point in a descriptive summary of national money laundering patterns. He also thanks Tom Naylor, Peter Reuter and Atanas Rusev for comments on later drafts of this paper.
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Levi, M. Money for Crime and Money from Crime: Financing Crime and Laundering Crime Proceeds. Eur J Crim Policy Res 21, 275–297 (2015). https://doi.org/10.1007/s10610-015-9269-7
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DOI: https://doi.org/10.1007/s10610-015-9269-7