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PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015

PrintPublicationDate: Oct2014 Subject: CriminologyandCriminalJustice,OrganizedCrimeOnlinePublicationDate: Sep2013

DOI: 10.1093/oxfordhb/9780199730445.013.014

MoneyLaundering MichaelLeviTheOxfordHandbookofOrganizedCrimeEditedbyLetiziaPaoli

OxfordHandbooksOnline

AbstractandKeywords

Moneylaundering(ML),theefforttoconcealtheoriginsoftheproceedsofcrime,isanoldactivitybutarecentlycreatedcriminaloffense,beginningintheUnitedStatesandtheUnitedKingdominthe1980sandrapidlyspreadingthroughtheWestinthe1990sandtheworldthereafter.Theglobalregimeofcontrolsthathasemergedsince1990representsanewattempttoobligatefinancialinstitutionsandprofessionalstocheckontheoriginsandusesoffundsthattheyhandleinordertodetercrimeandcatchcriminals.Thisessaydescribesthevarietiesofmoneylaunderingactivitiesandpolicyresponsesconnectedtoorganizedcrime.Thoughsomehigh-earningcriminalsdorequiretheservicesofmoneylaunderers,muchcriminalproceedsarenotlaunderedbutsimplyusedforthenormallifestyleexpendituresofoffenders,whichmaybeveryhighcomparedwiththedisciplinedacquisitivehabitsoftheconventionalmiddleclassesbutperhapsnohigherthanthatoffinancialservicestradersspendingtheirlargebonuses.ThemarketsforMLservicesappearquitesegmentedandhighlyvariablewithinandbetweencountries,makingitmoredifficulttoassesshowwellthemarketsorthecontrolswork.Weknowonlyamodestamountabouttheshapeofmoneylaundering,but,thoughwepresumethatcontrolshavesomeeffectuponit,thereislittlereasontobelievethatithasdonemuchmorethaninconveniencesomeoffenders,makeiteasiertotrackandrecoversomeproceedsofcrime(includingGrandCorruption),andallowprosecutorstogetlongersentencesinsomecases.Keywords:moneylaundering,drugstrafficking,fraud,proceedsofcrime,globalization

I.IntroductionThehidingofincomebothfromlawfulandfromillegalactivityfromgovernmentshasoccurredformillennia.MeyerLanskysclaimtofamewaspartlyhissupposedskillinconcealingtheoriginsoffundsusedtobuyrealestateandlegitimatebusinesses,includingcasinosthatcouldthenbeusedtolaunderfurtherfunds(LeviandReuter2006).Thegoalwasnottoavoidmoneylaunderingchargessincelaunderingwasnotthenanoffensebuttoavoidtaxevasioncharges,whichhadfamouslybroughtdownAlCapone,bymakingitdifficulttotracetheconnectionbetweenwealthanditscriminalsources. Soevenbeforemoneylaunderingexistedasalegalconstruct,effortswerebeingmadetouseillicitfinancesanctionsasanapproachtostoppingsocialthreats,suchasthosegeneratedbytheprohibitionofalcohol.

Lawsagainsthandlingstolenpropertytraditionallywerethoughtofasreferringonlytothephysicalpropertyobtainedinthecourseofthecrime.Eveninthosecomparativelyrarecasesinwhich,asinEuropefromthe18thcentury,attentionwaspaidtoprofessionalreceiversofstolengoods,thereisnoevidencethatwhathappenedafterwardstocriminalssavingsandreinvestmentswaspartoftheconceptionofseriouscrimecontrol.Indeed,otherthaninthemanagementofthedangerousclasses,itisquestionablewhether,priortothemid-20thcentury,therewassuchathingasanorganizedcrimestrategy,properlyconstrued.Launderinganissuehighlightedin

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thePresidentsCommissiononOrganizedCrime(1984)anditscontrolbecameasignificantcomponentofthewarondrugsinthe1990sbeforeitbroadenedtocoveranever-wideningrangeofthreatfinanceorillicitfinance,whichincludesfinancingofterrorismandnuclearproliferationaswellaslaunderingtheproceedsofcorruptionandtaxevasion(Levi2010).Thefundamentalinnovationistoconscriptthefinancialsystem(verybroadlydefined)intomandatoryactionandreporting(Ayling,Grabosky,andShearer2009),imposingtheresponsibilityfor(1)keepingsuspectedcriminalmoney(p.420) out,and(2)forreportinginstanceswhentheysuspectthatithassuccessfullyenteredorisbeinginsertedintolegitimateinstitutions.Bothcriminalandregulatorypenaltiesareusedtoinducecompliancebybanks,insurancecompanies,pawnbrokers,andanexpandingarrayofotherbusinessesandprofessions,including,mostcontroversiallyinsomecountries,lawyers.

Inthedevelopedworld,theresulthasbeenamodestbutincreasingflowofcriminalcasesagainstbanksandtheiremployeesforviolationoftheselaws, sometimesaccompaniedbyregulatoryfinesandsettlementsinthetensofmillionsofdollarsoroccasionallyevenmore.Increasingly,prosecutionsareforoffensesunrelatedtodrugstrafficking.Ofthe310USFederalmoneylaunderingprosecutionsinFY2012(up4.7percentfromadecadeearlier),28percentwerefordrug-relatedlaunderingand72percentrelatedtootheroffenses,ofwhichthemostprominentistaxevasion.Expressedinadifferentway,duringFY2011,thegovernmentobtained0.3drug-relatedand0.7othermoneylaunderingprosecutionsforeveryonemillionpeopleintheUnitedStates(TRAC2012).

Althoughsoftlawpressureshaveextendedtheselawsandinstitutionstodevelopingcountries,theresultstherehavebeenevenpatchier(ChaikinandSharman2009;deKoker2009:Levi2012).TheFinancialActionTaskForce(FATF),acollectionof34governments,mainlycountrieswithintheOrganisationforEconomicCo-operationandDevelopment(OECD),togetherwith,theGulfCooperationCouncilandtheEuropeanCommissionpluseightFATF-styleRegionalBodies(asof2013) ,hascreatedthelegislativeandinstitutionalframeworksthatarenowembeddedinalmosteverynation,richandpoor.Acomplexcollaborativesystem,includingtheInternationalMonetaryFundandtheWorldBank,hasmonitoredtodatemainlyformallegislativeandinstitutionalcompliancewiththerules;measurementoftheirimpactonactualcomplianceandonlevelsandorganizationofcrimeisinitsinfancy(FATF2013;Halliday,Levi,andReuter2014).

Readersmightliketoconductathoughtexperimentonhowdifferentthelevelsandorganizationofdifferentcrimeswouldbeiftheglobalandnationalanti-moneylaunderingregimeswerenotinplace.Whatisthenatureofthemarketformoneylaunderingservices?Whoseekstolaundermoneyandhowdotheylocatebothtechniquesandpersonnelwillingtoassistorwhounwittinglywillassist?Whatcrimesaretheyinvolvedinandinwhatcountries?Whoprovidestheservicesandwhatsortsofservicesareprovidedtowhatsortsofpeople?

Theconclusionsarereadilysummarized:

Thereis(oroughttobe)agreatdealofuncertaintyastohowmuchmoneyislaunderedorwhatshareofcriminalproceedsarelaunderedthroughthefinancialsystemratherthanspentonlifestyleormerelystoredforfutureuse.Themethodsusedforidentifiedandprovenlaunderingarefrequentlyunsophisticated,exceptinelaboratefraudandGrandCorruptioncases.Professionalmoneylaundererscertainlyexist,buttheymayaccountforasmallshareofalllaundering(atleastbyvolumeofoffenders)andseemtooccupynarrownichesitisamootpointwhetherornotoneincludessomesubstantialinternationalbanksinthiscategoryofprofessionalmoneylaunderers.(p.421) Whileahugeamountofdataisgeneratedbythecontrolsystem,mostofitisnotseriouslyutilizedforinvestigationandhasbeenthesubjectofonlymodestanalysis,almostnothingofwhichhasbeenpublished.Thesystemofmoneylaunderingcontrolshasweakconceptualfoundationsand,thoughmanyinstitutionsturndowncustomersormonitorthemmoreintensivelyasaresultofthelegislation,theprincipalvisibleeffectsare(1)toallowprosecutorstooccasionallyaddcriminalchargesandobtainmoreseverepenalties,and(2)toallowregulatorstoimposenumericallylargepenalties(whichmaybeaverylowpercentageoftheinstitutionsprofitsoverall,iflargerthantheprofitstheymadeonthesuspectedtransactions)forfailuretoimplementtheregulationsproperly.

Thenextsectiondefinesanddescribestheoffense.SectionIIIthenpresentsexamplesthatillustratethevarietyofmethodsavailableandkindsofpersonsinvolved,alongwithsomeclassifications.SectionIVanalyzesbrieflythe

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effectsofanti-moneylaunderingcontrols.SectionVoffersafewconclusions.

II.DefiningMoneyLaunderinginLawandPracticeLegally,moneylaunderingrefersonlytoconcealingtheproceedsofspecificcrimes(thepredicatecrimes).Thelistofpredicatesvariesacrosscountries,butithasgraduallybeenextendedinmostnationstocoverallcrimeswithamaximumsentenceofatleastoneyearofimprisonment(e.g.,theEuropeanUnionThirdDirectiveof2005)averylowthreshold.Beyondthebare-bonesdescriptionoftheactintermsofitsintent,thequestionofwhatconstitutestheactismoredifficult.Astandardbutmuchcritiqueddescriptionofthelaunderingprocessidentifiesthreecomponents:placement,layering,andintegration.

Placementistheprocessofputtingillicitfundsintothefinancialsystem.Thismaybetheriskieststageforthecriminalasitisonlyherewhenthereisaclearconnectionbetweenthemoneyandthecrimeitself.Layeringistheprocessofmovingthemoneythroughthefinancialsysteminordertofurtherconcealtheconnectionbetweenthemoneyandthecrime.Itiscommonthoughnooneexcepttheoffendersknowshowcommontouseavarietyofidentities,shellcompanies,andtrustsinanumberofcountriestomakethetrailmoredifficulttofollow.Integrationisthefinalstage,inwhichthefundsreenterthelegitimateeconomy.Thelaunderermightchoosetoinvestthefundsinrealestate(sometimesalsoclaimedtobeaplacementstageactivity),luxuryassets,orbusinessventures;orheorshemightconsumetheresourceswiththeclaimifchallengedthatthefundswerelegitimatelyacquired.

(p.422) Manypartiescanbeinvolvedinlaundering,butthenumbercanbeaslowasone.Thisinsiderinvolvementisnotuncommonforlarge-scalefinancialfrauds(seeLevi,thispublication):justasCressey(1955)arguedthatallaccountantscouldcommitembezzlement,theperpetratorhasexactlytheskillsrequiredtoalsoconcealthesourcesofhisfunds(soonemightaskthecontroltheoryquestionwhydontmoreofthemoffend?).Attheotherendofthesophisticationspectrum,ifdrugdealersorthievesputthecashtheyhaveobtainedfromcrimeintoabankaccountintheirownnames,thisislegallyconsideredtobetheoffenseoflaunderinginmostcommonlawandcivillawcountries.Thus,onefindsmanynewspaperreportsstatingthatpeoplehavebeenchargedbothwithdrugstraffickingandwithmoneylaundering.

Frequently,however,thereisacustomerfor,andasupplierof,moneylaunderingservices.Oncehegeneratesavolumeofbusinesstoolargetospendimmediately,thedrugdealerorotherillicittraderwillneedsomeonewithotherskillstolaundertherevenues.Bothwillbeguiltyofmoneylaundering.Itmaybeevenmorecommonthattherearethreeparties:themoneylaunderercouldbeanintermediarywhorecruitssomeoneinsideafinancialinstitutiontomakethetransactionand/oropensaccountstofacilitatetransactions.

A.MoneyLaunderingDataSourcesAlthoughhundredsofarticlesandbooksareavailablethatprovidereviewsoflegislativeandregulatoryresponsestomoneylaundering,andevenspecialistperiodicalssuchastheJournalofMoneyLaunderingControl,theempiricalresearchliteratureonthephenomenonofmoneylaunderingisveryslightindeed;keyreferencesfromdifferentregionsareBeareandSchneider2007;CSD2012;vanDuyneandLevi2005;Gelemerova2011;LeviandReuter2006;MatrixResearchandConsulting2007;Naylor2004;Passas2003;ReuterandTruman2004;andSteinko2012.Incontrasttodrugdealing,therearenoethnographicstudiesofmoneylaundering,thoughthereareindividualautobiographiesfromprominentlaunderersorotherinsidersthatgiveaportraitoftheactivityinparticularplacesanderas(EscobarandFisher2010;Mazur2009;Rijock2012).CriminalandcivilcomplaintsintheUnitedStatesandelsewheresometimesalsoprovideusefuldetails,andannualreportsofsomeFinancialIntelligenceUnitsincreasinglygiveexamplesthatindicatetheusefulnessofreportsfromthefinancialservicessector(e.g.FinCEN2013;MROS2014;NCA2014),thoughtheoperationalsuccessesinthosecasesmighthavehappenedanyway.Inallthesecases,itishardtoseeabasisforgeneralizingpatternsoflaunderingovertimeandplace.

Moremightbeexpectedfromofficialoverviews:afterall,giventhepolitical,bureaucratic,regulatory,andenforcementresourcesdevotedtocombatinglaundering,onemighthopetoseesomesystematicanalysisofthemodusoperandidevelopedbylaunderers.EachyeartheFATF(andrelatedFATF-StyleRegionalBodiessuchas

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Moneyval,whichcoversthe47countriesoftheCouncilofEurope,http://www.coe.int/t/dghl/monitoring/moneyval/Typologies/Typologies_en.asp)produceoddlynamed(p.423)Typologiesreports,whichprovideexamplesofdifferentkindsofmoneylaunderingmethods,oftenclusteredaroundaparticulartheme,suchastheuseofprofessionalintermediaries,wiretransfers,etc.orthelaunderingoffundsfromparticularactivities,suchasvalue-addedtaxfrauds,orsports.However,althoughtheyhavebecomemoreanalyticalinrecentyearsandhavemovedtowardthreatassessments(FATF2010;UnitedNationsOfficeonDrugsandCrime2011)andNationalRiskAssessments,itwouldbeamistaketothinkthatthesearebasedonarigorousexaminationofarunofcasesorofintelligencethathasnotreachedthecourts:rather,theymaybetheproductofwhateverthoseconsultedareawareofandchoosetovolunteer.Enforcementagenciestypicallyaretoobusydealingwithcasesandprocessinginputslikereportsfrombankstosystematicallyreviewwhattheymightlearnfromthecasestheydealwith:thoughoccasionally,deeplysanitized(andthereforeoftenhardtovisualize)reportsareissued(e.g.,http://www.ctif-cfi.be/website/images/EN/typo_egmont/21-100casesgb.pdf).Increasingly,nongovernmentalorganizations(NGOs)suchasGlobalWitness,GlobalFinancialIntegrity,andTransparencyInternationalandevenintergovernmentalorganizations(IGOs)suchastheWorldBankproducehard-hittinganalysesthatexaminehigh-levelGrandCorruption,sometimeslinkedtoorganizedcrime(intheconventionalsense),blooddiamonds,andotheractivities.(Thoughthequalityoftheunderlyingresearchandofscale/harmestimationvaries.)Otherwisewemustrelyonwhatappearsinthepressconcerningspecifichigh-levelcases,eitherbeforecriminal/regulatoryactionorinitsaftermath.TheFinancialTimes,WallStreetJournal,NewYorkTimes,andespeciallyintransnationalbriberyandtoxicwastecasesTheGuardianhaveprovideddetailedandinsightfulcoverageofsomemajorcases;thereareinternationalgroupsofinvestigativejournalists(e.g.http://www.occrp.org)whoseworkgeneratesmuchinsightintoindividualcases,despitedefamationlawsthatmakecoverageofelitemisconductdifficult.

III.MoneyLaunderingMethodsandMarkets

A.WhoProvidesMoneyLaunderingServices?Moneylaunderinghasbothademandandasupplycomponent.Ittakeslittletocreatealegalbasisfortheoffenseoflaunderingconcealmentordisposaloftheproceedsofanycrime,includingthosecommittedbythelaunderer.Anyoneengagedinbusinesswilling(forprofitand/orinexchangeforviceopportunities/relieffromdebtsthataremorelikelyduringhardeconomictimes)torunupadditionalrevenuesontheircashregistersortosellantiques,artandjewelry,orexpensiveautomobiles(especiallyforcash)canhelpcriminalsconcealtheproceedsofcrime.Thismayputatrisktheirownbusinessesandassetsaswellastheirliberty.However,iftheyarealreadyontheedgefinancially,theymayhaveonlyreputationsandliberty,ratherthantheirfinancialassets,torisk.

(p.424) However,manymoneylaunderingcasesinvolvemoreelaborateanddistinctrolesthantheexamplesabove.Manymoneylaunderersoccupyquitenarrowniches.Some,perhapsmost,haveonlyaveryfewcustomers;theywillbecautiousintakingonnewbusinessforfearofthedownsiderisks,thoughthismaydependonthepredicatecrimes(e.g.,drugsversustax)theyserviceaswellasontheirexpectationsofpoliceandprosecutionstrategiesandregulatoryregimes.Someinsidersmayevenbeblackmailedintocontinuingtoenablelaunderingsincetheywillbebannedfromtheindustryaswellasperhapsprosecutedandjailedforpastparticipation,eveniftheygiveevidenceagainstothers.Thishasimportantimplicationsforthemarketformoneylaunderingservices.

JohnMathewsonwasaUSbusinessmanwho,in1984,startedabankintheCaymanIslandsthatcateredprimarilytoUStaxevaders,asindicatedbytheflurryofconvictionsthatemergedafterheturnedstatesevidence(http://www.gpo.gov/fdsys/pkg/CHRG-107shrg71166/html/CHRG-107shrg71166.htm;ReuterandTruman,2004).HiscustomerslearnedaboutMathewsonsservicesthroughwordofmouthorthroughadvertisementsattheairportontheBritishcolonysmainisland,GrandCayman.TheyusuallycametohisGuardianBankandTrustCompanyofficeswithaletterofreferenceandenoughcashtopaythe$8,000feestosetupandmaintainthenon-interest-bearingaccounts.Mathewsonhadnopriorcriminalrecord;hehadbeenamoderatelysuccessfulsmall-townbusinessman.This,however,isanoldcase,anditprovideslittleguidetocurrentCaymanpractices.Moresignificantandrecent(post-2008)arethedetailsprovidedbythepaymentstoand/orpleabargainingwithbanker

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informantsinLiechtenstein,Switzerland,andtheUnitedStates,andthepressureputuponUBSandotherbankstorevealtheidentitiesofillegalforeignaccount-holders,whethertheirundisclosedwealthderivesfromlicitorillicitsourceactivities(http://www.politicsdaily.com/2010/04/26/brad-birkenfeld-tax-cheat-and-ubs-informant-doesnt-deserve-par/).In2012,theSwissauthoritiescontroversiallyissuedarrestwarrantsagainstGermanofficialswhoallegedlyconspiredwithSwissinsiderstobreakbankingsecrecy.

AnothercaseinvolvedJohnDeuss,abankerwithalongrecordofinvolvementinotherquestionableactivities(e.g.,bustingUNsanctionsagainstsupplyingoiltoSouthAfrica,defraudingtheSovietgovernmentinoiltransactions),whooperatedaCaribbeanbankthatlaunderedmoneyfromcarouselfraud. TheUKauthoritiesidentified2,500personsinvolvedinsuchfraudwithaccountsatthatonebank.NoallegationsweremadethatDeusshadanyinvolvementincommittingthefraudsthemselvesorthathisbanklaunderedotherkindsofcriminalfunds.Hemaysimplyhavededucedthatsuchfraudswereunlikelytoattractlawenforcementinterest.Frommediareportsandthisauthorsinterviews,thebankerwasthoughttohaveoccupiedanarrow,thoughlucrative,niche.In2012,Deussandhissister(directorofTransworldOilComputerCentrum)wereeachgivenasuspendedprisonsentenceofsixmonthsandafineof375,000euros,andthebankwasfined1.2millioneurosinrelationtoitsconductin2006(http://www.amigoe.com/english/112766-fines-for-john-deuss-and-fcib).

ARussiannational,AlexanderYegmenov,launderedfundsfornumerousRussiancriminalsbysettingupliterallythousandsofshellcompaniesinNewYorkState,wheretherequirementtoidentifyownersanddirectorsisnot(orcertainlywasnotthen)(p.425) enforced(Komisar1999).Nochargeswerebroughtagainstthebanksheusedforthesepurposes.Indeed,Americanprosecutorshavebeenextraordinarilyreluctanttoprosecutetheirownbanksformoneylaundering,goinginsteadafterforeign-ownedbankssuchasMexicanones.Otherthanthis,alongwithmanyaspectsoforganizedcrime,therearemanyallegationsaboutrealestateorotherbusinessmogulsactingaslaunderersfortheunderworld,butevidenceisthinontheground.Moreover,aswithclientsofmainstreaminvestmentfirms,laundererscanloseaswellasgainmoneyfromtheirinvestments,forexample,inrealestate(vanDuyneandLevi2005;seealsoUngerandFerwerda2011).Thereisnoreasontothinkthat(exceptwheretheyhavecorrectinsideinformation,e.g.,aboutlicensesforlanddevelopment)criminalshaveanymoreinvestmentskillsthantheaverageWallStreetorSwissinvestmentbanker,thoughtheremaybemorephysicalconsequencesforadviserswhogivethewrongadvicetocriminals!

B.HowMuchMoneyLaunderingIsThere?Amodernproblemrequiresestimationofitsscalesothatitcanbecomparedtootherproblemsandsothatperformancemeasurescanbedevelopedagainstwhichtojudgetheeffortsofthosewhoaimtocombatit.Thus,amodestnumberofeffortshavebeenmadetodevelopestimatesofmoneylaunderingatthenationalandgloballevels(seeReuterandTruman2004,chapter2)forareview.Morerecently,WalkerandUnger(2009)havemadesomehighlyquestionablehigh-endguesstimatesbasedonheroicassumptionsandextrapolations;andAntonioMariaCosta,thenheadoftheUNOfficeonDrugsandCrime,saidhehasseenevidencethattheproceedsoforganisedcrimeweretheonlyliquidinvestmentcapitalavailabletosomebanksonthebrinkofcollapselastyear.Hesaidthatamajorityofthe$352bn(216bn)ofdrugsprofitswasabsorbedintotheeconomicsystemasaresult(Syal2009).Unfortunately,thisstatementcontainsnotestedortestableevidence,sofortherestofus,itisamatteroffaithordisbelief.

However,itisnotclearthatitiseitherusefulorfeasibletoestimatethefigure(seecontributionstoReuter2012).Numbersarefrequentlycited,withminimaldocumentation,becomingfactsbyrepetition.Forexample,onthebasisofverymodestevidence,theIMFestimatedatotalof$590billionto$1.5trilliongloballyin1996(LeviandReuter2006).In2005,theUnitedNationscitedtherangeof$500billionto$1trillion(http://www.unodc.org/unodc/en/money_laundering.html,accessedJune2,2005).Suchfiguresincreaseovertimebut,unlikecrimerates,theyneverappeartofall(UnitedNationsOfficeonDrugsandCrime2011),onlypartlybecauseanincreasingnumberofpredicatecrimes(suchasGrandCorruption)areaddedtothem.Asustainedeffortbetween1996and2000bytheFATFtoproduceafullydocumentedestimatefailed.However,afewestimatesofthepotentialdemandformoneylaunderingareregularlytreatedasactualmoney-launderingestimates.

AninterestingRANDstudysuggestedthatMexicanDrugTraffickingOrganizationsgrossrevenues(significantlymorethantheirnetprofits)frommovingmarijuanaacrosstheborderintotheUnitedStatesandsellingitto

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wholesalersislikelylessthan$2billion,(p.426) andtheirpreferredestimateiscloserto$1.5billion;foralldrugs,thetotalgrossestimateis$5.1billion(Kilmeretal.2010,30),plusrelativelymodestfurtherincomeinthelowhundredsofmillionsfrompeopletrafficking.

Eventakenatfacevalue,thesenumbersareonlyweaklyrelatedtomoneylaundering.EvenfearsomeMexicandrugtraffickingorganizations(DTOs)havelargeexpensesinbribestolawenforcementandpoliticians;and(asinthecaseofIrishandotherparamilitaries)theyhavelargelevelsofstaffingtosupport,mainlyincashfromcashproceedsofcrimes.ThedollarizationofMexicomeansthattheydonotevenhavecurrencyconversionproblems.Inadditiontosuchorganizedcriminalactivity,muchincomefromsellingdrugsisearnedbyrelativelydisorganizedoffenderswhousethecashtodirectlypurchaselegalgoodswithoutmakinguseofanyfinancialinstitutions.Small-timethievesearning$30,000annuallyareunlikelytomakeuseofabankoranyothermeansofstoringortransferringvalue,and,althoughresearchcarriedoutforoneUKreport(MatrixResearchandConsulting2007)suggeststhatsuchsumsarereadilyattainedevenbyhighturnoverdrugmules,itisimpossibleproperlytoestimatewhatshareoftheserevenueswillrequirelaundering.

C.HowIsMoneyLaundered?Theaimoflaunderingistoconcealthederivationoffundsfromcrimeandyetretaincontroloverthem.Thisinvolvestrustofaparticularpersonorpersonsperhapsamemberofonesfamilyorethnic/religiousgrouportrustofaninstitution,suchasabankoramoneyservicebusiness(MSB).Theimageryofmoneylaunderingmayinvolvecross-bordertransfers,butitisnotclearhowoftenthishappens:logicallyitshoulddependontherisksandadvantagesofkeepingfundswithinonesownjurisdiction.Butsendingmoneyviainstitutionsisnottheonlytechnique:Thepointistotransfervaluebywhatevermeans,includingmispricingandmis-descriptionofexportedgoods(Zdanowicz2004)ormatchingthosebusinesspeople/touristswhowantdollarsoreuroswiththosewhohavethosecurrenciesasproceedsofcrime(Passas2003;FATF2012).Suchfinancialmatch-makingcanbeundertakenbybanks,butitcanalsobedonebysemi-legitimatenetworks,usuallywithinthesameethnicornationalitygroup.Theglobaltradeinmoneyisassistedbythevastsumsrepatriatedbymillionsofexpatriateworkersaroundtheworldwhosendmoneyhometotheiroftenimpoverishedfamilies,makingithardtodistinguishlegitimatefromillegitimate-sourcefunds.TheauthoritieshavetriedtoregulatethismarketbyrequiringMSBstoregisterandtoidentifyboththesendersandtherecipientsoffunds.

Itishelpfultolookatlaunderingtechniquesintermsoftheproblemsthatoffendershavetoconfront.Thelaunderingmethodsusedmaydependonthenatureoftheregimethatisinplace.Theidentificationofsuspiciousnessbyprofessionalsandotherswithalegalresponsibilitytocombatmoneylaunderingisoftenajudgmentthatthepeopleand/ortransactionsareoutofplaceforthesortofaccounttheyhaveandthepeopletheypurporttobe.Thus,aspartofthelayeringprocess,foreignstudentsin(p.427) theUnitedKingdomandelsewheresometimesareapproachedtooffertheiraccountstorunthroughtransactionsfrombusinesses,forwhichtheyarepaidcommission.Thesuccessofthisreliesoninadequateback-officemonitoringofexistingaccountholders:butinordertolaunderverylargesums,onewouldneedtofindalotofcooperatingstudents.Atamuchhigherlevel,ifthewould-bepredicateoffendersstartoutwithabusinessthatisbeingusedasamediumforwhatlookslikelegitimateactivity,thenplacementoffundsmaylookunproblematic:Corporatelawyersmaybekeentoofferwell-paidservicesintheconstructionofcorporatevehiclesandwillnotroutinelysuspectseniorcorporatestaffofbeingmajorcriminals.Sincemanyfraudswouldbeunsuccessfuliftheydidnotlooklikelegitimateactivity,thisgivesthemastructuraladvantageoverothertypesofoffenders.Wenowturntoexaminewhatisknownaboutpatternsoflaundering,and,sincemanystudiesarecountry-specific,wewillexamineEuropeanevidence.(SeealsoBeareandSchneider2007,forabroadrangeofCanadiancasesbasedonRCMPinvestigations.)

1.DrugsandLaunderinginEuropeAlthoughEuropeanresearchonlaunderingispatchy,itismoreextensivethanintheUnitedStatesandisonaparwiththeCanadianwork:TherelativelackofAmericanresearchissurprising,giventhefactthattheUnitedStateshasbeenthepolicyleaderinthisfield.VanDuyneandLevi(2005)reviewwhatwasthenknownaboutmoneymanagementbyEuropeanoffenders.Theclassificationinthetablebelowaimstomap(onlyfromcasesthatwerefinal)thewaysDutchdrugsperpetratorsattempttohidefromgovernmentthecrime-moneyitselfortheillegalwaysofacquisition.Thecategoriesarenotmutuallyexclusivesincemorethanonewayofhandlingproceedsofcrime

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maybeemployedinthesamecaseandwiththesamemoney.Forexample,aportionofthemoneymaybeexported,partofwhichissubsequentlybroughtbackbymeansofaloan-backconstruction,whiletheexpensivecarispaidforincashtobesubsequentlyputinthenameofarelativetoretaineffectiveownershipintheeventofproceedsconfiscation.SubsequentganglandkillingsintheNetherlandshavetargeted(previouslyblackmailed)wealthyrealestatemagnatessuchasWillemEndstra,whowasallegedtobethebankerfortheunderworldandwhosemurderin2004supposedlyleftsomeseriouscriminalsuncertainofwheretheirassetswere(personalinterviews).Theissueofhowoffendersgetproceedsintothosepropertypurchasesisoftenmoreobscure,thoughsomenotarieshavebeensuspectedasconduits(LankhorstandNelen2005).

Bearinginmindthattheseobservationsderiveonlyfromidentifiedandprovencases,andsomemayhavederivedfromanerainwhichitwasexpectedthatmoneyhiddenabroadwassafefromtheclutchesofthecourts,itseemsplausibletointerprettheevidenceasfollows:

Exportofcrime-money.AsobservedinTable21.1,inmostcasesthemoneywassimplyexported:the31observations,covering17cases,concerned16.6millioneurosthathadbeenfoundinforeignbankaccounts(overatimespanofeightyears).Infourcasestherewasevidenceofmoneyexporttoforeignbanksaccounts,(p.428) thougheithertheseaccountswerealreadyclearedbeforethepolicearrivedorthefilesdidnotmentionanyfigures.InthecasesofTurkishorMoroccandrugentrepreneurs,thisexportappearedtobeanobviousoption,giventheircountryoforigin.Eitherthroughbureausdechangeorbymeansofphysicallytransportingthecash,thecrime-moneyswerebroughtsafelytotheirhomecountries.Disguiseofownership.Thesecondmostfrequentlyobservedformofsafeguardingassetswhilestillbeingabletousethemisthesimpledisguiseofownershipbyputtingtheminsomeoneelsesname.Onlyinafewcaseswasthisdonewithanysophistication,forexample,whencorporatestructures(legalpersons)wereused.Theusualdefectswere(a)theclosenessoftherelationshipbetweenthenominalownerandthebeneficiary,and(b)thedifficultyofthenominalownerstoproveactuallyhavingpossessedthemeanstoacquiretheassetsinthefirstplace.Nominalownerswerefrequentlyacquaintancesorrelatives;somefoundthemselvestobetheinvoluntaryownerofunknownproperty.Forexample,themotherofonemiddle-levelDutchcocainetrafficker,wholivedonlyonameagerpension,wassurprisedtolearnthatsheownedavilla.Alsoinothercases,relativeswere(ab)usedbyputting(moveable)assetsorbankaccountsintheirname.Thoughpreexistinglegalpersonswereusedtochanneldrugmoney,fewofthemwereactuallysetupforthepurposeofdisguisingownership.The(notable)exceptionswereaBritishcrime-entrepreneur,twoDutchcannabistraffickers,andaTurkishheroinwholesaler,allofwhominvestedinrealestateusinglegalpersonsforthebeneficialownership.AnotherDutchhashtraffickerestablishedanextensivenetworkoflegalpersonstodisguisetheownershipofcash,bankaccounts,andvehicles.Thesecorporateconstructionstodisguiserealownershipoverlapwiththelaundering(justification)categorydiscussedbelow:tamperingwithpaperworkandwithotherevidence.Falsejustification.Fromthepointofviewofreallaundering,thesuccessfuljustification(intheeventofinvestigation)ofill-gottenmoneysorassetsisthecorecraft:providingdocumentaryevidencethattheincreaseinwealth,whether(p.429) intermsofmoney,assets,orvaluables,hasalegitimatesource.Oneofthemethodsmostfrequentlyusedistheoften-mentioned,well-trustedloan-backconstruction.Giventhefrequentreferencesintheliteraturetothis,itissurprisingtolearnthatitssophisticationwasshallow.VanDuyneetal.describedaprofessionalproviderofloan-backconstructions,whodesignedprofessionalloancontracts,completewithrelatedcorrespondenceandarealmoneyflowofinterestandrepaymentstothelendercorporationabroadinordertoimitateperfectlyrealloantransactions(anddeducttheinterestpaidfromtaxliabilities).Theloan-backprovidersawtoitthathisclientsdidpaytherequiredmonthlyinterestandrepayment.Exceptforonecase,suchprofessionalconductcouldnotbeobservedinthecasesofthisstudy.Loancontractsweresometimesmissingortheapparentcontractsdidnotmentiontherepaymentandinterestterms,norwasthereanyrecordthattherequireddemonstrableflowbackofinterestandinstallmentpaymentswerecarriedout.Intwocases,thelaunderingofamonthlyincomebymeansofsalarypaymentcouldbeobserved.Inonecase,75,000euroswasloanedtoanindependentbutfriendlysmallfirm,whichsubsequentlyhandedoutamodestmonthlysalary.ThislaunderingwasnotintendedtojustifythemillionsofeurosinproceedsbuttoplacatetheInlandRevenueServiceandcreatetheillusionofagenuineincome.Reallaunderingbysettingupphonybookkeepingtomakethemoneyreallywhiteappearedtobeacraft

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mainlyusedbydrugentrepreneurswholivedintheNetherlands,mimickingthesortofbusinesstheywerein.Forexampleaflorist,usinghishorticultureasacoverforgrowingcannabisplants,hadtoobtaininvoicestocoverexpensesaswellastheincomefromthecannabissales.InthecocainetrafficwithColombians,certificatesoftransportationofgoodsandaccompanyingphonypaperworkwithcommodities(sugar)ontheparallelmarketweredraftedtojustifythereturnflowofthemoneytoColombia.Suchcoverstorieswereeasilybustedbyinvestigators.Theuntraceabilityofcrimeprofits.Thisisadefaultcategory,consistingofsupposedmoneyswhichcouldnotbefound.

Table21.1MethodsofDisguisingandLaunderingCrimeProceeds

Formsofconcealment/disguise Frequency

Exportofcurrency 31

Disguiseofownership 10

Falsejustification

Loanback 3

Payroll 2

Speculation 1

Bookkeeping 7

Untraceable 4

Source:VanDuyneandLevi,2005

Arecurrentrefraininmoneylaunderingliteratureandpoliticalspeechesisthetransnationaldimension:moneytrailsaroundtheworldthroughimpenetrableaccountsheldinsunny,farawayresorts.Suchfar-flunghideawaysdoexist,buthowmanywholesaledrugentrepreneursarecustomersofthesefacilities?ConvictedBritishandDutchdrugwholesalerswerecertainlynotsuchcustomers:theexoticfinancialsecrecyhavensrarelyfiguredastargetcountriesfordepositingdrugmoney(vanDuyneandLevi2005).IntheDutchcase,thefrequencydistributionovertheforeigncountriesclusteredaroundneighboringcountries,andotherjurisdictionswereinfrequent.ItseemsthattheDutchdrugentrepreneursfavoredBelgiumandLuxembourgwhiletheTurksandMoroccansfavoredtheirowncountries.ADutch-ThaicoupleheldbankaccountsinThailandbecauseofthenationalityofthepartner.Thisfindingcontradictstheusualimageoftransnationalcriminalsspreadingtheirill-gottenprofitsworldwideoverthe(p.430) badfinancialsecrecyhavens.Instead,itseemsthatthechoiceofbankingjurisdictionislargelydeterminedbyproximitytothedrugentrepreneurseconomichome.Thisisconfirmedinlaterstudies,e.g.,vanDuyneandSoudijn(2010).

SuendorfsGerman-languagestudyoflaunderinginGermany(Suendorf2001)contains40examplesofmoneylaunderinginthebroadjuridicalmeaningoftheword:i.e.,everysubsequenthandlingofillegalprofitsaimedatdisguisingtheirorigins.Twocasescanbeconsideredtofallintothecategoryofthoroughlyorganizedmoneymanagement:Organizationswereestablishedtomovethecrimemoneysofheroinwholesalerstotheirrespectivehomecountries.Oneofthemissetoutbelow:

TheBosporuscaseidentifiedanextensiveandcomplexnetworkofmoney-exchangebureausdirectedbyanIranianentrepreneur,whoservedaKurdishheroinwholesaler.ThefundswerecollectedinvariouscitiesinGermanyandcarriedtobranchesoftheIranianorassociatedindependentbureaus.SubsequentlythecashwasplacedinGermanbanksandtransferredtobankaccountsofalliedmoneychangeofficesin

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NewYork.FromtheseaccountsthemoneysweredivertedtoDubaiandifrequiredbacktoGermanyorTurkey.TofooltheGermanpolice,thebureaudechangesubmittedoccasionalsuspicioustransactionreports.

In11ofthe40casestherewasanattempttomakeaninvestmentintheupperworld(i.e.,themainstreamlegitimatecommercialworld),thoughwithvariablesuccessanddegreesofprofessionalism.Mostoftheotherexamplesconcernedonlythechannelingoffundsintoaccountsratherthanfullintegrationofsuspectedmoneys.Overall,thesophisticationandprofessionalismdisplayedwasmodest.

Steinko(2012)reviewedpatternsofmoneylaunderinginSpain.Drugtraffickingisthepredicateoffenseinmorethan90percentofthecasesanalyzed.However,themostimportantcriminalproceedsarethosegeneratedbycasesofurbanplanningrelatedcorruption,whichhaveamajorenvironmentalandsocialimpact.Atotalof60percentoftheproceedsofcrimeknownaboutwerelaunderedthroughthefinancialsystem.Ofthis,athirdwasthroughforeignbanks,preferablySwiss.Henoted(p.496):Themajorityofcasesaretechnicallyandeconomicallymodestandhavealocaldimension.Thefewfinancialassetsboughtwithillegalmoneyshowaconservativebehaviour:nospeculativehandlingofassetsboughtwithcriminalmoneycouldbedetected.Theanalysisoftheillegalnon-financialassetsillustratestheimportanceofreal-estatepropertiesandvehiclesdestinedforregularuseand,somewhatlessimportantly,fortheacquisitionofhousesandluxurycarsforconspicuousconsumption.Themainobjectiveofmoneylaunderersisregularandconspicuousconsumptionandtoobtainanincomethroughtherentingofproperty.

Thewell-researchedthreatassessmentbytheCSD(2012,pp.6365)notedthatmostBulgarianorganizedcriminalsdidhavelicitbusinessesmoresothaninotherEuropeanstudiesandthat,in2010,investmentoffundsofillicitoriginwasmainlyfocusedonfourdistinctivesectors:(1)trade(includingdealinginrealestateproperty)31percent;(2)construction27percent;(3)gambling18percent,and(4)tourism10percent.Themajorityofthecomplexmoneylaunderingschemesinvolvenotaries,accountants,lawyers,andfinancialexperts.Inlargercriminalgroupsbosses(p.431)mayassignthecontrolofsuchoperationstoparticularpersons.Therearenospecialistmoneylaundererswhoprovidemoney-launderingservicestoothercriminals.

ImprisonedhumantraffickersintheUnitedKingdomstatedthattransferringmoneyabroadwasnotdifficult,anditseemsreasonabletoinferthatunconvictedonesfounditeveneasier.Theproceedsfromfacilitationofthetraffickingwereoftenreturnedtothehomecountry,wherelandandpropertywerethenbought.FacilitatorsbasedintheUnitedKingdomkeptthebulkofthemoneytherefordisposableincomeandforinvestmentinpropertyandbusinesses,suchasshops,hotels,restaurants,andsweatshops.

Finally,aBritishinterview-basedstudyofdrugsdealerssuggeststhefollowingpatternofexpenditureandlaundering(MatrixResearchandConsultancy2007p.39;seeTable21.1):

Table21.1UsesofProfitsbyUKDrugDealers

Useofprofit Often Sometimes Never Non-response

Total

Profitsspentonlifestyle 68 2 5 29 104

Profitsreinvestedindrugtafficking 48 1 7 48 104

Profitsinvestedinpropertyorotherassets 25 12 29 38 104

Profitslaunderedthroughlegitimatebusinesses

19 2 39 44 104

Profitsspentondrughabit 17 11 10 66 104

Profitssentoverseas 8 8 48 40 104

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Somedealersstressedthattheydidnotdoanythingflashywiththeirearnings,e.g.justspendingthemoneyonthekidsandpayingthemortgage(p.39).Theinformationcollectedpointedtounsophisticatedmoneylaunderingtechniqueswithatendencytousefriendsandfamily,forexamplebyinvestingintheirbusinessesorbankaccounts.Oneintervieweereportedestablishingafraudulentpaintinganddecoratingbusinessandbuyingwinningbettingslipsthathecashedatbettingshopsacrossthecountry.

Onefreelancehaulerinvolvedinthedrugstradereportedthathisbosswouldspecificallyidentifyafirminfinancialtroublebutwhostillhadregularconsignmentscomingintothecountry.Hethenwentroundandofferedthemapartofadealsohecouldusetheirlegitimateconsignmentasafronttoenableadrugsimportation.Onemightexpect(p.432) suchwillingnesstomixlegitimateandillegitimatetrade(andconfidencetomakecorruptoffers)tohavebecomemorefrequentduringtheeconomiccrisesof2007present;however,theevidencebaseisnotgoodenoughtotestthis.

Thedanger(notavoidedbyvanDuyneandLevi2005)ofthissortofanalysisisthat,althoughitthrowssomeappropriatelyskepticallightonofficialclaimsandpopularassumptionsaboutmoneylaunderingsophistication,itrestsuponthosecasessuccessfullydealtwithbytheauthorities.It,therefore,excludesthosecasesthatareproblematictoprosecute,whetherinEurope,Mexico,orfailedstateselsewhere.Whatthestudiesshowisthatmuchvariationexistsinternationallyinpatternsoflaunderingandinthemarketsforlaunderingservices,whichdonotappeartobedominatedbyhierarchicalMr.Bigsor,indeed,bycriminalmastermindsgenerally.However,theskillsinvolvedingettingmassivesumsinVATandotherfraudstodisappearbeyondthereachofwelltrainedforensicaccountantstellsussomethingaboutthesophisticationofsomelaunderersandabouttheopacityoftheworldofinternationalfinance,despitetheeffortsthathavebeenmadetoincreasetransparencyandmutuallegalassistance.

D.CorruptionandMoneyLaunderingMoney-launderingcontrolshavealsocometobeseenasanimportanttoolfordealingwithcorruption,particularlyindevelopingcountries(Levietal.2007;ChaikinandSharman2009;GlobalWitness,2009,2012).TherecoveryofillicitlyacquiredassetsisoneofthecentralmotifsoftheUNConventionagainstCorruptionof2005.Therangeofactivitiesandthewaysinwhichwealthtransfersareeffectedillustratesomeofthedifficultiesinusinganti-launderingmoney(AML)measurestopunishcorruption.WhileGrandCorruptionisidentifiedwithnotoriousdictatorsandtheircronies,manyotherformsofcorruptionarenotinsubstantial.Largebribesarepaidtoborderorinternallawenforcementofficials,tojudicialofficers,ortothosewhocontrolthemnottoproceedagainstcriminalsortheirgoods:Thelattercanbeillegal(likenarcoticsincreasinglytraffickedthroughfromLatinAmericaviaWestAfrica),counterfeit(softwareandotherintellectualproperty,alcohol,medicines,cigarettes,tobacco),orlegalbutuntaxedsmuggleddutiablegenuinegoods.Corruptioncanariseinanyareaofprocurement.Butnoformalbribesintheformofdirecttransferofcashorbanktransferneedtakeplace,makingtheidentificationoftheoffense,proofofcorruption(andlaundering),andappropriatesanctionsnearlyimpossible.Sometimesitissimplyunderstoodthat,ifpeoplewanttodobusinessinaparticulartownorcountry,theyhavetobuyorsellviabusinessesorprofessionalswhomtheyknowtobeconnectedtoelites,criminals,orboth.Inasense,thisisinvisibleorganizedcrime.

Valuetransfersneednottakeplaceviaelectronicfundstransferorotherbankingmethods:Theymayinvolvefalseinvoicing,thepurchaseofgoodsandservicesknowinglyatinflatedprices(suchasflowersregularlysuppliedbytheJapaneseYakuzaauthorinterviews,1998),ormoreconvolutedchainsofagreementsthatrelyonfamilyrelationshipsandminimizedirectfinancialflowsintheshortterm.Nonetheless,money(p.433) launderingisanimportantcorrelateofcorruption,embezzlement,andotherseriouscrimesforgain. Thismaymeanthattheassetsarebeingexpatriatedillicitlyor,whentheprocurementsarelargeenough,placedbythecompaniespayingthebribes,perhapsviacommissionpaymentstointermediaries.Itiscommonforfalsifieddocumentationtheoverpricingoreveninventionofservicestobeused.Again,paymentsdonotoccurinthecountrywherethebriberandbribedoriginate,buttheygooffshore.Unlikeproceedsofcrimes,suchasdrugtrafficking,thatresultincashpayments,manycorrupttransactionsarenoteasytoarrangethroughinformalvaluetransfersystems.Theyaremoresuitedtoformalsystems,atleastininstanceswherethecorruptedpersonswishtoplacetheirassets

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overseas.

AlthoughSwitzerlandhistoricallywasthedestinationofchoiceformanyplunderedassetshavingthedesirablecombinationofhonestsafe-keeping,politicalstability,andethicalneutralitytowardthesourcesoffundsthereisnolongeranyreasontosupposethatitisthedestinationofchoiceforcorruptassetsnowadays.Indeed,theactivismoftheSwissauthoritiesmightberegardedasadeterrent,thoughlargeforfeituresthereremainquiterare.

IV.Anti-moneyLaundering(AML)MeasuresandTheirEffectivenessAMLmeasureswerefirstdevelopedatanationallevel,intheUnitedStatesandtheUnitedKingdominthemid-1980s(thoughbulkcashdepositCurrencyTransactionReportingwasintroducedasearlyas1970intheUnitedStates).Sincethattime,byacombinationofimitation,politicalpeerpressure,andtechnicalassistance,theworldhaswitnessedanextraordinarygrowthineffortstocontrolcrimeforgain(andlatterly,terrorism)viameasurestoidentify,freeze,andconfiscatetheproceedsofcrimenationallyandtransnationally. FromitsbeginningsintheWaronDrugs,thishasbecomeanattempttodealwiththecrime-facilitatingconsequencesofthedarksideofglobalization,i.e.,corepolicytoopenupmoneyflowsviatheliberalizationofcurrencyrestrictionsandmarketizationindevelopingcountries,includingformerCommunistsocieties.Strippingproceedsofcrimefromoffenders,bothbycriminaland,increasingly,bycivilprocess,ispoliticallypopularandhasapositivedemonstrationeffectinlocalcommunitiesinthatitisaimedatencouragingthepublictoseethatcrimedoesnotpay.Itisexpectedaprioritoinhibitcriminalcareersofindividualsandorganizedcrimegroupsbyrestrictingtheirabilitiestosaveandtointegratetheirfunds,whichremainatrisk.Moreover,manyonthepoliticalleftwhowouldordinarilybecivillibertariansseepro-transparencyAMLactivitiesasmechanismstoreducethekleptocracy/GrandCorruptionthathasdamagedcentralandeasternEuropeancountriesaswellasmuchofAfrica,Asia,andSouthAmerica,hence,thepassageoftheUNConventionagainstCorruption(2005),tomatchthepreviousUNVienna(p.434) DrugsConvention(1988)andtheUNTransnationalOrganisedCrimeConvention(2002).

MoreandmoreentitiesandprofessionsarebeingbroughtintotheAMLnetwork.Banksmusttraintheirstaffandreportsuspicionswithproceduresthatarefairlystandardworldwide,throughouttheEU,underthe2001,2005,and2013EuropeanDirectives.IntheEU,accountants,artandcardealers,casinosandjewelers,lawyersandnotariesarerequiredtoidentifyclientsandreportthemtotheauthoritiesiftheirtransactionsareincashover15,000eurosoraredeemedsuspicious(Levietal.2007;EC3rdand4thmoney-launderingdirectives;Ungeretal.2014).Fewsuchreportswouldhavebeenmadewithoutthethreatofcriminalandregulatorysanctions.Oneusefulwayofconceptualizingtheissueisasaglobalcrimeriskmanagementexercisethatseekstoconscriptasunpaiddeputysheriffsforeigngovernmentsandthosepartsoftheprivatesectorthatseemunwillingtovolunteerforsocialresponsibilitytocombatdirtymoney(Favarel-Garriguesetal.2008).ManyformercommunistEuropeancountrieshavingrejectedall-knowinginvasivestatesfindthemselvespressuredintoestablishingcentraldatabasesforfinancialtransfersandsharingdataonthesereportsacrosstheEU.

In2009,thetotalnumberofallSuspiciousActivityReports(SARs)filedbyUSfinancialinstitutionswas1.52million(FinCEN2013)halfofthemfrombankswhileCurrencyTransactionReport(CTR)filingsoflargecashdeposits,whethersuspectedornotoforiginatingfromcrime,aretentimesgreater.Fromafewinformaltip-offsfrombankerstopolicein1986,thenumberofSARsfiledintheUnitedKingdomroseto20,000in2000andthento316,527in2013(NCA2014).Uponreceipt,SARsareloggedintotheUKFIUinternalSARsdatabase(knownasELMER)andaremadeavailabletoLawEnforcementAgencies(LEAs)forinvestigation.Thereareapproximately1.38millionSARsonELMER.AllSARswhichpopulatethedatabasearesubjecttoimmediatechecks,includingthosepreviouslyenteredintothesystemwherenewinformationmaychangethenatureofapreviousSARafrequentoccurrence.SARsareretainedonELMERforaperiodofsixyearsoruntilprovennottobelinkedtocrime.

ReportingintheUKandelsewhereisuneven,focussedonlargebanks,onelargemoneytransmitter,andonegamingfirm:abouthalfofallSARsaresubmittedbyfourfirmsand20reporterssubmitted75percentofallSARs.Significantincreaseshaveoccurredthroughoutthe47countriesoftheCouncilofEurope(widerthantheEU),reflectingtheincreasedtrainingandnumberofbodiescoveredbyanti-launderinglegislation,pluspoliticalpressuresoftheEUacquiscommunautairethedetailedcriteriawithwhichcountriesmustcomplybeforetheyareadmittedtotheEU.

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Nonetheless,thetotalsstillvaryenormouslybetweencountries:bycontrastwiththeverylargeUSandUKfigures,thenumberofreportsmadein2012forsuspicionofmoneylaunderinginSwitzerlandhitanall-timehighof1,585(doublethatin2009),withthevalueofassetsimplicatedbeing3.12billionSwissfrancs(approximatelyUS$3.33billionatthe2013exchangerate).Thebankingsectoraccountedfortwo-thirdsofallreports.Fraudaccountedforathirdofallsuspectedpredicatecrimeswithembezzlementandcorruptionaccountingforafurther21percent.

(p.435)Whataretheimplicationsofthis?Atfirstsight,thedatasuggesttheSwissauthoritiesaredoinglittleaboutmoneylaundering.However,asuspicioustransactionreporthasmuchgraverconsequencesinSwitzerland.Whenanaccountisreportedassuspiciousthere,itisautomaticallyfrozenforuptofivedayspendinginvestigationofwhetherornotaformalcriminalinvestigationshouldbeopened,placingapremiumonhavingfewill-foundedsuspicions.If1millionAmericansandaquartermillionBritonshadtheiraccountsfrozen,therewouldbeasignificantoutcryandvastlyincreasedinvestigativeresourceswouldbeneededtoprocessthereportswithinafewdays!Takats(2006)hasdevelopedamodelthatsuggeststhegovernmentcanbefloodedwithpaperworkandrenderedlesseffectivebyanoverlybroadreportingsystem.

OnewayoflookingattheimpactofAMLlawsistoexaminethefamous1983BrinksMatgoldbullionrobberyatLondonsHeathrowAirport,whichnettedaround$52millioningold.ThishappenedbeforeanymoneylaunderinglegislationwasineffectintheUnitedKingdom,andthegoldwaslargelysmelteddownandusedtomakejewelry,leadingtosuddenverylargeincreasesinthebusinessturnoverofonesuspect,fundsfromwhosebusinesswerewithdrawnincashtosuchanextentthattheregionalBankofEnglandbranchranoutof50noteswithwhichtosupplythelocalbankbranch.Yetnoonemadeanyreporttotheauthorities,norwasanyoneobligedtodoso(Levi2007).Thatveryprobablywouldnothappennow.

WhatotherkindsofeffectsofAMLcanwededuce?LeviandReuter(2006)reviewedtheevidenceofimpactofAMLtothatdate,andtheyhaveconcludedthattherehasbeenlittlecrimesuppressiontodate,norgiventhepoorqualityandvastrangeofestimatesofproceedsfromdrugs,forexampleisitplausiblethatwewouldbeabletodetectanyeffectsandseparatethemfromerror.AsfortheimpactofAMLonimprovingcriminaljusticeperformance,thefewanalyticalstudiescarriedoutshowthatthishasbeenverymodesttodate.Theextenttowhichthisisattributabletolowresourceinvestmentandtopoorcommunicationsbetweenpublicandprivatesectors,especiallycross-border,remainstobedetermined.NooneknowswhatthetotalnumberofpersonssubjectedtoextrafinancialsurveillanceisinEurope(EUandbeyond),butitisasignificantfeatureinthepolicinglandscape,eventhoughscarcefinancialinvestigationresourcesmeanthatrelativelylittleisdoneaboutmanyofthereportsthatarereceived.

AMLregimesmighthavetwootherbenefitsinadditiontocontrollingcrime:improvingtheefficiencyofthesystemorcatchingoffenderswhootherwisewouldescape.Cullaragreesthatsuchregimesmighthaveimprovedefficiencyindrugcontrolandinreducingafewrelatedcriminalactivities,buthearguesthattheyhavefailedincatchingoffenders.TheprincipalusetowhichtheUSAMLregimehasbeenputhasbeentoincreasethepenaltieswithwhichprosecutorscanthreatenpredicateoffenders(LeviandReuter2006).Theregimehashadlittlesuccessinapprehendingprofessionalmoneylaunderersorhigh-levelcriminals.InEurope,someactivityhasbeenundertakenagainstprofessionalssuchaslawyersaswellasagainstbankersthoughmorebyregulatorythancriminalsanctionsbuttheextenttowhichthishasincapacitatedcrimenetworks,reducedthevarietyoftheiroffending,orreducedthescaleoftheirgrowthascriminalorganizationsremainsunknownandlargelyunanalyzed(vanDuyneandLevi2005;(p.436) Nelen2004).Therearelimitsintheextenttowhichthepolice(or,forthatmatter,bankers)canpursuetherationalebehindsuspectedtransactionswithoutinterviewingsuspects.However,greaterattentiontowhoreallyownsandcontrols(beneficiallyowns)assets(FATF2013)shouldlogicallyhelpwithassetrecoverycomparedwithpost-arrestorevenpost-chargefinancialinvestigationsthatwerecommonplacebefore.Inthissense,AMLhasaninfluenceonlawenforcementmethodologies,fromdrugstoGrandCorruption.Thus,intheUKregime,investigatorscanrequirethoseconvictedofseriousandorganizedcrimestofileannualfinancialreportsandcanplacemonitoringordersonsuspectedoffendersaccountsthatprospectivelyallowsthemtotrackfundsmovements.Theycanalsorequireforfeitureofcashover1,000inlandaswellasatbordersunlessthesuspectcanconvincethecourtthatthefundswerelegitimatelyacquired.Thisintroducesaconviction-to-graveprocessoffinancialself-reportingbyoffendersinwhichprovablelyingbythemintroducesextrarisks.

Inmanyrespects,thepolicytransferprocessinAMLandanti-corruptioneffortsassistedbyforeignaidfor

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particulardevelopmentsandeconomicsanctionsfornoncooperationhasbeenamajorsuccess.Nevertheless,(a)thegoalofaffectingtheorganizationandlevelsofseriouscrimeshasbeendisplacedinpracticebythemorereadilyobservablegoalofenhancingandstandardizingrulesandsystems;(b)thecriticalevaluationofwhatcountriesactuallydowiththeirexpensivelyacquiredsuspicioustransactionreportdataremainsinitsinfancy;and(c)thepunishmentforpoorAMLperformance,thoughapparentlysimilarinternationally,inpracticehasfocusedmoresharplyuponsmallerandweakerjurisdictionsthanuponthemajornationsanduponminorratherthantoobigtobeprosecutedbanks,raisingquestionsabouttheequityoftheprocess(Sharman2011;Halliday,Levi,andReuter2014).Themechanismsthatfacilitatelaunderingareintricatelylinkedtothosethatenablewealthycorporationsandindividualstohidetheirassetsfrompublicknowledgeandaseparateissuetominimizethetaxesthattheyareobligedtopay(Blumetal.1998;GodefroyandLascoumes2007;Sharman2011;Shaxson2011).However,itremainsafactthatinwiderEurope,outofthebillionsofeurosobtainedandtheninpartsavedfromcrimesannually,farlessthan1billionisconfiscated(MatrixInsight2009),andforalltheirsuccessesinindividualcasestheshifttocivilforfeitureindependentofprosecutionintheUnitedKingdomandintheIrishRepublichashithertohadonlyamodestimpactonthis,especiallynetofthecostsofinvestigation,courtaction,andassetmanagement(Harvey2008;NationalAuditOffice2013;PublicAccountsCommittee2007).Whathashappenedtotheseunconfiscatedbillionsoverthedecades?Whatsocialharmdotheydo,andwhere?

HowshouldtheeffectivenessoftheAMLregimebeassessed?Moneylaunderingitselfisonlytheintermediatetarget;thetruetargetis,instead,thevolumeofpredicatecrimes,perhapsweightedintermsoftheirharmfulness.Reductioninthevolumeofthemoneylaunderedisnotaconceptuallystrongmeasureoftheeffectivenessoftheregime;subtleroutcomemeasures,whichhaveyettobedeveloped,areneeded.LeviandReuter(2006)examineindetailtheproblemoffindingsuchmeasurestoreducecrimesotherthan(p.437) terrorismandbribery/kleptocracysincethebulkofAMLactivitieshavebeendevotedtosuchcriminalactivitiesasdrugs,otherillegalmarkets,andwhite-collarcrimes.

Intermsofcrimecontrol,theAMLregimemaygeneratetwootherbenefits.First,partofthesocialappealofproceedsofcrimeconfiscationisthepublicsatisfactionthatoffendersaredeniedthefruitsofcrime(seeKilchling,thispublication).Seizureoffundsgeneratesrevenueforthegovernment,andtheincarcerationofthosewhoconspiretomaketheprofitsofcrimeappearlegitimatepunishessenioroffenders.Theseizuresattackthenegativerolemodelsofferedbyoffenderslivinghighonthehog.ResearchinEuropefindsampleillustrationsoflawenforcementofficersstressingthepainthatassetconfiscationbringstooffendersinabsolutetermsandcomparedwithatleastEuropeanlevelsofimprisonment(LeviandOsofsky1995;Nelen2004): thoughplausible,thishasnotbeenindependentlyverifiedonalargesampleofoffenders,norisitclearhowitimpactsuponthewillingnessoftheseorotheroffenderstocommitcrimesinthefuture.Giventhestakesthatfinancialandlegalprofessionalshaveinmaintainingtheiremploymentandlicensure,theymayberelativelydeterrable(LankhorstandNelen2005;MiddletonandLevi2005),thatis,unlesstheyarebeingblackmailed/threatenedorunlessthey/theirfirmsareatseriousriskofgoingbustanyway,modestexpectedrisksofapprehensionandpunishmentmaybeenoughtodiscouragemanyfromparticipating.Insomeinstancestheonlywaytoapprehendthoseprincipaloffenderswhoseparatethemselvesfromthepredicateoffensesistoconvictthemofmoney-launderingoffensesassociatedwithpredicatecrimesthathavebeencommittedbyothers.Suchcasesaimtoshowthatthelawwithrespecttoawiderangeofpredicatecrimesappliestoeveryone.

However,itisalsoimportanttothinkaboutwhattheAMLsystemdoesnotimpacton.Sincescrutinyofsourcesofcriminalearningsforlowearnersislimited,itisprobablyonlycriminalincomesofmorethanperhaps$30,000to50,000annuallythatcreateaneedforconcealingthesourceoftherevenues.Thus,unlesstheAMLprocessesstopallbiggerleaguecriminalsfromimportingdrugsorcommittingfrauds,mostoffendingbyvolumewillbeunaffected.However,itseemsunlikelythatlaunderingissuchascarceskillthatincarceratingafewhundredwillhaveamajorimpactonavailability.TheriseofartificialtanningandnailparlorsintheUnitedKingdomisanillustrationofcash-hidingself-launderingpotential,especiallysincetaxagenciesdonotprofitfrom,andarenotsetuptoinvestigate,overreportingoftaxableincome.Althoughprofessionalmoneylaundererscertainlyexist,theyaresurprisinglyinfrequentinreportedcases.

Thisisimportantforbothpolicyandresearchpurposes.TherationalebehindthecurrentAMLregimeisbased,inpart,ontheimplicitassumptionthattheregimeprovidestoolstoapprehendandpunishasetofactorswhoprovideacriticalserviceforthecommissionofcertainkindsofcrimeandwhowerepreviouslybeyondthereachofthelawanassumptionthatmakesthemarketmodelausefulheuristicdeviceforanalyzingtheeffectsoflawsand

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programs.However,ifmoneylaunderingismostlydonebypredicateoffendersorbynonspecializedconfederates,thentheregimeaccomplishesmuchless.Forresearchpurposes,theprominenceoftheamateurlaundererimpliesthat(p.438) themarket-modelconceptisastrainedanalogysincemostlaunderingisdonebyamateurswhoarenotregularplayers.

Inshort,AMLperformancemeasuresaredifficulttodevelop,sincetheywouldhavetolinktheAMLactionstochangesinthepredicatecrimes:Thisishardenoughinthecaseofdrugs,onwhichevidenceisbest,thoughonemightexpectbankdetectionstobebetterforfrauds.High-leveldealers,theonlyoneswhoneedmoneylaunderingservices,accountfornomorethan25percentoftotaldrugrevenues(LeviandReuter2006).Assumethatinthecurrentregimemoneylaundererschargecustomersapproximately10percentoftheamountlaundered.Nowassumethatanimprovedsystemraisedthepriceformoneylaunderingservicesbyhalf,to15percent.Theresultwouldbeanincreaseinthepriceofdrugsofonly1.25percent,fartoosmalltobepickedupbyexistingmonitoringsystems.Thisisnotanargumentthatmoney-launderingcontrolsarenoteffectiveorcost-effective,butonlythattheirsuccesscannotbeempiricallyassessedbyexaminingpricesandquantitiesindrugmarkets.

ItisgenerallyagreedthatdatageneratedbytheAMLsystemmustbebetterused.Greaterskilledcommitmenttofinancialinvestigationandadjudicationislikelytoimprovecriminaljusticeanddisruptionyields,whatevereffectthismayhaveonlevelsofoffendingofdifferentkinds.TherearemanyindividualcasesinwhichSARshaveaddedto(or,morerarely,stimulated)investigationsandproceedsofcrimerecoveries(GoldandLevi1994;Fleming2005;NCA2013;SOCA2012;seealsoHarvey2008).

Thepaucityofcasesagainststand-alonelaunderersandinvestigationsthathavetheirorigininmoneylaunderinginformationsupportsthecriticismthattheAMLregimehasbroughtinfewnewoffenders.Nosystematicdataareavailableontheoriginsofcasesagainstmajorcriminalssuchasprincipaldrugdealersandsoitisimpossibletotellwhethermoreofthemarebeingcapturedthroughmoneylaunderinglawsandinvestigations.Furthermore,whereheadsofstateortheirfamiliesareinvolvedinGrandCorruption(includingembezzlementand,sometimes,illicittraffickingandothermajororganizedcrimes),itisfarfromobvioustowhomeitherdomesticorforeigninstitutionsshouldreportwithoutfearofretaliationorwhohassufficientmotivationtotakeseriousaction.Inthisrespect,thenationalFinancialIntelligenceUnitmodel,likemostnationalcrimeinvestigationandprosecutionmodels,breaksdownwhenconfrontedwithkeyelites,evenwheretheyhavenoformalimmunityforactsperformedinoffice(Levi2012).

Finally,whateverthegainsfrommoney-launderingcontrols,avarietyofcostsalsoneedtobeconsidered.ReuterandTruman(2004)offeraveryroughestimateof$7billionforthecostsoftheUSAMLregimein2003.Thatfigureincludescoststothegovernment($3billion),theprivatesector($3billion,andthegeneralpublic$1billion).However,itdoesnotincludetwopotentiallyimportantcostelements:theeffectontheinternationalcompetitivepositionofbusinesssectorssubjecttoAMLrulesorthecostsoferrors.TherehasbeenariseindemandforMoneyLaunderingReportingOfficerswhomustbylawbeappointedineveryregulatedinstitution,thoughtheydonothavetobeexclusivelydevotedtothatroleandescalatinguseofexpensivesoftwarethattriestoidentifysuspicioustransactionsonthebasisofpatternanalysis.

(p.439) V.ConcludingRemarksMoneylaundering,thoughatraditionalactivity,isaverymoderncrime,createdbythelate-20th-centurystatetoenlistthefinancialsector(and,later,manyothersectors)initspursuitoftheproceedsofcrimeanddeterrenceofcareercriminality,particularlytransnationalcrime.Undoubtedly,manybillionsofdollarsarelaundered,butwhetherthatis1percentor10percentofGDPindevelopedeconomiesisverymuchamatterofguesswork.

Moneyislaunderedinmanywaysbyoffendersofverydifferentkinds.Itis,indeed,oneofthefewactivitiesthatconnectAlQaeda,Colombiandrugdealers,CreditSuisse,andEnronofficers.Therearemanydifferenttechniquesforlaundering,involvingboththemostrespectableandthemostmarginalofinstitutions.Giventhecommitmentofstateauthority,co-optedfinancialinstitutionsandtheviolationofindividualprivacytothepursuitofmoneylaundering,itwouldbeworthwhilelearningagreatdealmoreaboutlaunderingitselfthanwecurrentlyknow.

Abroadandintrusivesetofcontrolshavebeenerectedtopreventmoneylaundering.Inadditiontotheirconsiderablefinancialandprivacycosts,thesecontrolshavepotentiallylargeunintendedeffects.Forexample,

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internationalbankshave,attimes,madeitdifficultformoneyservicebusinesses(MSBs)towireremittancesofimmigrantworkersbacktotheirhomecountriesorevenhandleMSBsaccountsbecausetheyfearthatbankregulatorswillmonitorthemmorecloselyforpossiblemoneylaunderingviolations,andthattheymightbepenalizedthemselvesiftheMSBsdolaunderproceedsofcrimeorfinanceterrorism.TheAMLrequirementsofextensivedocumentationbeforeopeninganaccountcanthusreducetheaccessofpoorpersonstothefinancialsystem.ThemethodologyforevaluatingcountriesperformanceatAMLhasbeenreformedfrom2013toshiftittowardarisk-basedapproachbasedonananalysisofthemoney-launderingproblemsineachsociety.Showingthatthesystemgeneratessubstantialcrimeorcorruptioncontrolbenefitsoughttobehighontheagendaoftherelevantpolicy-makingcommunity.

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Notes:(1).MarkHallerprovidedhelpfulclarifyingcommentsonthismatter.

(2).InMarch2010,WachoviasettledwhatwasthenthebiggestactionbroughttodateundertheUSBankSecrecyActof1970(http://www.justice.gov/usao/fls/PressReleases/2010/100317-02.html).Itpaidfederalauthorities$110minforfeiture,forallowingahugevolumeoftransactionslaterprovedtobeconnectedtodrugsmugglinganda$50mfineforfailingtomonitorcashusedtoship22tonsofcocainedespitebeingwarnedbyoneofitsmoney-launderingreportingofficers.TheDeferredProsecutionAgreementplacedWachoviaonprobationforoneyear,anditwaslatertakenoverbyWellsFargo.In2012,HSBCagreedtopayafineof$1.9billionforalargevolumeofmoney-launderingoffensesconnectedtodrugsandothercrimes(Senate2012);whileitescapedprosecution,thebankwassubjecttomajorreformsofitsanti-launderingeffortsworldwide(http://www.justice.gov/opa/pr/2012/December/12-crm-1478.html).Prosecutionsofotherbankshavefollowed.

(3).Some27internationalandregionalorganizationsincludingtheIMF,UN,andWorldBankareassociatemembersorobserversoftheFATFandparticipateinitswork.Seehttp://www.fatf-gafi.org/pages/aboutus/membersandobservers/

(4).Theschemetakesadvantageofthefactthatvalueaddedtax(VAT)isrebatediftheitemisexportedtoanothercountry.Salesaremadetodummyforeigncorporationsandrebatesarethenfraudulentlyclaimed,whilecompaniesowingtheVATtothenationaltaxauthoritiestypicallygobustandcannotpaytheirbills.Thedifficultyisoftenprovingtheconnectionbetweenthecompanies/managers,sincetheyclaimtobeindependentofeachother.SeeFATF(2007)foradescriptionofthescheme.Thisisafarfromtrivialphenomenon,costingseveralbilliondollarsworthoflossesannuallyandforcingarestatementoftheUKbalanceofpayments(Levietal.2007):Thefactthatrelativelylittleisknownaboutwhathappenstothemoneyis,therefore,interestinginitself.

(5).ItisimportanttofocusongrossrevenuesbecauseestimatingnetrevenuesrequiresinformationaboutwhatDTOspaytoproduceorpurchasethedrugs,anddataarefartoopoortopermitthisproperly.

(6).Often,suchactscouldbelabeledascorruption,embezzlement,andtheftsincethetermsarenotmutuallyexclusive.

(7).Forasoundlegalandinstitutionalhistoryofthesechanges,seeGilmore2011.Foramoresocio-legalhistory,seeLevi2007andAlldridge2008.

(8).ThesearesupportedbyinterviewswithUKlawenforcementpersonnel,20022005.

(9).ThisisnotuniquelyaproblemforthecountriesoftheSouth,especiallyAfrica:ScandalsengulfedPrimeMinisterBerlusconi(Italy)andPresidentChirac(France)whileinoffice,aswellasatamoremodestlevelformerGermanchancellorKohl.Manyofthesescandalsinvolvecampaignfinanceinboththewealthiernationsaswellassomepoorercountries.

MichaelLeviMichaelLeviisProfessorofCriminologyintheSchoolofSocialSciencesatCardiffUniversity,Wales.

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