Follow-the-Money Methods of
Crime Control: An Appraisal
by
R. T. Naylor
Professor of Economics
McGill University
Montreal
Follow-the-Money Strategy:
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Makes big changes in criminal law
Revolutionizes law enforcement methods
Conscripts private financial sector
Transforms client-institution relations
Complicates international relations
Follow the Money Strategy:
The Basic Questions
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5.
What is it?
Why was it adopted?
How does it operate?
Does it work?
What kind of “collateral damage”
1.What: The U.S. Model
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New crime “money laundering”
New reporting requirements
Facilitate freeze and forfeit
“Proceeds of crime ” to the police
Operates nationally and internationally
Traditional Financial
Investigations
1) Reactive
2) Case-by-case
3) Usually target predatory crimes
4) Seeking evidence against perpetrators
5) And/or restitution to victims
Modern Financial Investigations
1) Proactive (including stings)
2) Targets criminal economy
3) Usually market-based crimes
4) Object to seize “proceeds”
5) To punish and deter
2. Why Was It Adopted?
a.
b.
c.
d.
e.
f.
Logic of deterrence
Presumed sums
Danger of “cartels”
Threat of infiltration
View of banker
Secret agendas?
a. The Logic of Deterrence
Taking away the money removes:
- motive to commit new crimes
- means to commit new crimes
- capacity to infiltrate the legal economy
Motives and Mores? A Changing
View of Crime
• Old View:
Focus social context
• New View:
Criminal as cost-benefit
calculator
• Other motives ignored or downplayed:
- Peer pressure
- Lack of alternatives?
- Pyscho-social disorders
- Stupidity of certain criminal laws
b. A World Awash
With
Criminal Money?
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World drug trade: $500 billion per annum!
US share: $100-150 billion!
Laundered Money = 2-5% World GDP!
Meyer Lansky’s assets: $300 million
John Gotti’s annual income: $350 million!
Pablo Escobar’s fortune: $2-14 billion!
World GCP: $1.2 trillion!
Criminal Income:
What is Really Known About…
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Amount?
Trend?
Distribution?
% Profit?
% Laundered?
% Legally Invested?
Impact?
Existing Scientific Knowledge
First Law of Crimodynamics
“You do not have to take
the square root of a
negative sum to arrive at
a perfectly imaginary
number.”
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c. The Criminal “Firm” (I)
The Harvard MBA Model
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Large organizations
Hierarchical structures
Long term planning
Huge profits
Profits concentrated
Infiltrate legal economy
Corrupt legal markets
The Criminal “Firm" (II)
The Rotary Club Model
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Individuals and small groups
Arms length, ad hoc relations
Opportunistic
Modest profits
Profits widely shared
Cash mainly on street
Rare and usually benign infiltration
d. Threat of Criminal Infiltration
“The business community is so infected by
drug money we can’t handle it with law
enforcement tools alone.” Director, U.S.
National Drug Intelligence Center
“Approximativement 90% des
clubs, bars et brasseries sont
contrôlés par le crime organisé.”
Montreal Police Study
Why Criminal Money Enters the
Legal Economy
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Long term security
Inheritance
Reducing risk to income
Tax cover
Supporting rackets
Applying criminal methods to extract profit
e. Role of the Banker
Banker
Police
Client
f. A Hidden Agenda?
• A.G. Official: “The potential in this area is really
unlimited. My guess is that, with adequate forfeiture laws,
we could….”
• Senator: “We could balance the budget?”
• A.G. Official: “There clearly would be millions and
hundreds of millions available”
Senate Judiciary Committee 1982
3. How: Changing Relations of
Banker, Client and Police:
OLD
NEW
Client
Police
Police Client
Banker
Banker
Information Flows and
Client Relations
Report
CTR
STR
KYC
Banker Information Client
passive objective
aware
(conduit)
reactive subjective aware (?) but
(informant)
uninformed
proactive subjective unaware &
(private eye?)
uninformed
The Financial Analysis Centre
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Customer
Bank clerk
Bank manager
Bank security
Financial centre
Bank clerk
Bank manager
Bank security
Financial centre
Tax authority
Police
Intelligence agency
Financial Institution
Vulnerability
• Criminal charges - fines
- suspension of charter
- “death penalty”
• Civil penalties - fines
- forfeitures
• Social fallout - flight of clients
- civil suits
- falling share values
4. Do New Reporting Requirements
Work?:
• deluge of information
self-defeating
• institutions in
conflict of interests
• premium on
rumour, bias, stereotype
• out of sync with
modern banking
The CTR
Defeated by:
• Evasion techniques
• Sheer mass
• Good business cover
The STR
Problems:
• training of front-line staff
• lack of objective standards
• propensity to over-reporting
• changing nature of banking
-- centralized deposit processing
-- spread of electronic banking
KYC Rules
• changing nature of banking
• need to “know” - client
- client’s clients
- client’s client’s clients etc.
• what are we supposed to know?!!!??
5. Collateral Damage?
The U.S. Model
a. Regulatory infractions = crimes
b. Civil forfeitures
c. Seized assets to police
d. Imposed on world
e. Applied to “terrorist finance”
a. Money Laundering as a Crime
• contrived offense?
- shifts focus from underlying crime
- creates two classes of citizens
• unnecessary offense?
- use of conspiracy or aiding & abetting
- expand definition of predicate offense
- fiscal procedures eliminate profit
b. Civil
Forfeitures
• taint of criminality
without trial
• reverses burden
of proof
• collateral damage
to innocents
• abuse of concept of instrumentality
• creates professional informants
c. Financing Law Enforcement
from Forfeitures
• community control
subverted
• budgets detached from
logistical needs
• focus shifted from
violent to rich offenders
• corruption encouraged
d. Externalizing the U.S. Model
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institutional conditions differ
legal traditions differ
social priorities differ
no proof it actually works
e. Attacking Terrorist Finance?
• Removes motive? - No
• Removes means? - Marginal
- small sums required
most legal in origin
the rest from petty crime
• Key Asset - Determination
Can’t Be Frozen in a Bank Account
Follow-the-Money Methods:
Another Faith-Based Initiative?
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Dubious logic
Bank-client conflict
Information overload
Degradation of civil rights
More international disputes
For no proveable result