Follow-the-Money Methods of Crime Control: An Appraisal by R. T. Naylor Professor of Economics McGill University Montreal
Follow-the-Money Strategy: 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 1.What is it? 2.Why was it adopted? 3.How does it operate? 4.Does it work? 5.What kind of collateral damage
1.What: The U.S. Model 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.Logic of deterrence b.Presumed sums c.Danger of cartels d.Threat of infiltration e.View of banker f.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? World drug trade: $500 billion per annum! US share: $100-150 billion! Laundered Money = 2-5% World GDP! Meyer Lanskys assets: $300 million John Gottis annual income: $350 million! Pablo Escobars fortune: $2-14 billion! World GCP: $1.2 trillion!
Criminal Income: What is Really Known About… Amount? Trend? Distribution? % Profit? % Laundered? % Legally Invested? Impact?
First Law of Crimodynamics You do not have to take the square root of a negative sum to arrive at a perfectly imaginary number..
c. The Criminal Firm (I) The Harvard MBA Model 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 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 cant 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 Long term security Inheritance Reducing risk to income Tax cover Supporting rackets Applying criminal methods to extract profit
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
Information Flows and Client Relations Report Banker Information Client CTR passive objective aware (conduit) STR reactive subjective aware (?) but (informant) uninformed KYC proactive subjective unaware & (private eye?) uninformed
The Financial Analysis Centre Customer Bank clerk Bank clerk Bank manager Bank manager Bank security Bank security Financial centre 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 - clients clients - clients clients 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 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 Cant Be Frozen in a Bank Account
Follow-the-Money Methods: Another Faith-Based Initiative? Dubious logic Bank-client conflict Information overload Degradation of civil rights More international disputes For no proveable result