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John Walker Crime Trends Analysis Estimating the Illicit Flows – Asking the Right Questions John Walker CEO, John Walker Crime Trends Analysis Principal.

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Presentation on theme: "John Walker Crime Trends Analysis Estimating the Illicit Flows – Asking the Right Questions John Walker CEO, John Walker Crime Trends Analysis Principal."— Presentation transcript:

1 John Walker Crime Trends Analysis Estimating the Illicit Flows – Asking the Right Questions John Walker CEO, John Walker Crime Trends Analysis Principal Research Fellow, Centre for Transnational Crime Prevention, University of Wollongong, Australia

2 John Walker Crime Trends Analysis Illicit Financial Flows Put simply, Illicit Financial Flows from Developing Countries consist of quantities of money derived from crimes committed in those countries. Put simply, Illicit Financial Flows from Developing Countries consist of quantities of money derived from crimes committed in those countries. Official definitions of crime vary between countries, although there is consensus about most forms of crime. Official definitions of crime vary between countries, although there is consensus about most forms of crime. Contentious areas include business practices considered as fraudulent in some countries but not in others (e.g. payments of bribes and false invoicing), and some areas of excise avoidance (e.g. cigarette smuggling). Contentious areas include business practices considered as fraudulent in some countries but not in others (e.g. payments of bribes and false invoicing), and some areas of excise avoidance (e.g. cigarette smuggling). This paper takes a broad view that acts that would be crimes or illegal business practices in countries with sophisticated legal systems must also be regarded as crimes or illegal business practices in developing countries. This paper takes a broad view that acts that would be crimes or illegal business practices in countries with sophisticated legal systems must also be regarded as crimes or illegal business practices in developing countries. Illicit Financial Flows from Developing Countries are, therefore, part of the broader issue of transnational crime and moneylaundering. Illicit Financial Flows from Developing Countries are, therefore, part of the broader issue of transnational crime and moneylaundering.

3 John Walker Crime Trends Analysis Asking the Right Questions about Transnational Crime and Moneylaundering It is difficult to explain the importance of a problem without quantifying it. (Neil Jensen, Director, AUSTRAC, 2005) It is difficult to explain the importance of a problem without quantifying it. (Neil Jensen, Director, AUSTRAC, 2005) FinCens overriding objective under the strategic plan is the development of a viable model for measuring the magnitude of moneylaundering. No assessment of an agencys or governments anti-moneylaundering programs can be a true gauge of its effectiveness, unless it is based on an understanding of the breadth of the problem being addressed. (FinCEN Strategic Plan, 2000) FinCens overriding objective under the strategic plan is the development of a viable model for measuring the magnitude of moneylaundering. No assessment of an agencys or governments anti-moneylaundering programs can be a true gauge of its effectiveness, unless it is based on an understanding of the breadth of the problem being addressed. (FinCEN Strategic Plan, 2000) The government are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root, and prepare wonderful diagrams. But you must never forget that every one of these figures comes, in the first instance, from the village watchman, who just puts down what he damn pleases. (English economist Sir Josiah Stamp, 1929) The government are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root, and prepare wonderful diagrams. But you must never forget that every one of these figures comes, in the first instance, from the village watchman, who just puts down what he damn pleases. (English economist Sir Josiah Stamp, 1929) "Striving for perfection is the greatest stopper there is... It's your excuse to yourself for not doing anything. Instead, strive for excellence, doing your best." (British actor, Sir Laurence Olivier) "Striving for perfection is the greatest stopper there is... It's your excuse to yourself for not doing anything. Instead, strive for excellence, doing your best." (British actor, Sir Laurence Olivier) …..blending dodgy data and heroic assumption and turning them into something particularly useful (Dutch criminologist, Max Kommer) …..blending dodgy data and heroic assumption and turning them into something particularly useful (Dutch criminologist, Max Kommer) Accuracy is meaningless – credibility is everything. (Me) Accuracy is meaningless – credibility is everything. (Me)

4 John Walker Crime Trends Analysis The Right Questions about Transnational Crime and Moneylaundering How Much Crime is there ? How Much Profit is there in the Crime ? What Proportion of the Profits is Laundered ? How does it impact on Society ? Where does it go for Laundering ?

5 John Walker Crime Trends Analysis These are Very important Questions $ 1. How much crime is there around the world, and where is it based? $ 2. How big are crime profits around the world, and where are they generated? $ 3. What factors make crime more profitable in some countries than others? $ 4. What factors make some countries more attractive to ML than others? $ 5. How much money is laundered each year around the world? $ 6. How much harm is caused by crime and ML, and who suffers most?

6 John Walker Crime Trends Analysis So who is asking them? Up to the 1980s Most countries compile crime statistics. Only measures recorded crime. Accuracy doubts; rigging by police, politicians; counting rules. Most countries compile crime statistics. Only measures recorded crime. Accuracy doubts; rigging by police, politicians; counting rules. Interpol collects crime data from member countries – no consistency, no analysis, not even computerised until the late 1990s. Only measures recorded crime. Interpol collects crime data from member countries – no consistency, no analysis, not even computerised until the late 1990s. Only measures recorded crime. Crime Victims Surveys developed in the 1970s (USA, UK) to capture data on a common set of definitions and on unrecorded crime. Limited crime types, costly, political risk, little interest in other countries. Crime Victims Surveys developed in the 1970s (USA, UK) to capture data on a common set of definitions and on unrecorded crime. Limited crime types, costly, political risk, little interest in other countries. In the 1980s, the U.N. attempted to compile international crime and justice statistics on a common set of definitions – very problematic, poor response, little consistency, poorly resourced. In the 1980s, the U.N. attempted to compile international crime and justice statistics on a common set of definitions – very problematic, poor response, little consistency, poorly resourced. Transnational crime analysis mostly country-specific, offence specific or confined to studies of mafia, yakuza, drug gangs etc Transnational crime analysis mostly country-specific, offence specific or confined to studies of mafia, yakuza, drug gangs etc Transparency International experimenting with corruption and bribery indexes. Transparency International experimenting with corruption and bribery indexes.

7 John Walker Crime Trends Analysis Measuring the Risks posed by Transnational Crime and Moneylaundering 1988 United Nations Convention against illicit traffic in narcotic drugs and psychotropic substances; United Nations Convention against illicit traffic in narcotic drugs and psychotropic substances; EU decides to conduct Europe-wide crime survey. Australia, USA, Canada join in. Questions include did you report it to police? and how much did it cost you? EU decides to conduct Europe-wide crime survey. Australia, USA, Canada join in. Questions include did you report it to police? and how much did it cost you?1989 FATF Working Group on Statistics and Methods, Narcotics ML – Assessment of the Scale of the Problem notes the lack of reliable data to measure ML. FATF Working Group on Statistics and Methods, Narcotics ML – Assessment of the Scale of the Problem notes the lack of reliable data to measure ML.1990 EU Convention on laundering, search, seizure and confiscation of the Proceeds from Crime. EU Convention on laundering, search, seizure and confiscation of the Proceeds from Crime. FATFs Forty Recommendations on the prevention of money laundering. FATFs Forty Recommendations on the prevention of money laundering. U.N. Rome conference agrees to pilot Business Crime survey, including reporting and costs questions. Australia, UK, Netherlands, South Africa. U.N. Rome conference agrees to pilot Business Crime survey, including reporting and costs questions. Australia, UK, Netherlands, South Africa.1991 EU Directive on prevention of the use of the financial system for purpose of money laundering. EU Directive on prevention of the use of the financial system for purpose of money laundering.1992 Estimates of the Costs of Crime in Australia – a model for the U.N. Estimates of the Costs of Crime in Australia – a model for the U.N.1995 Estimates of the Extent of money laundering in Australia – a model for the FATF. Estimates of the Extent of money laundering in Australia – a model for the FATF UN Office on Drugs and Crime UN Office on Drugs and Crime Refinement of International Crime and Justice Surveys, International Crime Victims Surveys, Business Crime Surveys Refinement of International Crime and Justice Surveys, International Crime Victims Surveys, Business Crime Surveys Global Report on Crime and Justice attempts to bring together data on economics of transnational crime Global Report on Crime and Justice attempts to bring together data on economics of transnational crime Attempts to survey the characteristics of organised crime groups in different countries Attempts to survey the characteristics of organised crime groups in different countries

8 John Walker Crime Trends Analysis Measuring the Risks posed by Transnational Crime and Moneylaundering June 1997 FATF creates Ad Hoc Group on Estimating the Magnitude of Money Laundering FATF creates Ad Hoc Group on Estimating the Magnitude of Money Laundering Sept 1997 Ad Hoc Groups Chair agrees to draft a paper to suggest methodologies to measure ML – calls for papers from member countries. Ad Hoc Groups Chair agrees to draft a paper to suggest methodologies to measure ML – calls for papers from member countries. Feb 1998 Interim report from Chairman Interim report from Chairman Identifies AUSTRAC study as a landmark study, examines four macro-economic methodologies identified by FINCEN-sponsored studies, and concludes that future studies should be Identifies AUSTRAC study as a landmark study, examines four macro-economic methodologies identified by FINCEN-sponsored studies, and concludes that future studies should be [a] confined to FATF members, [b] focused on a wide range of crimes that generate criminal proceeds. [a] confined to FATF members, [b] focused on a wide range of crimes that generate criminal proceeds. Dec 1998 FATF International Meeting of Experts on Estimating the magnitude of ML FATF International Meeting of Experts on Estimating the magnitude of ML Disappointing level of participation Disappointing level of participation Most countries contributions focused on official statistics Most countries contributions focused on official statistics Discussion of relationship between underground economic activity and ML Discussion of relationship between underground economic activity and ML Switzerland attempts to have the work focus on ML from drug crimes, arguing that crimes involving theft, fraud and corruption are regarded as simply transfers of wealth. Switzerland attempts to have the work focus on ML from drug crimes, arguing that crimes involving theft, fraud and corruption are regarded as simply transfers of wealth. Finland paper focuses on fraud. Finland paper focuses on fraud. Australian paper presents complete methodology. Australian paper presents complete methodology. Conclusions: Conclusions: Need for greater participation from all FATF member countries Need for greater participation from all FATF member countries Initial focus to be on estimating the supply and demand for illegal drugs Initial focus to be on estimating the supply and demand for illegal drugs

9 John Walker Crime Trends Analysis The Rich Countries Club fails to Deliver FATF efforts to estimate the magnitude of ML failed on 5 key counts: FATF efforts to estimate the magnitude of ML failed on 5 key counts: Focus on incomplete range of crime types – drugs only Focus on incomplete range of crime types – drugs only Focus on incomplete range of illicit drugs - Cocaine, Marihuana, Heroin only Focus on incomplete range of illicit drugs - Cocaine, Marihuana, Heroin only Focus on incomplete range of countries - rich north-Atlantic countries only Focus on incomplete range of countries - rich north-Atlantic countries only Focus on statistical purity Focus on statistical purity Avoidance of proceeds of crime logic Avoidance of proceeds of crime logic Intended to fail………….? Intended to fail………….? Need to provoke more constructive discussion. Need to provoke more constructive discussion.

10 John Walker Crime Trends Analysis What next? Need to provoke discussion, in the absence of any real progress within the UN or FATF. Need to provoke discussion, in the absence of any real progress within the UN or FATF. Can the Australian model be used for other countries around the world? Can the Australian model be used for other countries around the world?

11 John Walker Crime Trends Analysis TE = Total Economy TC = Total Costs of Crime TP = Total Proceeds of Crime KP = Known Proceeds of Crime TM = Total Money Laundering Costs of crime are part of the Economy. Proceeds of crime are a subset of costs. Some proceeds of crime are laundered, but some laundered money also comes from outside the economy. Terrorist finance may not have criminal origins and is not necessarily laundered. Known components are very small subsets of their respective estimated totals. [Not to scale] The 1996 Australian Model Identifies Upper and Lower Bounds KM = Known Money Laundering TT = Total Terrorist Financing KT = Known Terrorist Financing Incoming Money Laundering

12 John Walker Crime Trends Analysis Estimates of ML in and through Australia (1996) Estimated Proceeds of Crime Implied ML Estimates for Australia ($mill) Crime Category/MinMid1Mid2Max Homicide Max $2.75m<1 Robbery & Extortion $74.4m< Other Violence Min $3.31m<1 Breaking and Entering $714.4m Insurance Fraud $1530m Business Fraud $375 - $900m Other Fraud $750m Motor Vehicle Thefts $533.6m Other Thefts $ Environmental Crime $5.21-<1 28 Illicit Drugs $1500m Total $ $7661m Estimates based on Costs of Crime and Expert Survey

13 John Walker Crime Trends Analysis Estimates based on Costs of Crime and Expert Survey compared to: Estimates based on Proceeds of Crime Monitoring Estimates Based on Understatement of Income Data Estimates Based on Suspect Financial Transactions Estimates Based on Flows of Finance through Australian Banks and International Transfers Importance of Triangulating with Other Data

14 John Walker Crime Trends Analysis ML P.o.C. Costs of Crime Overseas Economy Australian Money laundered in Australia The Australian Economy $380 billion Costs of Crime $11-21 billion ML $1-4.5 billion Australian Money laundered overseas $5.5 billion? Overseas Money laundered in Australia $7.7 billion? Proceeds of Crime $6-8 billion $US20,000 billion Overseas Money laundered overseas $US billion? Estimates of ML in and through Australia (1996)

15 John Walker Crime Trends Analysis Just do it…..! Is there enough basic data to construct a global model? Is there enough basic data to construct a global model?

16 John Walker Crime Trends Analysis How much Crime around the World? U.N. Crime & Justice Survey

17 John Walker Crime Trends Analysis Triangulate with other Data Source: …Banks and Businesses rarely report crime, because they think it will adversely affect their image

18 John Walker Crime Trends Analysis Measuring the Proceeds of Crime Crime in Australia costs $A11-21 bn, and profits are $A6-8 bn per year (John Walker Crime Trends Analysis, 1996) "Illegal grey economy in Czech Republic about 10% of GDP (Hospodárské Noviny, 2 Apr 98) "$30bill illegal drugs reach the US from Mexico each year" (Chicago Tribune, 25 Mar 98) "Shadow business in Russia's economy may range between 25% -50%" (TASS 17 Mar 98) "UK black economy between 7-13% of GDP" (Sunday Telegraph, 29 Mar 98) "$50-250bn illegally moved from Russia to Western banks in 5 years" (Russian Interior & Economics Ministries, April 99) "Illicit drug sales (in the USA) generated up to $48bn a year in profits" (Congressional hearing, April 99) "Illegal profits total 2-5% of world GDP or $1-3trillion" (Dow Jones News, 12 Mar 98)

19 John Walker Crime Trends Analysis About Criminal Income Crime generates income in all countries Crime generates income in all countries Income from crime depends on the prevalence of different types of crime and the average proceeds per crime Income from crime depends on the prevalence of different types of crime and the average proceeds per crime Sophisticated and organised crimes generate more income per crime than simpler and individual crimes Sophisticated and organised crimes generate more income per crime than simpler and individual crimes Crimes that trade on forbidden goods like drugs, arms, pornography, slave labour, copyrights, migration visas etc, are particularly profitable Crimes that trade on forbidden goods like drugs, arms, pornography, slave labour, copyrights, migration visas etc, are particularly profitable In general, richer countries generate more income per crime than poor ones In general, richer countries generate more income per crime than poor ones Income inequality or corruption may support a rich criminal class even in a poor country Income inequality or corruption may support a rich criminal class even in a poor country Not all criminal income is laundered - Even criminals have to eat, sleep, drive fast cars, and pay accountants and lawyers Not all criminal income is laundered - Even criminals have to eat, sleep, drive fast cars, and pay accountants and lawyers If you like algebra Total Criminal Profits to be Laundered = Total Criminal Profits to be Laundered = Total Population times GNP/Capita times: 700*(TI Corruption Index)*(Bribery+Embezzlement+Fraud rates) + 700*(TI Corruption Index)*(Bribery+Embezzlement+Fraud rates) + 500*Drug Trafficking rate + 100*Theft rate + 65*Burglary rate + 500*Drug Trafficking rate + 100*Theft rate + 65*Burglary rate + 50* Drug Possession rate + 20*Robbery rate + 0.2*Homicide rate + 50* Drug Possession rate + 20*Robbery rate + 0.2*Homicide rate + 0.1*(Assault rate + Sex Assault rate) 0.1*(Assault rate + Sex Assault rate)

20 John Walker Crime Trends Analysis About Corruption

21 John Walker Crime Trends Analysis Resulting Estimates of Money Generation by Crime Type by World Region $US bill/yr Note: the big numbers come from fraud not drugs

22 John Walker Crime Trends Analysis Assumptions about Laundering Processes Not all laundered money leaves the country Not all laundered money leaves the country Some countries' finance sectors provide perfect cover for local launderers Some countries' finance sectors provide perfect cover for local launderers Countries where official corruption is common provide benign environments for launderers Countries where official corruption is common provide benign environments for launderers Laundered money seeks countries with attractive banking regimes Laundered money seeks countries with attractive banking regimes Tax Havens Tax Havens "No questions asked" banking "No questions asked" banking Countries with stable economies and low risk Countries with stable economies and low risk Trading, ethnic and linguistic links will determine launderers' preferred destinations Trading, ethnic and linguistic links will determine launderers' preferred destinations Other things being equal, "hot" money will be attracted to havens with trading, ethnic, linguistic or geographic links to the generating country Other things being equal, "hot" money will be attracted to havens with trading, ethnic, linguistic or geographic links to the generating country If you like algebra Attractiveness to money launderers = Attractiveness to money launderers = [GNP per capita] *[3*BankSecrecy+GovAttitude+SWIFTmember-3*Conflict-Corruption +15] [GNP per capita] *[3*BankSecrecy+GovAttitude+SWIFTmember-3*Conflict-Corruption +15] Where: GNP per capita is measured in US$, BankSecrecy is a scale from 0 (no secrecy laws) to 5 (bank secrecy laws enforced), GovAttitude is a scale from 0 (government anti-laundering) to 4 (tolerant of laundering), SWIFTmember is 0 for non-member countries and 1 for members of the SWIFT international fund transfer network, Conflict is a scale from 0 (no conflict situation) to 4 (conflict situation exists), Where: GNP per capita is measured in US$, BankSecrecy is a scale from 0 (no secrecy laws) to 5 (bank secrecy laws enforced), GovAttitude is a scale from 0 (government anti-laundering) to 4 (tolerant of laundering), SWIFTmember is 0 for non-member countries and 1 for members of the SWIFT international fund transfer network, Conflict is a scale from 0 (no conflict situation) to 4 (conflict situation exists), Corruption is the modified Transparency International index (1=low, 5=high corruption), And the constant '15' ensures that all scores are greater than zero. Corruption is the modified Transparency International index (1=low, 5=high corruption), And the constant '15' ensures that all scores are greater than zero.

23 John Walker Crime Trends Analysis Model Index: Most Attractive to Launderers COUNTRYScore Luxembourg686 United States634 Switzerland617 Cayman Islands600 Austria497 Netherlands476 Liechtenstein466 Vatican City449 United Kingdom439 Singapore429 Hong Kong397 Ireland356 Bermuda313 Bahamas, Andorra, Brunei, Norway, Iceland, Canada Portugal, Denmark, Sweden, Monaco, Japan, Finland, Germany, New Zealand, Australia, Belgium Bahrain, Qatar, Italy, Taiwan, United Arab Emirates, Barbados, Malta, France, Cyprus Gibraltar, Azores (Spain), Canary Islands, Greenland, Belarus, Spain, Israel

24 John Walker Crime Trends Analysis Triangulation: Attractiveness to ML: Service Exports and Incoming Money Laundering

25 John Walker Crime Trends Analysis Triangulation: Attractiveness to ML: Banking Risk Analysis TRANSCRIME Euroshore project 1. Money laundering punished in your criminal system? 2. Legislation provides for a list of crimes as predicate offences? 3. Predicate offences cover all serious crimes? 4. Predicate offences cover all crimes? 5. Provision allowing confiscation of assets for an ML offence? 6. Special investigative bodies or investigations in relation to ML offences? 1. Is there an anti-ML law in the jurisdiction? 2. Banks covered by the anti-ML law? 3. Other financial institutions covered by the anti-ML law? 4. Non-financial institutions covered by the anti-ML law? 5. Other professions carrying out a financial activity covered by the anti-ML law? 6. ID requirements for the institutions covered by the anti-money law? 7. Suspicious transactions reporting? 8. Central authority (for instance, an FIU) for the collection of suspicious transactions reports? 9. Co-operation between banks or other financial institutions and police authorities? 1. Prohibition to open a bank account without ID of the beneficial owner? 2. Limits to bank secrecy in case of criminal investigation and prosecution? 1. Minimum share capital required for limited liability companies? 2. Prohibition on bearer shares in limited liability companies? 3. Prohibition on legal entities as directors of limited liability companies? 4. Registered office exists for limited liability companies? 5. Any form of annual auditing (at least internal) for limited liability companies? 6. Shareholder register exists for limited liability companies? 1. Extradition (at least of foreigners) for ML offences? 2. Assistance to foreign law enforcement agencies in investigation of ML cases? 3. Law enforcement may respond to a request from a foreign country for financial records? 4. Provision allowing the sharing of confiscated assets for ML offences? 5. The 1988 UN Convention been ratified? CRIMINAL LAW ADMINISTRATIVE REGULATIONS BANKING LAW COMPANY LAW INTERNATIONAL CO-OPERATION PROVISIONS Transcrime & Walker Attractiveness Indices

26 John Walker Crime Trends Analysis …Putting all this information together... RankOriginAmount ($Usmill/yr)% of Total 1United States % 2Italy % 3Russia % 4China % 5Germany % 6France % 7Romania % 8Canada % 9United Kingdom % 10Hong Kong % Models Top 10 Origins of Laundered Money

27 John Walker Crime Trends Analysis Models Top 10 Flows of Laundered Money RankOriginDestinationAmount ($USmill/yr)% of Total 1United StatesUnited States % 2United StatesCayman Islands % 3RussiaRussia % 4ItalyItaly % 5ChinaChina % 6RomaniaRomania % 7United StatesCanada % 8United StatesBahamas % 9FranceFrance % 10ItalyVatican City %

28 John Walker Crime Trends Analysis Models Top 10 ML Destinations RankDestinationAmount ($Usmill/yr)% of Total 1United States % 2Cayman Islands % 3Russia % 4Italy % 5China % 6Romania % 7Canada % 8Vatican City % 9Luxembourg % 10France %

29 John Walker Crime Trends Analysis Model results compared to Press reports "Illegal grey economy in Czech Republic about 10% of GDP (Hospodárské Noviny, 2 Apr 98) Model estimates 14.8% of GDP "$30bill illegal drugs reach the US from Mexico each year" (Chicago Tribune, 25 Mar 98) Model estimates $26bill laundered in Mexico each year More than $2bill is laundered in Poland each year" (National Bank of Poland, reported on 15 Apr 98) Model estimates $3bill laundered in Poland each year "Share of shadow business in Russia's economy may range between 25% -50%" (TASS 17 Mar 98) Model estimates money laundering 15% of Russian GDP "Switzerland is implicated in $500bill of money laundering each year" (Swiss Finance Ministry, reported on 26 Mar 98) Model estimates $59bill - including only "first-stage" laundering. "UK black economy between 7-13% of GDP" (Sunday Telegraph, 29 Mar 98) Model estimates total money laundering 7.4% of UK GDP "$50-250bn illegally moved from Russia to Western banks in 5 years" (Russian Interior & Economics Ministries, April 99) Model estimates $28bn per year from Russia to western banks "Money Laundering in Belarus about 30% of GDP" (European Humanities University, 20 Nov 98) Model estimates 22.2% of Belarus GDP is laundered money "Illicit funds generated and laundered in Canada per year $5-17 bn" (Canadian Solicitor General, Sep 1998) Model estimates $22bill generated and laundered in Canada each year, but also that $63bn of US crime funds laundered in Canada. "Approximately $2.7bn are laundered in Colombia each year" (BBC Monitoring Service, Nov 98) Model estimates $2.1bn laundered in Colombia every year "Illicit drug sales (in the USA) generated up to 48bn a year in profits for laundering" (Congressional hearing, April 99) Model estimates $34.6bn generated and laundered by illicit drug trade in USA "Illegal profits total 2-5% of world GDP or $1-3trillion" (Dow Jones News, 12 Mar 98) Model estimates total global money laundering $2.85 trillion After late 1999, it became apparent that most published estimates were based on my model

30 John Walker Crime Trends Analysis Triangulation: Shadow Economy, Crime and Money Laundering Excess shadow economy might be an indicator of the proceeds of crime. Excess shadow economy might be an indicator of the proceeds of crime. Source: F. Schneider and J. Walker. Poor countries with low % shadow economies are mostly command economies All rich countries have low % shadow economies Many of the richest countries with high % shadow economies have significant transnational crime, illicit drug production and corrupt business practices. On this basis, the shadow economy in Australia would produce around AU$20 billion per year, some of which laundered. On this basis, the shadow economy in Australia would produce around AU$20 billion per year, some of which laundered.

31 John Walker Crime Trends Analysis Triangulation: Cross-border flow Analysis (Raymond Baker, 2005) Global Flows Low ($US bn) High ($US bn) Drugs$120$200 Counterfeit goods $80$120 Counterfeit currency $3$3 Human trafficking $12$15 Illegal arms trade $6$10 Smuggling$60$100 Racketeering$50$100 Crime Subtotal $331$549 Mispricing$200$250 Abusive transfer pricing $300$500 Fake transactions $200$250 Commercial Subtotal $700$1000 Corruption$30$50 Grand Total $1061$1599 From Capitalisms Achilles Heel, Baker Based on a review of studies of transnational crime

32 John Walker Crime Trends Analysis Triangulation: the Economics of the Global Illicit Drugs Trades By 2005 UNODC researchers were convinced they had sufficient data in their Annual Reports Questionnaires to develop a global model of the illicit drugs market. By 2005 UNODC researchers were convinced they had sufficient data in their Annual Reports Questionnaires to develop a global model of the illicit drugs market. ARQs received from most countries around the world – all continents; rich/poor; developed/less developed countries. ARQs received from most countries around the world – all continents; rich/poor; developed/less developed countries. We developed mechanisms for testing the credibility of ARQ data from different countries by comparing them with other ARQ data and other studies. We developed mechanisms for testing the credibility of ARQ data from different countries by comparing them with other ARQ data and other studies. We developed mechanisms for filling the gaps in the data, by classifying different countries and interpolating. We developed mechanisms for filling the gaps in the data, by classifying different countries and interpolating. We identified the economic logic of the illicit drugs trades. We identified the economic logic of the illicit drugs trades. We identified ways to deduce the trade routes of the illicit drugs trades, by comparing mentions, and developed this into a tracking model that can explain corruption levels in transit countries. We identified ways to deduce the trade routes of the illicit drugs trades, by comparing mentions, and developed this into a tracking model that can explain corruption levels in transit countries.

33 John Walker Crime Trends Analysis The Economics of the Illicit Drugs Trades

34 John Walker Crime Trends Analysis General Conclusions from the Model Global money laundering may be as much as $US3 trillion per annum Global money laundering may be as much as $US3 trillion per annum Business Fraud exceeds illicit drugs as a source of laundered money Business Fraud exceeds illicit drugs as a source of laundered money Attacking the economics of crime can be an effective transnational crime prevention strategy. Attacking the economics of crime can be an effective transnational crime prevention strategy. Economists can play a valuable role in monitoring and combating transnational crime and money laundering. Economists can play a valuable role in monitoring and combating transnational crime and money laundering. Does AML reduce crime? – Probably not by much. Does AML reduce crime? – Probably not by much. Does AML reduce ML? – Probably not much, but it diverts it from the finance sectors to more costly avenues. Does AML reduce ML? – Probably not much, but it diverts it from the finance sectors to more costly avenues. Does AML help catch criminals? – Probably only a few, but sometimes very important ones. Does AML help catch criminals? – Probably only a few, but sometimes very important ones. Does AML protect the economy? – Probably a massive boost to the economy by ensuring that the finance sector is seen as honest, wary and supervised. Does AML protect the economy? – Probably a massive boost to the economy by ensuring that the finance sector is seen as honest, wary and supervised.

35 John Walker Crime Trends Analysis Model Estimates of ML Flows from Developing Countries Region…………………………………………………………………………………….Total US$ Million Caribbean6,452 Central America2,525 Central Asia and Transcaucasian countries15,201 East Africa3,559 East and South-East Asia (Excl. Brunei, Japan, Singapore, Rep of Korea)444,536 East Europe176,963 Near and Middle East /South-West Asia (Excl Israel)12,213 North Africa4,178 Oceania (Exc Australia, NZ)209 South America30,361 South Asia3,465 Southeast Europe129,512 Southern Africa14,321 West and Central Africa3,278 Total Developing Countries846,773

36 John Walker Crime Trends Analysis Model Estimates of ML Flows from Developing Countries Caribbean 6452 Central America 2525 C Asia/Transcaucasus E Africa 3559 E & SE Asia E Europe Near & Middle East/SW Asia N & W Africa 4178 South America South Asia 3465 Southern Africa W & C Africa 3278 Oceania 209 SE Europe C & S America total $39.3 bn; Africa total $25.3 bn; Europe total $306.5bn; ME & Asia total $475.6bn Global total $846.8 bn


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