Wages of Crime: Black Markets, Illegal Finance, and the Underworld Economy
Ithaca: Cornell University Press, 2002
Subject, Methods, Database:
A treatise on various facets of the global illicit economy with a view to the manifold interfaces with licit business and politics, based primarily on a review of the pertinent academic literature and media accounts.
Illegal markets used to be small, isolated and segregated from the mainstream of economic society. In recent years, black markets have become institutionally embedded in the legal economy. Not only because underground entrepreneurs operate in a matrix of legitimate transactions in hopes of a durable commercial existence, but because legal businesses show a tendency to use ever-shadier methods. In fact, an alternative view to conventional imagery suggests that the great majority of what is conventionally defined as crime is the province of small-time losers, while "the real threat to economic morality comes from seemingly legitimate business types intent on seeing how far they can bend the rules before they have to pay politicians to rewrite them" (p. 10). This alternative view is taken in the examination of four areas of illicit economic activities: (1) black market operations of guerrilla groups, (2) the modern arms market, (3) money laundering, and (4) the underworld trade in gold. These chapters are supplemented by a critique of the public perceptions of organized crime ("Mafias, Myths, and Markets"), a discussion of anti-money laundering policies, and an analysis of terrorist financing.
Criminals commit economic crimes to make money; to an insurgent group, money is merely a tool. An insurgent group, unlike a criminal one, but like the government it combats, undertakes a wide range of expenditures on everything from warfare to welfare. Criminals may become an integral, functional part of the society of which they formerly preyed by supplying goods and services that, for a variety of reasons, formal society's legitimate enterprises cannot be seen as providing. In contrast, guerrilla groups set out to create parallel economies from whose benefits the state and its supporters are excluded. Thus, mature criminality is compatible with the continued existence of the formal state and can even be employed to defend it; mature insurgency threatens the overthrow of that formal state and, by definition, cannot comfortably coexist with it.
Of course, guerrilla activity can degenerate into simple criminality. Once civil conflict has lasted long enough to wreck the civil economy it sets the stage for its own perpetuation. But this is no corroboration for stereotypical assumptions that crime and insurgency coalesce into a long-term strategic alliance within the ambit of a growing world-wide black-market economy.
More of a symbiosis can be observed between political insurgency, contraband trade, and arms proliferation. At first glance, the world weapons trade over the post-Cold War era appears to have been in sharp decline. A closer look, however, reveals that for a number of reasons the problem of arms proliferation has not decreased in the same way. One reason is that the reduction in measured arms flows has gone hand in hand with an apparent increase in the amount of arms sales handled off the books through the international black market.
"The arms business is inherently dirty" (p. 89), being marked by "industrial espionage, bid rigging, phony invoicing, faked test-data, and a revolving door relationship involving producer, purchaser, and public overseer" (p. 90). The wholesale and retail sectors of the arms market can be divided into overt and covert spheres. Black market buyers are no longer merely insurgents. They are also formally recognized countries that for logistical, strategic or financial reasons cannot or will not buy openly. On the supply-side, theoretically all newly produced arms flowing onto the market are subject to control. However, the restriction of end-users and the curbing of secondary trafficking are undermined by a combination of commercial greed, political corruption and the sheer mass of weaponry. Connecting suppliers and customers is a wide variety of gunrunners. While in the past, the profession of gunrunner tended to draw heavily from the ranks of former intelligence agents, veteran military personnel and ex-arms company executives, today, they also include veteran cigarette smugglers, toxic waste brokers, metal traders, and drug traffickers. "The result is that a modern covert arms deal might take place within a matrix of black market transactions. Weapons might be sold for cash, exchanged for hostages, bartered for heroin or religious artifacts, or counter-traded for grain or oil" (p. 103).
The United States are leading the civilized world in a crusade against the demon of money laundering. "Yet (...) there is not a shred of evidence that the increasingly intrusive and expensive protective measures intended to combat the supposed menace are effective or even necessary. Stripped to its fundamentals, money laundering consists of a set of acts that are perfectly harmless in themselves; indeed, they add up to little more than usual financial practices, even if sometimes undertaken for unusual reasons. Furthermore, every rational assessment indicates that the sums of criminal money supposedly involved are grossly exaggerated" (p. 134).
Money laundering is a three-stage process of moving the funds from direct association with a crime, to disguising the trail to foil pursuit, to making the funds again available to the instigator. The process starts and ends at home. "This suggests that the focus should be on the rich countries that generate, transmit, and receive the funds. For law enforcement or tax purposes, virtually all the necessary information is already held inside the banks of the country concerned. But rather than demand that politically powerful domestic banks routinely yield full information to the authorities on demand, politicians take the easy route of beating up on a handful of island jurisdictions that have almost no effective way of fighting back" (p. 195).
The proceeds-of-crime approach has had no discernible impact on the operation of illegal markets or on illegal income. "In the hands of law enforcement, the modern policy of attacking the proceeds of crime by finding, freezing, and forfeiting laundered money has been, to all intents and purposes, one great washout" (p. 286). The alternative is the application of tax procedures. "Tax codes provide for fines and forfeitures, interest and penalties, and, interestingly enough, the means to seize wealth by using a reversed burden of proof" (p. 283). "Not least of the advantages of prosecution via the tax law route is that there is no need for an artificial offense called money laundering. (...) So contrived is the crime of money laundering that for law enforcement agencies to win public acquiescence, the popular imagination had to be stoked by conjuring up images of great crime cartels dripping filthy lucre as they rapaciously eyed the commanding heights of the legitimate economy. It took a big lie to create a phony offense and set law enforcement off on a chase for money rather than criminal offenders" (p. 285).
Likewise, the drive against "terrorist financing" which aims at regulating informal transfer systems is bound to fail while producing negative side-effects. "Ultimately, the only impact of a move against the informal value-transfer systems will be to scare off legitimate users and make the illegitimate ones deepen their cover" (p. 299).
Despite its declining role in the international financial system, gold has remained in high demand. In part, this is the result of strength of tradition, and in part a result of the growth and spread of a global underground economy within which gold plays an important role as a medium of anonymous exchange. Apart from facilitating black market deals, gold is the object of other illegal dealings, including smuggling, investment scams and theft.
"Wages of Crime" is based on previously published articles that have appeared in journals like "Transnational Organized Crime" and "Crime, Law and Social Change", so that the arguments put forward by R.T. Naylor will be familiar to those keeping track of the organized crime literature. The link between the main chapters is rather weak. There is some overlap in the increasing interconnection between licit and illicit markets which Naylor emphasizes. But the central theme of the book is more abstract: the debunking of myths. Using a mixture of empirical evidence, assumptions of plausibility and sarcastic remarks, Naylor replaces stereotypical imagery with coherent assessments of each of the fields of study under investigation. Each analysis has a somewhat different thrust. The discussion of insurgent groups stresses the fundamental differences in motives and strategies between guerrilla movements and run-of-the-mill criminals. The chapters on the arms trade and on money laundering are in-depth analyses which at times take on the character of "how-to"-guides. The chapter on the gold market, in contrast, deals with a number of rather unrelated facets, such as the environmental hazards of gold mining and the difficulties encountered in the disposal of the loot from the Brink's-Mat warehouse raid of 1983.
These caveats regarding the overall structure of the book notwithstanding, there are two aspects that make "Wages of Crime" a very valuable read. On the one hand, there is the wealth of information on events and situations that fall right within the framework of the organized crime debate but still are seldom mentioned or even thought of. On the other hand, Naylor displays his ability at systematic analysis. His assessments are comprehensive, coherent and thought provoking. Of course, they are not exhaustive because they have to rely, by necessity, on fragmentary data. But in comparison to what official and media depictions and also many academic treatises have to offer, Naylor's book marks a substantial progress towards a better understanding of organized crime.
A collection of witty and thought provoking analyses of some of the most important but often neglected aspects of the global illicit economy.
Duyne, P. van, Money laundering policy: Fears and facts, in: P. van Duyne, K. von Lampe, J. Newell (eds.), Criminal finances and organising crime in Europe, Nijmegen: Wolf Legal Publishers, 2003, 67-104.
Duyne, P. van, et al., Financial Investigation of Crime: A tool of the integral law enforcement approach, The Hague: Koninklijke Vermande, 2001. (read review)
Levi, M., Following the criminal and terrorist money trails, in: P. van Duyne, K. von Lampe, J. Newell (eds.), Criminal finances and organising crime in Europe, Nijmegen: Wolf Legal Publishers, 2003, 105-121.
© Klaus von Lampe, all rights reserved.