Removing excuses in money laundering | SpringerLink

Trends Organ Crim (2012) 15:146–163 DOI 10.1007/s12117-012-9161-5

Removing excuses in money laundering Melvin R. J. Soudijn

Published online: 18 May 2012 # Springer Science+Business Media, LLC 2012

Abstract Criminals can use financial facilitators to invest their ill-gotten gains without drawing attention to themselves. These facilitators are experts at getting round anti-money laundering procedures. Because of their expertise and unique capabilities they play an important role in criminal networks. It therefore stands to reason that law enforcement focuses on them. That focus often translates in prosecution when laws are broken. However, what can we do to prevent financial experts in breaking the law? In this article the focus lies on the method of removing excuses. This technique is employed in every day crimes but has not been put to the test in the context of organized crime. Interviews with police officers show that the technique of removing excuses could work under certain conditions. However, it turns out that an important differentiation lies in the sort of activities financial facilitators undertake. Not all financial activities take place in the legal financial-economic system. Instead of distinguishing between the three classical phases of money laundering (placement, layering, integration), a two-pronged focus on those who are involved in cash based transactions and those who construct smokescreens on paper is proposed. Keywords Money laundering . Situational crime prevention . Removing excuses . Facilitators . Financial investigation . Organized crime

Introduction Suppose criminal X has $200,000 (USD) in cash profits from the sale of narcotics. Criminal X wants to use this money to support his luxurious lifestyle, by purchasing a luxury car, for instance. But that is easier said than done. Since 1990, when the The views expressed are personal and in no way represent those of the Netherlands Police Agency. The author can be contacted at [email protected] M. R. J. Soudijn (*) National Crime Squad of the Netherlands Police Agency, P.O. Box 100, 3970 AC, Driebergen, Netherlands e-mail: [email protected]

Trends Organ Crim (2012) 15:146–163

147

Financial Action Task Force (FATF) made its forty recommendations for combating money laundering, paying large sums in cash raises a red flag with financial institutions and criminal investigation services (FATF 2003). For example, banks send Unusual or Suspicious Activity Reports to a central Financial Intelligence Unit (FIU). In the Netherlands even car dealers are required to report cash payments in excess of €15,000. In other words, it is not as easy as it seems to put criminal proceeds towards an expensive automobile. In the literature on money laundering, this hurdle for criminals is referred to as the integration of illegal proceeds into the legitimate economy, whereby their criminal origins are concealed upon placement in the financial system (Levi and Reuter 2006). Sometimes this involves complex money laundering constructions, such as financing a purchase via the operations of a foundation that manages an offshore trustee company. Because this form of money laundering requires considerable expertise and resources, criminals will call on the assistance of so-called financial facilitators. These are experts who put criminals in a position to circumvent the anti-moneylaundering measures. Such experts play a key role in criminal networks due to their unique skills and expertise (Kleemans et al. 2002). The important role these financial facilitators play in the process makes them a good place to start when looking for intervention opportunities. One possibility is the technique known as “removing excuses”. This technique recognizes that “offenders make moral judgments about their behavior and that they often rationalize their conduct to ‘neutralize’ what would otherwise be incapacitating feelings of guilt or shame”.1 The technique is primarily implemented, however, in cases of everyday crimes or behavior that transgresses moral standards, not in relation to organized crime (Clarke 1999). This raises the question of whether the removing excuses technique might also prove fruitful as an approach to financial facilitators. To find the answer to this question, we start by laying out a couple of concepts in the Background section. What is meant by the term “financial facilitator”? How does the removing excuses technique work? The research itself can be divided into two parts: in the Financial Facilitators section, the activities of these players is explained in more detail. A distinction is drawn between those whose activities center on cash and those who create a front reality on paper. The information on which this section is based comes from a study of the literature and open interviews with twelve criminal investigators, who together have been involved in 22 criminal investigations into financial facilitators. All cases involved the large-scale smuggling to or through the Netherlands of illegal narcotics.2 The cases date from 2001 through 2008. To illustrate the mechanism of financial facilitating, a synopsis of several cases will be used in the text. In the Removing Excuses section, we look to what extent the removing excuses technique is applicable to such cases. The section concludes with several observations on money laundering and situational crime prevention. 1

http://www.popcenter.org/learning/60steps/index.cfm?stepNum043 This does admittedly result in a certain distortion in the sort of cases discussed, but this need not be a drawback for the analysis. Only a minority of all crimes involve financial facilitators. The basic reason is that their involvement only becomes necessary when large amounts of criminal profit are made. Large-scale smuggling of narcotics is typically a profitable crime. Furthermore, in cases where the predicate offence is misappropriation of funds, the help of financial facilitators is of less importance, since the principal suspects themselves have the capacity required.

2

148


Background The term “facilitator” derives from criminal law, where criminal facilitation is defined as aiding and abetting a person who intends to commit a crime, conduct that assists a person in obtaining the means or opportunity to commit the crime, or conduct that aids a person to actually commit a crime. A facilitator is therefore not necessarily someone from legitimate professional society who is culpably involved in carrying out a crime, such as a lawyer. This would put too strong an emphasis on the misuse of professional titles and privileges. A janitor, for example, who provides his/her own access pass to an airport’s restricted areas to someone involved in human smuggling, is also acting in the capacity of a facilitator, as is an illegal alien who produces false passports. The above definition, however, becomes very broad. It means that anyone who assists, has assisted, or will assist in the commission of a crime from the sidelines falls under the term facilitator. In this article, the concept of facilitating will therefore be tightened by viewing a facilitator as someone who is essential to the carrying out of a criminal act (Kleemans et al. 2002). In other words, if a human smuggler must rely on the unique position or skills of a specific janitor or passport forger, then we can speak of facilitation. If the smuggler can choose between a dozen janitors, then their role can no longer be labeled essential, and we speak simply of criminal assistance. In order not to lump janitors, legal professionals, and financial experts all together, this section adds a modifier and speaks of financial facilitators. A financial facilitator is therefore anyone who assists a criminal in some key way with money laundering. Although little research has been devoted specifically to financial facilitators, facilitators frequently seem to move into organized crime late in their career, by way of “lateral entry”, so to speak (Kleemans and de Poot 2008). That is to say, they are not criminally active when young, but come into contact with crime at a later stage in their lives. The triggers vary, from meeting a criminal by chance at the gym, to marrying into a criminal family, to experiencing some life-changing event. The facilitators are subsequently asked by the criminal in question to provide certain expertise. From the perspective of prevention, the trick is to ensure that potential facilitators are not persuaded by criminals to cross the line. The removing excuses technique can be used for this purpose. In the canon of situational crime prevention, this technique is mentioned separately as a way to engage the moral conscience of potential perpetrators. By calling up feelings of shame and guilt, one can steer people back to the straight and narrow using minor, not too far-reaching adjustments. In addition, moral thresholds are emphasized to remind potential facilitators of their responsibilities. The removing excuses technique is primarily applied to frequentlyoccurring, commonplace crimes (Clarke 1997, 1999; Felson 1998; Felson and Clarke 1998). Classic situational crime prevention theory introduces the following four key concepts: 1. Setting rules involves the clarification of what is permitted and what is not, to remove any ambiguity. This can be accomplished, for example, by having employees sign a contract and/or by training them in proper conduct. In this way, it is clear to everyone what conduct is acceptable.


149

2. Alerting conscience relates to combating a specific kind of offense in a discrete, limited setting. The purpose is not to have a lasting effect on behavior, but to make someone aware that they are on the point of committing a specific offense. For example, a sign at the entrance to a restaurant that reads “Smoking here is illegal, selfish and rude” or a notice in a department store stating “Shoplifting is stealing”. 3. Controlling disinhibitors primarily has to do with combating drug and alcohol abuse. Individuals under the influence demonstrate lowered inhibitions to displaying aberrant behavior. A simple solution is, for example, to limit the hours alcohol can be served, so that the period in which alcohol can be consumed is shortened. 4. Assisting compliance means making it easy for people to comply with the law. If there are many public trash cans, then disposing of trash properly takes little effort. The examples above are clearly not related to money laundering. Of course, that was not the original intention of situational crime prevention, which aimed to address minor forms of crime and public nuisance. However, various authors have explored the use of the situational framework in other areas. In their 2003 publication, for example, Bouloukos et al. drew parallels, in rather abstract terms, with several forms of organized crime (Bouloukos et al. 2003). In relation to combating money laundering, there were also references to rule-setting: establishing limits on cash deposits, for instance. Van der Schoot also uses money laundering as a theoretical example of removing excuses in her doctoral dissertation (Van der Schoot 2006). She indicates that rule-setting occurs because legitimate financial service providers are bound by a clearly defined duty to report, and conscience alerting is ensured by FIU publications of trends and other information. In a 2009 volume on situational crime prevention in relation to organized crime, removing excuses is mentioned by numerous authors in their individual contributions on topics ranging from organized cigarette smuggling, human trafficking, and timber theft to fraudulent real estate trading, mortgage fraud, and administrative corruption (Bullock et al. 2010). Despite many instances where the concept of removing excuses is applied to organized crime and money laundering, financial facilitators are not specifically addressed in such studies. That in itself is not surprising, because money laundering is an area that is especially well suited to rule-setting: the formulation (and enforcement) of formal regulations to protect the financial economic system. Legislative bans on money laundering, fraud, and corruption also fall into this category. In addition, various occupational groups are required by the government to adhere to certain regulations in reporting suspicious transactions, compliance, and customer due diligence.3 The focus of such rules, however, is not on who is putting the money in the system, but ensuring that the money does not enter the system in the first place. The present section looks at the matter from the opposite perspective. By making the offense more concrete (who facilitates criminal money and how), we explore which measures can be taken that fall within the removing excuses framework. 3

For an in-depth overview, see also the recommendations by the Financial Action Task Force (FATF): http://www.fatf-gafi.org.

150


Financial facilitators The literature and interviews show that financial facilitators perform all sorts of activities to make money laundering possible. To better analyze these activities, we need a systematic way to organize them. One common method is to divide the money laundering process into distinct phases. The FATF uses a three-phase system: placement, layering, and integration. Placement refers to introducing the proceeds of crime into the legitimate financial system, by making deposits in bank accounts for instance. Next, in the layering phase, the origins of the criminal proceeds are concealed in the legitimate system, hidden using front companies, financial constructions, false invoices, etc. In this way, illicit funds are given a sheen of legitimacy so they can ultimately be put towards legitimate purchases or investments (e.g. buying a luxury car or starting up an export business). However, the 22 cases reveal that financial facilitators also carry out many activities even before the placement phase. They change cash into large bills, for example, or physically move the cash, smuggling it from one country to another. The criminal proceeds have not yet been placed into the system at this stage, let alone concealed or integrated. The physical moving around of the money takes place outside the financial system, so the three FATF phases are not involved. Also, financial facilitators might oversee more than one phase in the money laundering process, making the three-phase system of placement, layering, and integration inadequate for representing distinctions between the different actors involved in the process. An alternative system to represent the money laundering process would be to group financial facilitators by their official titles: bankers with other bankers, accountants with other accountants, and lawyers with lawyers. But as the literature and 22 cases studies showed, the number of different functions fulfilled is vast. In all likelihood, more interviews would also yield even more functions, each of which would require a new category. The functions performed by individuals with the same profession can also vary widely. One accountant may assist in setting up trust funds, while another only transfers funds. Furthermore, representing financial facilitators by title would not resolve the issue of financial facilitators who perform more than one type of activity or step outside their formal job description. Other forms of differentiation are also possible with the data, such as, willing and unwilling facilitation. Unwilling could occur in the case of unknowingly providing assistance (through misuse, for example), or involuntarily providing services (through force, for example). However, only one facilitator in my sample became unwillingly involved (although he started out willingly), which made this distinction less useful. In the end, a simple division into two types of facilitators seemed best suited for the application of the technique of removing excuses: those whose activities centered around cash and those whose work involved the documentation required to lend the whole business a semblance of legitimacy. This distinction became very clear while interviewing the officers involved and had the additional benefit of putting more of an emphasis on the cash sector that is otherwise often overlooked or seen as nothing


151

more than a prelude to money laundering. A number of examples drawn from the interviews are provided below. Cash-related The first type of financial facilitators operates on the cash market, where three types of activities can be distinguished: changing foreign currency, changing money into larger bills, and transporting cash. These activities are often related. Foreign currency exchange may occur in the case of interaction between international parties. The wholesale in narcotics is an example of this: it was already reported (in pre-Euro days) that Colombian drugs traffickers preferred U.S. dollars, while Turkish traffickers had a preference for either German Marks or U.S. dollars (Kleemans et al. 2002, p. 103). Changing large sums is not without risk, however. Financial institutions are obliged to report any transactions above 15,000 EUR to the FIU. This may result in a criminal investigation. When extremely large sums of money are involved, as is the case with wholesale narcotics, then it pays to contract out the work of changing the money, instead of doing the job in-house (Kleemans et al. 2002, p.104). Professional money changers have stepped in to fill this niche, as the following case shows. Case 1 A Dutch cashier at a currency exchange office in Amsterdam knows a British hash smuggler who has large quantities of pounds sterling to change into Euros. The cashier is willing to help for a 2 % commission. In the course of 3 years, the cashier changes pounds into Euros during his shifts at the currency exchange office. He receives so much cash to change that he enlists a friend and two coworkers to assist him. They go to various currency exchange offices, exchanging 10,000 GBP each time. A total of 90 exchanges were ultimately considered proven in court. During police questioning, the cashier and his friends spontaneously confessed and gave full disclosure of the matter. The suspected drug trafficker invoked his right to remain silent. In this example, a supposed “guardian” within the legitimate financial-economic system was corrupted. Although the cashier should have reported suspicious transactions to the FIU, he didn’t. The case finally came to light because he and his associates also started to make frequent exchanges at other branch offices. This eventually did lead to FIU reports, and a criminal investigation ensued. Closely connected to currency exchange is volume reduction, where small bills are exchanged for larger ones to allow the cash to be hidden or transported more easily. The high nominal value of 500 EUR bills as opposed to other currency makes them the ideal vehicle for smuggling. Bank employees are instructed to report suspicious exchange practices to the FIU. But sometimes the temptation proves irresistible. Case 2 In 2003, two money couriers check in for a flight to Ecuador. It is detected that they are smuggling Euros. They used four writing cases that are enclosed in gift wrapping paper. Each package contains 226,000 Euro in 500 EUR bills. The investigation revealed that a bank employee had not only exchanged the

152


currency for the Colombian drug smugglers, but had also ensured that the Euros provided were in the form of 500 EUR bills. She had also involved several coworkers from the controls department. The criminal investigators suspect that over the course of a year she provided at least 72,320 of these 500 EUR bills for physical transports to South America. The bank employees admit their guilt. Just as in case 1, the guardians were corrupted. Besides changing notes, case 2 also involves the physical transportation of cash. On the basis of the financial records seized in case 2, it was determined that at least 44 couriers were used to transport gift wrapped writing cases to South America, giving a suspected total of more than 36 million EUR. Another point of note from case 2 is that money couriers are easy to replace. The criminal investigation revealed that people who are prepared to smuggle money for minimal recompense in the form of a small sum of money or a free vacation can easily be recruited from social contacts. Money couriers therefore should not be seen as financial facilitators, but as individuals providing regular criminal assistance. It is the person who coordinates the courier services who is the real facilitator. Case 3 When it comes to investigating who ordered the physical transports of money using couriers, a woman comes into the picture. She is involved in preparing the luggage, transferring money to the couriers, purchasing their airline tickets, and making hotel reservations for them. In addition, she maintains contact with the intended recipients of the money in Colombia. If anything goes wrong, she is the one who contacts the courier’s family. When this woman is interrogated, she initially speaks with the police, but after contact with her attorney, she refuses to cooperate further. This organizer of the money transports in case 3 cannot be considered a guardian in a formal sense. She holds no official position and, incidentally, had previous convictions for drug smuggling. Nevertheless, she proved to be an essential part of the organization that smuggled cocaine. After all, it was she who saw to it that the proceeds actually found their way back to their origins in South-America. Cash can also be transported virtually, so it can be withdrawn at another location. Legal money transfers can be used to this end, but there are also other methods. The most well-known alternative is hawala banking, or underground banking (Passas 2005). This method involves customers surrendering their money to a hawala banker and then going to another branch elsewhere in the world to withdrawal funds. Every so often, the bankers themselves settle their accounts with one another. Any shortages can be supplemented with cash transports or importing and/or exporting goods. Although underground bankers also often move funds for non-criminal individuals (Passas 2005), this does not exclude their use by criminals. The following case involves drug money. Case 4a The Pakistani underground banker Y was arrested in 2007. A search of his home uncovered 256,700 EUR in cash, as well as his accounting books. That same day several customers, who had come to the house with money while the police were there, were taken into custody. A Turkish duo, for instance, had


153

some 84,500 EUR in cash in a plastic bag. They had antecedents in heroin trafficking. According to the hawala banker’s records, the pair regularly paid him a visit. In a six-month period, they appeared to have transferred 4,500,000 EUR. This was likely drug money as their legal income was only a meager 1,200 EUR a month. Case 4b Mr. Y, the underground banker, also acted as the escrow account holder. He indicated that if two parties did not trust one another, they could deposit their money with him. Once the two parties had completed the business deal to their mutual satisfaction, they would let him know and he would release the funds. Mr. Y knew it was drug money he was holding. The suspected underground banker wept when he was put in a jail cell. He answered police questions, but portrayed himself as just a small-scale money courier. However, extrapolations from his own records show that he handled money in the order of 10,000,000 EUR per month, 0.03 % of which was his to keep. He also ordered others to pick up or deliver money. The financial facilitator in this example is not considered part of the legitimate financial system. Yet it was a full-time ‘banking’ job: manning a business address where customers could find him, following the currency exchange markets, taking on job assignments and delegating work to others and directing them. He could also block unreliable or difficult customers from using his services. He served, thus, as an informal guardian. The above cases make it clear that various types of financial facilitators may be involved with the cash proceeds of crime. Money obtained through criminal acts can be presented to these facilitators for exchange into other currencies or bill denominations, and may be deposited with them and withdrawn elsewhere (with or without the actual physical transport being involved). In this way, criminal money is actually kept or placed outside the legitimate financialeconomic system; there is no placement, layering, or integration of money, but rather at most the movement of funds. This movement is often sufficient to enable purchases abroad (Kleemans et al. 2002). Document-related The second of the two categories of financial facilitators we distinguish in this section are the document-related financial facilitators. They are involved in creating a façade for illegal operations by securing the documentation required to lend the operations a veneer of legitimacy. While cash-related facilitators are occupied with ensuring money gets stashed out of sight or stays out of sight, document-related facilitators are concerned with keeping up appearances—everything has to look right on paper, obfuscating the true origins of the criminal proceeds and creating a false paper trail. Capital must come into the view of the guardians, such as the tax authorities, in such a way that it receives their stamp of approval, thus clearing the way for use in the legitimate economy. This second group of facilitators is thereby closely tied to the layering and integration phases.

154


Every opportunity to document the criminal proceeds and their origins as legitimate will be seized by these financial facilitators. Several examples follow: Case 5 Two Turkish men who sell small quantities of heroin launder their profits through their café. They make use of a bookkeeper to account for various matters. It is the bookkeeper’s job to reconcile the café’s expenditure with its profits. Because the police have been on to the men for some time, the bookkeeper also comes into the authorities’ sights. When questioned by the police, he states that he would have liked to stop working for these clients but saw no way out. He provides the police with information that the Turkish men initially deny. Only when presented during the trial with a calculation of their unlawful assets do they indicate their earnings never approached such a figure. The police are not convinced of the honesty of the bookkeeper in case 5. He does not seem to have taken any steps to extricate himself from working for his drugdealing clients, probably because he was well paid for his work for them. However, there was not enough proof to convict him. The bookkeeper in case 5 can be labeled a one-man show: he has no other employees. Research indicates that criminals show a preference for this type of small business because they are more vulnerable economically than large firms (Lammers et al. 2008). Criminal clients are therefore less likely to be turned away. The next example involves a similar case. Case 6 At the order of the owners of a garage, a bookkeeper regularly deposits large amounts of money at the local bank. The bank reports this activity to the FIU, and the bookkeeper comes into view as a possible financial facilitator. He turns out to run a small bookkeeping business with no employee other than himself. The garage belongs to two men involved in the wholesale cocaine business. They launder their cocaine proceeds by mixing them in with the revenues of their struggling garage. The bookkeeper made extensive statements, but says he did nothing wrong. He does not consider it his responsibility to notice discrepancies. One of the discrepancies he turned a blind eye to was that the garage would have had to be open 6 days a week and operating at full capacity to even begin to approach the sales volume reported. The bookkeeper in case 6 has a small business that is not particularly successful. But he does not appear to have had any other criminals among his clients. Although he does not want to admit to anything himself, his statements do help demonstrate the money laundering practices of the main suspects. It is not only small independent business owners, however, that are involved in money laundering. Individuals in regulated professions may also provide their services. Case 7 A narcotics investigation turns up information on a money transfer company. By misusing the identities of people who have sent legitimate money transfers,


155

funds from narcotics trafficking are being laundered. The personal data of a legitimate customer who send 100 EUR to his home country every month, for example, was used to move tens of thousands of Euros to South America. The police investigation showed that an accountant drew up fraudulent annual financial statements, which concealed the true owner of the money transfer company. This owner is a trafficker in narcotics. If the criminal’s relationship with the company were to be revealed, the money transfer company would lose the permits it needs to operate. The accountant, however, denied any wrongdoing. In the end, the statements he made to the police served as evidence against the drug trafficker. In this example, the financial facilitator has a high social-economic status. He owns and operates a business that employees a number of people. His arrest comes as a shock for him. He does not see himself as a criminal and refuses to get into the back seat of the police car. He wants to drive his own vehicle to the police station to make a statement but is not permitted to do so. The final case has to do with managing criminal proceeds. A financial facilitator transforms the criminal funds into valuable assets which he then manages. Case 8 In 2002, a Dutch criminal is quoted in a national newspaper as saying that a real estate magnate serves as banker to the criminal underworld (Van den Heuvel, 2002). Criminals provide him with millions of Euros which he then invests in real estate. The money is transferred to the real estate broker on the basis of verbal agreements; nothing on paper ties the criminals to the broker. This turns out to be an effective construction. After all, assets for which ownership cannot be demonstrated cannot be seized in a criminal case, and at the same time, the criminals know their money is secure. The broker cannot make off with the money, because it is in the form of real estate—physical buildings the criminals can inspect. And with a little luck, the property will increase in value to boot. There are, however, disadvantages to the arrangement. Assets in the form of real estate cannot be freed up and paid out quickly. And it is unclear whether all the investments are profitable. It all goes wrong when one or more of the criminal investors want their money back, and the facilitator is unable to come up with the funds quickly enough or at the agreed rate of return, at which point the facilitator is threatened. The threats in this case are so serious that the facilitator ultimately decides to make a deal with the judicial authorities. But he is murdered before he gets a chance to do so. The unknown perpetrator or perpetrators are still at large. The real estate broker had already come to the attention of the judicial authorities as early as 1992 and 1995, when he was suspected of laundering money for an ecstasy and hash dealer using real estate. He was essentially able to buy off being prosecuted, by settling to the sum of 450,000 EUR. Since then, he had done very well and had entered the ranks of the top 50 richest people in the country, with an estimated net value of 350 million EUR. However, with the publication of the above-referenced newspaper article in 2002, it became public knowledge that he did business with criminals. As a result, the legitimate business world distanced itself from him and banks issued him a warning.

156


Two of the individuals interviewed said they see case 8 as a category of its own. Unlike the other cases in the document-related category, here the financial facilitator managed the criminal proceeds. The accountant from case 7 helped conceal the assets, but he had no further control over them. In case 8, by contrast, the financial facilitator himself had full control over the capital. Those interviewed considered him an underground private investment banker. It could even be said that this was a case of asset-related facilitation, potentially a third category. However, no other cases of asset-related facilitation are known, so the conclusion for the time being must be that case 8 presents an anomaly. In short, financial facilitators in the document-related category come in all shapes and sizes. Bookkeepers and tax consultants can be involved, but so can individuals in regulated professions, such as accountants and civil-law notaries. What they have in common is that they do not document the true situation, but instead provide a range of false statements, pay slips, appraisal reports, books, donations, etc. In the next section, we return to our main question and ask whether this background information on financial facilitators provides opportunities for applying the removing excuses technique.

Removing excuses In the previous sections, a number of concrete examples were provided of financial facilitators in action. The question is how this information can be transformed into useful input for the removing excuses technique. The following sections present four components: setting rules, alerting conscience, controlling disinhibitors, and assisting compliance. For each, we examine to what extent it is already being applied and make new suggestions where possible. Setting rules The aim of setting rules is to demarcate what is legally permitted and what is not. In the area of money laundering, this method has been employed worldwide since the 1990s. Most countries have developed special legislation, influenced by the FATF recommendations, to combat money laundering. The gist of the legislation is that a person is guilty of money laundering if he or she knowingly and willingly performs actions with money or goods that are the direct or indirect proceeds of crime. Making money laundering a punishable offense gives a clear indication to facilitators of what they can expect. In addition to this explicit criminalization of money-laundering in general, specific forms of rule-setting are applied in the document-related category of financial facilitation. Individuals in certain occupations, such as accountants and civil-law notaries, are legally bound by the profession’s own rules and standards. Students in these professions are instructed of the rules during their training, and understanding of the regulations is further consolidated later through professional societies and continuing education. Violating these internal rules can lead to suspension from practicing the profession, loss of professional license, or even criminal prosecution.


157

Setting specific rules, however, is more difficult if not impossible for financial facilitators who are not connected to particular professions. Within the cash-related category especially, many facilitators operate independently of any organization. They can therefore not be reached through regular education and training or standard information channels. The one exception in the cash-related category is bank personnel. They know they must report unusual or suspicious transactions, and banks require them to follow continuing education courses regularly. But in the document-related category, too, some facilitators are difficult to reach. Anyone can call themselves a real estate agent, a tax consultant, or a mortgage advisor. These occupations are not protected and are not tied to specific organizations. One possible solution would be for the government to instate periodic certification requirements in these sectors. Relevant standards and regulations could then be included in the material to be mastered for certification. Certification would also serve as an assurance for potential clients that the service provider is aware of the demands of his profession. Ultimately, rule-setting with the aim of combating money laundering is first and foremost the responsibility of “super controllers,” who occupy a position above the handlers, guardians, and managers (the regular controllers) in the situational crime prevention pyramid (Sampson et al. 2010). Super controllers can make or suggest policy that regular controllers work with. For example, a bank teller (guardian) is required by management (super controller), to report any unusual deposits. But the banking sector as a whole can also be considered a super controller. The sector has, for example, agreed that the compliance rules apply to every branch location. Those who do not comply with the rules can lose their accreditation status, resulting in a loss of business. Alerting conscience Alerting conscience is intended to ensure that financial facilitators have a change of heart before taking a financial action that is not permitted. Communication here is key, and has a passive and active component. Passive communication stems from the extensive system of rules and regulations (rule-setting) in place that relate to money laundering. After all, financial facilitators in the document-related category must always maintain records in hard copy. The reporting itself serves as a reminder of the rules. Given that the facilitators know that documents should be drawn up truthfully, and that they may be required to produce the documents and account for the actions reported therein for years to come, committing falsities to paper is not taken lightly. In the cash-related category, paper reports are a rarity. The exception is bank employees, who know they are required to report certain types of transactions to the FIU. Active communication entails that both organizations and their customers are kept informed of the implementation of new rules, case law, and best practices. The FATF has a web site, for example, where new reports are posted. Professional journals for accountants and civil-law notaries can publish discussions on high-profile cases. They may emphasize the financial risks as well as the personal ones of having a dubious client base (as in case 8).

158


The government could also choose to pay visits to certain service providers who are mentioned in reports filed with the FIU, and address the issue directly. These visits should not be seen in the context of a criminal prosecution, but to confront the individuals involved with their actions and ask for an explanation.4 It’s possible they were unknowingly involved and such a visit could alert their conscience. It’s also possible there is not enough evidence for a prosecution but an official visit could be enough to scare them off. The public prosecution service could also opt to better publicize its own successes in the fight against money laundering. A financial facilitator’s conviction is a good occasion to call in the public relations department. The aim here is to use media reporting on convicted money launderers to raise consciousness among other financial facilitators of the consequences of their actions. Media reports do not only have an effect on other financial facilitators. As case 8 shows, negative stories about a certain financial facilitator prompted banks to refuse to do business with him. After all, no bank wants to be known as an institution that provides money launderers with the opportunity to do business. The result is that the financial facilitators get the status ‘unbankable’, meaning they can no longer carry out transactions for themselves or for others.5 When such a development is in turn widely reported in the media, facilitators cannot deny that their criminal actions may have extremely negative consequences for themselves. Alerting conscience retroactively In addition to the use of passive and active communication, the criminal investigations studied also show that the conscience of a financial facilitator can also be triggered after a criminal act has been committed. During police questioning, an established act of money laundering will be put before the suspect as a discrete offense, occurring at a specific time and place. For each offense, the suspected facilitator will then be asked for an explanation. As the above examples show, most financial facilitators—unlike their clients—are prepared to make a statement. These statements can vary from additional information on specific transactions to a partial or full confession or testimony against criminal clients. This is a striking phenomenon. Apparently, financial facilitators feel the need to make some kind of statement. The investigators interviewed indicate four factors that may play a role here. First of all, there is the fact that some types of financial facilitators can be called to account in their professional capacity. Bookkeepers who cannot account for entries they made themselves cannot continue to operate. Civil-law notaries and accountants even have a legal obligation to account for their actions with a third party. Financial facilitators in the document-related category, in particular, must provide information on their own actions in relation to their clients. But even the simple act of providing additional information on a certain transaction can put the client in a difficult position if the statement links a sum of money to them. The client must then in turn be able to show that the money was a legitimate asset. 4

The fact that more than 100,000 reports are received each year need not be an impediment here; it is possible to focus on a specific sort of report or to choose specific conditions. 5 Hancock and Laycock even advise informing banks of the personal particulars of anyone convicted of money laundering (Hancock and Laycock 2010, p.186).


159

Second, the investigators name various causes that call to mind Hirschi’s ideas on social bonds (1969). Some facilitators, primarily those in the document-related category, tend to want to come clean. There seems to be a relationship between this tendency and the number of connections they have in society. Because they have invested a great deal of time and energy in their education and career over the years, they have achieved a strong professional position and high social status, all of which are in danger of collapsing like a house of cards the moment they become the subject of an investigation. By making a statement, they are doing their best to make clear that they cannot be accused of having done anything illegal. Third, the loyalty factor was named. If financial facilitators hardly know their clients, it takes facilitators less effort to testify against them. Where no friendly relationship is involved, the “betrayal” does not necessarily lead to feelings of guilt. A lack of loyalty is found particularly in cash-related facilitators: they provide their services to a range of clients they barely know and often only meet briefly. Fourth, being confronted by the police can be “liberating”. This is the case when financial facilitators have been coerced into performing acts they feel they cannot refuse, out of fear of the client. The realization that a criminal investigation may remove the pressure they have been under can persuade facilitators to cooperate during questioning. The combination of these four factors can prompt financial facilitators, even after having committed criminal offenses, to assist the police in their investigation. Of course, the balance can also swing the other way: the fear of a social nosedive, the strength of a bond of friendship with the criminal client, or alternately, great fear of the client, will negate any urge to make a statement to the police. Controlling disinhibitors This method was originally intended to curb alcohol and drug abuse. The use of such substances removes the inhibitions that stop behavior that deviates from accepted norms and standards. Researchers into organized crime have interpreted this idea as removing the ingredients that make a certain type of crime possible (Bouloukos et al. 2003). An example is removing the required precursors in efforts to stop the production of synthetic drugs. It is difficult, however, to relate the idea of controlling disinhibitors to the examples that emerged from the interviews. Financial facilitators do not have to free themselves from their inhibitions to do their work. And no fixed ingredients are required for the services they provide. One possible exception in the cash-related segment is demand for 500 EUR bills. Their high nominal value allows couriers to transport large sums (Rogoff 1998). If couriers only have 100 EUR bills available, then the volume of bills to be smuggled would increase substantially. Getting rid of 500 EUR bills altogether would seem to be a logical solution, especially considering that bills of this denomination are not often used in regular business transactions. Most stores and gas stations in Europe will not even accept them out of fear for counterfeit currency. Abolishing the 500 EUR bill would not adversely affect law-abiding Europeans at all. The first steps in this regard have already been taken by the UK. Following reports by the Serious Organised Crime Agency that 90 % of the 500 EUR bills in circulation

160


were in the hands of criminals, the UK banking sector decided to stop supplying the bills (CNN 2010). As a result, currency exchange offices in the UK have stopped supplying 500 EUR bills as of May 2010.6 Assisting compliance Assisting compliance could be applied in two ways. First, it could be made easy for the financial facilitator to refuse improper requests. And second, the financial facilitator could be given the opportunity to correct any lapses. In fact, financial facilitators already have simple grounds at their disposal for refusing to commit criminal acts. The extensive rules and regulations in the area of money laundering allow them to defer to all the formal rules and procedures that make it impossible for them to process false data. This is true of both the cash-related and the document-related segment. The bank employee who is asked to change or deposit large sums of money can point to the lack of freedom to operate. A bookkeeper, accountant, or civil-law notary can refer, for example, to the ban on falsifying documents. According to the investigators interviewed, such refusals do indeed occur. One investigation revealed how a criminal got no for an answer from a civil-law notary due to a lack of clarity surrounding the financing. This type of refusal does not require an act of heroism on the part of the professional involved. The criminal simply went looking for another civil-law notary who would help him—a search that also proved unsuccessful. Consider the situation in which the notary had agreed to serve the criminal in the above example, only to have second thoughts later. In other words, the notary wants out. In that case, there are two options. First, he or she can try to settle financially with the investigative authorities. Special clemency schemes have been devised for certain forms of punishable acts. A second option is to allow the facilitator to become an informant. Given their position, financial facilitators could provide extremely valuable information on criminal trade and the destination of the illegally obtained assets.7 Given that facilitators who come forward and offer to turn informant are presumably few and far between, the investigative services could also try to track them down. This, however, is easier said than done. It would be counterproductive, of course, if financial facilitators were to inform their clients following initial contact with the police. But it could also put financial facilitators in danger if criminal clients were to find out they had had contact with the police. This risk can be limited somewhat by taking into account the factors under “alerting conscience” above. Success rates will be higher with financial facilitators who have many links to legitimate society, little or no connection to their client, limited fear of criminal repercussions, or simply little or no involvement with the underlying criminal acts, than where the opposite is the case.

6

However, the notes are still legal tender as the European Central Bank (ECB) issues these notes. According to economist Willem Buiter, due to the concept of seigniorage, the issuing of 500 EUR notes is very profitable to the ECB (Fidler 2010). It seems unlikely that the ECB will kill the goose that lays the golden eggs. 7 This points to another form of prevention. Illegal assets that have been seized cannot be used to finance other transports or disrupt normal markets in their laundered form in the future.


161

Conclusions In theory, combating illegal profits is the most logical approach for tackling organized crime. After all, organized crime is entirely targeted towards obtaining financial gain by operating in illegal goods or services markets. If, however, the criminal entrepreneur is prevented from benefiting from his illegal profits, he has run all these risks for nothing. Combating illegal profits is certainly not a recent, revolutionary development. Several measures have been put in place over the past few years that can be labeled as situational crime prevention in a general sense. Monitoring of various professional groups, for instance, or the obligation for banks and other sectors to report unusual transactions have been increased to render the legal economy less susceptible to abuse (increase the effort). The chance of abuses coming to light has also been increased by making it compulsory to report all cash deposits, money transfers, or payments above a certain amount (increase the risks). Certain financial transactions can only be carried out by specifically accredited individuals (access control). In other words, speaking in terms of situational crime prevention, all these measures set rules and raise the awareness of those involved. But it would be an illusion to believe that criminal entrepreneurs have been completely put out of action. There are several reasons for this. First of all, monitoring only goes so far. For instance, no obligations to report govern trade transactions between companies, (if this were even possible). A criminal with a legitimate company can misuse it, for example, to buy a consignment of goods, ship them abroad, and then use the profits for the benefit of a drugs supplier. Secondly, existing monitoring structures can be circumvented. Car dealerships do not have the obligation to file FIU reports when cars are paid for using direct debit, as opposed to when cash payments are made. Thirdly, there is the threat of information overload; that is, that the information reaches the proper authorities, but does not stand out amid the hundreds of other reports received. A closely related matter is that of the false positives that may arise in this jungle of information: an incident may display certain characteristics of money laundering, but then turn out, on closer inspection, to have a legitimate explanation. In such cases, distinguishing between legitimate and illegal matters takes so long that there is a major risk of signals of actual money laundering being overlooked. Finally, when it comes down to it, effective monitoring is completely dependent on the weakest link. Rules will not always be obeyed. In some cases a guardian is even corrupted, and helps the criminals to circumvent the very measures that he or she is meant to enforce, as with a bank employee who deliberately omits to report large cash deposits. These problems cannot be solved simply by generating more and more regulations. There is substantial risk of a fallacy of control (Kleemans et al. 2010). It is impossible to legislate for every possible permutation in so complex a matter as the international economic trade system. More regulations also increase the likelihood of information overload and false positives. Furthermore, focusing all efforts on increased regulation has one inherent weakness. No matter how many regulations there are, there is always the possibility that a corrupt guardian may help criminals to circumvent them.

162


It is therefore necessary to seek alternative solutions. One possible area for attention is the role of financial facilitators. Research into organized crime has shown that their unique expertise gives them an important role. It makes sense to anticipate this from a preventive perspective. How can we ensure that financial facilitators do not find themselves in situations where their services are required, or, once they are in such situations, how can we ensure that they choose not to make their services available for money laundering? The former goal is impossible. In the western free trade economy, people with financial expertise must be able to operate freely as service providers. This means that anyone can contact them for business purposes, including clients whose motives are perhaps rather less than pure. This leaves the second option. Financial facilitators do not have to accede to their clients’ every wish. If, for instance, the client of a civil law notary demands that he or she contravene the law, the notary must refuse of his or her own volition. Refusing to act as a financial facilitator for a criminal can theoretically fall within the framework of removing excuses. Interviews with investigating officers show that various methods associated with this technique can be applied. The approach must, of course, always be closely tailored to the situation. We must always take into account the exact type of activities a given financial facilitator carries out. Money laundering is often described as attempting to introduce illegally obtained assets into the legal economy by means of a system of placement, layering and integration. But this is to risk overlooking other specific forms of financial facilitation, such as foreign currency exchange, converting small denominations of cash into larger bills, and physically transporting cash. These actions do not introduce the money into the legal financial system, any more than they lead to layering or integration. Criminals do not have to justify every economic transaction within a legal framework. They may finance consignments of drugs amongst themselves with cash; for instance, henchmen may demand Euros rather than dollars, and money can be physically transported all over the world. Thus, when modeling criminal economic activities, it is also necessary to distinguish between cash and paper transactions. Depending on the activities of a given financial facilitator, particular methods from the removing excuses range will be more or less suited. Facilitators involved in transporting cash will be less likely to be susceptible to alerting conscience than those involved in sham constructions. But a great deal also depends on the situation itself. Legal obligations, loss of status in legitimate society, absence of loyalty, or fear of the client are all factors that may play a role in determining whether or not financial facilitators will make statements that might incriminate their clients. However, using statements of one criminal against another always gives rise to a dilemma. To what extent should we be prepared to make a deal with a financial facilitator purely with a view to catching the person behind drugs imports? After all, everyone who breaks the law must be treated without regard of person. Where financial facilitators are concerned, the technique of removing excuses will unintentionally privilege the members of a certain class. People who are involved with cash are generally more difficult to reach using strategies such as setting rules and alerting conscience than those whose task is to create a front reality on paper. The latter group can be reached through awareness campaigns during training sessions, or publications in professional journals. This may then give them a stronger basis on


163

which to reject any requests from criminals (assisting compliance). To put it another way: members of recognized professional groups receive periodic moral reinforcement to help them keep on the straight and narrow, whereas others have to rely on their own strength of conscience.

References Bouloukos AC, Farrell G, Laycock G (2003) Transnational organised crime in Europe and North America: The need for situational crime prevention efforts. In: Aromaa K, Leppä S, Nevala S, Ollus N (eds) Crime and Criminal Justice in Europe and North America 1995–1997: Report on the Sixth United Nations Survey on Crime Trends and Criminal Justice Systems. HEUNI, Helsinki, pp 176–192 Bullock K, Clarke RV, Tilley N (eds) (2010) Situational prevention of organised crimes. Willan Publishing, Devon Clarke RV (1997) Situational Crime Prevention: Succesful case studies. Harrow and Heston, Albany Clarke RV (1999) Hot Products: understanding, anticipating and reducing demand for stolen goods. Home Office, London FATF. (2003). 40 Recommendations: FATF. Felson M (1998) Crime & everyday life, 2nd edn. Pine Forge Press, London Felson M, Clarke RV (1998) Opportunity makes the thief: Practical theory for crime prevention. Police Research Series, London Fiddler, S. How gangsters are saving Euro zone. The Wall Street Journal (july 30, 2010). Hancock G, Laycock G (2010) Organised crime and crime scripts: Prospects for disruption. In: Bullock K, Clarke RV, Tilley N (eds) Situational prevention of organised crimes. Willan Publishing, Devon Hirschi T (1969) The causes of delinquency. The University of California Press, Berkeley Kleemans ER, Brienen MEI, van de Bunt HG (2002) Georganiseerde criminaliteit in Nederland: Tweede rapportage op basis van de WODC-monitor. WODC, Den Haag Kleemans ER, de Poot CJ (2008) Criminal Careers in Organized Crime and Social Opportunity Structure. Eur J Criminol 5(69):69–98 Kleemans ER, Soudijn MRJ, Weenink AW (2010) Situational crime prevention and cross-border crime. In: Bullock K, Clarke RV, Tilley N (eds) Situational prevention of organised crimes. Willan Publishing, Devon, pp 17–34 Lammers J, Bloem B, Bottenberg M, Ketelaar B, t Lam J, Russelman M, Zarazaga C (2008) Witwassen: Verslag van een onderzoek voor het Nationaal Dreigingsbeeld 2008 [Money laundering: a report of the research for the National Threath Assesment]. Korps landelijke politiediensten, Rotterdam Levi M, Reuter P (2006) Money Laundering. Crime and Justice: A Review of Research 34:289–375 Passas N (2005) Informal value transfer systems and criminal activities (Cahier No. 2005–1). WODC, Den Haag Rogoff K (1998) Blessing or curse? Foreign and underground demand for euro notes. Economic Policy 13 (26):263–303 Sampson R, Eck JE, Dunha J (2010) Super controllers and crime prevention: A routine activity explanation of crime prevention success and failure. Secur J 23(1):37–51 van den Heuvel, J (2002) “Ik heb niets te verliezen”. De Telegraaf: 28th September 2002 van der Schoot CRA (2006) Organised Crime Prevention in the Netherlands: Exposing the effectiveness of preventive measures (PhD thesis). Erasmus Universiteit Rotterdam, Rotterdam CNN http://edition.cnn.com/2010/WORLD/europe/05/13/britain.euro.note/index.html [last checked 04-18-2012]