European Money Trails

Ernesto Savona

• Publisher: Taylor & Francis
• Year: 2014
• eBook ISBN: 9781134412815
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

European Money Trails examines trends in organized crime across Europe, including money laundering methods and the mechanisms and instruments used to conceal the disposal of the proceeds of crime.
By drawing on primary and other authoritative sources, Savona provides a report on national experiences of criminal organization unavailable elsewhere. It will prove especially useful to policymakers and users, as well as scholars looking to understand the criminal dynamics that underlie sophisticated, international offending.

1
Introduction

The project "European Money Trails", which was the first seed for this book, started on November 1994 and was carried out by TRANSCRIME, established at that time as the Research Group on Transnational Crime of the University of Trento School of Law. The project was funded by the European Documentation and Research Network on Cross-Border Crime, a Foundation promoted in 1993 by the European Commission.

The title "Money Trails" is a term which denotes the different routes used to conceal the origin of the proceeds derived from criminal activities. The aim of this book is to analyse changes in money laundering activities and in the anti-money laundering policies enacted to combat them. The first chapter outlines the geography of the way in which criminals generate their illegal proceeds and the methods of laundering these proceeds (called here the organised crime - money laundering cycle). These phenomena are regulated by an international/regional legal framework that has evolved in recent years. This development is analysed in the second chapter. Both criminal and money laundering activities and the policies that address them are active in the various countries. The third chapter studies this interaction in the 15 European Union countries. In the same chapter a window is opened on to Eastern European countries and offshore countries which have some relationship to the European Union. The former are becoming closer to the European Union and their adaptation to anti-money laundering legislation is being requested by particular agreements; the latter are of interest because some of their restrictions represent a hindrance to the implementation of European anti-money laundering legislation.

Having considered how money laundering activities interact with anti-money laundering policies in the different countries of the European Union and beyond, the fourth chapter outlines the present trends of organised crime and money laundering in the Union, and considers current institutional arrangements to combat them.

The conclusion deals with the main problems and their policy implications, which can be summarised in a challenge to Europe for more integration, with the consequent reduction of some crime. That is, a combination of an open market for the free circulation of goods, people and capital and more effective measures for combating crime and criminals. Criminals like open markets, and money laundering reflects more than other activities the development of criminal behaviour from individuals to more sophisticated organisational forms. This phenomenon is the dark side of the economic and social development of modern societies. Seen from this perspective, the complexity of criminal organisations is a mirror image of modern economic and social complexity.

Operational Definition of Organised Crime and Money Laundering

Traditionally, attempts to define organised crime have caused much controversy and contention. It is possible, however, to determine the conditions required to justify the term "organised crime". These features are highlighted by most modem criminal legislation. The first characteristic is that an organisation involved in the commission of serious criminal offences consist of a group of people who collaborate for a prolonged or indefinite period of time. The second is the use of violence and corruption. Violence or the threat of violence is generally used to enforce discipline within the organisation and to intimidate or eliminate external rivals and threats. Corruption, together with or as an alternative to violence, is used to maximise opportunities (for example, conspiring with politicians in order to have public contracts) or to manipulate the criminal justice system in order to minimise the "law enforcement risk", the risk of being arrested, prosecuted, convicted and/or having the proceeds of crime confiscated. (Corruption need not imply immediate financial rewards but can simply be exchanges of favours.) The third characteristic is the organisational structure, whether hierarchical or flexible. This structure changes according to the tasks of the organisation, which can require information and consequently communication, and to the risk of infiltration. The main purpose of criminal organisations is to maximise profits. In order to achieve this result they need to build up power and influence.

Since money is the main goal of the activities carried out by criminal organisations, it should be possible for criminals to employ it to buy other illicit goods or to invest in legitimate industries. In order to do so the money needs to be "laundered" to disguise its criminal origin. Thus money laundering activities have become an integral part of the criminal cycle which goes from illicit activities to infiltration into legitimate industries. This is what this book calls the organised crime - money laundering cycle.

"Money laundering" is an ever-widening concept and an expression coined relatively recently. In the past, complex manoeuvres to hide the criminal origin of capital or assets were rare because criminal gains were not so conspicuous as they are today, nor were financial systems so transparent as to necessitate such stratagems. Although historical examples of intricate schemes to hide the criminal origin or nature of a transaction can be found throughout the history of the banking system, often in connection with corruption among public officials, the growing use of the expression "money laundering" runs parallel to the profitable development of mass drug markets since the 1960s.

What, are commonly called "money laundering offences" include a myriad of violations of various regulatory and penal rules, including violations of reporting schemes as regards currency transactions and transfers, violations of registration requirements for financial intermediaries, and knowingly possessing or transacting the proceeds of crime.

We will analyse the term "money laundering" according to its components: methods, mechanisms, and instruments. These are connected to the three stages of money laundering: placement, layering and integration. In the initial placement stage, the money launderer disposes of his criminally derived cash proceeds either by inserting them directly into the financial system or by moving them to another location. In the layering stage, the launderer attempts to separate the illegal proceeds from their illicit origin by moving them through a series of financial transactions, hoping thereby to make the connection more difficult, if not impossible, to trace. The last or integration stage is where the launderer creates an apparently legitimate justification or explanation for the laundered funds and openly injects them into the legitimate economy as investment or through the acquisition of assets. In reality this three-stage process is difficult to detect. Often some of the stages occur simultaneously or their timing is somehow inverted.

In all three stages (placement, layering and integration), the money launderer uses one or more of a variety of methods to launder illicit proceeds, and also has at his disposal certain mechanisms and common monetary instruments which facilitate his work:

• By methods, we mean the ways in which the proceeds of crime are laundered, e.g. physical transportation of the cash, sending money by wire transfer or commingling the proceeds of crime with proceeds of a legitimate origin.
• A mechanism may be financial or non-financial. A financial mechanism could be a bank or a non-bank organisation such as a bureau de change. A non-financial mechanism could be any kind of business (a shop, a casino, etc.).
• Instruments such as currency, gold, cashier's cheques, money orders, bank drafts, money transfers, and wire transfers represent some of the more frequently used money laundering instruments. Sometimes, one or more of these stages can be by-passed.

The Money Laundering Phenomenon in Literature

The term "money laundering" appears to have been first used by American law enforcement authorities and to have entered common usage during the Watergate inquiry in the United States in the mid-1970s.¹ But if the term is recent, the concept is certainly one with a long tradition, especially in relation to financially motivated criminal conduct. In this regard, it has been stated that "from the point of view of the criminal, it is no use making a large profit out of criminal activity if that profit cannot be put to use [... ] Putting the proceeds to use is not as simple as it may sound. Although a proportion of the proceeds of crime will be kept as capital for further criminal ventures, the sophisticated offender will wish to use the rest for other purposes. If this is to be done without running an unacceptable risk of detection, the money which represents the proceeds of the original crime must be 'laundered'; put into a state in which it appears to have an entirely respectable provenance."²

Money laundering could be defined as "the process by which criminals attempt, to conceal the true origin and ownership of the proceeds of their criminal activities. If done successfully, it also allows them to maintain control over these proceeds and ultimately to provide a legitimate cover for their source of income."³ This does not mean that all criminals will need to resort to elaborate schemes in order to make the source and ownership of wealth and property appear legitimate.⁴

Indeed, it is possible to distinguish two different types or approaches to the money laundering process. In its first and more limited sense, the term refers to the conversion of cash by exchanging a volume of illegally earned currency for some type of negotiable instrument or other asset that can be used in commerce, without revealing the illegal source of the funds used to purchase it. Organised groups of criminals who use this basic process usually operate at lower levels of trafficking and prefer to spend their earnings quickly.⁵ These criminals deal in cash and avoid financial institutions as much as possible; their criminal associates and suppliers expect cash and pay cash for most living expenses.⁶

In its second and more widely accepted usage, money laundering refers to a sequence of discrete steps that begin where the currency conversion phase leaves off.⁷ These steps comprise the three stages of placement, layering and integration described above.⁸ They can either be separate or form a continuum from the disposal of dirty currency through to its investment in a legitimate activity.⁹

Increased interest in money laundering arose in the 1980s, principally within the drug trafficking context. In fact, the problem of money laundering became more and more acute with the growth in drug trading and the development of new trafficking routes. Not only was there growing concern at the escalating nature of the drug problem, there was also an increasing awareness of the huge profits generated by this criminal activity and also by sophisticated forms of other transnational criminal activities.¹⁰ Other factors may also have contributed to increased perception of the expansion of non-drug-related money.

• the new attention that governments and institutions were and are paying to criminal money of different origins, due to the many incentives to do so coming from international and regional bodies, and to bureaucratic concerns that anti-drug programmes will not have the same budgetary appeal as in the past;
• a quantitative expansion of criminal proceeds from sources other than drug-related crime (such as fraud, smuggling, counterfeiting of goods, etc.);
• the fact that money laundering activities are becoming more professional.¹¹ Criminals (particularly organised groups) are able to offer money laundering services to other groups, and to those that need to launder only small quantities of dirty money. For this purpose, the same kind of money laundering schemes as used by drug money launderers tend to be adapted and improved upon by criminals with non-drug related funds.

The demand for money laundering could be motivated by the following factors:¹²

• the liquidity of funds coining from illegal (and also legal) activities;
• the desire to infiltrate legitimate activities as part of a continuous process which channels the actions of organised criminal groups into either illegal markets or legitimate businesses;¹³
• the need for anonymity in economic operations that some (not always criminal) businessmen and enterprises often have in order to avoid financial regulations and penal legislation and conceal their funds;
• the need to avoid the "law enforcement risk", such as infiltration of the criminal organisation and the arrest of its members;
• the need to avoid seizure and confiscation of the assets and proceeds of crime.

Some of these factors are of fundame...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Acknowledgements
• 1. Introduction
• 2. The Geography of the Organised Crime - Money Laundering Cycle in the European Union
• 3. The European Legislative Framework
• 4. Interactions Between Money Laundering Activities and Anti-Money Laundering Policies: Country Profiles
• 5. Trends
• 6. Policy Implications: More Market, Less Crime
• Index