In the Vincent Calvino series, the novels are divided between crimes that are domestic in nature—though an expat might be involved—and those with and cross-border connection. The distinction between international crime and domestic crime often blurs once cash enters the picture. Mountains of cash from illegal activity make for strange bedfellows inside the world of crime.
In a globalized economy, crime has been at the vanguard of moving money, people, and products around the world. Criminals have an incentive. They don’t want to get caught and sent to prison. So they put money, thought and time into avoiding risks. In the shadowy world of illegality world, the basic business skills are largely the same. But there is an important difference.
First, the criminal is relying on gaps, flaws or holes in the system, and similar gaps and flaws in the moral and ethical values of those who run the system. They exploit both. Second, criminals use threats, guns and violence if things go pear shape. Rather than recourse to the police or courts to redress breaches, criminals have their own methods of settling disputes. It’s called intimidation and violence. Legal businessmen delegate the intimidation and violence to entities of the State. They have less need to get blood on their hands.
Law enforcement has traditionally been a local affair in most countries because most crimes have been local in nature. The criminal and victim were from the same city, province, county and/or country. A case can be made that organized crime kicked started globalization. The British Opium Wars in the early 19th century is a good example of a legitimate business becoming a crime syndicate (looting and pillaging by merchants/warriors/politicians has a longer history).
As part of its empire and trade-expansion imperial policies, Britain lent military assistance to The East India Trading Company (which became drug dealers but they weren’t called that) who used guns and canon to force open the domestic market in China to sell massive quantities of opium to the Chinese. The British were able (because of the opium business) to cut their trade deficit. Fiscal and monetary policy had different moral dimensions in the 19th century.
Organized drug gangs continue to operate but they no longer have the overt support of a government, which supplies them military muscle, tax benefits and place their officers on the annual Honors List. There will be readers who will cite examples of contemporary thugs who have received a gong before eventually finding their way to a prison. All of that is true but beside the point. I am speaking about a change in the general arc of history. There has been a shift—led by technological innovations—that continues to weaken the link between organized illegal activities and government officers.
Not all the forces inside governments are working to change the analog cash system. You would expect eliminating corruptions to be a priority but that lofty goal also means the breaking of many rice bowls that have been inside the system for generations. Giving up easy money is harder than kicking a drug habit. Reformers are put on committees to write reports and show the way. But nothing much happens at the grassroots level, at the end of the money pipeline where the rural school teacher, hospital worker, prison guard, cop and migrant worker are waiting for pay day. That is money raked off inside the government system by officials skimming money from the low-level beneficiaries.
The other unofficial source of revenue for government officials is generated from illegal activities such as drug trafficking, logging, prostitution, gambling, and smuggling. Let’s have a look at opium. A big, profitable market that despite law enforcement efforts shows no sign of slowing down in Southeast Asia.
The current opium production in Southeast Asia is on schedule to record a bumper crop year. That means a couple of things: (1) moving the product across borders; and (2) laundering mountains of cash.
When the opium finds its way into the international market, how do governments in the region enforce the law? The poppies are grown in one place. The processing of the poppies into opium paste takes place in another place. The storage and transportation are likely in other locations. And the flow of money crosses multiple borders, going through numerous bank accounts. Some of that money is paid as bribes to politicians, cops, military personnel, customs inspectors, and others in the chain of security, protection and enforcement. Organized crime is highly profitable because it has the ability to patch together a makeshift set of mutually beneficial relationships that thrives on secrecy, non-traceability, and the sanctity of borders.
Co-operation between various levels of law enforcement and security officials complicates the risk factor for organized crime. By allowing co-operation across the borders, the sharing of technology and information, the cost to organized crime bosses increases dramatically. It is like insurance premiums. If that huge, devastating flood only occurs once every hundred years, the cost of insurance is relatively low. But if the hundred-year flood level happens every six months, the cost of insurance skyrockets to the point no one can afford to buy insurance. Successful co-operation is a real threat to transnational crime.
Everyone sees the part of the elephant standing in their district but don’t see the overall dimensions of the beast. According to the Bangkok Post, 43 Thai cops traveled to Hong Kong to meet their police counterparts. The idea was to establish co-operation between the two police forces. They can exchange information about finances and training, for example. Hong Kong and Thai authorities have promised to enter a memorandum of understanding on the nature and scope of their co-operation. What crimes and in what circumstances co-operation will occur remains to be hammered out. Whether anything tangible will arise from this arrangement is impossible to know at this stage. It is hard enough to get people within in the same department to co-operate. Extending co-operation across borders with different traditions, languages, and customs is what is called a ‘challenge’.
In this part of the world the problem is often not lack of co-operation but that there is too much co-operation between law enforcement, civil servants and politicians and the organized big league crime ventures. A glimpse of that organized crime world of powerful insiders using thuggish methods to drive out competition was revealed recently in China. In this ‘business’ model the local government ran the organized crime business through their friends and associates and those who tried to compete found themselves beaten and tortured and driven out of the country.
The Chinese government released information about Bo Xilai, the Chonguing party chief who recently lost his job in a power struggle. The New York Times reported:
Once hailed as a pioneering effort to wipe out corruption, critics now say it depicts a security apparatus run amok: framing victims, extracting confessions through torture, extorting business empires and visiting retribution on the political rivals of Mr. Bo and his friends while protecting those with better connections.
How best to approach the problem of corruption and organized crime in league with government officials? Follow the money. The pain criminals feel the most is when their traditional money routes are closed down. Big, organized crime is a headache because it is largely a ‘cash’ business. How does the criminal with bags of bank notes work the cash through the financial system? Brokers arise whenever there is a market. Cash is a market and brokers create an informal banking system to launder the illegal funds.
Money laundering legislation has slowed down but not stopped the Amazon River flow of cash. This is particularly true in less developed countries where there are few banks and almost no one has a bank account. Cash in hand systems are vulnerable to corruption. Every time money stops at someone’s desk on the journey from the person who sent it and the person who will eventually receive it, someone is taking a piece of the action. This rent seeking happens in the underground economy as well as in banks in legal economy and we call these fees. In the underground world, we call this corruption if the person exacting a fee is a government official.
In Afghanistan, payrolls for the ordinary cop and low-level officers were first distributed by higher-level officers, who took their cut before passing the cash down the line. A Vodafone program, first created for payments in microfinance operations in Kenya, was adapted to pay the Afghan police directly through their cell phones. That computer program caused mixed feelings. The high command hated the innovation. But low-level police thought they’d receive a raise. It was the first time they’d received a payroll without someone above skimming off the top. They loved the new system. In a country where very few people have bank accounts and there are a handful of ATM machines, banking through a cell phone is a mini-revolution. It is also an effective way to reduce corruption or, to use the lovely term, ‘money leakage’.
One frustrated commander demanded that his officers turn over their phones and PINs and attempted to collect their salaries from an M-Paisa agent.
India is examining the new technology to increase the reach of electronic transfers as a way to reduce government corruption. Argentina used electronic voucher cards as part of a successful campaign to beat corruption.
Money as a physical object is so much a part of our experience that it is difficult to believe there were long stretches of history when our ancestors didn’t use coins or paper money. We are going to a financial system that is digital. The knock-on effect means that electronic money transfers will continue to reduce the role of physical money passing through many sticky fingers.
Organized crime works at the municipal, county, provincial and national levels in many countries because corruption is difficult to root out. The technology is available to largely eliminate corruption. But those who benefit the most from the current cash and carry and skim system are not likely to step forward as willing first adopters. One would expect those with vested interest to subvert attempts to bypass the original channels in which cash flows.
Meanwhile co-operation between police forces across borders makes for a good study trip to another country, the hotel buffets, the sightseeing, and making of new friends. But let’s be honest. The problem isn’t lack of co-operation, as the officials often co-operate a bit too much. The problem is finding a direct way to make payments that avoids pushing bags of cash down the old traditional ramps in a world where the most powerful porters drive Benzes and live in mansions.