On "Cooling Hot Money"

17 November 2005

On "Cooling Hot Money"
Transatlantic Trend in Drug-Related Money and its Facilitation
Nigel South
IASOC Criminal Organizations, Vol. 10, No. 1, Winter 1995


This article is concerned with the 'cooling' of 'hot money' and the diversion of the huge illicit profits of the drug business into the legal economy. It reviews trends since the early 1980s in techniques and volume of money laundering, considers some of the legislative and law enforcement measures that have been pursued and concludes with some specific and general observations. (1)


To paraphrase Bertolt Brecht, 'If you want to steal, then buy a bank'.

This article is concerned with criminal strategies involving not theft but drug trafficking, but Brecht's point remains pertinent - one of the best ways to run a criminal enterprise is to have a legal foundation. In the following sections I shall review trends in drug-related money laundering since the early 1980s, drawing on published and unpublished literature and on field-work interviews conducted in Canada in the late 1980s, and in the UK in the early to mid-1990s.

The issue

One of the most important developments in the recent expansion of 'new' financial crime, has been the burgeoning business of laundering 'hot money' generated by the global, illegal drugs economy and 'washed' through the legitimate banking system. The measure of this importance is not simply the amount of money involved but the actual and possible consequences of its generation and circulation.

At the beginning of the decade, 'The Group of Seven's' Financial Action Task Force reported in April 1990 that forty three billion pounds was then being laundered through the Western banking system (Taylor, 1991: 122) For the Task Force, the scale of such dealings justifies ending the conventions of banking confidentiality (ibid) and strong exhortations to banks that they "should know their customers" and be rigorous in verifying the provenance of cash deposits (Levi, 1991 b: 122) Fears related to such large scale money movement include its disruptive and unpredictable impact upon the management of investment planning and the possibility (and reality) of the destabilisation of smaller banking and investment institutions.

In addition, the placing of such large sums in the banking system is fertile ground for corruption. This can occur in terms of individuals accepting bribes to facilitate transactions in ways which do not draw unwanted attention; or in broader, 'organizational' terms, with the compromise or corruption of banking ethics and proper procedures, justified on the basis that such sizeable deposits are good for the bank! As Levi (1991 b: 112) observes, "in competitive national and international markets, bankers can rationalise their moral blindness on the grounds that critical inquisition of potential customers - legitimate and illegitimate - will simply simply displace them to rival financial institutions."

It is, of course, also possible for entrepreneurs within the banking system and financial markets to develop the provision of banking services with the intention that they be manipulable for corrupt purposes. Regulators generally impede such initiatives, although the experiences of the UK and USAm are perhaps different in this respect. Alternatively, financial sector entrepreneurs may subsequently discover the great profitability of such a 'modus operandi'. The case of the Bank of Credit and Commerce International which, whatever the accounts one believes, must fall into one of these categories, is too large a subject to discuss in any detail in this article. However, the revelations and repercussions of the case have brought considerable and needed public and official attention to the potential for 'approved' financial bodies to engage in laundering and fraud, (see Passas, 1994; the self-deluding ability of international banking regulators to either believe the stories they are told or not ask questions at all, is illustrated by Robinson (1994: ch. 15) on 'A Tale of Two Banks', the cases of Banco Ambrosiano and of BCCI).

Before examining the laundering business further, it may be helpful to consider some definitions of the subject.


In a text aimed at US law enforcement personnel studying in criminal justice programmes, Lyman (1989: 135) offers a definition of useful conciseness: "The term 'money laundering' refers to the transformation of illegally obtained currency to that which appears legitimate. In addition, it is the concealment of the illegal source of the income or its applications." A more comprehensive, if somewhat bureaucratic, definition was provided by the US Customs Service in their evidence to the Group of Seven International Task Force (referred to above): "The process whereby proceeds, reasonably believed to have been derived from criminal activity, are transported transferred, transformed, converted, or intermingled with legitimate funds, for the purpose of concealing or disguising the true nature, source, disposition, movement or ownership of those proceeds. The goal of the money laundering process is to make funds derived from, or associated with illicit activity appear legitimate." (Police Review, 1990: 1149).

Levi (1991 b: 111) draws upon Article 1 of the draft European Community Directive of March 1990 which defines money laundering as:

the conversion or transfer of property, knowing that such property is derived from a serious crime, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in committing such an offence or offences to evade the legal consequences of his action, and the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from a serious crime.

A small dictionary of differing definitions could be compiled but perhaps a more useful working interpretation which combines brevity with a degree of analysis was offered by the US Senate Foreign Relations Committee, Sub-committee on Narcotics and Terrorism, which suggested that "money laundering is the conversion of profits of illegal activities into financial assets which appear to have legitimate origins" (1990: 8) and proposed a generic model which identified three stages to money laundering:

  • placement, which is the physical disposal of the cash;
  • layering, the process of transferring funds through various accounts to disguise its origins; and
  • integration, the movement of laundered funds into legitimate organizations (ibid: 12; and Dorn, Murji and South, 1992; see also DEA and RCMP, 1988: 7-10).

The history or etymology of the term 'laundering' probably deserves a study in itself, but popular (and often apocryphal and erroneous) accounts usually associate the techniques of money laundering with the growth of organized crime in the USA. Saltmarsh (1990: 1148), for example, suggests that the term "is reputed to have originated from the 1920s, when the likes of Al Capone and Bugsy Moran quite literally opened up laundry companies in Chicago in order to clean their 'dirty money'".

However, whilst Capone's diverse interests may well have included laundries, his reputation as a financially astute business operator is hardly unblemished and it was precisely his shortcomings in disguising the origins of his funds which enabled his eventual prosecution by the US Internal Revenue Service. Nowadays, "such activities as fast-food outlets, casinos and other cash-based establishments serve the same broad purpose ..." (Saltmarsh, ibid).

Estimates and Centers of Laundering

Despite their variety, definitions may offer more promise of precision than attempts at quantification. Estimates of the scale and volume of laundering can naturally only really represent informed guess work. Examples from the 1970s to the 1990s include the following. The US Senate Foreign Relations Committee, Subcommittee on Narcotics and Terrorism, (1990), offered a figure of $300 billion as generated by international trafficking and in need of laundering in some way. In the UK, a 1989 report of the Parliamentary Home Affairs Committee (1989, vol.2: 124) estimated that around £1,800 million of drug related money flows through the country.

In the USA, one key technique used to generate estimates of money flow is examination of currency surpluses. Over the long term, under normal circumstances, bank deposits and withdrawals will tend to balance out. However, monitors of such money flows, such as the US Treasury Department, use the reporting of currency surpluses in an area to try to trace the large deposits of illicit money responsible for the surplus. For example, as a UN Information Service (1990: 15) report illustrates, the currency surplus of banks in Florida, traditionally the main gateway for cocaine smuggled into the USA, increased from $576 million to $1.5 billion in 1976. By the end of the 1980s, the flow of cash turned into a deluge swamping the entire southern border of the United States.

This development of criminal strategies to 'cool hot money', and related counter-targetting efforts by enforcement and fiscal authorities has continued. It reflects the dynamic and fluid nature of the drug market and associated enterprises and the interactive entrepreneuriality of trafficking and enforcement organizations (Dorn and South, 1990; see also Reuter, 1983). In 1989, according to the Drug Enforcement Report (April 10th, 1989: 5), Federal Reserve Bank statistics showed a cash reserve 'high' in Miami banks of $6 billion in 1985 which then fell in the late 1980s to $4.8 billion in 1988. This reflected a mid-1980s shift in the epi-centre of drug money laundering in the USA, westward to Southern California and the Los Angeles area. The cash surplus in the latter region jumped from $165 million in 1985 to $3.8 billion in 1988, according to the Federal Reserve Bank (Drug Enforcement Report, op cit). (9)

The fluidity of the laundering business, indeed the necessity that it be flexible and able to transfer funds around the international banking network with ease, has in turn necessitated the development of a 'mapping' of what the DEA has called 'Major Conduits and Repositories for Illicit Drug Money', (The Economist, March 4th, 1989: 100). In addition to the three 'centers' of Hong Kong, the Bahamas and Panama, cited in a 1989 State Department list (in the annual International Narcotics Control Strategy Report - a list that was out of date even then), the DEA report (less bound by diplomatic considerations) added a further 16 'centers'. In the USA, these are Houston, Los Angeles, Miami and New York; in Canada, Montreal, Vancouver and Toronto; and outside N. America: Andorra, the Cayman Islands, the Channel Islands, Liechtenstein, Luxembourg, Mexico, Singapore, Switzerland, and the United Arab Emirates. Others that may be added in the future, would include Uruguay, "with banking-secrecy laws to put the Swiss to shame", (The Economist, March 4th, 1989:100). For the mid-1990s, this list is probably as applicable as ever, even despite recent legislative moves to 'tighten up' loopholes in several countries.

Regulatory intervention versus globalized financial markets?

The range of interventions, strategies and international agreements developed to break the money laundering chains are wide-ranging and quite sophisticated - however they are not working. Or at least, not very well. To criminologists, if not to regulators, this may be no surprise. Illegal markets may reflect many characteristics of legal ones but do not necessarily conform to the (often stereotypical) models of organization which regulators and law enforcers may adopt (Reuter, 1983; Ruggiero and South, 1995). Money laundering is very big business but it is not necessarily easily controlled by 'very big' 'international agreements', 'enforcement stings' or 'revenue and taxation strategies'. It is an interstitial phenomenon and it takes advantage of, and integrates into, legitimate systems of commerce which are - from the parochial to the multi-national - necessary to the functioning of economic societies. Money laundering cannot therefore be controlled as if it were simply an unwanted slice of the pie that can be cut out and discarded.

Laundering strategies involve financial transactions the size of which are extremely profitable and hence attractive to the legitimate financial enterprises that process them; laundering diverts money from an illegal economy into needed and welcome investment in the legitimate economy; and, generally, it is now so well integrated into the 24-hour a day global network of financial transactions that it's curtailment might - we could speculate - have consequences beyond those that legislators and enforcement officials conventionally suppose. Taylor (1992: 190), for example, points to "the broader economic context" within which money laundering occurs:

the internationalization of finance markets and the competitive struggle for a secure store of value, within which any significant transfer of capital and value must now take place. The rapid movement of money between financial markets, whether carried through airports or transferred between computers via Electronic Data Interchange, is now a condition of survival for any serious financial player. There is a kind of iron logic here which applies to legitimate as well as illegitimate capital.

This is not to suggest that 'nothing can be done' or that 'no measures will have any effect'; it is to suggest that the measures against money laundering that are currently in place are still quite limited (although developing rapidly, Levi, 1991 a) and to succeed in the future may need to be broadened to penalise the financial system that currently profits from the 'cooling of hot money'. Against this proposition however, must be set concerns about the extent to which ªg Government and international regulation of the banking system suggests that financial institutions are in danger of becoming "an arm of the state" (Levi, 1991 a, b).

Measures against Laundering

In the UK, the 1980s saw the introduction of a range of legislative and investigatory initiatives. Since 1984, when the Police and Criminal Evidence Act was passed, there has been a vast transformation in the range of legislation encroaching on the privacy of banking records. The movement in the direction of encouraging and, in an increasing range of cases, of requiring 'active citizenship' on the part of the banks has as its objectives (1) to prevent criminals from benefiting financially from the offences for which they have been convicted, and (2) to deter them and others from committing crimes for gain in the future. (Levi, 1991 b: 110)

The drafting of provisions in the important UK Drug Trafficking Offences Act (DTOA) ²986) reflected the belief of Government, Parliament and law enforcement bodies that the UK financial system was (and is) facilitating a considerable amount of drug related money laundering: "there must be a vast amount of money circulating within the legitimate banking system that is drug related" (evidence of the National Drugs Intelligence Unit to the Home Affairs Committee, NDIU, 1989: 116). The DTOA is a key piece of legislation in the setting of precedents for the erosion of banking confidentiality in the UK. It is of considerable note in legal terms in two other respects, which also reflect the influence of US innovations.

First, in the reversal of the onus of proof, (theoretically) placing this not upon the prosecution but upon the defendant when it comes to satisfying the court as to the source of identified funds. Second, and with particular relevance to the actions of the financial institutions affected, the offence created by s.24 occurs if there is knowledge or suspicion of funds being the profits of drug trafficking - traditionally 'suspicion' has not been sufficient grounds for action within English criminal law. Amendments to the Act continue to modify its interpretation and use, but its principles remain the same.

For present purposes, I shall not examine the UK experience much further. However, I would argue that in three ways the UK case is a good introduction to the 'global stage'. First, because it has been very active in European and Commonwealth bodies concerned with drug trafficking and money laundering, and in promoting and initiating International Mutual Legal Assistance Treaties (which aid extradition of traffickers to the countries where they are wanted and also assist in financial investigations; eg see Levi, 1991 a: 287-295). Second, because the UK has so often been the apparent servant or ambassador for Washington DCs 'internationalization' of its' 'War on Drugs'. (10) And third, and relatedly, because the UK government and enforcement agencies have traded upon drug crime and associated 'threats' (arms, terrorism) as symbolic issues: within the international community, highlighting their contributions to cooperative action; and for domestic audiences, being able to show the tough line of taking action against an external threat. Again US influence and the real and symbolic (if waning) 'special relationships' between governments and enforcement agencies have played their parts here (although so too has the over-arching hegemonic 'internationalization' of US law enforcement, see Nadelmann,(1993) for a brilliant review).

In Europe, a number of countries have now adopted legislation allowing for or requiring the reporting of financial transactions which could be related to drug trafficking. For example, in 1990, Spain, which had been the target of some criticism for not appearing to be doing enough to break the cocaine traffic which is channelled through it (and Portugal) from Columbia and elsewhere, introduced legislation obliging bank officials to report suspect transactions to the Bank of Spain. In 1991 the first arrests and charges were made under the legislation and involved the laundering of £8 million of cocaine-related money (The Observer, 7th May, 1991). Other countries are introducing similar measures and there are even changes to legislation concerning the banking systems of traditional 'havens' such as Switzerland, Luxembourg and Liechtenstein (Nadelmann, 1993: 389 and 384-396 passim).

The work of the Trevi Group, the Pompidou Group and the 'Group of Seven' International Task Force on money laundering are all representative of European Union (formerly known as the European Community) and wider European cooperation on trafficking and laundering (see Levi, 1991 a; Taylor, 1992: 181-2). Additional momentum was given to the forming of legislation by the support of many countries for the UN Convention on Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988). The UN Convention removed principles of 'banking secrecy' as a reason for refusing to divulge information about trafficking activities and requires signatories to make laundering a criminal and extraditable offense (US SFRC, Subcommittee on Narcotics and Terrorism, 1990: 56-9; The Economist, 1989: 5). However, as Robinson (1994: 36-37) observes, while 80 nations agreed to these principles, 80 is less than half the UN membership and by 1993 only four of the 80 had actually signed.

International cooperation is also enabled by bilateral agreements. Within such 'bilateralism', the US brings to bear continued pressure upon its various 'partners' to step up their contributions to the 'global war on drugs' (despite a degree of hypocrisy in this suggested by CIA use of banks such as BCCI: Levi, 1991 a: 301, fn. 19; Passas, 1994: 75-76; see also Chambliss, 1989: 189-90 on the Nugan Hand bank established in Sydney, Australia in 1976 and used by the CIA; and Robinson (1994: 40) on an even earlier - 1953 - case of CIA laundering in relation to plans to reinstate the Shah of Iran). Such pressure from Washington is premised upon a position long held by the US DEA (since around 1978: US General Accounting Office, 1984: 5) that if traditional law enforcement efforts have so evidently had limited impact upon the organization of drug trafficking, then a new strategy is called for. Pursuit of the assets of entrepreneurial crime may succeed in the destabilisation of trafficking networks where traditional emphasis on prosecution of the 'leaders' of 'organized crime' has manifestly failed (Dombrink and Meeker, 1986; Dorn, Murji and South, 1992).

In the USA, extensive powers of financial investigation are afforded by several pieces of legislation. It might, however, be noted that this very extensiveness is not necessarily conducive to swift or efficient investigation. Consider, for example, the amount of paper (reports, documentation etc) involved in banking compliance with the requirements of an important piece of 1970s legislation:

... the 1970 Bank Secrecy Act which requires a Currency Transaction Report to be filed by financial institutions whenever a currency transaction is $10,000 or more. A second document required under Federal law is the filing of the Currency or Monetary Instrument Report for transactions involving currency or monetary instruments exceeding $5,000 which are taken out of the United States. Finally, a Foreign Bank Account Report is required whenever a person has at least $5,000 in a foreign bank account. In all cases Federal law requires a five-year 'paper-trail' must be maintained for accountability. (Lyman, 1989: 135; see also the discussion of, and reservations about, the US approach to bank confidentiality in Levi, 1991 a: 248-54).

The other key piece of US legislation employed in this sphere has been the RICO (Racketeer Influenced and Corrupt Organizations) statute, 1970, which enables the freezing of assets to prevent their liquidation and upon conviction provides for the seizure of the profits and proceeds of 'organized' or entrepreneurial crime. Civil provisions are also available under the statute for use against those who have not been brought to trial but whose involvement in the matters under investigation can be established on the basis of a lesser standard of proof than that demanded by the criminal law (ie 'proof beyond a reasonable doubt') (Lyman, 1989: 128-9). This provision, whilst a powerful tool to employ in cases where a clear avoidance of justice might otherwise follow, is nonetheless a potential source of the erosion of civil liberties and of the validity of traditional expectations about the workings of the court. Use of RICO has been given some renewed emphasis since 1990 and the passage of the 1990 Depository Institution Money Laundering Amendment Act "which put the burden to report transactions squarely on the shoulders of banks' directors" (Robinson, 1994: 34).

Laundering: How does it work?

At the international level, banking institutions are an obvious conduit for transferring funds abroad if the various checks noted above are not triggered or are otherwise circumvented. But outside the 'traditional' banking system, purchase of instruments conventionally used for overseas exchange purposes, such as travellers cheques or bankers drafts mean that as well as banks, Bureaux of Exchange and Travel Agents can be used by launderers. As Robinson (1994: 38-39) reports, money changers and casas de cambio, casinos and race tracks and so on, offer both new and 'traditional' methods of taking care of the laundry. The purchase or control of such organisations by laundering entrepreneurs has been discovered in many cases. In parts of the USA (New York, California, Florida, Texas) 'store-front' money-transmitting businesses, legitimately in business to 'wire' money to other countries, (eg to relatives), and cheque-cashing operations, have flourished - but most are unlicenced, unregulated and illegal and US banking regulators have estimated that they are involved in the laundering of "billions of dollars" of drug related money (New York Times, 25th September, 1989).

The practice of 'hawallah', 'hundi' or 'chiti' banking within different ethnic communities, enables the avoidance of any conventional paper record of the financial transaction (ICPR, 1989). Such methods do not require the actual movement of money but nonetheless facilitate the payment of funds to another party in another country in local currency, drawn on the reserves of the overseas partner(s) of the Hawallah banker. The system is dependent upon considerable trust and considerable simplicity - the identifying receipt for a transaction being something as innocuous as a playing card or post-card torn in half, half being held by the customer and half being forwarded to the overseas hawallah banker. In his case-study of laundering through the financial enterprises of Hong Kong, Gaylord (1990: 28) describes such an "underground" banking system>

controlled almost exclusively by Chinese, (it) operates through gold shops, trading companies and money changers, many of which are operated around the world by members of individual families. This system grew out of a combination of historical distrust for banks, political turmoil and communist takeovers in many countries where the Chinese resided and were constantly harassed. Out of necessity, the Chinese have developed a business style that, to Westerners, seems extremely secretive. However, bitter experience has taught these people well that the only reliable unit of business is the family.

The record keeping procedures of the underground banking system are nearly non-existent. Coded messages, 'chits' and simple telephone calls are used to transfer money from one country to another. The system inherently provides anonymity and security for the customer, converts gold or other items into currency and converts one currency into the currency of the customer's choice. When it is necessary to transfer money to Southeast Asia from Europe or the United States, commercial bank facilities are utilized to augment the underground banking system.

Purchase of property or valuable goods can hide the origin of funds, and paper inflation of the supposed value of, say, a work of art, achieved through false invoicing, can also disguise the offloading of funds. A Scotland Yard detective writing on this area, Graham Saltmarsh, (1990: 1149) noted evidence of "so-called drug barons ... purchasing works of art stolen to order by international art thieves." (A nice suggestion of the criminal economy becoming self-sufficient!). Finally, of course, money can simply be carried, ie muggled, out of the country and the immediate jurisdiction of investigating authorities.

The permeability and vulnerability of the sophisticated system created to facilitate the ease of movement of legitimate capital is clear. In a fundamental sense, the system is therefore a 'victim' of its own success. Its' rapacious growth, greedy need for the continued (now 24-hour a day) movement of capital, and its modern willingness to 'deal first, ask questions later', all make it an oddly compliant protester against the 'abuse' of its facilities. However, it is also true to say that, in another sense, the system is also the victim of innovative endeavours to subvert or circumvent (sometimes) quite sophisticated monitoring and security procedures. For example, the extensive and elaborate checks against laundering provided for by the US Bank Secrecy Act (above) are undermined by the now well-known technique of 'smurfing'. This involves the employment of numerous (metaphorically) little people (or agents) who act as money couriers and make similarly numerous small-scale transactions of amounts just beneath the $10,000 reporting limit. Vast amounts of currency exchanges avoid the need to deal with a more heavily regulated banking system yet are necessarily involved in a vast amount of cash exchange.

Brokerage houses are given to accepting large cash deposits to negotiate on behalf of legitimate customers such as foreign banks or important customers. If such legitimacy can be established, through small-scale subterfuge or large-scale measures such as orchestrating control of a bank or facilities within it, then the transformation of 'hot' cash into 'cool' securities, exchangeable for clean cash later, is a sound method of laundering. The anonymity of financial tax havens for the legitimately or semi-legitimately wealthy is also take advantage of by the illegitimately wealthy. No big surprise here, except - it sometimes appears - from the 'shocked' administrators of such 'off-shore' banking havens. However, here the depositing of such funds is only the initial phase of laundering - to realise and use such funds, a method must then be found for moving the money on to its ultimate point of destination, or, perhaps more preferable, for 'repatriating' the funds.

One technique employed in this enterprise is the 'loan-back method'. This, in essence, allows the money launderer to 'borrow back' the money that has been placed elsewhere. This works by setting up a corporate identity in an area with lax financial reporting requirements, generally using a local law firm as intermediary to conceal the identity of controlling interests. Next a business that operates in the launderer's own country is purchased with a nominal deposit - the balance of the purchase price is provided by a 'loan' from the offshore corporation or bank set up earlier; ie the launderer is lending to him or herself. Repayment of the loan now continues on a regular basis, as if the legitimate local company was simply paying its debt. Originally 'hot and dirty' money has now returned to the country as 'cool and clean' funds used to purchase a legitimate business. Further funds can then be sent out to the offshore bank for laundering in the form of debt-repayments; as 'legitimate' business expenses, these repayments may also attract tax benefits and exemptions.

The establishment of offshore corporations or banks is central to many methods of laundering through the international markets: for example, simple direct investment in profitable, legitimate ventures; or false invoicing and accounting that depends upon a supplier of goods or services (the offshore corporation) being able to inflate prices charged so that there is a difference between the real value of goods and what is paid for them - this difference being 'skimmed off' and deposited in other offshore accounts. Investment in property markets and laundering through the securities markets are also facilitated by creating an offshore corporate identity.

Observations and Conclusions

There are many limitations to the success of law enforcement and financial investigation efforts directed against drug-related money laundering. Serious practical problems were identified by the US SFRC Subcommittee on Narcotics and Terrorism (1990: 35-40) as: (i) the lack of coordination between the multiple agencies (national and international) involved and limited intelligence sharing; relatedly, (ii) lack of cooperation between agencies at different 'levels', eg regional or state versus national and federal; and iii) the shortage of 'human resources' involved in the "labor intensive and time consuming work" of investigating suspected violations.

These are important practical points but they also illuminate the limitation of vision that has prevailed in the 'war on drugs' law enforcement mentality. There is little sense here of trying to understand the 'big picture'; of questioning either the origins of the problem being fought or the methods and assumptions adopted in that fight (cf Taylor, 1992: 191-192). For example and crucially, we should note that trafficking and associated laundering have, in large part, been stimulated by the debt crisis of many Latin American (and other) countries. As a report from the UN Information Service (1990: 15) pointed out:

Loans from US banks to developing countries set the stage for this crisis, and defaults on the loans undercut the stability of the US banking system. Now the proceeds from drug trafficking are helping to buoy the liquidity of US banks and figure prominently in payments on Latin American debts. The impact of coca dollars in the western hemisphere now extends from peasant farmers in the Andean mountains to national governments across Latin America and the boardrooms of major banks.

It is also worth observing that not all financial crime is as hotly pursued as the laundering of drug money. This may be for several reasons; perhaps because of the easy rhetoric that can justify virtually anything in relation to drugs law enforcement; or because of associations with 'foreign corruptors' - so much more identifiably criminal than London 'City' crime or Wall Street crooks. The consequence though, as Levi (1991 b: 112) points out, is that "concentrating on drug money is 'to leave virtually untouched many of the so-called white collar criminals who may be just as guilty of violating reporting requirements ...'" (Levi quoting Permanent Subcommittee on Investigations, 1985: 20).

This is quite correct and whilst, as I noted above, BCCI is now well known as a case involving drug money laundering, its' other activities and frauds ought to overshadow this issue. Furthermore, the amount involved in such drug money laundering can actually seem small when compared to other instances of financial violation which have come to light. Famously, for example, in 1985 and 1986, the First National Bank of Boston and Crocker National Bank were penalised for $5 billion worth of violations of the US Bank Secrecy Act; the Bank of America was fined $4.7 million for similar offences, (Oxford Analytica, 1988: 10; see also Gaylord, 1990: 26 and 34, fn. 3).

What Levi (1991 b: 119) calls the 'global regulatory complex' is growing but so too are the laundering networks and trafficking enterprises. Eastern Europe is already a new, key market as well as distribution network for traffickers in the mid-1990's (Ruggiero and South, 1995) and with the privatization of banking systems, those same countries, so anxious to attract western currency and often with stringent banking laws (eg Hungary), are also becoming participants in the global laundering complex.

All of this may be a post-modern vision of globalised enterprise and innovation. Fittingly confusing, where the methods of illegitimate players reflect the methods of the legitimate participants, and where, at the end of the day (if there were one in a 24-hour global banking system) it is no longer clear which transactions are criminal and which are not (). In this respect it can be argued that the legitimate financial institutions benefit from the movement of laundered funds just as the launderers do.

Whatever further legislative developments are forthcoming, the question must be asked: "What is all this extra policing of banking transactions likely to achieve?" (Levi, 1991a: 294-5). Levi's (ibid: 295) realistic assessment is that:

neither the supply nor the consumption of narcotics, nor levels of fraud or terrorism, have been abated in any obvious way or to any dramatic extent by money laundering regulations hitherto, and it is a matter of faith rather than of historic evidence that they will be so abated in the future.

It has also been observed that there are larger issues to consider, concerned, for example, with the production of drugs and the significance of this production for Third World economies; and the conditions stimulating demand and consumption in the USA and Europe (Taylor, 1992: 192). The 'problem' of laundering drug profits cannot, ultimately, be resolved unless there are no profits to launder.

Dr Nigel South is Senior Lecturer in Sociology and Criminology at the University of Essex, England. He has published widely on drug-related issues and on private policing. His recent books include (with V. Ruggiero) Eurodrugs: drug use, markets and trafficking in Europe (London: UCL Press, 1995).


1. This article does not deal in detail with the history of, or problems associated with, legislation enabling financial investigations by police and others. This area now seems to be well covered in a voluminous literature in North America and the UK. For some comparative starting points see: Levi, 1991 a, b; Zander, 1989; Dorn and South, 1991; Taylor, 1992; Gaylord, 1990; Nadelmann, 1993.
2. Actually involving representatives of Germany, Australia, Austria, Belgium, Canada, Spain, USA, France, Italy, Japan, Luxembourg, the Netherlands, the UK, the EC, OECD, the IMF and the Bank of International Settlements (Levi, 1991 b: 122).
3. In the UK, the police 'trade journal', Police Review (1990) reported that the Task Force "conservatively estimates that the combined sales of heroin, cocaine, and cannabis in the USA and Europe are US $122 billion (£74 billion a year) of which 50 to 70 per cent - up to US $85 billion - is then made available for laundering and re-investment. This works out at US $232,000 a minute!" These are, however, fairly spectacular figures, and with regard to the extent of money laundering via London (and generally), Levi (1991 a: 221, fn. 3) reasonably voiced some scepticism, calling them "unsubstantiated" and "dubious".
4. In response to this and reports from several European nations and US and Canada, there have been exhortations and guidelines issued to banks and other financial institutions to tighten up their practices. Guidelines basically suggest ways in which to 'spot' and hence try to prevent 'laundering'. According to UK HM Customs, in 1991 other financial institutions such as stockbrokers, insurers and currency dealers (anyone dealing in large amounts of cash) were told to "step up their watch for potential drug money" (London Evening Standard, (Financial Section) 15th January, 1991). This 'Know Your Customer' strategy is discussed in Robinson (1994: 291-296).
5. This is quite apart from the related issue of how drug trafficking profits can underpin and/or undermine whole national economies, as in parts of Latin America. This aspect cannot be explored in this paper but for discussion of issues raised, particularly with reagrd to US foreign policy see: United Nations Information Service, 1990; see also Dorn and South, 1992; Taylor, 1992; Nadelmann, 1986.
6. As Passas (1994: 70) argues, the various differing accounts about the criminal career of BCCI are not "necessarily competing interpretations - in a mind-boggling case like this, it would be unrealistic to seek a single theory to explain everything."
7. I am grateful to Mike Woodiwiss for pointing this out to me (personal communication). Woodiwiss suggests that: "During the 1920's, few gangsters would have felt it necessary to disguise dirty money due to the lack of inclination or interest by local and Federal policing authorities. After Capone's conviction, and greater Federal financial regulation during the New Deal, smarter operators like Meyer Lanski probably saw the need to pioneer new laundering techniques." (See eg. Naylor, 1987; and for a general and illuminating history of 'organised' and 'disorganised' crime in the USA, see Woodiwiss, 1988).
8.Following the famous Pizza Connection case which ran as a Mafia operation in the early 1980s (see Francis, 1988: 249-50) pizza chains have become almost an 'urban myth' as the stereotype of a money-laundering 'front'.
9. See also the discussion of money flow from Hong Kong to San Francisco in the 1980s, in Gaylord (1990: 27); and also via Canada to the USA, in Francis (1988: 239-296).
10. The argument put forward by Bullington and Block (1990: 39) that this war is a 'Trojan horse' that is really underpinned by traditional anti-Communist foreign policy concerns, is pertinent here. See also Levi (1991 b: 110, fn) on "the War on Drugs" as a "useful pretext for US involvement overseas."
11. The professed 'shock' of such bank officials brings to mind Claude Raines as the police chief in the film Casablanca, who is 'shocked' to find gambling taking place at Rick's bar, even as he accepts his winnings from the tables.
Note also that the term "offshore" can be a loaded one, seeming to imply unregulated and corrupt 'foreign' financial havens for the criminal. Yet, for UK authorities, the USA can be seen as 'offshore', and vice-versa.
12. As Gaylord (1990: 30-31) observes, in the current highly competitive market, "banks and brokerage companies often compete, not always unwittingly, for highly questionable business. Under such conditions, even banks with high professional standards are reasonably comfortable in the stance that such large cash deposits are simply 'black' (i.e. is untaxed or from the 'underground economy') rather than 'dirty'."


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