The dark figure of money laundering
Article-type: Editorial From: Journal of Financial Crime, Volume 22, Issue 4
http://www.emeraldinsight.com/doi/10.1108/JFC-07-2015-0035
The dark figure of crime is concerned with the unrecorded crime or the unreported offence that has gone unnoticed by the police and statistics. As a component of the dark figure of crime, the difficulty in generating real life statistics for money laundering activity can be explained by the perception that it is a so-called “victimless” crime. MacDonald (2001) outlines generic reasons that influence the under-reporting of crime, including socio-economic factors, attitudes to the police, incident specific factors, criminality and data discrepancy. In the sphere of money laundering through the formal financial system, reasons for unrecorded activity are less explanatory.
Money laundering is essentially concealing the illicit origin of the proceeds of crime to make them appear legitimate. The act of washing money, does not, in itself cause physical harm to a human being; rather, launderers who wash money through the world’s financial institutions are simply using the banking system as a necessary commodity. The activity of money laundering and the fact that it takes place in a financial landscape, criss-crossing many jurisdictions, creates a disconnection between the criminal launderer and his victim/s. This means that there is often no identifiable “victim” who can report the crime of money laundering. Rather, regulators and law enforcement agencies rely on the filing of suspicious transaction reports by suspecting bank officials: simply put, money laundering activity is reported by an institution and not a single victim.
However, if we class financial institutions as the ultimate victims of money laundering, then the ability of banks to file suspicious transaction reports depends upon their relationship with the offender: the launderer (MacDonald, 2001). The relationship between the bank and the client-launderer is paramount to the ability of the institution to efficiently report money laundering activity to law enforcement agencies. If a banker knows that laundering is taking place within their establishment but they have a relationship of trust and confidentiality with a client, then they may be disinclined to file a suspicious transaction report. The reluctance of a bank to file a suspicious transaction report if they are aware that laundering is taking place within their system, may be further evidence of that financial institution’s “own criminal inclinations and, hence, their indirect antipathy towards the police” (MacDonald, 2001), and this can influence their decision not to file a suspicious transaction report with the financial intelligence unit. Ultimately, a lack of suspicious transaction reporting can create a dark figure of criminal money laundering activity or a void of recorded offences.
In his seminal work, Skogan (1974) describes the process in which crime is recorded regardless of the individual peculiarities used by law enforcement agencies used to define an activity as a crime. He states a generic three-stage measurement process of: uncovering, classifying and recording the crime. Skogan pertinently recognised that events which went through the three-stage process would affect the final distribution of recorded crime figures in a given area. Certainly, money laundering activity would go through Skogan’s “filters” of classification if the event surfaced in everyday life. However, laundering the proceeds of crime is a highly secretive and covert operation – making it at times impossible for law enforcement agencies to identify the origins of criminal proceeds.
However, Skogan asserts that uncovering the crime in the first place is the primary step in recording criminal activity. When applying this theory to money laundering activity, there are no reports of victimisation to be relied upon, rather money laundering through financial institutions is uncovered as a result of filed suspicious transaction reports to financial investigation units coupled with proactive policing. As a victimless crime, uncovering the incidence of money laundering remains reliant on the available resources of transparent financial institutions working alongside law enforcement agencies.
Li-Hong Xing and Mary Alice Young
References
MacDonald, Z. (2001), “Revisiting the dark figure: a macroeconomic analysis of the under-reporting of property crime and its implications”, British Journal of Criminology, Vol. 41, pp. 127-149.
Skogan, W.G. (1974), “The validity of official crime statistics: an empirical investigation”, Social Science Quarterly, Vol. 55 No. 1.
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