Tracking cash to crack down on organised crime

In his article of 20 December, Jonathan Lipow, Associate Professor of Economics at the Defence Resource Management Institute at the US Naval Postgraduate School, argues that the abolition of cash would make the financing of terrorism a lot more difficult. Lipow updates us on the intriguing technological developments that open up the possibility of using electronic cards for direct money transfers from one person to another – even in remote areas that are not only offline but also without connection to a power grid. While there are significant arguments about individuals’ right to privacy, there are also some important reflections to be made.

• It is the political, institutional and cultural will and ability to develop a cashless society that is the constraint, rather than technological difficulties.
• Improving our ability to track money flows is not only important for fighting terrorism, but also for cracking down on organised crime, tax evasion, corruption, money laundering etc., and for formalising the informal economy. A broader tax base means increased revenues, better governance, more accountability and fair economic competition – to the benefit of everyone.

A good place to start is the withdrawal of the highest value paper notes (as argued by Lipow), for instance the EUR 500 note. Nevertheless, it will take time to reduce our dependence on cash, and it will be counterproductive to have this as the primary approach.

It is important to acknowledge that the larger part of illicit financial flows is already transferred electronically. A whole range of effective measures can be taken to enable us to track this money.

Financial institutions in most countries are required by law to report on any indication of irregular financial transactions. Electronic monitoring and active surveillance by banks can reveal and, perhaps even more importantly, prevent criminal activity by raising the costs and the risks involved.

In Norway, we are also trying to make it more difficult to make and spend money illicitly. As of 1 January 2011, it will be prohibited to pay in cash for manual labour, and anyone buying goods and services in the informal economy will also assume financial responsibility for the seller’s actions.

After 9-11 we have made important progress in closing financial loopholes and in strengthening international investigation and intelligence cooperation, but there is still a long way to go.

It is still far too easy to conceal cross-border transactions, stash away capital in tax havens and secrecy jurisdictions, exploit financial vehicles for money laundering purposes, etc. The single most important measure the global community can undertake is probably to ensure transparency. We should not accept the fact that certain jurisdictions can undermine the legislation of other states by offering financial secrecy.

Banks, financial advisors, lawyers, accountants etc. should stop facilitating illicit flows. They should face stronger regulations and sanctions.

Cooperation between monitoring, investigating and prosecuting institutions must be strengthened – at both national and international level. Improved statistics and financial data must be made accessible for analysis and intelligence.

The confiscation and restitution of stolen assets is important as a deterrent. The prosecution of individuals is often more effective than corporate penalties.

Increasing our knowledge of how the profits from organised crime are laundered and transferred across borders, often through commercial and financial vehicles, is the objective of an upcoming study by the United Nations Office on Drugs and Crime (UNODC), which is financed by Norway. It should give us a better picture of the size of the problem and the actors and methods involved in the various criminal markets, and help us to design appropriate counter-measures.

Criminals count on always being one step ahead of the law. By allowing financial secrecy, we are severely reducing our chances of catching up with these criminals.

The Norwegian Government is strongly committed to fight organised crime, and presented a white paper on the issue on 17 December. This emphasises the importance of better international cooperation and coordination to combat cross-border crime. Strengthening the legislative framework, improving witness protection and the use of computer technology are among the measures the Norwegian Government will implement to combat organised crime. The total abolition of cash is however not on the agenda so far.  

Les artikkelen i The New York Times 12.01.11