Financing the illicit economy

As with the legal economy, finance furnishes the lifeblood for illicit activity. With the exception of pure barter—for example, the direct exchange of drugs for weapons—there must be a reliable means of transferring value for transnational criminal, insurgent, and terrorist organizations to function as ongoing concerns and to maintain their infrastructure. Like the production, transport, and distribution of illicit commodities via a network of black spots, illicit financial flows inhabit a spatial mosaic of their own. In some cases, the mapping of illicit financial flows mirrors the geographic journey of trafficked goods and people. In other cases, illicit finance becomes its own network. This chapter focuses on the methods used to finance the illicit economy, particularly its honed techniques for laundering money. Such methods include recourse to the international banking system, traditional remittance vehicles known as hawala (from the Arabic word ‘to transfer’), cash couriers, non-bank money exchange institutions, creation of untraceable or impenetrable shell and front companies, and prepaid access devices as well as the use of free trade zones and offshore financial centers. This chapter surveys these various methods of financing the illicit economy today. Since no single method of money laundering or transfer is fool-proof, we note where the underwriters of criminal activities have improvised in response to state efforts to clamp down on their customary channels. Our black spots case studies provide us with important clues regarding the particular paths chosen for the movement of funds.