What Were Once Vices Are Now Habits*

A review of “Dark Commerce”

Age old corruption still exists and is really part of the economic fabric

One of the most interesting parts of the very broad-based AML (anti-money laundering) community is how much we are challenged with and how much we can still learn. Years ago, a compliance officer or policy professional only needed to know about some very basic recordkeeping and reporting and most of the crimes being identified were related to drug trafficking or tax evasion.

We know that the AML environment has dramatically changed, and that is really driven home by Professor Louise Shelley’s recent book, “Dark Commerce: How a New Illicit Economy is Threatening Our Future.” Don’t misunderstand, the book is not solely about financial crime issues but this well-researched and very interesting discussion of the licit and illicit economy gives our community a detailed accounting of how illicit trade was and still is lucrative. Dr. Shelley has an exhaustive list of recommendations that will be mentioned later but she gives a preview early on in the book when she says:

“We must rethink the financial system to provide more transparency, restructure the corporate world to focus on accountability, and implement strong anti-corruption measures to combat the facilitators of illicit trade.”

Dark Commerce gives us a look through time on how trade was utilized by authoritarian rulers, various nation-states, criminals and those simply trying to survive. One quickly discovers how actions such as smuggling or counterfeiting were actually supported by governments against one another and in some instances how many “looked the other way” as criminals, pirates and their ilk were encouraged to steal and undercut others as a political strategy. As the book comes to present day issues, we see the continued connection to illicit trade but now through the use of cyber warfare.

While my first inclination is to say “corruption” is the connection in all aspects of illicit trade, it is so much more.

There are no easy answers because there are no easy reasons for illicit trade

Readers of Dark Commerce will note Dr. Shelley expertly argues that there are so many varied reasons for illicit trade and therefore any improvement needs a multi-lateral approach. This theme is throughout the book but one chapter particularly intrigued me since I knew so little about it—the Rhino Horn trade. While AML professionals may be skeptical as to why I focus on this problem, I would say a few things. First, the issue is a good model for all the problems that lead to illicit trade. Secondly, it clearly shows how any solutions need to be both comprehensive and far reaching.

The book delves into the history of why rhino horns are wanted by so many, and then how some enable the trade through either criminal acts, or simply being willfully blind to the movement of this sad and illegal product. Similar to art and antiquities, the sale of rhino horns are also being advanced by criminal networks and auction houses have seen “sky-high prices” for objects containing rhino horns. More importantly, purchasers of this product are not “part of the criminal community but often affluent and high-status individuals.” Dr. Shelley points out that corruption facilitates these illegal acts, but there are many more explanations for the illicit trade including many poachers actually believing that what they do is not illegal for many reasons.

I will leave for others to decide if those that violate existing law are either sincere or right, but there is certainly a fair point that rhino traffickers or poachers have enablers that seem not to be punished. Examples would include the likes of government officials or staff that intentionally mislabel and transport goods, create front companies, “and arrange legal representation to defend them when they are arrested.”

If you are still bored with this discussion, know that North Korea has used revenues from these illegal acts to fund their nuclear program.

Dr. Shelley also makes a point (that I completely agree with) that when addressing these crimes, enforcement of laws are important but without addressing the poverty that leads to these poaching crimes, laws “are just constraints that increase the costs of doing business.”

So much to understand, so much to do

We are done a great service by the analysis and description of business models that enable illicit trade together with how illegal acts in various industries harm human life and the planet in general. The book covers environmental harm, pharmaceutical scams and human trafficking among many areas that are the products of illicit trade and corruption. I would urge readers to take in and review all the chapters in Dr. Shelley’s book so you can understand how society is harmed by non-action and compliance deficiencies.

One paragraph really brought home the challenges we have in attacking the status quo:

“Russia sells off women like a natural resource, whereas the Chinese model sees human trafficking and smuggling as yet another form of trade that generates revenues.”

How disgusting is that??

What can we do?

Illicit trade has been with us since the beginning of time and sadly will never leave. Dr. Shelley does us a great service by looking at so many aspects of trade and the elements we can learn to fight cyber-attacks, money laundering and many aspects of financial crime. While there are many causes, human nature makes illegal trade possible. Understand this from the book—“illicit trade becomes a tool of survival.”

The book concludes with not a clear guide to counter illicit trade but a number of potential goals that can be useful to a centuries-old challenge.

Dr. Shelley says that “investigating and punishing perpetrators is not sufficient” but a modern day “Marshall Plan” (google it) may be needed to improve employment access. She also advocates for more transparency in the financial sector and strong anti-corruption measures.

A very cogent point made by the author and others is that when governments focus on arresting drug kingpins, it simply provides promotion opportunities for underlings. Dr. Shelley offers many other examples and recommendations for attacking illicit trade and I urge all to review.

I guarantee that all AML professionals will find “Dark Commerce” not just a valuable read but will force you to think about how to respond to the overwhelming issue of illicit trade and financial crime.

We can do this but as Dr. Shelley makes clear, we need a private-public partnership.

Let’s change the “habits.”

 

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*What Were Once Vices Are Now Habits was the fourth studio album by my favorite group (Doobie Brothers) in 1974 and had a #1 hit with Black Water…

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John Byrne

John Byrne

Mr. Byrne serves as Vice Chairman of AML RightSource. He is an internationally known regulatory and legislative attorney with more than 30 years of experience in banking and financial crimes. Mr. Byrne has particular expertise in all aspects of regulatory management, anti-money laundering (AML) issues and has served in leadership positions at trade associations, financial services industry groups, and government working groups. Mr. Byrne earned his undergraduate degree at Marquette University and his juris doctor at George Mason University School of Law. He currently serves as a special advisor to the ACAMS Advisory board and on Marquette University’s Commercial Banking Board.

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