Going Underground — The Not So New Way to Bank?

Most people in Western countries are more likely to associate the term underground banking with an automatic teller machine in a subway station, than with complex infrastructures of financial remittance that may be utilised either to by‐pass completely conventional banking facilities and processes, or else to connect with those same conventional banking facilities and processes only at selected points, at selected times and selected places. However, the low public profile of underground banking is in contrast to the increasingly high priority that governments, financial regulators and law enforcement agencies are giving to efforts to counter the facilitative role that underground banking can play in the activities of money launderers, organised crime, terrorist groups and tax evaders. Underground banking systems are playing an increasingly important role in the burgeoning tide of laundered money that is projected by the International Monetary Fund (IMF) to be equivalent to 2–5 per cent of global GDP with organised crime groups estimated to be grossing more than US$1.5trn a year. However, there is significant variation regarding guesstimates of the scale of the activities of organised crime and money laundering in general. For example, Walker applies a ‘crime‐economic model’ upon data collated from international databases and his model estimates a global money laundering total of $2.85trn per year, with these flows heavily concentrated in North America and Europe. These types of disparity in assessment are inevitable until a great deal more data is generated regarding money laundering and other sectors of alternative and/or illegal economies. Walker stresses that his results are very much interim, but they suggest some interesting patterns. For example: of totals of money laundered globally, the USA was the origin of more than 46 per cent and the destination of more than 18 per cent; and on a matrix of attractiveness of jurisdictions to money launderers Luxembourg ranked first with a score of 686, followed by the USA (634) and Switzerland (617), with the traditional homes of underground banking systems such as Pakistan (Hawala system) and China (Fei Chien) ranking in the lowest category (0–9). The methodological problems of measurement are especially acute regarding underground banking systems due to their intrinsically low levels of public visibility. Indeed, many of the dilemmas associated with underground banking are reproduced in other issues of conventional banking, financial regulation, law enforcement and economic governance. It is these dilemmas that are the core focus of this paper.