Going Underground — The Not So New Way to Bank?
| DOI | https://doi.org/10.1108/eb026011 |
| Published date | 01 April 2001 |
| Date | 01 April 2001 |
| Pages | 105-108 |
| Author | George Gilligan |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 9 No. 2
Going Underground — The Not So New Way to Bank?
George Gilligan
INTRODUCTION
Most people in Western countries are more likely to
associate the term underground banking with an auto-
matic teller machine in a subway station, than with
complex infrastructures of financial remittance that
may be utilised either to by-pass completely conven-
tional banking facilities and processes, or else to con-
nect 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 under-
ground banking can play in the activities of money
launderers, organised crime, terrorist groups and
tax evaders. Underground banking systems are play-
ing 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 data-
bases and his model estimates a global money laun-
dering 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 sug-
gest some interesting patterns. For example: of
totals of money laundered globally, the USA was
the origin of more than 46 per cent and the destina-
tion 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, fol-
lowed 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).5
The methodological problems of measurement are
especially acute regarding underground banking sys-
tems due to their intrinsically low levels of public vis-
ibility. 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.
UNDERGROUND BANKING — AN
ANCIENT TRADITION
It is important to note that some underground bank-
ing systems are very long-established traditions in
certain jurisdictions and cultures. In some countries
they pre-date Western banking arrangements by
centuries, so they are literally as old as the hills.
Examples of traditional underground banking
include the Hawala and Fei Chien (flying money) sys-
tems.
Both are organic developments from the barter
trading systems of primitive economic exchange. The
Hawala system is most closely associated with the
South Asia region, in particular India and Pakistan.
The Fei Chien (sometimes called Chit or Chop)
system has been affiliated with both expatriate and
mainland Chinese communities for centuries.
Reportedly, Chinese merchants established the Fei
Chien system during the Chang Dynasty in order
to avoid carrying large amounts of cash with them
on their trading trips. The physical exchange of
cash can be a feature of both the Hawala and Fei
Chien systems but more commonly they rely on
symbolic tokens of any form, such as a ticket,
stamp or as was traditionally common under the
Fei Chien system, a small wooden carving.
The two key features of underground banking are
remittance and trust. Traditionally it has been most
common for the exchange of symbolic tokens to
facilitate an exchange of cash. However, virtually
anything can be remitted whether through symbolic
tokens or a verbal commitment, for example: goods,
debt, credit, services or currency. Note the use of the
term 'virtually' here. We are living in an era in which
virtual reality may be achieved, in which the number
and value of intangible commodities is increasing
continually, and in which global communication
and financial transactions can be achieved in fractions
Journal of Financial Crime
Vol.
9.
No.
2,
2001.
pp. 105-108
© Henry Stewart Publications
ISSN 1359-0790
Page 105
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