Migration and illegal finance
| Published date | 01 July 2004 |
| Date | 01 July 2004 |
| Pages | 264-271 |
| DOI | https://doi.org/10.1108/13685200410809968 |
| Author | Donato Masciandaro |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control Ð Vol. 7 No. 3
Migration and Illegal Finance
Donato Masciandaro
INTRODUCTION
This paper starts out from the following fact: the
demand for banking and ®nancial services by migrants
represents a unique case, since some rather special
information asymmetries exist between them and
their host countries, in both qualitative Ð language,
culture, religion Ð and quantitative terms. Migrants
are also highly heterogeneous and this probably aects
the characteristics of their demand for banking and
®nancial services. In particular, from the perspective
of ®nancial services, migrants demand remittances,
in order to transfer funds from their countries of des-
tination to those of origin and vice versa.
At the same time the supply of ®nancial services
available to migrants probably presents some unique
features. To bring this better into focus, two dierent
segments are distinguishable. The ®rst can be termed
formalised ®nance, consisting in turn of two types of
dierent activities: banks and non-banking insti-
tutions, the best-known examples of the latter being
money transfers. The second to be considered is under-
ground ®nance, represented by informal systems or
networks.
Both formalised and underground ®nance seek to
satisfy the demand for ®nancial services of a legal
nature, ie those whose object is liquidity ¯ows that
trace origin to legal activities and their destination to
production or consumption activities, also legal. At
the same time, however, both formalised and under-
ground ®nance can be instruments of illegal services,
regardless of the degree of awareness of the individual
operators or intermediaries. In fact, on the one hand,
the function of ®nancial activity may be to conceal
the illegal nature of a certain ¯ow of funds (money
laundering: recycling of illicit capital). On the other
hand, remittances may direct a given ¯ow of funds
toward illegal activities (money dirtying: ®nancing
of criminal and/or terrorist activities).
Particularly relevant is the economic analysis of the
relationship between migratory ¯ows and ®nancial
¯ows, and the role informal systems play in them.
First of all, there is the problem to be faced of the
eciency of the ®nancial system. It is also necessary to
safeguard the integrity of that system. Thus far, how-
ever, the economic literature has not dealt systemati-
cally with this theme, though various works, which
will be quoted later, have studied speci®c aspects of
the problem: remittances, informal networks, the
risk of money laundering and the ®nancing of
terrorism.
The purpose of this paper, then, is to oer some
initial material for re¯ection and overall analysis of
the potential relationship between migration and ille-
gal ®nance. The Italian case is a particularly interesting
one: migratory ¯ows are at the same time recent,
important quantitatively and growing in perspective.
Lastly, Italy is extremely mindful of the risk of money
laundering, and now also the ®nancing of terrorism.
MIGRATION AND ILLEGAL FINANCE
Since 11th September, 2001, the ®nancial systems, for-
malised and covert, have been increasingly in the
crosshairs of state agencies assigned to the war against
terrorism, as witnessed by the fact that one of the ®rst
reactions of the US administration following the
attacks was to declare `®nancial war' on terrorist
organisations. Within this framework, the need to
strengthen the eort against money laundering was
included on the agenda. It should immediately be
pointed out that, in terms of economic analysis, the
®nancing of terrorism (money dirtying) indicates a
phenomenon conceptually dierent from the
recycling of capital (money laundering).
1
To understand the similarities and dierences, the
economic peculiarities of the money laundering
phenomenon are brie¯y recalled here. In recent
years, particular stress has been placed on the study
of that phenomenon, because of the central role it
plays, theoretically and practically, in the develop-
ment of any revenue-producing crime. In fact, any
illegal activity may have to pay a unique category of
transaction costs, linked to the fact that the use of the
relative revenues increases the probability that the
crime will be discovered and therefore the risk of
incrimination. These transaction costs can be mini-
mised by eective money laundering, a concealment
activity aimed at separating ®nancial ¯ows from
their origins.
2
The special economic function of
money laundering is precisely to transform potential
purchasing power into actual purchasing power. In
this sense, money laundering performs an illegal
Page 264
Journalof Money Laundering Control
Vol.7, No. 3, 2004, pp. 264± 271
#HenryStewart Publications
ISSN1368-5201
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