Privatizing Economic Crime Enforcement: Exploring the Role of Private Sector Investigative Agencies in Combating Money Laundering

Abstract This research explores the role played by private sector financial investigative agencies (FIA) in combating money laundering in Canada and abroad. For the purposes of this study, a FIA refers to accounting-based, private sector organizations that provide investigative, risk management, consulting and litigation support services addressing economic crime. FIAs offer a broad array of anti-money laundering services to corporate and government clients, including risk assessments, legislative compliance consulting, corporate due diligence, suspicious transaction detection and reporting, investigations, as well as asset tracing and recovery. This emergent "anti-money laundering industry" is unique in that it is ultimately concerned with economic, organized, and terrorist crimes. These crimes are much more complex, multi-jurisdictional and threatening to mass society than the "street-level" property crime that is the overwhelming focus of the private policing sector. With the advent and growth of this cottage industry, the focus of the private policing sector now stretches from the most rudimentary disorder and property crime problems all the way to complex, highly-organized and multi-jurisdictional criminal and national security issues. What's more, this anti-money laundering industry has contributed to not only the ongoing fragmentation of policing in society, but with increased attention being paid to detecting terrorist financing, it has perhaps initiated a similar fragmentation of national security enforcement. This study recommends that public policies and programmes be developed that nurture an increased and more formal role for FIAs within the context of a partnership with government agencies. Keywords: Money launderingTerrorist financingSuspicious transaction reportingForensic accountingPrivate policingPrivate-public policing partnerships Notes 1. For the purposes of this article, "fraud" is defined as an act of deception deliberately undertaken to secure an unlawful gain, financial or otherwise. 2. For the purposes of this article, the term "economic crime" encompasses a wide variety of nonviolent illegal acts of deception for financial gains that are committed by an individual, or an informal or formal organization that may take both within and outside legitimate commerce. The most common economic crime offences include: credit card fraud, phone/telemarketing fraud, computer/internet fraud, bankruptcy fraud, healthcare fraud, environmental law violations, insurance fraud, mail fraud, government fraud, tax evasion, financial fraud, securities fraud, insider trading, bribery, kickbacks, counterfeiting, public corruption, money laundering, embezzlement, economic espionage and antitrust violations (see www. law. cornell. edu/topics/whitecollar. html). 3. Money laundering can be defined as a process by which cash and other assets derived from illegal activity are disbursed for the purpose of concealing or disguising their criminal origin. A comprehensive money laundering operation satisfies three objectives: it converts the cash proceeds of crime to another, less suspicious form; it conceals the criminal origins and ownership of the funds and/or assets; and it creates a legitimate explanation or source for the funds and/or assets (Schneider, Citation2004: 7). 4. There are often substantial differences in how funds associated with organized criminal activity and terrorist groups are "laundered" through the private sector. However, the enforcement techniques that have been employed are similar: identifying the source and ultimate destination of illicit funds, detecting the funds upon entry into or movement within the legitimate economy, frustrating the international movement of illicit funds, as well as tracing and seizing funds and assets associated with organized crime and terrorist groups. 5. For this purposes of this article, the term "financial crime" refers to a category of economic crime that involves either a financial instrument, currency, document, transaction or institution. For example, financial instrument fraud involves counterfeiting or forging negotiable instruments, including currency, bank cards, checks and share certificates. In this respect, money laundering can be referred to as a financial crime. 6. This research was made possible through a grant from the Social Sciences and Humanities Research Council of Canada and the Law Commission of Canada as part of the joint funding programme: Relationships in Transition: The Governance of Policing and Security. 7. Transaction reporting laws require certain organizations and individuals in the private sector to report large cash and other suspicious transactions that may reveal funds related to organized criminal or terrorist activities.