The Observer today features a report on tax avoidance by the ultra-rich, and another on money laundering by the world’s biggest banks, including HSBC. There may be connections, of course: one way to become ultra-rich is to engage in illegal activities such as the drug trade, trafficking, counterfeiting and so on.
I’ve always found the scale of the illegal economy staggering – I wrote about it in Sex, Drugs and Economics in 2002. According to the well-known Schneider and Este estimates, the ‘underground’ economy ranges in size from 14% to 44% of ‘official’ GDP, depending on the country. While this includes everyday VAT and income tax avoidance, that’s small beer compared to the sums flowing through the banking system as a result of the business of globalized criminal multinationals.
But although some information on this has been around for years, it is only now that the banks are starting to be called to account for having made these criminal multinationals possible (the accountants and lawyers who serve them also need to be identified). We wait to see whether there will be any punishments. It seems to me, though, that governments need to resolve that the parallel world of criminal states must be closed down. For all the vast effort put into policing the effects of organised crime on the ground, there has been astonishingly little attention paid to the systemic and global nature of this problem, and the scale of the parallel multinational economy, which poses a serious challenge to legitimate states.
The only book I’ve come across myself to describe this systemic criminal economy well is Nicholas Shaxon’s Treasure Islands, although there are of course others such as Misha Glenny’s McMafia and Roberto Saviano’s Gomorrah and Beauty & The Inferno describing parts of it in horrifying detail. Criminologist Federico Varese has what looks like an interesting book reporting fieldwork on the international expansion of the different groups, Mafias on the Move. Lots of evidence available – time for governments to join the dots.