An Examination of the Means of Establishing the Efficacy of Asset Recovery and Anti-Money Laundering Policies
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An Examination of the Means of Establishing the Efficacy of Asset Recovery and Anti-Money Laundering Policies Submitted by Matthew Hitchcock FLEMING (UCL) Submitted in fulfilment of the requirements of the degree of Doctor o f Philosophy in Public Policy 27 January 2008 UMI Number: U591509 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U591509 Published by ProQuest LLC 2013. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 I, Matthew Hitchcock FLEMING, confirm that the work presented in this thesis is my own. Where information has been derived from other sources, I confirm that this has been indicated in the thesis. 2 Abstract Asset recovery (AR) refers to the process through which criminals are deprived of the proceeds of crime. Despite strong support for AR in the policy arena, virtually no work to date has confirmed that it reduces (or should theoretically reduce) crime. This thesis seeks to fill this gap in understanding. The thesis begins with an examination of the theoretical support for AR, drawing on the economics of criminal behaviour. This chapter probes the claims made throughout the literature, illustrating how different approaches to AR should have different impacts on crime. AR powers are likely ineffective in reducing crime if offenders’ spending/saving behaviour renders them with little to recover. This next chapter examines offenders’ spending/saving using data from the UK’s Joint Assets Recovery Database. Offenders can and will take steps to hide the fruits of their labours, and AR will be toothless if offenders can do so. Most AR regimes include anti-money laundering (AML) components to prevent offenders from hiding their proceeds. The crime-reduction efficacy of AML policies is a function of the ability of offenders to reduce their exposure to AR; of banks/etc. to alert law enforcement when they know/suspect that an offender is laundering; and of law enforcement to make use of the information provided. The latter two issues are considered in turn. Banks/etc. must alert law enforcement (by filing suspicious activity reports, or SARs) if they know/suspect that an offender is laundering proceeds. While this requirement likely deters some criminality, reporting does not deter all offenders. This chapter explores whether banks/etc. targeting of laundering represents more signal than noise. Finally, as the criminality of the undeterred who have been identified by banks/etc. will only be reduced if law enforcement uses the SARs sent to them, the final chapter explores the law enforcement’s actual use and management of SARs. 3 Contents Page Abstract..................................................................................................................................................... 3 Acknowledgements ................................................................................................................................. 7 Acronyms .................................................................................................................................................. 8 Chapter I. Introduction ...........................................................................................................................9 Chapter 2. Background .........................................................................................................................13 2.1. Overview ............................................................................................................................ 13 2.2. Asset Recovery Powers and Provisions: A Taxonomy ..............................................14 Chapter 3. Literature Review .............................................................................................................. 20 3.1. Overview ............................................................................................................................20 3.2. Support for and Opposition to Asset Recovery ..........................................................21 Chapter 4. Theoretical Underpinnings .............................................................................................. 30 4.1. The Economics of Criminal Behaviour ....................................................................... 30 4.2. Discussion ......................................................................................................................... 36 4.3. Conclusion ........................................................................................................................ 56 Chapter 5. The Judgment Proof Problem (Or “Do Offenders Spend It All—And Implications for Asset Recovery?”) ................................................................................................... 58 5.1. Background ....................................................................................................................... 59 5.2. D ata.....................................................................................................................................63 5.3. Findings ..............................................................................................................................66 5.4. Conclusion .................................................................................................... 102 Chapter 6. Regulated Sector Targeting of Suspicious Activity: Signal or Noise .................... 105 6.1. Background ..................................................................................................................... 106 6.2. D ata...................................................................................................................................107 6.3. Findings ............................................................................................................................ 110 6.4. Conclusion ...................................................................................................................... 120 Chapter 7. Law Enforcement Agency Use of SARs ..................................................................... 122 7.1. Background ..................................................................................................................... 123 7.2. D ata ...................................................................................................................................143 7.3. Findings ............................................................................................................................ 146 7.4. Conclusion.......................................................................................................................187 Chapter 8. Conclusion .........................................................................................................................190 References .............................................................................................................................................198 Appendix 1: Estimated Benefit, Agreed Benefit, Order Application, Order Amount ............210 Appendix II: SARs Case Examples Provided by LEAs ..............................................................213 4 Figures 5.1. Attrition in the Process ................................................................................................................. 65 5.2. Scatterplot of Agreed Benefit and Order Amount .................................................................. 81 5.3. Frequency Distribution of Judgment Proof Scores ................................................................. 83 5.4. Mean and Median Judgment Proof Score by Primary Offence ............................................ 85 5.5. Gap Between Order Amount and Agreed Benefit by Primary Offence ..............................91 5.6. Proportion of Value of Assets Held by Primary Offence Class .......................................... 100 7.1. Annual and Monthly SARs Receipts by NCIS, 2003-2004 ................................................. 126 7.2. SARs Receipts by NCIS by Sector, September 2003-December 2004 .............................127 7.3. Monthly Receipts and Disseminations of SARs by NCIS, January 2003-April 2005...............................................................................................................................................181 Tables 3.1. Assertions Supporting and Opposing the Use of Asset Recovery: A Summary of the Literature......................... 28 5.1. Number of JARD Confiscation Order Records Used ............................... 68 5.2. Number of JARD Records With Valid (i.e. Non-Missing) Data ..........................................69 5.3. Personal Characteristics ...............................................................................................................70 5.4. Criminal Characteristics ............................................................................................................... 72 5.5. Age by Primary Offence ..............................................................................................................73