The context of invisible finance

Abstract

Invisible finance can be defined as all money outside the visible arenas of commerce and finance. Money is often placed outside visible sources and uses in order to make extra-normal profits, to keep the proceeds of criminal activity, and to evade taxes. Hence invisible finance takes many forms, including “hot money” inflows into and outflows from a country through the alternative remittance system, money that is held domestically and not reported to tax authorities, and money that is used for and gleaned from criminal activity. All of these may overlap—for example, criminal money can be laundered through the alternative remittance system, or kept within the underground economy and left undisclosed to tax authorities. In all cases, the money is purposely kept from detection of governmental and financial authorities. Precisely for that reason, data on invisible finance are difficult or impossible to come by, and must be identified using indirect methods at best. The flows of invisible finance can be quite complex, illustrated best by anecdotal evidence. For example, a complex money laundering ring was uncovered by authorities in Colombia, the United States, Spain, and Italy in June 2011, which laundered drug proceeds using Colombian exchange houses, formal financial institutions that provide investment services. Operation Fire and Ice tracked the Medellin drug cartel that laundered funds through US businesses, prepaid debit cards, bank accounts in many countries, and the Black Market Peso Exchange [18]. Money brokers in South America used couriers to carry drug proceeds to money launderers, who sent the funds to US bank accounts. The Black Market Peso Exchange then converted the money to pesos. Raids were carried out simultaneously in four countries, on three hundred properties, with the seizure of $480 million [11]. Crime Law Soc Change (2012) 57:209–220 DOI 10.1007/s10611-011-9349-7