As we lug our heavy satchels on to the stage, there is a moment of mutual recognition. A cop, a security specialist, a man in the electronic-payments business and a journalist: we’ve all learned that you don’t check your laptop into a cloakroom, no matter how swish the venue.
“I’m off to the Far East tonight,” says the security guy. “I have to pick up one of my firm’s disposable laptops and cellphones.” According to the industry adage, the only use for a laptop once it has been in China is to give it your firm’s security team, so they can study who has “had a go” at it.
We are at a swish venue in the City to discuss something that has rightly become an obsession in the financial sector: crime. Bankers refuse to put a figure on it, but the amount currently being lost to cybercrime globally is certainly in excess of $100bn a year, and could be quadruple that.
The crime syndicates, often based in Russia and its satellites, with technical infrastructure in places such as Vietnam or the Philippines, use a combination of malware and identity theft to steal large amounts of money from savers, companies and banks. But then, in one of the bitterest ironies of modern times, they must convert the proceeds of digital crime into money and assets, owned by a real, identifiable human being. And it is here that organised crime does its most lethal damage. It infects the central nervous system of capitalism with evil.
The methods are laid out by barrister Stephen Platt in a startling new book, Criminal Capital. Platt argues that the old conception of money laundering is wrong, and indeed the term misleading. In old the law enforcement textbook, criminally acquired cash is first placed in the financial system, using small deposits or front companies; then it is “layered” – ie moved around companies, trusts and investment funds whose common attribute is that they are registered on a small island; then it is spent on assets that hold value, yachts being the vehicle of choice.
But Platt points out that, with the advent of digital financial systems, crime has changed. There’s no need to “place” criminal cash in the legitimate finance system if the criminality has taken place inside that very system. From the crime itself, to the avoidance of detection, the spending and storing of the proceeds: it can all be done on a laptop while the cops are still asking each other how to trace an IP address.
What facilitates the criminality is the complex structure of corporate finance. And at the centre of the complexity are so-called “corporate service providers”. These can, completely legally, provide you with a registered office that masks your true location, and directors for you company who you will never meet. Then there are trusts and investment funds – again legitimate vehicles whose complexity makes them an ideal target for crooks. If you add in the concept of “offshore” – island jurisdictions where the financial regulations are well known to be on the lax side – the possibilities for deception are complete.
If it had been designed by crooks to facilitate crooks, the international financial architecture would look exactly like it does. There would be frantic, earnest policing and regulation at the centre, with dogged cops lugging their satchels into meetings to avoid being bugged or hacked. Yet at the periphery, and at the level of fine detail, the system would be unpoliceable.
Now add in the human factor. The vast majority of financial professionals have never committed crime, nor even malpractice. Their culture – especially in Britain – has a gentility that goes deeper than veneer. And yet – in the words of Bank of England governor Mark Carney last week – “unethical behaviour became the norm”.
Carney’s crackdown on bad bankers, announced last week, was not aimed at organised crime but at “market manipulation” – that is knowingly ripping off clients and the general public by traders colluding with each other to distort competition and line their own pockets. But if an entire generation came to tolerate unethical behaviour at the core of the system, and if the system itself is so complex that it facilitates crime then there is – as Platt points out – inherent systemic risk.
The premise of all financial regulation is that bad money corrodes good money; that crime and manipulation are dysfunctional to the market because they levy an unearned “rent” from the law abiding and industrious people who have generate the profits in the first place.
The problem is, there might be so much bad money in the system, and so many bad people, that to remove them eviscerates the system.
If so, we have reached the limit of what can be done with rules, professional codes, cyber-sleuths and prosecutions. If the problem is complex architecture, then the answer has to be simplification. If the problem is a network of defiant offshore jurisdictions, then they should be isolated to the point of economic collapse. If the problem is people – and the City has become the primary destination for a global, semi-hereditary elite – then get different people.
But there is a yawning gap even in that tough logic. And it comes back to the reason four weary blokes in suits are prepared to haul their bags around rather than entrust them to a concierge. Some states, including very powerful states, actually encourage and profit from the corruption of high finance. When you cling to your laptop, or use a disposable one, that’s what you are up against.
At the moment the west acquires the moral backbone to impose a kill or cure solution onto financial complexity, the world economy will bifurcate. Forget the Brics and the global south. It’ll be the honest world and the bent world. It won’t be globalisation anymore, but two competing models. It is the fear of this that always steers law enforcement towards the percentages game of taking down middlemen; and steers financial reform task-forces towards multilateral treaties that will always be flouted at the edges of the system. But it can’t go on.
Paul Mason is economics editor of Channel 4 News. Follow him @paulmasonnews Read his blog here.
