Targeting the Illicit Profits of Drug Trafficking Through Proceeds of Crime Action (NDLERF Monograph 52) [PDF] by Michael McFadden, Martin O’Flaherty, Paul Boreham and Michele Haynes reports on a National Drug Law Enforcement Research Fund (NDLERF) project investigating whether Proceeds of Crime (POC) mechanisms are effective.
The report comments that
Because of the hidden nature of criminal enterprise, it is difficult to measure whether actions such as drugs seizures or proceeds of crime confiscations cause set-backs to the criminal business model, though logically, they must.The project had two main aims -
- To identify the disruptive effect of proceeds of crime action on criminal activity, and measure the disruptive effect by developing an economic model that estimated the multiplier impact of the reinvestment of the profits of drug trafficking. This measure can provide police with a more accurate estimate of the impact of their drug law enforcement activities, in turn improving accountability to both government and the community.
- To identify factors associated with successful proceeds of crime action, to assist law enforcement to target those drug trafficking activities that are more likely to result in further criminal activity, and to provide a means for agencies to increase their seizures of criminal assets and proceeds of crime.
The authors conclude that
- For every $1 of criminal proceeds confiscated, the short term impact (i.e. after a single lag of approximately 3 months) is a reduction in criminal funds of $2.20 for the Overall Model, and $3.50 for the Distributor Importer Producer Model.
- In the medium term (after two periods of criminal activity, or about 6 months), these savings are $4.60 (Overall Model) and $11.90 (Distributor Importer Producer Model) for every $1 confiscated.
- A reasonable estimate then of the impact of proceeds of crime action in Australia, is a multiplier of 3.5 to measure short term disruption and 11.9 to measure medium term disruption. For most practical applications, the authors recommend the use of the medium term estimate of 11.90.
Illicit drug trafficking is a source of funds for further trafficking and for supporting the lifestyles of criminals. Drug trafficking has been closely linked with organised crime and with social harms. ... There are two main audiences for the findings of this study. Senior police, police intelligence, policymakers and researchers will be interested primarily in measuring the disruptive effect of proceeds of crime action. Police responsible for managing proceeds of crime investigations and senior investigators will be interested in the practical applications of findings relating to success factors in financial investigations.
The results of the project should improve agencies’ ability to target trafficking and increase the seizure of proceeds of crime. The proposed index of the disruptive effect of proceeds of crime action—the Proceeds of Crime Drug Disruption Index (POCDDI)—will also allow agencies to provide both the Government and the community with a more accurate assessment of the value of their proceeds of crime initiatives.
Background to the study
We conducted an extensive literature review, as well as collecting information from expert sources in Australia. .... It should be noted that in the wider literature proceeds of crime and money laundering are closely linked and issues relating to proceeds of crime are often dealt with under the broader heading of money laundering. As such, our review extended across both areas.
The literature we surveyed was predominantly negative about the benefits of proceeds of crime/money laundering legislation. Various parties have raised concerns about the cost-effectiveness of anti-money laundering and proceeds of crime initiatives, their failure to target major crime figures and the infringement of civil liberties associated with implementation. We argue that very little attention has been paid to developing measures relevant to determining the success of these initiatives. Apart from the occasional comment, there has been little interest in the development of a coherent and explicit measurement framework for evaluation. Too often, studies have adopted measures that are readily available (eg arrests and forfeitures) rather than to develop measures that are truly appropriate for measuring the impact of proceeds of crime action upon the criminal enterprise and ultimately, through the disruption of crime, on the community. The business-for-profit nature of the majority of drug trafficking suggests that a proper evaluation should take place within the context of an appropriate business model.
A business model of drug trafficking
To derive a business model of drug trafficking, we modified an existing business model of people trafficking operations developed by the Organisation for Security and Co-operation in Europe (Aronowitz et al. 2010). An outline of the modified business model for drug trafficking is presented in Table 1. People trafficking operations have many features in common with the global movement of illicit drugs, employing similar techniques and similar resources.
The consideration of drug trafficking as a business provides an entirely different perspective to that provided by the literature review. The literature review tended to be pessimistic about the potential for proceeds of crime and money laundering legislation to disrupt crime.
One of the major concerns was the apparent lack of evidence of any impact on key organised crime figures. From a business model perspective, this might be expected. If modern organised crime is comprised of shifting allegiances and cooperation between individuals and cells in one or more broadly based criminal groups, then such a result is to be anticipated. The hypothesis that proceeds of crime action should be directed at major crime figures is based on the unstated assumption that organised crime exhibits a concrete, hierarchical structure. Such an assumption is not consistent with modern notions of the structure of organised crime.
Adopting a business model of organised crime also gives us a clear indication of why proceeds of crime are important. All business models of organised crime assume that profit is the primary motive of such businesses, as it is with legitimate business enterprises. On that assumption, one would expect that successful proceeds of crime action would be disruptive to the business of crimes. Proceeds of crime action per se cannot be without value unless the business model of crime is wrong and that seems highly unlikely. If criticisms of proceeds of crime/money laundering efforts are to be sustained, they must be directed at the application of such regulations rather than the concept itself.
In conclusion, recognition of the ‘business’ nature of organised crime refutes many of the criticisms met with in the literature which has, in our opinion, focused too narrowly on the technicalities of proceeds of crime and money laundering regimes rather than recognising the broader theoretical framework within which these regimes exist. The adoption of an appropriate business model also assists us to identify the point in the supply chain where proceeds action may be most effective. With imported drugs, the most vulnerable point would appear to be the transportation of illicit drugs across national borders.
Factors relating to successful proceeds of crime investigation
A second component of the research used proceeds of crime case data provided by the Australian Federal Police (AFP) to investigate factors associated with successful proceeds of crime investigations. Because the data are from AFP investigations, it is important to note that the findings presented here are not generalisable to state jurisdictions, which operate with both a different mix of cases and a different legal framework.
We attempted to identify factors related to successful proceeds of crime investigations using both descriptive statistics and modelling techniques. First, the value of proceeds in financial investigations is heavily concentrated in the largest cases. The top 10 percent of cases contained 80 percent of the total value of proceeds (see Figure 1). This observation is consistent with the Pareto Principle or 80/20 rule, which suggests that 80 percent of the effects come from 20 percent of the causes.
Conversely, as the value of a case increases, the proportion of assets forfeited tends to decline. In the ‘bottom’ 50 percent of cases (by value), two in three assets are forfeited, while in the ‘top’ 50 percent, one in two assets are forfeited. This suggests that law enforcement should continue to pursue straightforward lower value cases due to their higher success rate, while focusing the bulk of their effort on large investigations because most of the value is in these cases.
More complex statistical methods were employed to identify factors in the successful outcome of financial investigations (see Chapter 5 for details). It should be noted that the number of cases available for drug- related proceeds of crime cases was insufficient to support the analysis. We decided to include proceeds of crime data from other crime types to increase the amount of data available for our statistical analysis. We tested our final model to evaluate whether the type of crime in any way influenced the factors related to success. Type of crime did not influence the model, which means that the types of factors that influence success in proceeds of crime action are the same for drug trafficking and other types of crime. A good financial investigation exhibits similar characteristics regardless of the predicate crime. The second major finding was that the duration of the financial investigation (as measured by the period from the restraint of an asset to its resolution) was statistically associated with the chance of success. The longer a financial investigation takes, the less likely it will be successful. For every year that passed, the odds of success were reduced by approximately one-third.
The observed rate of decline could be useful in assisting financial investigation teams to assess the progress of individual cases. For example, where resources are scarce, this information would be helpful in weighing up whether to continue an ongoing case of some duration with a lower rate of success, as opposed to adopting a new case with a potentially higher chance of success. This finding may be of particular relevance as expert opinion confirmed that the main obstacle to pursuing proceeds of crime was lack of available resources in financial investigation teams. Third, our model also suggested that the type of asset restrained was associated with the chance of a successful outcome. Liquid assets and commercial property were more likely to be forfeited than residential property and other assets. There is potential to improve the overall effectiveness of financial investigations if the reasons for the lower success rate with respect to residential property and other assets could be identified.
