Drawing together leading scholars from three continents, the event provided a forum to discuss new approaches and outcomes in the field of illegal economy The conference was formally opened by Giuseppe Eusepi, Vice-President of the ECSPC and conference organizer. He welcomed the conferees, and warmly addressed a note of appreciation to those who had come from as far afield as Australia and the United States. Attilio Celant, Dean of the Faculty of Economics, also welcomed the participants and congratulated Giuseppe Eusepi on organizing the event. He pointed out that since its inception the ECSPC has been known for attracting high profile international scholars and acknowledged the ECSPC’s invaluable contribution to the academic life in the Faculty. He suggested that the ECSPC conferences should continue and become a permanent fixture as an annual gathering. Soon after, Marcello Gorgoni, Head of the Department of Public Economics, welcomed the participants on behalf of the Department. He acknowledged the ECSPC’s ability to organize a steady sequence of international conferences and encouraged Giuseppe Eusepi to continue enriching the intellectual life of the Department. Following the remarks of welcome and a cocktail reception, the conference started with a session chaired by Antonio Pedone. The first paper entitled “Crime and Punishment: An Expressive Voting View” was by Geoffrey Brennan. The paper defended the expressive account against a couple of arguments that have been arrayed against it – both of which are taken by their proponents to be pretty close to knock-down arguments, but that according to the author are fundamentally mistaken. He then offered an interpretation of some salient aspects of policy towards crime based on the expressive theory. In the second paper, “Why do Transparent Public Procurement and Corruption Go Hand in Hand?” Gustavo Piga and Raffaella Coppier tried to show why countries that adopt more “transparent procurement”, as calculated by the share of tender advertised publicly, are also the ones where corruption is considered more pervasive. Piga and Coppier argued that the more countries are prone to corruption the more they increase transparency to curb corruption itself. They, then, presented alternative ways to reduce corruption in procurement. On Friday, September 29 , there were sessions in the morning and in the afternoon and a banquet in the evening. The first session was chaired by Roger Congleton. The opening paper entitled “Dura Lex, Sed Lex? Insights from the Subjective Theory of Opportunity Cost” was by Giuseppe Eusepi. The paper was an account of the failings of the objective cost theory and its view of cost qua money outlays. The first part of the presentation revolved around the identification of what Eusepi defines the “notional locus of the law”, a tool useful to draw out the cost of law enforcement. Eusepi focused on the notion of cost as an obstacle to choice and the critical importance of finding the “notional locus of the law” to determine the cost of law enforcement. The costs in self-protection that law-abiding citizens and businesses have to bear can be expected to depend in large a part on the “notional locus of the law” that lawmakers set. Thus, effective law enforcement is expected to be heavily influenced by such “notional locus of the law”. In focusing on the relationship between economic incentives and moral equality vs. moral neutrality, he showed that from the economic point of view laws are neither neutral, nor incentive-free. In addressing these issues, Eusepi highlighted the link between unlawful activities and the economy. To this end, he provided a microeconomic analysis of organized illegal activities and showed that criminal activities enjoy an oligopolistic or even a monopolistic position by presenting a diagnosis of the mafia as a collective criminal activity. He stressed that the monopoly power of the mafia lies in the “no exit” rule. He ended with a critique of the so-called repentant or judicial collaborator policy used by criminal justice to break the “no exit” mechanism. Geoffrey Brennan served as a discussant. The second paper, entitled “Laundering Money in the Wild East”, was delivered by Jürgen Backhaus. He argued that shortly before the conclusion of the German currency union in 1990, the Staatsbank der DDR proceeded to print a very large set of high-denomination Mark der DDR banknotes. These freshly printed bills were distributed according to a list to high-ranking officers of the disintegrating GDR who proceeded to travel to Eastern European Capitals. Backhaus argued that technically speaking Mark der DDR was not a currency at all, neither convertible outside the country nor serving the three functions of money inside. He explained how the money was converted in socialist brethren states such as Rumania and Bulgaria and used to buy company shares or taking silent partnerships in such companies to be privatized. He presented his theory of management buy-outs and silent partnerships. Donato Masciandaro offered his comments. The second session, chaired by Giancarlo Gandolfo, started with a paper by Donato Masciandaro entitled “Offshore Financial Centres and International Soft Laws: Explaining the Regulation Gap”. With his interesting and thoroughly researched paper, Masciandaro sought to show that the regulation gap of the Offshore Financial Centres (OFCs) vis à vis international standards defined to prevent harmful phenomena - such as financial instability, money laundering, terrorism finance and aggressive taxation - depends on specific structural features. In the designing of the regulatory framework, the OFCs policymakers define the optimal degree of compliance in terms of cost-benefit analysis. He provided evidence showing that the policymaker convenience to establish an OFC jurisdiction may depend on peculiar country endowments, consistently with a path dependency approach. He illustrated a model based on a two-hundred country sample, using different classifications of OFCs. He highlighted that the probability to be an OFC increases with higher political stability, lower crime level, lower voice in international organizations and a Common Law legal system. Furthermore, he argued that a low-resource endowment has a soft influence on the choices to be an OFC. He raised the key question of how to identify optimal international policy strategies aimed to fill the regulation gap and overcome the name and shame approach, which is irredeemably inadequate. The official discussant was unable to attend. Conferees offered very stimulating comments and a range of suggestions. The next paper by Roger Congleton focused on the “Difficulties of Policing Corruption in International Organizations”. The author argued that public corruption affects the allocation of public resources, which in turn affects private incentives in a number of ways that tend to reduce economic development. He showed how the estimates demonstrate that corruption tends to be associated with low national incomes and low public service levels. As long as culture and corruption are exogenous, corruption is simply another sociological explanatory variable that helps explain persistent differences in national income among countries. As such, the estimated effects of corruption on the quality of life within a country may be of only scientific interest. However, most nations enact laws that make various forms of corruption illegal, such as bribery, and most governments attempt to enforce those laws, at least within limits. He clinched that corruption is not entirely exogenous, insofar as corruption is affected by a nation’s enforcement efforts. He explored how domestic corruption tends to affect international agreements as well as the organizations themselves. He then presented models examining the manner in which the policies of international organizations are affected by member corruption and institutions. The paper was discussed by Luisa Giuriato. The first afternoon session was chaired by Bengt-Arne Wickström. It started with a paper by Amedeo Argentiero, Michele Bagella, Francesco Busato entitled “Money Laundering in a Two Sector Cash-In-Advance Model”. Starting out from a theoretical model, the paper presented a methodology for generating otherwise unobservable quantities relying on observable (and estimated) variables. In particular, the paper constructed a series for money laundering over the sample 1980:01-2001:04. The analysis showed that: (1) money laundering accounts for approximately 9 percent of aggregate GDP and (2) money laundering is more volatile than aggregate GDP and it is positively correlated with it. Bengt-Arne Wickström discussed the paper. It then followed a paper by Lucia Dalla Pellegrina entitled “Crime Deterrence and Courts Efficiency (An Application to Crimes Against Property in Italy)”. She focused on the existence of a causal relationship between the excessive length of trials and high crime rates. Using Italian data from 1999 to 2002, she showed the impact of the length of criminal trials on the willingness to commit crimes against property, like thefts, robberies, racketeering and swindles in Italy. She concluded that criminals are sensitive to the discounting process of the burden of punishment they should bear. Marianna Belloc commented on the paper. The second afternoon session was chaired by Marcello Gorgoni. The first paper "Criminal Behavior and Social Evolution" was by Bengt-Arne Wickström. He showed that in a society with two types of individuals, honest ones and criminals, individual behavioral patterns are individually decided upon through interaction with the rest of society. In deciding its behavioral pattern, an individual considers behavior in individual encounters, aggregate behavior in society – the norm – as well as the gains from criminal activity. He demonstrated that dynamically stable equilibria with a low and a high crime rate can be obtained under various assumptions. He concluded that a small exogenous increase in the gain from crime may lead to a non-reversible structural change with a substantial increase in criminal behavior in society. Daniela Federici discussed the paper. It followed a paper by Marco Arnone and Pier Carlo Padoan entitled “Anti-money laundering by international institutions. A very preliminary assessment”. The paper was presented by Pier Carlo Padoan. He illustrated the Anti-Money Laundering and Combating Financing of Terrorism program introduced at the end-of 2001 at the IMF and WB, in conjunction with the work of the FATF and other regional bodies. According to the authors although this can be seen as the birth of a “regime for financial integrity”, the program has some shortcomings such as the limited availability of country information and the multiplicity of assessors and methodologies. For the limited sample where detailed information - based on the Detailed Assessments - is available the authors found that some areas of the AML/CFT framework are consistently weaker than others. For a larger sample - based on Recommended Actions - they found that countries’ ranking of performance is confirmed. Padoan ended by suggesting greater transparency and availability of detailed countries’ information, and made an assessment of the weak areas of a country’s AML/CFT framework at higher frequency than the established five years. The paper was discussed by Francesco Busato. On Saturday, September 30, there was only one morning session, chaired by Giuseppe Eusepi. The format differed somewhat from the familiar since Friedrich Schneider and Ursula Windischbauer were unable to attend. The paper, “Money Laundering: Some Preliminary Empirical Findings” was presented by the discussant Antonio Nicita He led off by summarizing the paper and introduced his critique of it. The paper was basically a quantification of the volume and development of money laundering activities using a DYMIMIC estimation procedure for the years 1994/95, 1997/98, 2000/2001 and 2002/2003 for 20 highly developed OECD countries. The variation in presentation technique provided for a lengthy and stimulating discussion among the conferees, spearheaded by remarks from Donato Masciandaro. It followed a paper by Peter Lewisch entitled “Money Laundering Laws as a Political Instrument: The Social Costs of Arbitrary Money Laundering Enforcement”. He discussed some aspects of the political dimension behind money laundering enforcement and the economic rationale behind anti-money laundering legislation. He focused on money laundering enforcement in cross-border settings and the political dimension via practical examples. The official discussant being absent, the presentation was followed by a lively discussion from the floor. The conference closed with a paper by Debora Di Gioacchino and Maurizio Franzini entitled “Competition in Public Administration: the Right Policy against Corruption?”. The authors based their argumentation on the assumption that competition in public administration is often advocated as a solution to bureaucrats’ corruption. To carry out their analysis, the authors presented a series of models that help understand what competition in public administration can actually accomplish. Central to their discourse were bribery and extortion. They sought to demonstrate that, given the asymmetric information surrounding bureaucrats’ honesty, there is a sort of trade-off between corruption and extortion. According to the authors, trying to curb one of them through competition may result in strengthening the other. The gap left by late withdrawal of the scheduled discussant was filled by conferees who participated wholeheartedly in the discussion. Giuseppe Eusepi closed the conference by thanking the presenters for enthusiastically delivering their papers, the discussants for offering fascinating, scholarly reflections and especially for filling the gap left by absent scheduled discussants and the chairmen for working diligently to ensure that the sessions ran smoothly and to schedule. He, then, invited the participants to join him in expressing their congratulations and acknowledgment of indebtedness to Maria Delle Grotti for her untiring efforts in preparing the conference and Alessandra Cepparulo for the terrific job she did preparing the ECSPC conference website. He was deeply appreciative of the team hired by the ECSPC for their care in overseeing all the details that contributed to a splendid conference. A note of appreciation went also to the catering service for the excellent quality of the food. Finally, he expressed his deepest gratitude to the Sapienza University of Rome, the Bank of Italy and the Faculty of Economics for their generous financial support. He announced that, as for previous conferences, a collected volume of essays based on a selection of papers is planned.
“Corralling the Economy of Crime and Money Laundering: A Challenge for Banks and International Institutions into the 21st Century” / Eusepi, Giuseppe. - (2006).
“Corralling the Economy of Crime and Money Laundering: A Challenge for Banks and International Institutions into the 21st Century”.
EUSEPI, Giuseppe
2006
Abstract
Drawing together leading scholars from three continents, the event provided a forum to discuss new approaches and outcomes in the field of illegal economy The conference was formally opened by Giuseppe Eusepi, Vice-President of the ECSPC and conference organizer. He welcomed the conferees, and warmly addressed a note of appreciation to those who had come from as far afield as Australia and the United States. Attilio Celant, Dean of the Faculty of Economics, also welcomed the participants and congratulated Giuseppe Eusepi on organizing the event. He pointed out that since its inception the ECSPC has been known for attracting high profile international scholars and acknowledged the ECSPC’s invaluable contribution to the academic life in the Faculty. He suggested that the ECSPC conferences should continue and become a permanent fixture as an annual gathering. Soon after, Marcello Gorgoni, Head of the Department of Public Economics, welcomed the participants on behalf of the Department. He acknowledged the ECSPC’s ability to organize a steady sequence of international conferences and encouraged Giuseppe Eusepi to continue enriching the intellectual life of the Department. Following the remarks of welcome and a cocktail reception, the conference started with a session chaired by Antonio Pedone. The first paper entitled “Crime and Punishment: An Expressive Voting View” was by Geoffrey Brennan. The paper defended the expressive account against a couple of arguments that have been arrayed against it – both of which are taken by their proponents to be pretty close to knock-down arguments, but that according to the author are fundamentally mistaken. He then offered an interpretation of some salient aspects of policy towards crime based on the expressive theory. In the second paper, “Why do Transparent Public Procurement and Corruption Go Hand in Hand?” Gustavo Piga and Raffaella Coppier tried to show why countries that adopt more “transparent procurement”, as calculated by the share of tender advertised publicly, are also the ones where corruption is considered more pervasive. Piga and Coppier argued that the more countries are prone to corruption the more they increase transparency to curb corruption itself. They, then, presented alternative ways to reduce corruption in procurement. On Friday, September 29 , there were sessions in the morning and in the afternoon and a banquet in the evening. The first session was chaired by Roger Congleton. The opening paper entitled “Dura Lex, Sed Lex? Insights from the Subjective Theory of Opportunity Cost” was by Giuseppe Eusepi. The paper was an account of the failings of the objective cost theory and its view of cost qua money outlays. The first part of the presentation revolved around the identification of what Eusepi defines the “notional locus of the law”, a tool useful to draw out the cost of law enforcement. Eusepi focused on the notion of cost as an obstacle to choice and the critical importance of finding the “notional locus of the law” to determine the cost of law enforcement. The costs in self-protection that law-abiding citizens and businesses have to bear can be expected to depend in large a part on the “notional locus of the law” that lawmakers set. Thus, effective law enforcement is expected to be heavily influenced by such “notional locus of the law”. In focusing on the relationship between economic incentives and moral equality vs. moral neutrality, he showed that from the economic point of view laws are neither neutral, nor incentive-free. In addressing these issues, Eusepi highlighted the link between unlawful activities and the economy. To this end, he provided a microeconomic analysis of organized illegal activities and showed that criminal activities enjoy an oligopolistic or even a monopolistic position by presenting a diagnosis of the mafia as a collective criminal activity. He stressed that the monopoly power of the mafia lies in the “no exit” rule. He ended with a critique of the so-called repentant or judicial collaborator policy used by criminal justice to break the “no exit” mechanism. Geoffrey Brennan served as a discussant. The second paper, entitled “Laundering Money in the Wild East”, was delivered by Jürgen Backhaus. He argued that shortly before the conclusion of the German currency union in 1990, the Staatsbank der DDR proceeded to print a very large set of high-denomination Mark der DDR banknotes. These freshly printed bills were distributed according to a list to high-ranking officers of the disintegrating GDR who proceeded to travel to Eastern European Capitals. Backhaus argued that technically speaking Mark der DDR was not a currency at all, neither convertible outside the country nor serving the three functions of money inside. He explained how the money was converted in socialist brethren states such as Rumania and Bulgaria and used to buy company shares or taking silent partnerships in such companies to be privatized. He presented his theory of management buy-outs and silent partnerships. Donato Masciandaro offered his comments. The second session, chaired by Giancarlo Gandolfo, started with a paper by Donato Masciandaro entitled “Offshore Financial Centres and International Soft Laws: Explaining the Regulation Gap”. With his interesting and thoroughly researched paper, Masciandaro sought to show that the regulation gap of the Offshore Financial Centres (OFCs) vis à vis international standards defined to prevent harmful phenomena - such as financial instability, money laundering, terrorism finance and aggressive taxation - depends on specific structural features. In the designing of the regulatory framework, the OFCs policymakers define the optimal degree of compliance in terms of cost-benefit analysis. He provided evidence showing that the policymaker convenience to establish an OFC jurisdiction may depend on peculiar country endowments, consistently with a path dependency approach. He illustrated a model based on a two-hundred country sample, using different classifications of OFCs. He highlighted that the probability to be an OFC increases with higher political stability, lower crime level, lower voice in international organizations and a Common Law legal system. Furthermore, he argued that a low-resource endowment has a soft influence on the choices to be an OFC. He raised the key question of how to identify optimal international policy strategies aimed to fill the regulation gap and overcome the name and shame approach, which is irredeemably inadequate. The official discussant was unable to attend. Conferees offered very stimulating comments and a range of suggestions. The next paper by Roger Congleton focused on the “Difficulties of Policing Corruption in International Organizations”. The author argued that public corruption affects the allocation of public resources, which in turn affects private incentives in a number of ways that tend to reduce economic development. He showed how the estimates demonstrate that corruption tends to be associated with low national incomes and low public service levels. As long as culture and corruption are exogenous, corruption is simply another sociological explanatory variable that helps explain persistent differences in national income among countries. As such, the estimated effects of corruption on the quality of life within a country may be of only scientific interest. However, most nations enact laws that make various forms of corruption illegal, such as bribery, and most governments attempt to enforce those laws, at least within limits. He clinched that corruption is not entirely exogenous, insofar as corruption is affected by a nation’s enforcement efforts. He explored how domestic corruption tends to affect international agreements as well as the organizations themselves. He then presented models examining the manner in which the policies of international organizations are affected by member corruption and institutions. The paper was discussed by Luisa Giuriato. The first afternoon session was chaired by Bengt-Arne Wickström. It started with a paper by Amedeo Argentiero, Michele Bagella, Francesco Busato entitled “Money Laundering in a Two Sector Cash-In-Advance Model”. Starting out from a theoretical model, the paper presented a methodology for generating otherwise unobservable quantities relying on observable (and estimated) variables. In particular, the paper constructed a series for money laundering over the sample 1980:01-2001:04. The analysis showed that: (1) money laundering accounts for approximately 9 percent of aggregate GDP and (2) money laundering is more volatile than aggregate GDP and it is positively correlated with it. Bengt-Arne Wickström discussed the paper. It then followed a paper by Lucia Dalla Pellegrina entitled “Crime Deterrence and Courts Efficiency (An Application to Crimes Against Property in Italy)”. She focused on the existence of a causal relationship between the excessive length of trials and high crime rates. Using Italian data from 1999 to 2002, she showed the impact of the length of criminal trials on the willingness to commit crimes against property, like thefts, robberies, racketeering and swindles in Italy. She concluded that criminals are sensitive to the discounting process of the burden of punishment they should bear. Marianna Belloc commented on the paper. The second afternoon session was chaired by Marcello Gorgoni. The first paper "Criminal Behavior and Social Evolution" was by Bengt-Arne Wickström. He showed that in a society with two types of individuals, honest ones and criminals, individual behavioral patterns are individually decided upon through interaction with the rest of society. In deciding its behavioral pattern, an individual considers behavior in individual encounters, aggregate behavior in society – the norm – as well as the gains from criminal activity. He demonstrated that dynamically stable equilibria with a low and a high crime rate can be obtained under various assumptions. He concluded that a small exogenous increase in the gain from crime may lead to a non-reversible structural change with a substantial increase in criminal behavior in society. Daniela Federici discussed the paper. It followed a paper by Marco Arnone and Pier Carlo Padoan entitled “Anti-money laundering by international institutions. A very preliminary assessment”. The paper was presented by Pier Carlo Padoan. He illustrated the Anti-Money Laundering and Combating Financing of Terrorism program introduced at the end-of 2001 at the IMF and WB, in conjunction with the work of the FATF and other regional bodies. According to the authors although this can be seen as the birth of a “regime for financial integrity”, the program has some shortcomings such as the limited availability of country information and the multiplicity of assessors and methodologies. For the limited sample where detailed information - based on the Detailed Assessments - is available the authors found that some areas of the AML/CFT framework are consistently weaker than others. For a larger sample - based on Recommended Actions - they found that countries’ ranking of performance is confirmed. Padoan ended by suggesting greater transparency and availability of detailed countries’ information, and made an assessment of the weak areas of a country’s AML/CFT framework at higher frequency than the established five years. The paper was discussed by Francesco Busato. On Saturday, September 30, there was only one morning session, chaired by Giuseppe Eusepi. The format differed somewhat from the familiar since Friedrich Schneider and Ursula Windischbauer were unable to attend. The paper, “Money Laundering: Some Preliminary Empirical Findings” was presented by the discussant Antonio Nicita He led off by summarizing the paper and introduced his critique of it. The paper was basically a quantification of the volume and development of money laundering activities using a DYMIMIC estimation procedure for the years 1994/95, 1997/98, 2000/2001 and 2002/2003 for 20 highly developed OECD countries. The variation in presentation technique provided for a lengthy and stimulating discussion among the conferees, spearheaded by remarks from Donato Masciandaro. It followed a paper by Peter Lewisch entitled “Money Laundering Laws as a Political Instrument: The Social Costs of Arbitrary Money Laundering Enforcement”. He discussed some aspects of the political dimension behind money laundering enforcement and the economic rationale behind anti-money laundering legislation. He focused on money laundering enforcement in cross-border settings and the political dimension via practical examples. The official discussant being absent, the presentation was followed by a lively discussion from the floor. The conference closed with a paper by Debora Di Gioacchino and Maurizio Franzini entitled “Competition in Public Administration: the Right Policy against Corruption?”. The authors based their argumentation on the assumption that competition in public administration is often advocated as a solution to bureaucrats’ corruption. To carry out their analysis, the authors presented a series of models that help understand what competition in public administration can actually accomplish. Central to their discourse were bribery and extortion. They sought to demonstrate that, given the asymmetric information surrounding bureaucrats’ honesty, there is a sort of trade-off between corruption and extortion. According to the authors, trying to curb one of them through competition may result in strengthening the other. The gap left by late withdrawal of the scheduled discussant was filled by conferees who participated wholeheartedly in the discussion. Giuseppe Eusepi closed the conference by thanking the presenters for enthusiastically delivering their papers, the discussants for offering fascinating, scholarly reflections and especially for filling the gap left by absent scheduled discussants and the chairmen for working diligently to ensure that the sessions ran smoothly and to schedule. He, then, invited the participants to join him in expressing their congratulations and acknowledgment of indebtedness to Maria Delle Grotti for her untiring efforts in preparing the conference and Alessandra Cepparulo for the terrific job she did preparing the ECSPC conference website. He was deeply appreciative of the team hired by the ECSPC for their care in overseeing all the details that contributed to a splendid conference. A note of appreciation went also to the catering service for the excellent quality of the food. Finally, he expressed his deepest gratitude to the Sapienza University of Rome, the Bank of Italy and the Faculty of Economics for their generous financial support. He announced that, as for previous conferences, a collected volume of essays based on a selection of papers is planned.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
