Remittance flows and crime
Last week I raised the question as to whether remittance flows to Guyana and the wider Caricom region (particularly Jamaica) was driven by the wages of sin or the wages of hard-working emigrants who form the diaspora living in North America, Europe (United Kingdom) and other Caribbean countries. While it is suggested that these flows reflect both drivers, there is no known way whereby economists can distinguish the contribution of one driver from the other.
The figures on the explosive growth of remittance flows to the region (exceeding 50 per cent per annum for Guyana during 2004-2008) cannot be explained by prosperity levels in the countries where the diaspora lives. Income and employment growth in these countries have been far too modest for one to seriously rely on this as the main explanatory factor behind the growth of remittance flows.
The best explanation to my mind is that these flows partly represent payments linked to the proceeds of organized crime.
Readers should realize that organized crime recruits large numbers of persons in all sorts of capacities in order to facilitate its operations.
Such recruits would include informants, surveillance personnel, look-outs, maintenance and repair men, watchmen, carriers, drivers, housekeepers, messengers, book-keeping clerks, cooks, security, and so on.
The list is indeed quite long and represents the need to make regular payments of varying amounts to persons recruited for criminal enterprises.
As we are all aware, organized criminal activity has generated income streams sufficient to support the reported level and rate of growth of remittance flows. The former Jamaica Trade Minister (Claude Clarke) whom I had cited last week had developed his explanation of the link between remittance flows to Jamaica and crime, in order to predict that the global crisis would not result in a decline of these flows to Jamaica, because this criminal activity was inelastic.
By this he meant the flows were not responsive to income, employment, or prosperity indicators in the legal official economy.
The reported data on remittance flows to Guyana have indicated a decline in the total value to the tune of nine per cent, for the crisis year, 2009. This has been an unprecedented reversal of these flows during the past decade.
The question therefore, which arises at this stage is: how does this decline fit in with my thesis that criminal activity is a main driver of remittance flows, since on the surface the decline seems clearly related to the global crisis?
Why did remittances
fall in 2009?
I believe that the decline in remittance flows in 2009 was crisis related.
And, while there may have been a reduction in workers hard-earned remittances, the impact of the global crisis was also felt on organized criminal activities.
To appreciate how this might have happened, let us consider a little more in depth how organized crime operates in situations like Guyana and Jamaica.
Let us bear in mind that the main goal of organized crime is to prosper from illegal activities. But in order to be able to do so successfully (that is, without criminal penalties), it is necessary as we say in Guyana, to wash the proceeds of crime, so they become respectable.
If readers consider this expression carefully, they would realize that in order for crime to be successful its ‘ill-gotten gain’ has to be passed through legitimate and respectable financial business channels so that it emerges as clean and lawful funds. This is what is more commonly referred to as money-laundering.
Thus we can state with considerable certainty that organized crime seeks to utilize lawful and legitimate banking and financial systems to their fullest extent, in a manner similar to the way ordinary lawful and legitimate business persons and businesses do.
This is the only sure way for the linkage between crime and legitimate funds to be erased.
If this proposition is accepted, then we must also arrive at the conclusion that criminal proceeds would have been exposed to the vagaries of established banking and financial businesses, as a result of the impacts of the global crisis.
The extreme nature of this global financial crisis is reflected in the extraordinary credit crunch (squeeze), which started in the third quarter of 2008.
Criminally-sourced and legitimate funds
There is no doubt that just as organized crime (operating through the phantom economy, as I have labelled it) has adopted a globalised multi-country mode of operation, and the movement of its criminal proceeds follows a similar globalised pattern.
The effects of the global financial meltdown and credit crunch (with banks not even willing to lend to each other) did not discriminate funds held in financial businesses by the manner in which they were acquired. All patrons of these banks suffered, although the ability of each of these to bear losses clearly would have differed. Both criminally-sourced and legitimate funds were frozen, or suffered in value as a result of the global crisis because these were secured against toxic assets held in the banking system, which triggered the onset of the crisis.
To repeat, I wish to make it clear to readers that my development of the argument linking criminal endeavour to remittance flows to Guyana is not intended to deny that significant sums of legitimate workers’ remittances also flow to Guyana. Indeed, as I have repeatedly stated, researchers cannot differentiate between criminally-inspired remittance flows and legitimate remittances sent by hard-working Guyanese emigrants. No one can do so, since if the banks and money transfer agencies act in a manner to facilitate this, they would be faced with criminal money-laundering charges in Britain, Canada and the United States. Because of this indeterminacy in the flows, when the global crisis hit and the flows were reduced one cannot rule out its impact on criminally-motivated remittances. In a nutshell, therefore, while the decline in remittance flows by nine per cent linked is to the global crisis, its precise channel remains unclear.
Conclusion
The discussion here is linked to the operations of the underground economy in Guyana and its phantom segment, which I have attributed to organized crime. Therefore I shall devote the next couple of columns to the discussion of the underground (phantom) economy in Guyana, which has been the subject of study in some recently available research papers.
