When the Emperor Tiberius faced a massive budget deficit, he nationalized Rome’s public toilets on the eminently sensible grounds that not only death and taxes were inevitable. Taken to task by a fastidious aristocrat for accepting tainted money, he produced a coin and held it under the imperial nostril, before pronouncing, ‘Non olet,’ – it doesn’t smell.
When I was a poor student I berated my bank manager for bouncing a tax check without notice. ‘You were overdrawn, you were stealing money from us,’ he counter-ranted. As it happens, the bank served the red-light district, and next to us the girls were paying in the previous night’s takings from the goodwill visit of a US naval destroyer. ‘And you’re a white collar pimp living off immoral earnings!’ I riposted unkindly. I changed banks – admittedly because of the bounced check, not because of the bouncing mattresses.
Just look at the current rows about Swiss gold. So it would have been alright for the Swiss and Swedes to have accepted the Nazis’ own gold for the weaponry and supplies with which the Wehrmacht were raping, looting and pillaging the rest of the world? Or a latter day Third Reich’s computerized money transfers would have been morally superior in some way?
People involved in consensual crimes like prostitution or rum-running during Prohibition are always impaled on the horn of the dilemma represented by ‘tainted’ money. The IRS wants them to pay tax on earnings, but declaring the cash puts them at risk.
In recognition of the new age of squeaky clean, unhandled-by-slave-labor electronic cash, we now have money ‘laundering’. Once the warm detergent glow of electrons in the global banking system has washed over the Colombian cartels’ greenbacks, it makes them acceptable by governments for taxes and by mutual funds for investment.
The amounts involved are huge, and of huge benefit to the US Treasury. More than 60 percent of US currency notes are held abroad. A banknote is an interest-free IOU, and the US Treasury makes over $20 bn a year in seigniorage – the value of the interest foregone by those who prefer to keep their readies in suitcases rather than banks.
The sums involved in money laundering and seigniorage are huge. Some estimates put the money going through the wringer this way in the US at as much as $100 bn a year. In some ways it’s a very efficient system, which moves billions around the world. In others it is less so, since at every stage of the process there are large transaction costs. Everyone needs to be paid off along the way.
Governments waste enormous sums trying to hold back the tide of dirty money, but in the end it flows like water. You can divert it and channel it, but you cannot hope to hold it back for ever. The annual amount involved is at least twice what goes to emerging economies in capital investment, and 20 times what goes to the whole of Africa. Surely there must be a way to match supply and demand here, to extract the financial equivalent of hydrodynamic energy on its way through the wash?
My – as always modest – proposal is that the World Bank should set up the mother of all emerging markets funds, with guaranteed safe possession to all investors. In effect, it would allow them to cry ‘Olly Olly oxen free,’ once they got the money into the system. Of course, the amnesty for their money would not cover them for other infringements of the law if the case were proven. Frankly, they are probably safe on that score since 20 years of war on drugs has produced record supplies at a cheaper price with precious few convictions of the major players.
The fund would deduct appropriate national taxes from the deposits as if they were income, and then invest appropriately in emerging markets. While benefiting various governments, it would still probably be cheaper for the investor than the cost of labor needed to launder money. What’s more, the productive investment in developing countries would reduce the incentives for the locals to grow mood-altering chemicals.
Perhaps a significant percentage could be set aside for alternative production schemes. Meanwhile, even inner-city areas in the likes of New York could be defined as emerging markets and targeted for high-risk but high-return micro-lending initiatives, thus recycling cash into local economies. Of course such markets are risky, but much less so than the narcotics business. It would make stakeholders out of outcasts and boost worldwide economic growth.
Any moral objections are easily containable. For example, the Kennedy dynasty bought elections and built its political fortunes with the proceeds of civil disobedience against Prohibition. Their money wasn’t just laundered, it was starched and pressed. In the end, how many people object to state lotteries or taxation of sex-workers? In the modern world, objections to taxes far outweigh quibbles about the smell attached to other sources of revenue.
