Abstract
This article repositions sovereignty on the basis of a study of recent regulatory approaches to organized crime and money laundering. The spread of techniques across administrative domains is traced through organizational documents and interviews with practitioners, and related to an observed trend toward integration between policing research and regulation research. The same trend, however, assigns sovereignty to the periphery. A richer notion of sovereignty is recovered through a reading of the classical theorists, and used to tease out the articulation of sovereignty in current state strategies. Theorizing ‘sovereignty at the center’ as opposed to ‘sovereignty at the periphery’ challenges basic assumptions about the relationship between the state and economic activity, and in particular about the utility-oriented character of state violence.
In one sense what follows is an age-old story. Long before the advent of capitalism, economic activity was immersed in sovereign concerns. Such concerns found their way into the doctrine of mercantilism, which influenced European economic policy for two centuries, held together by the view that commerce was above all a means to ‘achieve greater national power and glory’ (Magnusson, 2003: 56). With capitalism, the idea of a subordinate economy lost its hold and came to be replaced by a domesticated, utility-oriented conception of state violence. So what happened to the tradition in which the state asserts its authority, pursues its enemies, ritually enforces order and exacts tribute—at will, or for opaque reasons of state? To me, it appears that this tradition came to be relegated to the sphere of criminology, and to the policing and the punishment of marginalized groups, and that it has thus been kept at a safe analytic distance from core societal processes.
This assignment of sovereignty to the periphery was perhaps precipitous. Over recent decades, state strategies to combat tax evasion, undeclared work, organized crime and terrorist financing may be seen to have once again articulated sovereignty within the economic field. My aim here is to re-position sovereignty on the basis of a study of the regulatory approach toward organized crime and the recently introduced anti-money laundering regime. My argument is built up in four steps. In the first section, I account for the historic gap between the regulation and policing literature, which is in the process of being bridged from both sides in so far as state interactions with economic activity are concerned. The second section elaborates on what tends to get lost in the process of integration: sovereignty. The central aspects of sovereignty, as conceptualized by the classical theorists, are reconstructed with a view to compensating for the analytic loss. The third section presents an original empirical study of how the Swedish state issues and enforces financial reporting requirements as a means of combating organized crime and money laundering. The study continues the process of integration between regulation and policing research, while at the same time highlighting persisting elements of sovereignty. The fourth section discusses the theoretical implications of ‘sovereignty at the center’ in relation to the utility-oriented conception of state violence.
Bridging the gap between policing and regulation
Whether current strategies toward tax evasion, organized crime, money laundering and terrorist financing should be understood along the lines of policing, or along the lines of regulation, would appear to be an issue of some importance. The two concepts are associated with different research focuses. 1 As several commentators have noted, there is a literature on regulation and another literature on policing, which unfold on parallel tracks (Gill, 2002; Lacey, 2004; Mazerolle and Ransley, 2005). The division of academic labor goes back to institutional developments in the mid-19th century. For a long time, business regulation and policing were deployed separately, differentiated by the creation of modern police forces and prisons (Braithwaite, 2008). As a result, policing came to be associated with street-level crime whereas regulation was tied to the complexities of doing business.
Current institutional reshuffling makes the distinction untenable. In recent studies on public–private partnerships, responsive regulation, corporate risk management, transnational governance and third-party policing, the distinction between policing and regulation is either openly challenged (Braithwaite, 2003; Mazerolle and Ransley, 2005; Wells, 2001) or undermined in practice (Braithwaite and Drahos, 2000; Djelic and Sahlin-Andersson, 2006; Haines, 2011; Jordana and Levi-Faur, 2004; Ogus, 2009; Power, 2007; Svedberg Helgesson and Mörth, 2012). The gap is undoubtedly narrowing.
This article presents additional arguments for closing the gap between policing and regulation research in relation to state interactions with economic activity. The economic approach to organized crime and the anti-money laundering regime effectively short circuit the distinction by employing regulatory techniques on illegal business and policing techniques on legal business. In this respect, the analysis goes with the flow. In other respects, however, it goes against the grain. A first observation is that the strategies focused on organized crime and money laundering are punitive, rule-based and state-centered. They display a regulatory style that is very different from the dominant trend toward governance. In the recent literature on new regulatory forms, which document a growth of transnational governance, of standard setting and of soft regulation, state economic intervention based on rules and sanctions is slightly patronizingly labeled ‘command-and-control regulation’. Command-and-control regulation is considered to be dated, and as having been marginalized by the new regulatory forms (Djelic and Sahlin-Andersson, 2006, 2009; Jordana and Levi-Faur, 2004; Ogus, 2009; Picciotto, 2011; Schneiberg and Bartley, 2008).
The literature also contains counter-examples. The drift away from punitive, rule-based and state-centered regulation is not uniform (Baldwin, 2004; Crawford, 2006; Haines, 2011). In the area of corporate harm, criminalization is one of several techniques employed to discipline business (Tombs and Whyte, 2010). The number of counter-examples multiplies if critical work on policing and security is taken into account (Ericson, 2007; Hallsworth and Lea, 2011). Still, punitive, rule-based and state-centered approaches appear far from dominant in the contemporary regulatory landscape. The ‘sense of direction’ points to the contrary (Haines, 2011: 10).
The main thrust is thus toward a regulatory state, territorially decentered, involving a layered web of regulation, a variety of regulatory styles and an array of organizations ranging from the police, through the tax agency, to private regulatory bodies. In this story, there has been little place for sovereignty, except as something that is being superseded—or reserved for marginal populations. Few would deny its continued importance, yet the debate is restricted to a focus on the extent of state control. The sovereign element inherent in both regulation and policing tends to be ignored. In particular, the qualitative aspects of sovereignty are missing. To understand sovereignty as something distinct from more as opposed to less state control, we need to consult the history of political ideas. Current regulatory practice can then be related to a richer concept of sovereignty.
Compensating for the analytic absence of sovereignty
Sovereignty was originally used to vindicate the worldly concerns of the heads of state over the religious establishment when the concept was introduced in the 16th century (Brown, 2010). Over the centuries, it has been articulated in state action by regents, governments and local agencies. What appears to be at stake is the essence of statehood. Sovereignty is conceptually linked to the state, and specifically to the state. It has been referred to as ‘the struts and joists without which statecraft would not exist’ (Philpott, 1995: 354). At bottom, there is the capacity to use force. As Max Weber (1972) emphasized, the basic characteristic of the state is its successful monopolization of the legitimate use of violence. Within a given jurisdiction, the state has the primary right and also a superior capacity to use force. Both aspects are essential. Repression presupposes a legal dimension in addition to the position of strength in relation to competitors.
The split between legality and actuality was present in the very first writings on sovereignty. Jean Bodin (1992: 46) spoke of sovereign ‘prerogatives’ (marques), ambiguously referring to the distinguishing characteristics as well as the juridical rights of sovereignty. The sovereign state may use force whenever it prefers to do so. Yet any intervention must be legal. The two sources—the supreme power and the fundamental legality—are intimately connected. One influential model proposed that legality was grounded on the decision of a supreme power, and nothing else (Schmitt, 2009). While recognizing that all violence must be cast in a juridical form, the legality was seen to be unrelated to substantive considerations.
In addition, there is the element of violence beyond all justification, which is unacknowledged but inherent in the classical theories on sovereignty (Loick, 2012). When the state monopolized the legitimate use of violence, it simultaneously retained illegitimate violence as a prerequisite for sovereignty. This extra-legal violence has also been discussed in terms of ‘state crime’ (Green and Ward, 2004) or ‘homo sacer’ (Agamben, 1998). It presupposes a binary split within the population, with the excessive violence then being exercised against certain categories of individuals on the margins of society. In an economic context, on the other hand, the fundamentally legal violence can be expected to be more prominent.
It has been said that the sovereign mandate is tied to the establishment of order, both on the market and in general (Pan, 2009; Žižek, 1999). In Hobbes’ famous defense, sovereignty was the precondition for social order. Yet it is also, at a more basic level, not tied to any specific goals at all. As Foucault (2007: 258) remarked in relation to the original sense of raison d’Etat, ‘there is no prior, external purpose, or even a purpose subsequent to the state itself’. Sovereignty is ungrounded in the sense that it escapes all considerations of utility. It is not limited, or justified, by goal satisfaction. In a similar vein, Hanna Arendt (1963) described sovereignty as the assertion of a solipsistic will. The will of the sovereign is absolute and does not recognize the needs or goals of the surrounding world.
The claim to absolute supremacy is either celebrated or abhorred in the discourse on sovereignty. Yet the issue of its proper—as opposed to unbounded—field of application has also been discussed ever since sovereignty was first conceptualized. At least four areas in which sovereignty is exercised can be seen to recur across the centuries. The state can wage wars against other nations, lay down laws for citizens, punish law-breakers and tax economically active subjects. Punishment and taxation, the two latter areas, are of primary interest for the purposes of this article. Along with legislation and war making, they belong to the original sovereign prerogatives (Bodin, 1992: Book I, ch. 10; Hobbes, 1985: chs 18 and 30).
Punishment is arguably the sovereign prerogative par excellence. The exercise of violence against subjects who had contravened the will of the heads of state was consonant with all the basic principles of sovereignty. The state’s right to tax its subjects was embraced less unequivocally by the theoreticians of the early-modern state. However, although both Jean Bodin and Thomas Hobbes were hesitant to entrust the sovereign with the right to tax, since this threatened to infringe on property rights, for them taxation nonetheless belonged to the order of sovereign powers as a special case of legislation (Jackson, 1973; Wolfe, 1968). Ever since, taxation, or the forced acquisition of economic value, has been a cornerstone on which state power has rested.
A further aspect of sovereignty is that of symbolic authority, which has similarly accompanied the concept from the outset (Skinner, 1989). Sovereignty is exercised toward subjects as criminals, tax-payers, soldiers or political opponents. Besides being exercised, however, sovereignty is also displayed—toward everyone in their capacity as spectators. As display, sovereignty entails a symbolic confirmation of the supremacy of the state. Particularly when punishments are exacted, the endangered order is ritually reinstated and the power of the state appears uncontested (Smith, 2008). Carl Schmitt saw the symbolic authority as a theological remnant, the transfer of sacred aura to the secular state. The symbolisms of sovereignty were integral in his conception of politics as the conflict between friend and foe. Drawing the boundary between on the one hand the representatives of the state as guardians of order and on the other hand its enemies belongs to the fundamental operations of the state (Schmitt, 2009). State strategies toward organized crime draw on this existential conflict.
All aspects of sovereignty—the monopoly of violence, the fundamental legality, the solipsistic will, the symbolic authority and the existential conflict between friend and foe—are typically manifested in the punishment of criminal offences. But, as I will argue in this article, the economic sphere is by no means excluded. On the contrary: sovereignty is also displayed vis-à-vis businesses. All aspects of sovereignty are present in the interaction with the economy. The monopoly of violence, cast in a legal form, is the prerequisite for all regulation. Further, the symbolic authority of the state is activated, for example when members of business elites are arrested following scandals. ‘The obvious discomfiture of previously lionized executives now paraded in handcuffs is a public demonstration of the enforcement myth,’ notes O’Brien (2005: 7), ‘that no one is above the equal application of the law.’ Yet the symbolic aspect of sovereignty is equally present in the routine acts of taxation, when property rights are overruled and the state’s exclusive right to confiscate resources is displayed. Forceful intrusions into the economic sphere reaffirm the elevated position of the state, charged with overall responsibility.
In a regulatory context, the most controversial aspect of sovereignty is the assertion of solipsistic will. The basic absence of considerations of utility is not only hard to accommodate within prevailing approaches to regulation, but also challenges deeply held assumptions about the relationship between state violence and the market more generally, which I will elaborate on in the fourth section. First, however, we will make use of the recovered notion. The next section takes a closer look at how two state strategies currently articulate sovereignty in the economic sphere.
Articulating sovereignty in practice
I will focus on the regulatory landscape confronting organized crime, money laundering and terrorist financing. In the process of mapping what has been called ‘policing beyond the police’ (Crawford et al., 2005), and interviewing 30 key informants in 11 state organizations 2 over a two-year period, we encountered administrative strategies that did not seem to fit into the prevailing categories of traditional policing or business regulation. The interviews were conducted to acquire the practitioners’ understanding of the new economic policing landscape, as well as descriptions of individual control instruments in organizational practice. Against the background of a thorny legal framework with regard to reporting requirements, monitoring powers and sanctions, the practitioners described which tools were actually being used, and how they were being used. In conjunction with the interviews, official documents (policy papers, evaluations, guidelines, reports, etc.) were retrieved describing the regulatory approaches to tax evasion, organized crime, money laundering and terrorist financing. The policy documents covered the period back to the 1970s, and were analyzed in order to understand the objectives and the institutional changes underlying the current approaches.
The research was undertaken in Sweden and the state organizations referred to in this particular case all constitute part of the Swedish state. The empirical evidence is thus limited to Sweden. No attempt is made to make comparisons with the situation in other countries. It is well established, however, that the general policy trends in each of the areas examined are international in scope. Similar regulatory approaches to organized crime, money laundering and terrorist financing have been adopted right across the contemporary western world (EU, 1997, 2005; FATF, 2003; Levi, 2010; OECD, 2011; Pieth, 2006; Van Duyne, 2005). For this reason, some of the claims made in this article could be extended to all advanced capitalist states, bearing in mind that different legal and organizational environments would nonetheless imply national variations.
Organized crime: Caught in a web of taxation
When conventional police organizations were mobilized to combat organized crime, which was ranked as a security threat with the potential to disrupt the political and economic order (EU, 1997; JuDep, 2008), a range of state agencies located outside the criminal justice sector also became involved in the fight against this phenomenon, while adopting a strictly economic approach toward monitoring and sanctioning. The multi-agency approach operated on an understanding of organized crime as essentially illegal business. Although the points of departure and the motivating concerns were different for each organization, the policy implications were similar. The police’s ambition to disrupt criminal affiliations resulted in a focus identical with the Tax Agency’s performance goals on tax evasion.
The idea of organized crime as business men in the dark, raking in profits by circumventing state regulation, was formulated as a critique—also within the police—of the standard focus on criminal convictions. Our interviewees articulated a new consensus across a variety of state agencies, according to which organized crime was viewed as an economic matter. The clearly distinguishable motorcycle gangs affiliated with global franchises, such as Hells Angels or Bandidos, which up to that point had been synonymous with organized crime in a Swedish context, were replaced—or rather, supplemented—by faceless, illegitimate business activities submerged in the regular economy.
As such, these activities were seen to present a mix of legality and illegality. The criminally oriented groupings maintained a flexible relationship to the legal framework—sometimes adhering to the basic rules of financial reporting, sometimes ignoring them and taking precautions to avoid detection. Circumventing the costs associated with rule following, in terms of taxation or other reporting routines, produced a higher profit margin. But noncompliance was associated with other kind of costs. The concomitant monitoring and sanctioning gave rise to avoidance costs. This balance was acknowledged—and made use of. The multi-agency approached toward organized crime built on the conscious use of monitoring and sanctioning to raise the avoidance costs.
The approach was popularized as ‘following the money’, invoking the anecdote of Al Capone’s downfall. It relied completely on ordinary business regulation. The legislation on taxation, accounting, company forms and bankruptcy were applied to the activities associated with organized crime. Organized crime was subject to the same rules as any other business, and the control measures employed were the same. Irregularities associated with organized crime were detected using the regular techniques: field audits; injunctions against third parties such as banks; unannounced field inspections; and bankruptcy investigations. The business activity of organized crime, although generally more complex than for instance false accounting detected in relation to an ordinary bankruptcy, thus presented no fundamentally different challenge to the regulatory frameworks surrounding markets.
The economic approach toward organized crime may even appear identical with ordinary business regulation. But although the rules and the monitoring techniques are the same, the way in which they are applied differs significantly. Taxation is the paradigmatic example. The regular fiscal approach is system-based and oriented toward tax volumes. The Tax Agency starts from the entire pool of financial information in a given sector and then singles out a number of actors for closer examination through a complex selection process. In relation to organized crime, however, the Tax Agency abandoned its standard risk management approach and concentrated on predefined targets. The control selection is made by the police, based on information about criminal affiliations, drawn from police intelligence. The monitoring of the Social Insurance Board and the Enforcement Agency is likewise implicated in the crime control logic. All state organizations, in so far as they are working to combat organized crime, deviate from the system-based approach and operate with a focus on a number of designated actors whose identity is already known and whose financial information will be scrutinized.
The target-oriented use of the ordinary business regulation system is followed through in the sanctioning phase. The typical end result is an administrative sanction rather than a criminal conviction. The multi-agency approach enabled a strategic approach to punishment beyond the confines of the criminal justice system. When officials from up to 10 different state agencies started meeting on a regular basis under the banner of ‘combating organized crime’, sitting in the same room and exchanging information on individuals, they were also served a wide palette of sanctioning opportunities.
Retaxation, the enforcement of debts and the withdrawal of social benefits were originally not intended as punishments, yet have been made to operate as such within the concerted multi-agency approach. For instance, enforcing the repayment of fraudulent benefits is normal procedure as part of the system-based approach to ensure compliance with the social insurance legislation. But in this context, the Social Insurance Board has made extensive use of the lists produced by the police on individuals thought be associated with organized crime. Surprisingly many of the individuals reappear in the registers of social benefit receivers. They are then investigated in detail, and compensation for sick leave found to have been awarded on fraudulent grounds is subsequently reclaimed. According to one senior manager at the special fraud investigation unit at the Social Insurance Board, it is not uncommon that the reclaimed—and enforceable—amounts are sizeable.
Retaxation and additional tax surcharges are used in a similar manner. These sanctions are part of the normal procedure to ensure correct taxation. But when retaxation and tax surcharges are applied in relation to ‘organized crime’, the primary objective is to punish, and the fiscal interests (read: tax revenues), which motivated the design of sanctions in the first place, play a subordinate role. One director at the Enforcement Agency exemplified the punitive intentions, saying that ‘we cannot deal with gold chains’ – although that is sometimes exactly what he has to. Since the Enforcement Agency retrieves hundreds of millions of SEK each year, the confiscation of motorcycles and gold chains is not linked to any organizational performance goals. In the cases referred to, when such property was confiscated, the element of taxation had been included merely to punish targets associated with organized crime.
The confiscation of motorcycles and gold chains is an administrative measure. In general, administrative sanctions are preferred over criminal convictions. Key informants uniformly expressed a belief in the effectiveness of the retrieval and forfeiture of financial assets. This belief was often formulated in conscious opposition to prosecution-oriented approaches. During one interview, a senior manager at the National Bureau of Investigation pointed to a placard portraying a well-known figure from the field of organized crime saying that ‘sentencing him to prison is just marketing’. And a prosecutor at the Economic Crime Authority stated bluntly that ‘I don’t care about individuals and convictions.’ Everything is seen to evolve around money, or the ability to make money.
The economic approach toward organized crime borrows from both business regulation and traditional policing. The interventions rely completely on everyday business regulation, in particular relating to taxation, and the typical end result is an administrative sanction, while being employed in accordance with traditional police logic, and oriented toward the goal of disrupting organized crime. The strategy thus transcends traditional boundaries. Another conclusion relates to the new consensus on organized crime as illegal business activity that can undermine the political and economic order. The blurring of boundaries between policing and regulation was accompanied by a corresponding blurring of boundaries between periphery and center. The targets of sovereign interventions, who are usually located at the periphery, either socially or geographically, were now also to be found at the center of society. Existential enemies had become submerged in the regular economy, and this called for a sovereign response, which operated through the existing regulatory frameworks surrounding markets.
The economic approach toward organized crime concretizes sovereignty at the center. It involves the general characteristics of sovereignty in the classical political theory. Like other sovereign endeavors, it articulates the monopoly of violence, supreme authority, unbounded reasons of state and the existential conflict between friend and foe. Yet the particular means employed, as well as the economic context, implies certain modifications. The approach relies on the ability to process financial information, and avoids some of the overt symbolisms of sovereignty. The violence is tacit and always expressed through proper legal channels. Compared to sovereignty at the periphery, the articulation is less conspicuous. In the next study on money laundering, we will continue to follow the modifications of sovereignty at the center.
Money laundering: Caught in a separate risk communication system
The anti-money laundering regime was originally introduced as an anti-drugs measure in the 1980s, and was later extended to the fight against organized crime. The regulation is flexible in the sense that it responds to shifting sovereign priorities. In the early 2000s, the reporting requirements were further extended to incorporate terrorist financing, with the intention of freezing assets and providing a signal of the planning of terrorist attacks (Levi, 2010; Passas and Maimbo, 2007; Williams, 2007).
The specificity of the evolving anti-money laundering regime could be seen to reside in the suspicious activity reports, which are designed to trace economic irregularities associated with organized crime of terrorism. According to the official definition (EU, 2005), money laundering can be part of a scheme to avoid paying taxes, to remunerate undeclared work, to convert the proceeds of crime into legal property or to channel money to subversive activities. It may involve many and complex steps, but some moves are considered typical and are used as indicators, for example large cash transactions, deviant transaction patterns and unaccounted transactions. Such transactions are ‘suspicious’; that is, may indicate money laundering.
The regulation is entirely rule-based. The anti-money laundering rules enumerate which kind of transactions are suspicious—and must therefore be reported to the Financial Intelligence Unit, a special organization within the police. In particular cash transactions arouse attention. A senior manager at the Financial Intelligence Unit emphasized that cash transactions are ‘what is perhaps most important’. As long as amounts are simply transferred between bank accounts, money is easy to follow. Cash transactions ‘break the chain’, as another interviewee, at the intelligence section of the Tax Fraud Unit, explained, making it possible to hide the origins or the destination of the money.
The suspicious activity reports provide the input in a separate risk communication system. All large banks, so far the major players as regards the regulatees, have set up specialized reporting units to manage the risk of money laundering. Typically, a deviant transaction pattern within, for example, a small construction company is discovered through the bank’s risk management system; the bank sends a report to the Financial Intelligence Unit, which analyzes the information and requests further data from the bank, such as a statement of accounts. The Financial Intelligence Unit will then pass on the information. Depending on which, if any, connection emerges—drugs, fraud, tax evasion, terrorist financing—the information is circulated to the intelligence sections of the police, the Customs Service, the Tax Fraud Units or the Security Service. From there, if the suspicion becomes reinforced, the costs and the proceeds of the construction company may be further investigated by the Prosecution Authority, the Economic Crime Authority or the Tax Agency.
The risk communication system is closed, separate and innovative. It is a closed system in which all information is classified, starting with the suspicious activity reports. It is organizationally separate from the monitoring of regular financial information. In this sense, the money laundering regime is the direct opposite of the economic approach to organized crime, which operates via existing organizations and information flows. And it is innovative, since the risk communication system unfolds independently of standard accounting principles. Historically, financial accounting for investors was closely associated with tax accounting for the state (Essers and Russo, 2009; Thorell, 1984). With the creation of a risk communication system centered on ‘suspicious transactions’, however, the links to both taxation and investments were weakened. The framework of reporting requirements on financial transactions was extended to sovereign concerns other than taxation, and the value of this move for economic decision making was not even considered. Rather, it was about pursuing existential enemies.
Another peculiarity of the regime consists in its indirect character. What is regulated is not the money laundering actors themselves, but the entities with which they enter into business relations. Currently, a large number of companies are expected to maintain adequate routines for handling suspicious transactions, applying a risk-based approach and exercising customer due diligence (EU, 2005; SOU, 2007). In particular banks, remittances and currency exchanges are regarded as being indispensable to the process of money laundering, regardless of their own intentions, and have for this reason been subjected to the extended reporting requirements. They are absolutely essential yet reluctant partners, with no inherent incentive to report, a fact that the regulators are well aware of.
The responsibility for ensuring compliance is spread across several state organizations, each equipped with far-reaching policing power. The Financial Supervisory Authority can conduct unannounced on-site inspections of authorized financial institutes, to investigate compliance specifically with the anti-money laundering legislation. The inspectors will go through available documentation, interview staff on site and request further relevant information. Yet this extension of policing powers has not been matched by an equivalent increase in resources. Interviewees describe a regulatory network full of loopholes. The Financial Supervisory Authority performs few on-site inspections, and the administrative sanctioning system, which has been in place for some time, remains relatively untested. Because of the indirect character of the approach, compliance in itself does not correspond to any sovereign concerns. The anti-money laundering regime worked to the extent that it was able to extract financial information from the private sector to pursue existential enemies associated with terrorism and organized crime.
The principal target is the shady business activities of organized crime and terrorist financing. In practice, the regulation connects to other parts of the crime control agenda, such as tax offences. Although combating tax evasion did not play a prominent role in the justification of anti-money laundering measures, the information extracted has proven useful in relation to this end. The only study that is currently available on the crimes detected via the stepwise processing of suspicious activity reports in the Swedish anti-money laundering system shows that the cases are dominated by tax offences, fraud and the internet drug trade. The reported transactions often originate in the restaurant, construction, road haulage and other trades, where cash transactions have traditionally been central, for instance to remunerate the workforce cash in hand (BRÅ, 2011). Activities associated with a more common understanding of terrorism and organized crime are absent.
The anti-money laundering regulation, like the regulatory approach to organized crime, transcends traditional boundaries between policing and regulation. The basic operation is the same: involving the collection of information on economic transactions, and establishing where the money comes from and where it goes. The financial information on economic transactions is processed to combat crime. And from that perspective, existing differences were complementary. The economic approach to organized crime detected and sanctioned economic irregularities mainly via the regulatory regime designed to tax companies, whereas the separate risk communication system on money laundering was created to identify precisely those economic irregularities that were difficult to detect on the basis of this everyday tax-related information.
The anti-money laundering regulation must be seen as a continuation of the tradition in which the state asserts its authority, pursues its enemies and exacts tribute, within the economic sphere. While anti-money laundering strictly speaking is about processing financial information, in context, it is about enemies rather than economy. The approach has less to do with correcting market failures than with pursuing enemies of the state. It was developed based on the understanding that terrorism and organized crime—formidable enemies, who were also pursued through conventional wars and criminal justice—had become effectively submerged in the economy. As economic actors, they were to be rooted out and disrupted through the economy; that is, by tapping into financial information being collected by other economic actors and creating a separate risk communication system.
Questioning the paradigm of market functionality
The regulatory approaches toward organized crime and money laundering follow the trend toward convergence that is visible in current regulatory and policing research. They also articulate an element of sovereignty in the economic sphere that is largely missing in the same literature. The reason for this absence is not accidental but conceptual. It is due to the resilience of what might be labeled the paradigm of the market functionality of the state, across such varying theoretical traditions as orthodox free market economics and Marxist state theory.
The sovereign state has uniformly been invoked to account for the constitution of markets. In The Wealth of Nations, Adam Smith (1976: Book V) argued that the state establishes property rights and institutions that are vital for all economic actors. This role of the state has since been taken for granted within all of the main theoretical traditions. I cannot name a single exception. States make markets possible. It is a paradigm of market functionality, where the state is brought in to correct market failures, to stabilize economic crises, to protect property rights or embed markets.
The paradigm of market functionality does not entail a denial of sovereignty in relation to economic activity. On the contrary, the state is prominent as the maker and enforcer of rules in the economic field. Milton Friedman (1962: 34) saw key state functions in the definition of ‘property rights and other rules of the economic game’, along with the capacity to adjudicate disputes and enforce contracts. From the perspective of institutional economics, Douglass North (1990: 58) maintained the view of ‘the state as a coercive force able to monitor property rights and enforce contracts effectively’. And Yoram Barzel (2002) defined the state in terms of a ‘third-party enforcer’, which provided the legal violence that guaranteed market transactions.
The understanding of the state is generally more complex within economic sociology. Yet its role in relation to the economy is essentially the same. ‘Capitalism’, writes Neil Fligstein (2001: 36), ‘pushes states to develop rules about property rights, governance structures, rules of exchange, and conceptions of control in order to stabilize markets.’ Likewise, Pierre Bourdieu (2005: 204) embraces the notion of the state as maker and enforcer of rules in the economic field, and further emphasizes its constitutive role in ‘the construction of both demand and supply’.
Marxist state theory has been no less preoccupied with the state’s role as facilitator and guarantor of economic activity. Friedrich Engels (1973: 222) spoke of the state as ‘ideeller Gesamtkapitalist’; an ideal capitalist operating strictly with the general business interest in mind, as opposed to the interests of particular companies. Later Marxist conceptions ascribed a relative autonomy to the state, yet saw its economic role as no different. The state, Bob Jessop (1990: 360) says, is ‘charged with the responsibility for securing the conditions for accumulation when market forces fail and for securing social cohesion in a class-divided society’. Within the Marxist tradition, the notion of ‘market failure’ is more extensive, and includes the repressive management of unemployed and potentially rebellious segments of the working class (De Giorgi, 2006). Nevertheless, the role of the sovereign state as the constitutor of markets is a recurring theme from the days of Adam Smith, with only slight differences in emphasis between free market economists and Marxist state theorists.
Orthodox free market economics (Friedman, 1962; Hayek, 1972), institutional economics (Barzel, 2002; North, 1990), economic sociology (Bourdieu, 2005; Fligstein, 2001) and Marxist state theory (Hirsch, 1990; Jessop, 1990), although different in many respects, would thus converge on the theme of the overall economic functionality of state activity. This conclusion requires at least one qualification. None of the approaches would argue that the state is necessarily functional in this sense. Under extra-ordinary circumstances, the state can overrule basic market mechanisms, which is a potentiality that operates either as a menace (Hayek, 1972) or as a promise (Marx, 1937). However, in relation to existing markets, it is assumed that economic interactions are made possible by the sovereign state; not only by the state but also by the state.
The resilience of the assumption of the necessity of the state’s market functionality is perfectly understandable, given that capitalism is inherently unstable and that market forces cannot by themselves provide the necessary infrastructure. However, the same assumption involves a tendency to overlook the very possibility of state interventions in the economic sphere that are not based on considerations of market functionality. Although perfectly understandable, the neglect is also surprising, since most of us are also familiar with a quite different state. We know it from the writings of Thomas Hobbes, Jean Bodin, Carl Schmitt and other theorists of sovereignty. It is a state that asserts its authority, pursues its enemies, ritually affirms order and exacts tribute, regardless of considerations of utility. It is a state that engages in symbolic crusades and political endeavors, tempered, but rarely stopped, by the economic ramifications of these actions.
This state is also familiar from the more recent literature on the sociology of punishment and from critical studies of terrorism and organized crime. Mass incarceration, the war on drugs, military invasions in the Middle East, the reinforced traditional policing of everyday incivilities, the proclamation of wars on organized crime and terrorism, the rallying cry to follow the money and confiscate the proceeds of crime, are all central state projects in the western world. Faced with a real or perceived loss of control, the state reasserts its authority through its monopoly of legal violence (Garland, 2001; Naylor, 2002; Pratt, 2007; Scott, 2013; Simon, 2007; Wacquant, 2009).
This state, just like the state that embeds markets, stabilizes crises and corrects market failures, is connected to the economy through the immediate need for funding. Wars, police forces and prisons depend on the ability of the state to finance costly endeavors by extracting resources from the economic actors within its jurisdiction. Already Joseph Schumpeter has described the ‘tax state’ and what he viewed as a paradox, namely that the state was sustained by the very activities that it threatened to undermine. While pursuing an agenda of its own, especially in times of war, the ‘tax state’ was inimical to the market economy (Schumpeter, 1991).
The activities associated with the sovereign state also impact on the prerequisites for doing business in ways other than those associated with the need for funding. The regulatory approaches toward organized crime and money laundering shape the basic conditions for economic activity, by shifting the balances of costs associated with financial reporting. The nature of this impact is potentially contradictory. The resulting regulations could be functional for capital accumulation, or the opposite: deeply dysfunctional; or neither, simply laying down some of the rules of the game. All three outcomes are possible. The element of sovereignty does not imply a particular outcome. In fact, it implies indifference to economic outcomes.
We are left with what appears to be a paradox. Within the paradigm of market functionality, sovereignty is brought in to account for the constitution of markets. The violence of the state has been successfully domesticated by the demands of the market economy. On the other hand, we have a historically entrenched notion of sovereignty, which implies the very opposite; a violent and solipsistic state, standing supreme in relation to religious, economic and other powers. State strategies such as the regulatory approaches toward organized crime and money laundering belong to this tradition. Can this apparent contradiction be reconciled?
I have toyed with the concept of ‘sovereign economic regulation’ as a generic label for state interventions that borrow traits from both business regulation and traditional policing. The analytic point was to isolate interventions of the Hobbesian state in the economic sphere. Sovereign economic regulation would account for the intrusion of a legal yet arbitrary violence, symbolically asserting supremacy through punishment and taxation. But conceptual invention is merely the easy way out, a shortcut to reconciliation. In practice, categories are never clear cut. Concerns relating to market failures were visible in the case studies. The economic approach toward organized crime was partly driven by perceptions of unfair competition in certain business sectors such as construction and the restaurant trade (SOU, 1997). And initiatives to counteract money laundering were justified with reference to the integrity of the financial system, and thought of as a firewall, maintaining a separation between legal and illegal economies (EU, 2005; Pieth, 2002; Van Duyne and Soudijn, 2009). Whereas sovereignty may be the supreme expression of solipsistic will in the history of political ideas; in the realm of accountants, it will be comprised of a mix of different wills and objectives.
Moreover, other things interfere potentially contradictorily in the accumulation of capital. Far from being the unified political entity envisioned in the classical discourse on sovereignty, the state is a heterogeneous field of organizations, interacting with a wide range of groups, including trade unions, environmental groups and social movements. Different parts of the state regularly articulate interests that are at odds with each other (Hirsch, 2005). For this reason, the state constantly interferes with the logic of capital accumulation. During the 20th century, what is usually labeled ‘social regulation’ grew strong. To improve occupational health and safety, or to protect consumer and environmental interests, regulatory mechanisms were instituted that had an immediate effect on the conditions for economic activity (Ogus, 1994; Vogel, 1995; Vogel and Kagan, 2004). The regulatory mechanisms sometimes rely on sovereign prerogatives, for example in the form of prosecution as a means of improving occupational health and safety (Haines and Hall, 2004), or taxation for redistributive ends. Thus the ‘sovereign’ element of regulation is bound up with ‘social’ elements. In the end, the value of differentiating a category of sovereign economic regulation appears questionable.
Conclusion
The regulatory approaches to organized crime and money laundering borrow traits from business regulation and traditional policing, and thus transcend the categories developed by research traditions separated by the criminal law. The types of law, the kind of techniques, the justifications, the jurisdictions and the variety of sanctions associated with either business regulation or traditional policing came to be used in concert, or strategically, superimposed on each other. In this respect, the analysis presented above represents an additional step on the path toward the integration of policing and regulation research, where the main thrust is toward developing an understanding of a regulatory state, territorially decentered, involving a variety of regulatory styles and a layered web of organizations ranging from the police, through the tax agency to private regulatory bodies.
In a more critical vein, the process of integration has entailed an analytic ‘loss of sovereignty’ following which the qualitative aspects, found in classical political theory, are missing, or reduced to an issue of more or as opposed to less state control in the economic sphere. According to the reconstructed classical understanding, sovereignty involved the monopoly of violence, a fundamental legality, unbounded reasons of state, symbolic authority and conflicts with formidable foes. Current articulations of such elements in the economic sphere were visible in the regulatory approaches to organized crime and money laundering. They express the general characteristics of sovereignty, with a few modifications. The approaches targeted existential enemies who were perceived to be submerged in the economy, and who had to be rooted out through the economy—by the processing of financial information. The elements of display and of overt violence were thus less conspicuous compared to sovereignty at the periphery.
Sovereignty is generally well known at the margins, yet needs to be repositioned at the center of society. To do so, we need to understand the analytic ‘loss of sovereignty’, or its assignment to the periphery. Many or even most of the sovereign elements can be reconciled with positions adopted across such varying theoretical traditions as orthodox free market economics and Marxist state theory. Yet the regulatory approaches toward organized crime and money laundering also articulate an element of sovereignty in the economic sphere, which appears to be difficult to accommodate within existing approaches, in particular the violence grounded on the assertion of a solipsistic will. One way out of this dilemma is to disregard sovereignty at the center, or to resort to a thin but compatible understanding of sovereignty, formulated within what I have described as the paradigm of market functionality. Given this paradigm, the element of sovereignty in the regulatory approaches toward organized crime and money laundering constitutes an anomaly. As such, it challenges basic assumptions about the relationship between the capitalist state and economic activity, in particular the utility-oriented character of state violence. The true force of the counter-example presented above remains to be determined. My intention here has merely been to break the ice between two very different lines of reasoning about state violence.