Sovereign Display and Fiscal Techniques: Some Notes on Recent Strategies to Counteract Money Laundering and Terrorist Financing.

Author:Hornqvist, Magnus
 
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TABLE OF CONTENTS I. INTRODUCTION 934 II. PART I: SOVEREIGNTY--FROM THE PERIPHERY TO THE CENTER? 937 III. PART II: TRACING THE REARTICULATION OF SOVEREIGNTY IN ORGANIZATIONAL PRACTICE 940 A. The Rise of Fiscal Policing 944 1. Tax Evasion 944 2. Undeclared Work 947 B. Catching Crime in a Web of Taxation and Reporting Requirements 951 1. Organized Crime 951 2. Money Laundering and Terrorist Financing. 954 IV. CONCLUSION 959 I. INTRODUCTION

"Everywhere," Joseph Schumpeter said at the time of the First World War, the tax state "confronts the private economies with relatively few means." (1) The main purpose of taxation was to finance the war effort. In more recent times, over the very last decades, as organized crime and terrorist financing came to be seen as submerged in the regular economy, governments turned toward the instruments of taxation for different reasons. While taxation still provided the necessary funding, now the fiscal regimes themselves were used to counteract terrorism and organized crime and to differentiate the associated money trails from other kinds of business transactions. (2) The transfer into new policy arenas was made possible by significant sharpening of the available fiscal instruments, which was carried out for the original reason of state funding. In a range of countries, tax regimes had evolved into powerful mechanisms of control in the administrative pursuit of tax evasion. (3) The two developments originated in different policy contexts: criminal justice and business regulation. This Article explores the developments leading up to the recent intersection of criminal justice and business regulation, as well as the possible implications of this intersection.

Whether current strategies towards 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. (4) As several commentators have noted, there is literature on regulation and on policing, which unfolds on parallel tracks. (5) The division of academic labor goes back to institutional developments in the mid-nineteenth century. For a long time, business regulation and policing were deployed separately, differentiated by the creation of modern police forces and prisons. During the course of the nineteenth century, policing was referred to a specialist agency, with specially trained personnel performing functions of order, maintenance, and crime control. This led to specialization: a "uniformed paramilitary police, preoccupied with the punitive regulation of the poor," whereas "business regulation became variegated into many different specialist regulatory branches." (6) As a result, policing came to be associated with street-level crime, whereas regulation was instead associated with the complexities of business and market governance. Current institutional reshuffling, however, has complicated the picture.

This Article argues, first of all, that a number of state strategies operate in ways that make traditional distinctions between policing and regulation largely untenable. (7) Secondly, and more controversially, it argues that the analyzed strategies involve a rearticulation of sovereignty at the center of society. (8) The Article is divided into two Parts, one conceptual and one historical. The first Part takes issue with the assignment of sovereignty to the periphery, to the sphere of criminology, and to the policing and the punishment of marginalized groups, at a safe analytic distance from core societal processes. 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. Analytically, sovereignty thus seems to be moving from the periphery to the center. (9) In the historical Part, the argument is that although state control vis-a-vis predominantly legal companies and state control vis-a-vis predominantly criminal companies have developed separately, and from different points of departure, there is nevertheless a noticeable convergence between the developments. Simply put, and allowing for national variations, over the last decades there is more policing (crime control, intelligence techniques, and on-site inspections) in relation to ordinary business, and there is more regulation (taxation, financial monitoring, and reporting requirements) in relation to organized crime. As a consequence, irrespective of whether the individual companies are legal or not, they tend to be confronted with the same requirements--monitoring, sanctions, and institutions.

  1. PART I: SOVEREIGNTY--FROM THE PERIPHERY TO THE CENTER?

    The state strategies to counteract tax evasion, undeclared work, organized crime, money laundering, and terrorist financing form part of the state's long-standing monopoly on punishment and taxation; moreover, they resonate with some of the most basic features of sovereignty. Historically, sovereignty was used to vindicate the worldly concerns of the heads of state over the religious establishment when the concept was introduced in the sixteenth century. (10) The economic aspect was central at the outset. 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." (11) 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." (12) At bottom, there is the capacity to use force. As Max Weber emphasized, the basic characteristic of the state is its successful monopolization of the legitimate use of violence. (13) Within a given jurisdiction, the state has the primary right and also a superior capacity to use force. Both aspects are essential. State sovereignty 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 spoke of sovereign "prerogatives" (marques), ambiguously referring to the distinguishing characteristics as well as the juridical rights of sovereignty. (14) 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. (15) 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. (16) 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" (17) or "homo sacer." (18) 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 in the market and in general. (19) In Hobbes's famous defense, sovereignty was the precondition for social order. (20) Yet it is also, at a more basic level, not tied to any specific goals at all. As Foucault 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." (21) The French Cardinal Richelieu first articulated the notion of "reason of state" together with sovereignty in the seventeenth century. The implication was that any manifestation of state power was above moral concerns. (22) 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 described sovereignty as the assertion of a solipsistic will. (23) 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. (24)

    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...

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