The relative effectiveness of law enforcement policies aimed at reducing illegal trade: Evidence from laboratory markets

Abstract

Despite recent emphasis and implementation of national and international anti-money laundering policies, illegal product markets, and their associated illicit profit remain a global problem. In addition to law enforcement aimed at reducing money-laundering, enforcement also takes place during (1) the production (e.g. crop eradication) and (2) sale (e.g. seizure of products during transportation that interrupts buyer and seller transactions) of the illegal product. Since funds for enforcement come from limited budgets, understanding where in this production-trade-laundering cycle law enforcement is most impactful becomes a global question. Using laboratory experimental markets and a seizure rate of 20%, we find that law enforcement focused on seizing laundered profits does little to reduce illegal market activity when compared to no law enforcement, suggesting that focusing law enforcement on money laundering will likely be ineffective at reducing crime. Results further show the amount of illicit trade is nearly 32% lower when law enforcement is focused at the point of sale, and there may be additional economic incentives that reduce illicit trade in the long run when compared to no law enforcement. Enforcement at the point of production also reduces market activity, but not as effectively as enforcement at the point of sale. Lastly, the empirical findings deviate from equilibrium predictions, suggesting law enforcement policy based on theory alone may lead to inefficient allocation of limited law enforcement resources.

Investigation of International Transport Crimes

“…The importance of the proposed approach is emphasised by Formentão et al (2021), who notes that the development of innovative technologies and investigative methods is a factor in the detection and prevention of international transport crimes. Ritten et al (2021) and Mmakwena et al (2023) state that the analysis of statistics on open customs violations and changes in these indicators in different years shows the effectiveness of actions taken in European countries. Hildebrand et al (2018) emphasise the importance of ethical aspects in conducting such investigations, particularly the need to protect personal data, objectivity and impartiality during the analysis and interpretation of information.…”

“…In the modern world, international transportation is characterised by high complexity and dynamism, which creates favourable conditions for illegal actions. Because of globalisation and the growth of international trade by Ritten et al (2021), smugglers use increasingly sophisticated methods to move illegal goods across borders. For this reason, the effective investigation of international transport crimes requires thorough knowledge of international legislation and customs procedures and the use of advanced technologies and analytical methods, including analysis of transport routes, monitoring of vehicles, risk assessment, and identification of suspicious cargo.…”