Could a Black Market exist in a cashless society (digital currency)?

Question

I'm writing a story about a fictional city-state on Earth. This city-state is very similar to modern-day Singapore. One unique aspect about Ebonia is that it is a 100% cashless society. All money transfers and transactions must be achieved through either credit/debit cards, cryptocurrency transfers, digital payments (a la Zelle or Venmo), gift cards, or paper checks. Unlike cash, none of these methods are fully anonymous. Transactions using these methods can be tracked via financial institutions that can be audited. Since all transactions are recorded, purchasing contraband or receiving illicit funds from a cartel leaves evidence behind. Money laundering is far more difficult. Begging and robbery is also far less profitable in Ebonia since you need an account or card or device to receive/send money and stolen credit cards can be tracked & deactivated.

Would Ebonia be free of organized crime thanks to its cashless society? Or could the Mafia or the Mob find another way to operate clandestinely?

Answer 1

Yes

What is the oldest Profession in the world?

Providing sexual favors for resources.

Ah - but I hear you ask: All the local prostitutes in my area charge an hourly rate and for Cash.

Penguins - which exist in a completely cashless society, trade sex for resources

Furthermore - you have to understand that Cash (or lack thereof) is merely a placeholder for Things of Value - Resources, Time, Skills, Expertise.

Even with tracking and auditing, there is plenty of scope for corruption:

Let us assume you are a government official and I am a business owner. I want you to give me a favorable interpretation of a local Zoning law.

I agree to buy your Truck - Blue book value is say \$10,000, I pay you \$14,000 for it - and I mark it as in very good condition (within the bounds of plausibility)- an auditor in a remote office is unlikely to know that it actually is in bad condition and I overpaid by \$10K

Or...

I am a Mechanic - I agree to service your vehicle(s) at no Labour cost for the next year - you still bring in your vehicle, you still pay for parts - but there is no record of any work being done and all my time is supplied for free.

Or...

The classic ahem scenario of a young attractive female who is behind on her rent and seeks to come to some arrangement with the landlord (use your imagination or google - just not at work or school)

There are plenty of ways for non-monetary transactions to take place whereby things of value are traded.

the only reason Cash is used is because it is rather universal - if I am a Mechanic, but you don't have a car - the skills that I can offer you have limited value, but the Cash I can offer you has universal value - but if your concern is not getting caught - plenty of ways to do it.

Answer 2

Disguise your transactions.

You don't have to use fiat currency. You can use other valuable commodities. However, that doesn't mean you can't use "real money." You just have to be careful about it.

You don't list your black market commerce using entries such as, "\$200 for cocaine." You list your entries as part of legitimate transactions through front businesses. For example: "\$200 for bottle of fine wine." You need to be creative to avoid unusual patterns and unbelievable transactions, but that's the general idea.

For large transactions where the government is incentivized to pay careful attention, you ship it with something legitimate on a "pennies on the dollar" basis. Your client pays for \$1,009,000 of "olive oil", but in reality it's \$1,000,000 of olive oil and \$9,000 of cocaine. The price is slightly higher than a fully legitimate shipment, but you can explain it away using buzzwords such as "artisan." IRL organized crime occasionally use similar methods to evade customs.

On the end-distribution side of things, you either use alternative means of payment or just plain mislabel transactions entirely. Neither the government nor the Mafiosos are particularly worried about individual dealers. The Mafiosos, because it doesn't effect their bottom line much unless many are taken down at once; the government, because taking down individual dealers is like playing Whack-A-Mole with their finite law enforcement resources.

Answer 3

gift cards, or paper checks

A gift card or paper cheque will create a trail at the end points, but not necessarily in the middle. For example:

• Person A buys 4 gift cards for ☼5 each.
• Person A then gives Person B 3 of those gift cards in exchange for goods.
• Person B then gives ☼10 of gift cards to Person C for services, and uses the remaining ☼5 card to obtain food from Person D
• Person C buys something from Person E, and hands over those gift cards.
• Person D needs to purchase something from an official shop, and so uses their ☼5 gift card to make a ☼2 purchase.

At this point, the Government knows 2 things: Person A bought ☼20 of gift cards, and one of them ended up in the hands of Person D (who used it for a purchase).

They have no idea where the other ☼15 of gift cards are, nor that Person B handled the card between Person A and Person D. They certainly don't know that Person C has any of the gift cards.

In Money Laundering terms, the Government will be aware of the Placement of funds (i.e. the initial purchasing of Gift Cards), and will be aware of the Integration of funds (i.e. using the Gift Cards as Gift Cards) — but they have no oversight of the Layering (i.e. exchanging the Gift Cards as a de facto currency.)

Answer 4

could the Mafia or the Mob find another way to operate clandestinely?

Yes, they can use something else in place of the official money. There are many possibilities. Precious metals and jewelry come to mind, but anything sufficiently enduring can do in a pinch; there have been black markets which used things such as cigarettes or hard liquor for their currency. In particular any crime syndicate engaged in smuggling is in a prime position to use their own contraband as a money equivalent. In theory this money replacement doesn't even need to be a material object; it could also be a concept such as trust (enforced by physical punishment, i.e. you effectively use your own body as collateral), personal favour (of the sort that you can't refuse), or a personal bond (which for criminal organisations may well include people bound to do forced labour for the gang; cruel as it is, their future labour would perform the role of money very well). The city-state is likely to depend on international trade, which always leaves an option to launder the money by passing it through a foreign jurisdiction, preferably one which is not on good terms with the city-state and so unlikely to appreciate it sniffing around their monetary system. The auditors and law enforcement can be bribed, threatened and/or otherwise corrupted to look the other way, even using the fully legit and traceable money; they can always investigate themselves and find no evidence of any crime, you see. Technology alone will not remove organised crime; sorry.

Answer 5

A couple things come to mind:

1. Trade — all black market transactions involve some good or service being exchanged between individuals. I buy a crate of guns, and trade it for something which I can sell for money.

2. Black market digital currencies — why use what the banks use when the criminals settle on a purposefully designed anonymous crypto currency as a counterweight to legal tender?

The challenge with option 1 is making legal, traceable purchases in the first place. You could accomplish this with deception and trickery, which might be good fodder for your story.

The challenge with option 2 is that unregulated currencies can be quite volatile. Timing is everything as criminals navigate the ups and downs of the black currency market. This becomes a completely separate economy. As long as people can exchange Black Crypto for food, shelter, and clothing then a separate economy is viable. The biggest open secret might be that everyone keeps two kinds of currency around: the "official" kind and the "unofficial" kind.

Answer 6

As a lot of people already mentioned, barter becomes the next best thing, assuming all other payment instruments are surveilled. But in society before banking, there was also credit (like delayed barter; remembering the account with your neighbor) and the gift economy.

Some goods tend to have a wider desirability as a currency. Gold coins and grain have played the role of money. In prisons you have cigarettes, candy, shivs, alcohol, mobile phones and so on.

See also the Wikipedia article on money.

Would Ebonia be free of organized crime thanks to its cashless society?

Crime finds a way. If the government has absolute control over financial transactions, it becomes very easy to abuse it. So the government could become the largest organized criminal.

Answer 7

A black market currency would develop.

It could be recorded in the ledgers of some organized criminal enterprise.

Cash alternatives, like physical gift cards, might be used in criminal operations. Those physical gift cards, so long as they are difficult to forge, don't even have to be liquidated.

If there is a popular contraband - untaxed vice items, illegal drugs, illegal services, etc - a payment mechanism would develop for it. In the "real world" this is cash. Converting the payment mechanism for the contrabrand back into "real in economy" money is called money laundering - in our world, you have to launder the cash through a semi-legitimate business.

In this world, suppose the non-cash preference of choice is gift cards for a popular supermarket chain. Laundering it consists of running a food supplier for restaurants who pay cash for food, and you spend the gift cards on food at the supermarket.

Laundering often comes at a discount; turning 1$ of illegal revenue into 0.75 or even 0.5 dollars of legitimate money can be a win. So this can be quite inefficient and still work.

Your food supplier buys sub-par food (spoiled food) from food suppliers. They then get laundering workers to spend gift cards on supermarket produce. They sell the supermarket produce to restaurants.

Profit flows to the food suppliers, who sell garbage food waste (which might not even exist!) for real dollars, and the intermediate warehouses who supply restaurants provide convert gift cards into food.

And the illegal activity takes payment in gift cards.

The government sees (X buys a gift card), (Y buys food with said gift card) as the only anomaly, where Y is some marginal member of society. It looks like X buys gift cards to feed the poor - and the criminal organizations can even encourage doing that as cover. "Feed the poor; give them gift cards for food!"

The food suppliers just have a lower level of spoilage than expected. The food distributor appears to buy food from food suppliers and sell it to restaurants. The restaurants are legitimate and get real food.

Meanwhile, the food suppliers are owned by organized crime, and the money used to buy drugs goes (middle class drug addict buys gift card) (poor laundering mule converts gift card to food) (restaurant pays for food) (food distributor pays supplier) (supplier provides worthless food for real money) in a very difficult to trace pipeline.

This took a few minutes to work out. If you block gift card transfers, art works, precious metals, or eventually even something like bitcoins can take over the job.

The higher the boundary against illicit trade, the greater the pressure from demand and profit from solving the problem.

Answer 8

This is really just a meta-answer covering all of the existing answers. Challenge your system as an adversary would. How would someone really tackle such a system and its lack of anonymity?

This goes deeper than the details we have here. Your question states "Transactions using these methods can be tracked via financial institutions that can be audited." How is that tracking done? How might an adversary beat it? The adversary won't attack the ideal of "all transactions are tracked... poor criminals, they'll never survive." The adversaries will attack the particular implementations of this tracking that your system has, and try to defeat them.

Take a look at the Bitcoin world. It was designed to be anonymous. There are actors who state that Bitcoin transactions can be tracked well enough to put people behind bars for illegal transactions. There are other actors who say that is hogwash. The differences in opinion all stem from the implementation of how tracking might be accomplished.

It's very rare for an adversary to attack the impenetrable defense described in a whitepaper. Instead they attack the actual implementation implemented in source code. Nobody tries to break down the unassailable wall. Instead, they wait for someone to open the door to let food in.

Answer 9

Sure. Trade.

Trade of "items", "time", "aid" or whatever.
I give you a mango you give me a bottle of tea, or a dose of some drug.
Or perhaps a favor: I give you the football player sticker you need to complete your collection and at some later date I might ask you to help me by, say, passing a law making legal dumping radiactive waste in public pools.

If the trade market becomes complex\large enough, non-gov alternative physical tokens for "value" might appear. Perhaps in the shape of small metal disks, or slips of paper.

The reason alternate currencies rarely become a thing in the real world is because they are not accepted for paying taxes.

Therefore the use of alternatives to the official monetary system would be quite limited in scale, especially in a Pseudo-Singapore which wouldn't be very large.

Answer 10

Yes. There are two different questions asked here. 1. Can the Mafia still exist? 2. Can a black market exist? Let me address just the first question.

The Mafia in America run many "legitimate" businesses. What they do is to force you to do business with their companies. That they don't provide the level of service you want, or they overcharge for what they deliver is not the point. Your knees or the life of your kids may depend on you doing business with them. The same is true in other countries. (https://www.britannica.com/topic/yakuza) This kind of criminal activity will still happen in a cashless society. (A search for "mafia run businesses" turns up several lists of business types.)

The challenge for the Mafia is to not try to extract too much value out of the customers. At a certain pain level, the customers go to the authorities and expose the anticompetitive activities.

Answer 11

Why not just make an underground bank?

Its surprisingly easy, a bank can be as simple as a reputable institution that maintains a record of transactions. This could be as simple as a room full of accountants with calculators, ledgers and phones if you wanted to go completely analog.

Say I'm in your world and I want to purchase something illicit, I've exchanged some gold at the "bank" in exchange for 5000 smeckles, the bank notes down my new balance in my ledger as 5000.

So I go my local shady individual and purchase whatever illicit goods I need, I phone up the bank and order them to transfer 2000 smeckles to Account number: 0022512.

Done. I've successfully purchased what I needed using a completely analog currency backed by one of the most stable commodities on earth. I got my goods and the seller received smeckles to spend on more illicit stuff.

And, if either party needs real money, they can exchange their smeckles for gold from the bank and sell it at a legitimate business.

The bank of course takes a small cut in every step of the process, but that's the price you pay for privacy.

Answer 12

Not only it could, but it would be absolutely necessary for the economy to work.

A completely "by the book" legally transparent market economy would not work, even for one day, because human beings are fundamentally misaligned with governments and their laws. Governments work for their own benefit first, and for the Greater Good second, and Greater Good is the enemy of the Individual Good. You cannot have an economic system, or legal system, that is both optimal to A Person, and to The People, since the needs of the Individual and the Many are quite often opposite. If, by some magic, the government managed to enforce the end of Black Market, it would just choke an important part of the cash flow, because individual people would be unable to buy illegal things they need anyway, regardless of what law says, and people who sell illegal things would go bankrupt, taking a chunk of the economy with them. For example, if drug dealing was made impossible due to the financial oversight,that would destroy a billion dollar industry and put tens of thousands of people into forced unemployment.

The closest to "no Black Market" economy I can think of is if the country of Ebonia was Libertarian to some absurd, Rand-Gone-Wild degree, and nothing of consequence needed to be illegally fenced, because just about everything short of murder was legal. There would still be some Black Market, just not a very robust one, since it would likely be below the threshold where some kind of clandestine financing system could be established.

Answer 13

Would Ebonia be free of organized crime thanks to its cashless society? Or could the Mafia or the Mob find another way to operate clandestinely?

No

Of course not. Where there's greed, there's crime. All a cashless society would do is change how the Mob operates — and not even that to a great degree. What are some of the many things the Mob is famous for?

The shakedown

"You need to pay $50/week to the following Venmo account to be protected against (*ahem*) difficulties."

Shakedowns are successful not because the financial transfer can't be easily traced, but because the victim is terrified to testify against the Mob. Any criminal activity that depends on similar terror tactics will prove successful using perfectly legitimate and traceable money transfers.

What would the Venmo line item description be? "Security consultation."

The Numbers Game

"Buy a chance to win the Lotto! Only $5/ticket! Legal? Well, not strictly... but see the Johnsons over there? They were last week's winners and they're on their way out to a fancy dinner!"

Illegal gambling has existed since monkeys learned how to carve bones into rough cubes and throw them. It's not the money transfers that are illegal, it's the reason for the transfer. Numbers games thrives because (among other reasons) if one person ratted out the Mob, everybody got into trouble. It's the worst form of "there's safety in numbers."

What would the Venmo line item description be? "Costillano's Investment Agency"

The Teamsters Model

"If you want to build your building, you need to deal with the Union! No, we're not here to talk about Jimmy Hoffa!"

The Mob learned a long time ago that political control begets financial control. Unions (and any other group with leveragable influence or an organized pension plan) could be infiltrated to ensure contractors paid just a little bit more for necessary services — and the Mob simply skimmed off the top took their consulting fee. Or they utilized the same organization's pension plans for reasonable investments. So long as the members of these organizations were basically happy, nobody stood up to the abuse... and keeping people happy is easy when the stereotypical "join the Union or else!" attitude keeps everyone in line.

What would the Venmo line item description be? "Teamster's #2072 Trucking Services"

Conclusion

Ignoring your title question completely, of course organized crime can exist in a cashless society. It's made easier with things like good cryptocurrency, designed to provide anonymity, and it's certainly made easier if there are countries where the money can be shipped off to without the hope of financial extradition. But organized crime can be reasonably said to have always existed and will always exist.

However, I wonder if you're thinking too much about a perfect solution. If you read a brief history of illegal transactions on the Dark Web you quickly realize that in many instances, it's the the people who didn't get sent to jail who move on to the next idea with new ways of avoiding capture. AKA, organized crime. If you think about it, mobster Al Capone, who everyone (and their brother and their dog) knew was a mobster, was so good at what he did that the way they finally incarcerated him was for tax evasion and not any of his criminal activities.

My point? Organized crime vs. law enforcement is the same back-and-forth escalation-driven drama as bullets and bulletproof vests.

And it's worth remembering that black market activities are still going on within the Dark Web in a wholly cashless "society" right now.

Illegal supply-and-Demand doesn't go away simply because paper money is replaced by numbers on a hard drive. Erasing value in a successful cashless society isn't as easy as erasing that hard drive. And there's a LOT of people (not just the Mob) who want some level of anonymity in their transactions, which leads me to believe a cashless society will never be 100% transparent — somebody will always be working toward the next great innovation in digital anonymity. Personally, I find a wholly transparent financial system unbelievable.

BTW, This question can be legitimately closed for Needs More Focus because the question in your title is very different from the question in your post. They intersect, but not enough to justify they're the same question. A black market does not mean organized crime must exist any more than organized crime means there's always a black market. You don't even mention a black market in your post

Answer 14

Full of crime

See also https://en.wikipedia.org/wiki/Limes_inferior Limes Inferior from Janus A Zajdel which all is placed exactly in a world, where no cash exist (just some points (red, green, yellow) in central computer, accessible via ID device) and nearly everybody in the book participate more or less in "shadow economy".

Robbery is not so hard: "If you do not want me to cut your throat, buy this, this and this and give it to me" (or for larger values, kidnap wife, childs ... and avoid even cameras in shops)

Extorsion: pay this prostitute (consultation company, overpriced product ...) for so many hours, or else ...

Bribe: there is already paid car, apartman, yacht, prostitute, ... which you can use for free would you do this or that for me, my friend, my client ...