That’s Where The Money Is
Remembering the good old days, when the people who robbed banks didn't work for them.
Dateline: Woking, 18th February 2022.
I remember sitting through a discussion about the security of a proposed new payments security in an online meeting recently when one of the people round the metaphorical whiteboard said something about “John Dillinger’s famous quote” that he robbed banks because that’s where the money is.
Due to my obsessive nature I was forced to immediately halt the proceedings and annoy all participants by pointing out that the pithy maxim is nothing to do with the much-celebrated former public enemy no.1, who was shot dead by the FBI in 1934, but is in fact generally attributed to another noted criminal from the era of bank branches, leather wallets and physical cash: “Slick” Willie Sutton.
Sutton, like Dillinger, was an old school armed robber. In 1952 he was convicted of stealing the equivalent of half a million dollars or so from a branch of the Manufacturers Trust Company in New York and sentenced to 30 to 120 years in prison. (He served only 17 years, earning time off for good behaviour.)
The famous phrase “that's where the money is” also dates to 1952, when it appeared in a Southern Californian newspaper. Today it is so commonplace that social scientists have dubbed the process of considering the obvious first as “Sutton’s Law”. In his autobiography, however, Sutton denied ever saying it!
(In fact, and more interestingly in my opinion, in that same autobiography he wrote "Why did I rob banks? Because I enjoyed it”.)
Dillinger and Sutton are figures from a bygone age, when the people who robbed banks didn’t work for them. Today when most of us think about bank robbery, we think about people inventing complex derivatives and amassing fortunes while the institutions that house them amass fines, bankruptcies and bailouts. But it turns out that your grandparent’s bank robberies are not entirely extinct. American Banker says that violent bank crime has indeed become increasingly less common in recent years (although it ticked back up in the middle of the last decade) but there were still 1,788 bank robberies in the US in 2020, the most recent year for which FBI statistics are complete, compared with 5,546 ten years ago.
(By comparison, in largely cash-free Sweden, there were five bank robberies in 2020, down from the the 2011 peak of 43. Only three of these were armed robberies.)
Crimes And Punishments
Many years ago I read a study on armed robbery in London: "The Decision-Making Practices of Armed Robbers" by Morrison and O'Donnell. Because I am interested in risk analysis it is one of my favourite papers, and it is very specifically about the UK rather than the US, I’m sure the thought processes of the perpetrators must be similar.
Crucially, the paper notes that “almost all of these robbers evaluated the offence as having been financially worthwhile (aside from the fact that they were eventually caught and punished for their crime)”. So robbing a bank seems like good idea, if you exclude the possibility (in fact, the likelihood) of being caught! I suppose this is standard Jordan Belfort, Bernie Madoff thinking though isn't it? Unless people believe they will be caught (and these people don’t) then they only consider the upside.
The downside, though, is significant. In the USA, the 1989 "Federal Uniform Sentencing Guidelines" mandated a minimum of 85% of a sentence for bank robbery be served before eligibility for parole. The customary sentence immediately jumped to 20 years with a minimum of 17 served and the use of a firearm would add five on top of that. If you’ve got a 50% chance of getting caught, that’s an expected return of a few thousand dollars and more than a decade in jail.
Yet people still do it! But for how much longer? While glancing back over the paper I note that the authors say that it doesn't seem practical to "expect financial institutions and commercial properties to reduce counter cash much more than they already have". That may have been true when the paper was written a few years ago, but it clearly isn't true now, since both bank branches and businesses in many countries are becoming cash free. And this is a good thing, because as we all know there is a direct and measurable relationship between the amount of cash out there and the amount of crime. As the paper says, "even when the amount of money obtained was quite small (an element often touted in support of the irrationality of economic criminals), it must be recognised that even apparently small sums may be adequate for the offender's immediate needs. Hence, gains may be subjectively much larger than they appear".
This is not an observation confined to the cash held in bank branches, by the way. It is a feature of cash held anywhere that it attracts crime. A study of the American Electronic Benefit Transfer (EBT) program found that "the EBT program had a negative and significant effect on the overall crime rate as well as burglary, assault, and larceny".
The rewards of armed robbery seem to me, then, as an educated middle-class professional, to be rather low. Yet they are still sufficient to attract the robbers, because their needs are immediate and limited. If I’m going to get involved in an NFT rug-pull, an international tax fraud or crypto-exchange money laundering operation that I want at a minimum a holiday home in the South of France but the guy in the clown mask isn't robbing a bank to load up a pension plan or to obtain seed finance for a start up, he’s doing it because he needs to buy some drugs or whatever. This paper seems, then, to indicate that so long as there is any cash in the till, there will be robberies.
Business Plans
Overall then, with falling rewards and an increasing likelihood of arrest, there are really only two ways for armed robbers to go. They either have to scale up, or look at adjacencies. So where can we look for a glimpse into those strategies? Well, Brazil is a hotbed of fintech innovation (the noted investment outfit Berkshire Hathaway has just dumped shares in Visa and Mastercard and has bought $1 billion in shares of the Brazilian digital bank Nubank) so that seems a reasonable place to look for what economists call weak signals for change. Here are two I found to illustrate the point.
First, scale. Banks branches just don’t have that much money in them, so given the fixed costs of shotguns, balaclavas and hideouts, it makes sense to rob a bunch of them at once. Armed robbers in the city of Araçatuba, a few hundred miles north-west of São Paulo, decided to scale up in this manner. They cut off key access roads to the city with burning vehicles, attacked the local military police station and placed some 40 explosive devices at 20 different locations around the city. Then they robbed multiple banks and escaped by tying hostages to their cars as human shields.
The alternative is to look for adjacencies where core skills and sunk costs can be exploited. This appears to be the route taken by many Brazilian armed robbers who have decided to move into the electronic age by kidnapping people off the street and then forcing victim’s families to send them money by credit transfer using the new Pix instant payments platform. In fact this mode of operation has become so common that the central bank has been forced to restrict the use of the instant payments platform and if a bill in the São Paulo Legislative Assembly becomes law, it will prevent financial services providers and payment institutions from processing payments through Pix at all until the Central Bank improves consumer protection.
(Pix is the instant payment system launched by Banco Central do Brasil in October 2020. Funds can be transferred between checking, savings or prepaid accounts in seconds. Anyone with an ID and a mobile phone can use the service, which has been a huge success, with something like two-thirds of the adult population using it. It carries about three-quarters of the nation’s transactions.)
The end of cash doesn’t mean the end of crime. But it does mean that we have to do proper risk analysis on its replacements, whether these are going to be electronic money (eg, instant payments in the UK, where authorised push payment fraud is out of control and is already more than card fraud), electronic cash (in the form of public or private digital currency) or cryptocurrency.
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