- Investigators of organized crime
- Controlled delivery
- Physical and electronic surveillance
- Undercover operations
- Financial analysis
- Use of informants
- Rights of victims and witnesses in investigations
Published in May 2018
Regional Perspective: Pacific Islands Region - added in November 2019
Regional Perspective: Eastern and Southern Africa - added in April 2020
This module is a resource for lecturers
Financial analysis involves an assessment of a person's or business' income, expenditures, and net worth to determine the presence of unexplained income. It is a tool used by crime analysts when looking for discrepancies between legal income and expenditures as a potential indicator of illegal income produced from organized crime activity (Manning, 2011; U.S. Department of Treasury).
Three methods are used for financial analysis, all of which are designed to determine total wealth or expenditures to compare with reported income. First, the net worth method analyses a person's net financial worth over time and examines all sources of known income, bank accounts, and other assets. If a person cannot document the reasons for major changes in their net worth, this unreported income becomes the basis for investigation.
Net worth method in practice: the case of Al Capone
A famous example of the net worth method was the case of Al Capone, the notorious Chicago gangster of the 1920s. The Government examined Capone's bank accounts and bills in Miami and Chicago over a period of time and found, among others, that he spent $7000 for suits, $1500 per week for hotel bills, $40,000 for his house on Palm Island, $39,000 worth of phone calls, and $20,000 worth of silverware, and were able to uncover about $165,000 of taxable income, which he could not document over a period of years (Albanese, 2014). Capone was ultimately convicted for tax evasion and failure to file a return and sentenced to 11 years imprisonment and a $50,000 fine, plus court costs of $30,000. It was the harshest sentence ever given out for tax evasion (Iorizzo, 2003).
A second method of financial analysis is the expenditures method, which analyses the flow of funds during the year. Weekly or monthly reported income are compared to expenditures of the person (through cash purchases, credit cards, or other means). Major discrepancies between reported income and the level of expenditures suggest unlawful income.
A third method is the bank deposits method. This method of financial analysis attempts to reconcile the flow of money, which in many countries, for people and businesses, involves the use of bank accounts for receipt of income and in making expenditures. The money flow through a person's or business' known bank accounts are examined to look for discrepancies. This money flow in and out of banks can provide the basis to suspect unreported or unlawful income.
Close scrutiny of financial records can reveal organized criminal activity, including fictitious companies to launder funds, overpayment of employees, overpayment of subcontractors for kickbacks, or other fraudulent schemes to conceal unlawful income.