Under the Table and Off the Books

A Fletcher School course studies the myriad ways people make—and hide—money through informal and underground finance

When Ibrahim Warde, adjunct professor of international business at The Fletcher School, was speaking with government regulators in Nigeria, he asked them about email scams of the “money from a Nigerian prince” variety. At that moment, they happened to be passing by an internet café.

“Can you see all of those teenagers on their computers?” one regulator sighed, pointing inside. “All they’re doing is perpetrating scams.” Those teens, says Warde, are part of the vast swath of financial activity that is invisible—or hidden in plain sight—just beneath the formal economy of banks and taxes.

For the past nine years, Warde has been shining a light on this dark financial landscape in his course Informal and Underground Finance, which encompasses both informal transactions made off the books and underground criminal schemes. Within that framework, the class takes on a thrilling variety of financial actors, including drug smugglers, terrorists, kleptocrats, hedge fund swindlers, and Silicon Valley charlatans such as Theranos’ Elizabeth Holmes or FTX’s Sam Bankman-Fried.

“Every year, there are new stories,” Warde said. “For the past couple of years, we’ve been talking a lot about oligarchs and how they’ve been evading sanctions.” Case in point: Whole neighborhoods in London are dark at night, full of mansions where kleptocrats from Russia and other countries have parked their money—all facilitated by the British government—providing a dramatic example of just how intertwined the legitimate and illicit economies are.

Shades of Gray

Warde, who has written books on Islamic finance and the “financial war on terror,” says criminal activity has grown in the past several decades. He explains that that’s due to the collapse of communism and the increase in government instability in the developing world, while at the same time libertarian ideals in the 1990s led to the removal of global financial controls.

“This mindset that says the less government the better meshed with the interests of people looking to make an easy buck, who were free to do whatever they wanted,” Warde said.

Not all aspects of the informal economy are necessarily negative. In some countries where government services have failed, citizens have by necessity had to work outside official channels to obtain goods and services, haggling at street markets or smuggling items across borders. “Sometimes there’s a tendency to divide the world into good guys and bad guys,” Warde said. “But in certain parts of the world, people have no option but to constantly hustle for a living, and they become very creative.”

For student Leen Hayek, F24, who is originally from Jordan and has worked with refugee communities, understanding those distinctions is key. She’s been studying instant payment systems that can help vulnerable populations avoid a cash economy, and the bribes and corruption that sometimes come with off-the-books transactions.

“We’ve had a lot of good discussions about how the informal economy might be absorbed into the formal economy to give banking access to a large segment of the community that was formerly unbanked, and the advantages and disadvantages of that,” Hayek said. “This class has given me a language and an overview of privacy, tax, and anti-terrorism laws I’ve needed to tackle this issue.”

The Global Perspective

With so many international students in the class, Warde said, they frequently bring perspectives and examples from their own countries that Warde didn’t even know about. “A Chinese student whose family deals in watches wrote a paper on the contraband watch trade explaining how it works,” he said. “It was fascinating.”

Eoin Lyons, a Harvard Divinity student studying business ethics who cross-registered for the course, grew up in rural Ireland, where many of the transactions between neighbors were conducted under the table. He previously worked for international consulting firm KPMG on issues of keeping American companies accountable for work in other countries under the Foreign Corrupt Practices Act.

“The course was a phenomenal foray through various topics in corruption that I’d glimpsed before,” he said. “But it allowed me to get a much more holistic viewpoint.”

Lyons, who is headed to law school, said the course has given him a broader and more nuanced view of informal activity. “I’m entering with a firmer foundation on how to hold individuals accountable, and also the limitations on doing that,” he said.

Back to Top