Tuesday, September 15, 2009

Money Laundering

Dec 15 This is the most heinous thing going, because it's where the hiding occurs. It's what happens to aid money from when it's stolen by corrupt officials. It's how money gained from stolen taxes or revenue, illegal drugs and human slavery gets turned into country club dues, haciendas, and kick-ass cars. It's how people who collaborated with the Nazis were able to leave millions to their grandchildren.

Recent stories on this continent have highlighted Mexico, but also a group of rabbis in New Jersey, public officials in Florida.

This diagram is from the UNODC (UN Organization Against Drugs and Crime):



The Car Guy is collecting the "gang tax", the extortion money, the drug proceeds, the cut from the brothels, illegal casinos, dog parlors, and bookies. Reports of huge basements full of cash are often exaggerated. If you have a plane to carry dope, it can probably carry cash to the Caribbean, too. But often diffusion of cash is the key. Sometimes cash gets stored until it can be diffused properly.

Subcontractors and necessary professionals are sometimes paid in cash. And eventually, these smaller amounts go to the First Local Bank. Splitting up the cash (called "smurfing" in one report)  is necessary due to money laundering laws. In the U.S., that 'heads-up' deposit amount is under $10,000.00. (I imagine 9,999.99 would also be a flag.)

Cost of Doing Crime:
One-third of the expenses in drug-running are fees for money-laundering: the cut that CarGuy and his tribe get for making deposits of illegally-gotten money into legitimate banks.

Not Exactly Obvious
There isn't generally a First Local BadGuy Bank. It's just a bank, any bank. Although, sometimes banks in big trade cities such as (picking at random) Miami, New York, Bogota, Hong Kong, get far more than their share. Sometimes officials in legitimate banks are bent, cover up transactions, look the other way, another corruption of the system.

The money gets transferred to another bank, another one, eventually to a safe haven bank, such as in the Caymans or Switzerland. Once it's aggregated, it's used to invest.

This diagram is a little simplified: the smartest move a money launderer makes is start a company that legitimately could make deposits into First Local Bank. Something cash-based, like a restaurant, for instance.  That way they can launder their own money (here comes the 'double books' that are against the law.) They can also force a company (through extortion) to launder money for them, by placing extra proceeds into the bank and transferring them. The (say, pizza parlor) transfers money to the second bank to pay a nonexistent bill. for this risk, they receive a fee. Then that money is further laundered, right into a safe haven or legitimate account.

Big Funds for Crime, Misery, Terror
Investments are purchased. Business is expanded: a savvy organization like the Mexican Mafia then pays expenses to start a cell in a Central American country, or to grease the wheels in Asia for purchasing MDMA or heroin. They buy guns, or find a way to supply them. That's how women from poor countries end up abused in rich ones. That's how terrorists get their explosives and how North Korea or Iran gets its plutonium.

 Along the way, more officials are bribed. Government begins to be compromised, and then to fail.

Here is a map from Le Monde Diplomatique. You can click on it to see it in better detail. The top left is banking centers of interest, top right, financial paradise centers. The grey ovals, where the money is made. The brown areas, where international crime syndicates are really well set-up.



The Feds work on this all day long and well into the night. It is one of the most important things that they do for national security (and by extension, international security). Like all crime, it's hard to get caught up. Thank you, anti-money-laundering  specialists!

References and additional sites:
--Frontline has a great series on the Arellano/Tijuana Cartel. An interview with former prosecutor and money laundering expert Mr. Intriago.
--2009, December 11--Miami Herald--Recent money laundering case in Florida, involving a County Commissioner and a School Board official.
--2009, October 19--The 2-Way blog--"Mexican cartel suspects nabbed in hundreds of U.S. raids"--go, ATF, DEA, FBI. Great work.
--2009, August 3--Planet Money blog--Rabbis doing the "schnookie" with cereal boxes. Adorable. (stealing, sneaking, lying, and breaking trust)
--The Drug Enforcement Administration on money laundering
--The Department of the Treasury page on money laundering
--A site where financiers keep up with regulatory news


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