Transcript Financial Crime and AML in the Balkans

Financial Crime and AML in
the Balkans
The major problems that need to
be countered
Money Laundering is a
misnomer
• Organised crime is cash heavy
• wrong to assume it wants to legitimise illgotten gains
• money now goes where the rate of return
is highest: often that is into illegal business
• moving money from soft currency
economy to hard currency area not
laundering but hardening
Soft currency problems
• Roubles don’t buy
BMWs. Dollars do.
• Drugs buy dollars
• sex buys dollars: in all
its varieties- straight,
bent, paedophilia,
photos, videos
• slaves buy dollars
• peons buy dollars
First set of problems
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Illegal transnational businesses
War on terror
Tax avoidance
Proximity to the EU
Proximity to former USSR and its crime groups
Smuggling and Trafficking in Human Beings and
weapons
• Sanctions avoidance
• Corruption
Illegal Transnational Businesses
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Drugs
extortion
auto theft
prostitution
alien smuggling
“traffic in people”
contract murder
• Bank fraud
• tax fraud
• stock fraud and
manipulation
• metals/minerals
smuggling
• illegal arms dealing
War on Terror
• Many organisations now proscribed by US
and EU
• Obligation to seize their funds
• Picture very complex
• Long-surviving groups mimic and interact
with organised crime
How have they survived?
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By organising funding streams for:
Training
Weaponry
Food, shelter
Prisoner and prisoner family support
Publicity
Overground support groups and political parties
Old and New sources of funding
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Armed Robbery
Extortion
kidnap ransom
Voluntary
contributions
• Overseas diaspora
• foreign state support
• sale of literature
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Fraud
Drugs
Clubs
Gambling
counterfeit products
legitimate businesses
stock market
manipulation
• franchising
Terrorism needs an economic
base as well as weapons
• successful terrorist groups create a
profitable business
• terrorist groups that survive turn their
hands to crime: mafia, triads
• violence is itself a business, or at least a
service that can be bought and sold
• As Howard Marks said to Jim McCann: “if
you’re smuggling guns, you can smuggle
drugs. You’re in the smuggling business”
5 principle sources of al Qaeda
funding [Senator Bayh]
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Own money
Wealthy individuals in the Gulf
Front companies run at a profit
Illegal activities eg smuggling, moneylaundering
• Charities, both directly and by “skimming”
In the Sudan
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El-Hijrah Construction and Development
Wadi al-Aqiq export-import
Taba investment [global stock markets]
part-owner el-Shamal Islamic Bank
farms [peanuts, sunflowers cattlebreeding]
• Laden International export-import
• Bakery, Furniture
• International al-Ikhlar Co. [honey]
Elsewhere at same time
• Sanctions-busting for Sudan: to disguise
product origin, used Cyprus and other
countries
• Kenya: ostrich farms and shrimp boats
• Turkey: forests
• Africa [Sierra Leone?] diamond mines
• Tajikistan: agriculture
• minor projects as cover for terrorist ops.
Second Afghan period
• Al Barakat and al Taqwa
• Al Barakat is Somalia’s largest company
and part owns the Somali Internet
Company. It provides money transfer
services for the Somali diaspora
• Al Taqwa also provides money transfer.
Has offices in Lugano, Switzerland
Charities
• US has designated 7 foreign charities as
having links to al Q
• And closed two US-based ones as having
links to bin Laden and the Taliban
• Holy Land Foundation, largest US-based
Islamic foundation has had assets frozen
because of links to Hamas
Al-Qaida
• Bin Laden reckoned he lost $200-300
million on projects in the Sudan 91-96
• Bankrolled Taliban to tune of $100 million
1996-2001
• We have no idea what he spent in
Chechnya, Somalia, Bosnia or elsewhere
Since 9/11 and military action in
Afghanistan
• Evidence suggests individual operations funded
in Indonesia and elsewhere
• Members of Steering Committee have
transferred funds by hand to local operatives.
Munitions too.
• Need to distinguish between Afghan/Pakistan
operation, S.E.Asian operation and Iraq
operation
• As number of operations increases mistakes will
be made.
• There must be new front companies that havent
yet been identified. Its not just hawala banking.
Tax Avoidance
• Often intimated that US and EU real
interest in attacking money laundering and
other financial crime is to break bank
secrecy
• To follow assets and money moved abroad
by own citizens
• To avoid taxation
• Same with Russia!
Proximity to the EU
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Warehousing for drugs
Warehousing for counterfeit products
Cigarettes
Other high duty commodities
People smuggling
Who wants people?
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Sex industry obviously
domestic service
hotels and catering
places ignoring safety regulations
seasonal: fruit-picking etc.
Horrible places: Siberia, Brazilian jungle
dodgy hospitals [for organs]
Three angles
• Recruitment
• transportation
• targeting potential
employers
Players in the enterprise
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Arranger/investor
recruiter
transporter
corrupt public officials
guides and crew
members
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Information gatherer
enforcer
support
debt-collector
money-mover
Corruption
• Most illicit businesses need access to
government officials
• Documents, especially for travel
• But also for goods
• And government Contracts
• As well as foreign aid
• But banks can be corrupt as well as public
sector officials
• And transnational companies are often
corruptors
Krysha system
• Means “roof”: system of patronage and
structured corruption “protection”
• Requires connection with bank
• Deep penetration of government
structures
• deploys armed force, either illegal, “private
security” or a local or national government
unit of militsiya [30% of personnel
involved] or army
Money-laundering
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Why do it, if you’re a bank?
Avoid taxes
defraud overseas aid donors
distorted idea of nature of capitalism
don’t believe the playing field is level
Areas requiring study
• KGB methods of funding agents and
operations: shell companies?
• Non hard currency trade with developing
countries: Asian bankers as middlemen;
hawala and chitty style?
• Exchange of prostitutes for goods.
Standard measure of exchange?
• Drugs as currency
But does it matter?
• Chicago group would say “it’s just the
market finding ways around excessive
taxation and draconian anti-business
legislation”
• West worried about potential instability
and possible military conflict
• West benefiting from capital flight
Problems
• Inhibiting growth of civil society
• Impoverishing employees in public sector
• can’t have a market economy without a
cash economy
• Rule of law a bad joke
• Undermining chance of democracy
• Increasing likelihood of return to
authoritarianism