Dirty money is now big business
Yesterday arrests were made at Calais after a suspected pounds 50m drug s money-laundering scam. Dirty cash is a rising global threat to financial and political stability. Last week, in London, an intelligence conference took the offensive. By Tim Judah
Monday 23 November 1998
According to Michel Camdessus, the head of the International Monetary Fund, money-laundering is "one of the most serious issues facing the international financial community." He says: "the estimates of its present scale are almost beyond imagination - 2 to 5 per cent of global GDP." That means up to $1,500 billion of criminal money could be entering the world financial system every year. As long ago as 1994, a House of Commons Select Committee was told by the Bank of England that one estimate of drugs money laundered every year through Britain was pounds 2.4 billion.
With such huge sums being made from crime, most western countries have been implementing tough anti-money laundering legislation for the last few years. And last week, 92 of the world's top spymasters met in London at the European Bank for Reconstruction and Development. These members of the financial intelligence community were gathered under the auspices of the Paris-based Financial Action Task Force, which organises 26 countries in the fight against the money launderers.
Britain's delegation was led by Simon Goddard, head of intelligence of the Strategic and Specialist Intelligence Branch of National Criminal Intelligence Service. Britain has a good reputation in fighting the money launderers but, as Goddard points out, this can have its downside: any dirty money successfully invested in Britain looks automatically respectable.
Currently Goddard and his counterparts elsewhere are turning their attention to the professionals. In the old days, large amounts of dirty cash would be divided up into small amounts and then deposited by "smurfs", small- time criminals, into various accounts. Today the "smurf" is more likely to be a well-heeled solicitor or an accountant well-versed in the legal niceties of trusts and the ways of disguising ill-gotten gains by mixing them in with legal earnings.
As Goddard puts it: "No nouveau riche gangster from a slum in Moscow just opens front companies in Vanuatu or the Caribbean - he's paying professionals to do it for him. It's happening all over the place but we're concerned with the ones in Britain. Some of the nicest people I've ever arrested have been solicitors," he muses.
This week's London talks were wide-ranging. On the top of the agenda was the euro and how to prevent criminals using the conversion period to their advantage. But, as the EU's anti-money laundering legislation has become more effective, the delegates also tackled the question of how to deal with cash being injected into the international financial system in places such as eastern Europe and Russia and in what are dubbed "non-cooperative countries", such as the Seychelles.
Russia, above all, has become the great black hole in the dirty-money struggle because various mafia groups are believed to control such a sizeable part of the banking sector. Thus, if Colombians sell cash, raised from street sales of drugs in the US to Russians who take a cut and then, using a legitimate company and bank, wire the money back to London and then, say, on to Spain where it is invested in real estate, who is to know its true origins?
Recent revelations that Russia's security police are often really gangsters in uniform only bolstered suspicions about it at the London meeting. The FATF has been asked by G7 ministers to expand, so it would be natural to include Russia. However, there is a snag here. All members of the FATF must submit to regular examinations of their financial institutions by experts from other members. As one source said: "I don't think that the Russians would be too keen on outsiders poking around in their banking system."
When it comes to dealing with countries such as the Seychelles or Vanuatu, who have passed "no questions asked" investment legislation Patrick Moulette, the head of the FATF, says that he believes it is best to take a softly, softly approach to closing down the criminal opportunities. Pressure and cooperation are his watchwords. "If you just condemn a small country, they'll simply say that offshore banking is their only way to develop and that the drug problem is yours, not theirs."
A softly-spoken Frenchman and former treasury official, Moulette also laments the problem of displacement - "as soon as you close one loophole, another will appear."
Also discussed were the opportunities, offered to money launderers, by Internet on-line banking facilities and smart cards. According to a recent report by Transcrime, an Italian think-tank on transnational crime, Russian gangs "have infiltrated the electronic transfer systems of US banks and securities firms. These gangs have been recruiting the unemployed and disaffected computer scientists who were once privileged members of the elite Soviet military-industrial complex." They have developed software devices known as "sniffers" or "Trojan Horses" to "break through triple electronic `firewalls' to access global networks of US companies."
As Moulette explains it, money laundering is not only a financial problem. "It corrupts financial institutions which can then corrupt a country's entire financial system and hence its political system."
This was the recent fate of Albania. The collapse of pyramid banking schemes controlled by various mafiosi, who had corrupted the country's politicians, led last year to huge civil disorder. This, in turn, released a million Kalashnikovs from the state armouries which provided the arms needed by the Kosovo Liberation Army to begin their war against the Serbs.
It is to prevent such disastrous consequences as these that money-laundering and transnational organised crime are now considered as serious a threat to international security as biological and nuclear weapons in the hands of terrorists.
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