The Washing Machine: How Money Laundering and Terrorist Financing Soils Us

Citation

Parry, H. (2006), "The Washing Machine: How Money Laundering and Terrorist Financing Soils Us", Corporate Governance, Vol. 6 No. 2, pp. 215-218. https://doi.org/10.1108/14720700610655204

The perverse pursuit of the terrible twin peaks of power and pleasure has, from time immemorial, driven human beings to engage in truly astonishing flights of creative genius, not least with regard to matters financial. Aficionados of the money launderer's art will find much to engage them in The Washing Machine as Nick Kochan, the distinguished investigative journalist, cruelly and clinically strips away not only the glittering corporate façade of many an august institution to reveal the greedy, cynical inner launderer, but also the glittering Armani suit of many a Mafiosi cash smuggler to reveal the commodiously customised inner boxer shorts.

Kochan takes absolutely no prisoners in this pitiless forensic dissection of the modus operandi of both primary and secondary players of the game – the criminals and terrorists and those who provide succour and assistance in the intricate business of transforming the fruits or means of their nefarious activities into apparently legitimate sources of income to be safely deposited in one of the many idyllically located, fabulously discreet and oh so conveniently “tax neutral” offshore jurisdictions.

For those of a Panglossian disposition – who inhabit a world in which an occasional proverbial bad apple may turn up in an otherwise virtuous corporate or political barrel – this book may prove to be a truly disturbing read.

It will, however, be warmly welcomed by those who affect a more jaded attitude to world affairs as an assiduously researched and deeply satisfying rounding up of both the usual – and some of the more unusual – suspects.

But for those who are perched precariously on the fence that lies between these two extremes and are engaged in the anti‐ money laundering industry as regulators, practitioners or educators, this book will prove to be an invaluable resource.

The first UK anti money laundering statute, the Drug Trafficking Offences Act of 1986 simply addressed the obvious target of dope dealers seeking to slide duffel bags stuffed with cocaine – dusty fivers over the counters of their local high street banks. In the mid 1980s, traditional organised crime groups, such as the Sicilian and Detroit Mafia were very much in the frame of those seeking to outlaw money laundering. The Medin case was a classic example of the use of London solicitors and offshore Jersey shell companies to launder the proceeds of the US Mafia cocaine trade at the rate of $500,000 per week. Meanwhile, the Brinks‐Mat bullion robbery was one of the high profile cases from that era which created pressure for the scope of laundering liability to be extended beyond merely the proceeds of drug trafficking. Members of that syndicate notoriously would withdraw enormous sums of money in cash and carry it from high street banks in black bin liners to the extent that so many notes were supplied to the regional office of one particular bank that the Bank of England had to notify the Treasury. No alarm bells were sounded by any of the institutions involved about the massive quantities of gold or money that were being moved around.

It is a measure of just how radically the legal climate has changed that such a state of affairs would be utterly unthinkable today. The notion of money as a commodity exhibiting the characteristic of absolutely negotiability as a means of exchange – an instrument which may be taken completely free of the equities – whose origins are of no concern to the transferee – is but a distant memory.

As those of us who have reason to deal with these matters are only too painfully aware, in the past twenty years the areas of potential liability for money laundering have been remorselessly extended to encompass an ever‐widening range of occupations and professions.

Those seeking examples and case studies to illustrate the money laundering potential and propensities of such businesses whose owners and employees may be liable if they fail to take adequate cognisance of the provenance of their customers' funds are amply catered for in The Washing Machine.

To take, for example, the current Money Laundering Regulations list which –apart from the obvious traditional financial institutions related activities – now includes, inter alia:

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  provision of accountancy and auditing services (Russian mafia p. 18);

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  provision of legal services (launderers in London: p. 260);

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  operating a company formation business (BoNYGate case chapter 2;)

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  bureaux de change and money service operators (Ussama El‐Kurd case p. 227);

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  operating a casino (both in the real world and cyberspace pp. 7, 134 and 272);

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  estate agency work (the Provisional IRA p. 86);

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  dealing in high value goods (paramilitaries and their BMWs p. 88); and

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  art auctioneers (the Russian Mafia p. 8).

But this is just the icing on the cake. The book is structured to cover four principal areas of concern: the Russian criminal oligarchs; terrorist financing; black markets for the supply of illegal goods and services, and the banks and other professional gatekeepers whose services are utilised to assist in the laundering process. The fifth and final part provides an astute critical analysis of the response of law enforcement agencies in the UK, the USA and around the world.

While the ending of the cold war may have brought a peace dividend for some it has proved a cruel day of reckoning for many in the former eastern block. Kochan chronicles the pathos and absurdity of the spectacle of a senior Russian nuclear physicist and a computing expert being reduced to working with the Mafia to market Italian pantyhose through kiosks in Russian towns – all the while paying $1,500 per month protection money which did not, in the end, save them from a beating.

This story was one small episode culled from the testimony of a whistleblower who provided western law enforcement agencies with chapter and verse on the business empire of one of the most notorious Russian criminal oligarchs, Semion Mogilevich, whose interests mimicked those of traditional US Mafiosi families, incorporating the sale and transportation of illegal goods and services including narcotics, prostitution and gambling.

However, as one FBI Director noted in a speech to his opposite number in Moscow a few years ago, it took law enforcement in the USA 50 years before it finally began to get to grips with organised crime. This was achieved by, inter alia, the introduction in the early 1970s of measures such as the increased use of undercover sting operations; the RICO legislation; the Bank Secrecy Act and anti‐paperhanging measures such as the creation of the Securities Information Center to counteract the use of lost stolen and counterfeit securities as collateral for loans. This latter reform met with stiff opposition from the Chicago Mafia who fought the introduction of the SIC in the Court of Appeals on the basis that it would restrict the negotiability of financial paper. They lost, however, as the Court accepted the admitted impediment to negotiability as an acceptable trade off for an effective weapon to use against the Mafia paperhangers. The Russians, he noted, should not therefore lose too much sleep if they had not succeeded in eradicating organised crime after a few short years of a free market economy.

The intricate financing arrangements of Bin Laden's Al Qaida, the Provisional IRA and other terrorist organisations are chronicled in Part 2. While the use of relatively unregulated high value goods, such as African blood diamonds, by terrorist organisations has been alluded to elsewhere, readers may be surprised to discover that Osama also made use of the Yemeni honey trade as a smuggling and money laundering front. Honey apparently enjoys the status of being a particularly useful commodity for the transport of illegal goods as a consequence of its property of extreme stickiness!

Segueing smoothly from honey to honey traps brings us to Operation Casablanca and the use of contemporaneous modes of law enforcement such as electronic surveillance and covert human operations, which have been, pioneered to such devastating effect by US agencies – notably the FBI, DEA and Customs. Operation Casablanca was a massive US sting operation mounted to infiltrate the Colombian drugs money laundering machine being run by a dozen Mexican banks. Before the final denouement and arrest of the bankers they were offered the delights of a corporate hospitality package in the guise of a visit to a brothel, which turned out to be the local police station.

This operation bears many of the hallmarks of the famous BCCI related Operation C Chase sting where the unsuspecting Colombian drug money launderers were entertained to the lavish phoney Florida wedding reception of a pair of undercover US customs operatives. The male members of the party were then cordially invited to withdraw from the ladies to enjoy a hard core porn movie session where they were to meet a similarly ignominious fate – an admittedly rather basic but nevertheless remarkably successful strategy for the rounding up of the usual suspects.

The Brinks‐Mat launderers' adventures with cash‐filled bin liners pale into insignificance when compared with the audacious wholesale plundering of state coffers by African heads of state such as President Sani Abacha who, with the eager cooperation of the friendly State Bank Governor, was in the habit of arranging for bags of cash, typically 15 per trip to be removed from the bank and ferried chez Abacha in an armoured car flanked truck.

Abacha's ill gotten gains were duly laundered in many of the most respectable of the world's financial institutions, including 23 London banks. These banks have escaped the full force of the law by dint of the fact that they engaged in these pursuits before the FSA was endowed with its current enforcement powers. Kochan describes this truly shocking and astonishing episode in excruciatingly intimate detail.

Such depredations make a total mockery of the whole process of government and lend succour to those prone to argue that overseas aid is a simple means of transferring shed loads of cash from poor people in the developed world to rich people in the developing world. This chapter should be read by anyone engaged in banking anywhere in the world.

Given that great wealth and power will always be coveted as the primary conduit to pleasure and even in, some cases eternal paradise, and given that, save the unlikely possibility that one may discover an ability to select one's forbears on the basis of their ability to bestow inherited wealth on their fortunate offspring, there will always be war, crime, corruption, the cooking of corporate books and the manipulation of financial markets. It follows inevitably that there will, of course, always be bankers and other professionals only too willing and eager to offer their services to assist in the sanitising and preservation of the proceeds of such activities in exchange for appropriate remuneration.

Governments and law enforcement agencies may seek to thwart such activities, but so long as politicians and others in positions of power and influence wish to evade taxation, make killings on the markets, obfuscate the financial provenance of their political support, wage wars, operate maverick and highly resourced intelligence services and engage in ideological struggles, the effectiveness of such enforcement will never meet the possibly more exacting standards of those who do an honest day's work and pay tax at source from their incomes.

In writing this fascinating, exhaustively researched and generously sourced book, Nick Kochan has forged a powerful weapon with which they can at least come out fighting.