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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 ill-gotten gains money now goes where the rate of return is highest: often that is into illegal business

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Financial crime and aml in the balkans l.jpg

Financial Crime and AML in the Balkans

The major problems that need to be countered


Money laundering is a misnomer l.jpg
Money Laundering is a misnomer

  • Organised crime is cash heavy

  • wrong to assume it wants to legitimise ill-gotten 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 l.jpg
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


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First set of problems

  • 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 l.jpg

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

Illegal Transnational Businesses


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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


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How have they survived?

  • By organising funding streams for:

  • Training

  • Weaponry

  • Food, shelter

  • Prisoner and prisoner family support

  • Publicity

  • Overground support groups and political parties


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Armed Robbery

Extortion

kidnap ransom

Voluntary contributions

Overseas diaspora

foreign state support

sale of literature

Fraud

Drugs

Clubs

Gambling

counterfeit products

legitimate businesses

stock market manipulation

franchising

Old and New sources of funding


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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”


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5 principle sources of al Qaeda funding [Senator Bayh]

  • Own money

  • Wealthy individuals in the Gulf

  • Front companies run at a profit

  • Illegal activities eg smuggling, money-laundering

  • Charities, both directly and by “skimming”


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In the Sudan

  • El-Hijrah Construction and Development

  • Wadi al-Aqiq export-import

  • Taba investment [global stock markets]

  • part-owner el-Shamal Islamic Bank

  • farms [peanuts, sunflowers cattle-breeding]

  • Laden International export-import

  • Bakery, Furniture

  • International al-Ikhlar Co. [honey]


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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.


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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


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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


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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


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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.


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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!


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Proximity to the EU

  • Warehousing for drugs

  • Warehousing for counterfeit products

  • Cigarettes

  • Other high duty commodities

  • People smuggling


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Who wants people?

  • 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]


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Three angles

  • Recruitment

  • transportation

  • targeting potential employers


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Arranger/investor

recruiter

transporter

corrupt public officials

guides and crew members

Information gatherer

enforcer

support

debt-collector

money-mover

Players in the enterprise


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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


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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


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Money-laundering

  • 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


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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


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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


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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