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Financial Crime and AML in the Balkans - PowerPoint PPT Presentation

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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

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auto theft


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


kidnap ransom

Voluntary contributions

Overseas diaspora

foreign state support

sale of literature





counterfeit products

legitimate businesses

stock market manipulation


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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  • 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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  • 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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corrupt public officials

guides and crew members

Information gatherer





Players in the enterprise

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  • 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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  • 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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  • 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