Monday, July 11, 2005

The Washing Machine: Money Laundering And Terrorist Financing Soils Us

The global black economy is now estimated at over $2.5 trillion, according to the opening pages of "The Washing Machine", a detailed look at money laundering and terrorist financing by Nick Kochan, investigative reporter, who earlier has investigated scams like the Guinness scandal, and BCCI.

Dirty money makes us all victims. Money laundering controls cost about 10 cents on every dollar of global income. Major financial and commercial institutions, as well as governments facilitate the handling of dirty money, often for personal and corporate benefit, and thereby deny the inhabitants of developing nations their benefits. As Nick puts it, "Western financing schemes hollow out the wealth of poor countries, leaving behind economic deserts and volatile forces bent on political instability.This form of wealth transfer by deception benefits a few sharp or crooked entrepreneurs to the detriment of the larger economy".

The larger challenges of threats to global security put a darker spin on things. Were it only base criminals, drug lords and money-hungry corporations moving illicit funds around, it would be a matter for regular law enforcement. Bad money, though, like people, tends to coagulate, and separating out the greedy from the truly evil terrorist wishing to strike a blow against the establishment for this ideology or that, is next to impossible.

As Nick shows, Colombian drug money is laundered by the same channels, and often by the same people, as a Rwandan warlord wishing to pay for some shoulder-fired missiles, or a Tamil Tiger paying off a shipping agent for his services. He terms this global super-structure of money laundering the 'washing machine', and goes into great detail on it's layers, threats and effects.

The first section looks at the criminal oligarchy typified by the Russian mafia. Political instability and social change tend to stimulate criminal activity. The Russian Federation has had ample space for the former, and produced much of the latter. The Russian mafiosi are on a variety of watch-lists, as well as have been involved in numerous scams of large scale. Nick explores the career of one senior member of the Moscow-based Solntsevo crime gang, Semion Mogilevitch. He has allegedly been involved in a variety of schemes, including the Eastern European sex trade, providing expert money laundering services to the Japanese Yakuza and the Italian Camorra, running a scam (BoNYGate) through the Bank of New York, and most prominently, the creation and (mis-)management of a public company, being admitted to the Toronto Stock Exchange 300 index - YBM-Magnex International.

Along the way, he looks at how even stable countries like Israel become witting partners of the Washing Machine operators. He notes the high proportion of Russian Jewish members in the Russian mafia, attributing this to the marginalization of the Jews under the Tsars, and the subsequent lack of respect for Soviet law, and disdain for its social structures. This, coupled with "Israel's political insecurity and it's lack of international friends outside the United States...exacerbated its dependence on dubious sources of funds"
Israel's desperation for foreign exchange means Russian Mafiosi have been allowed to integrate themselves into the country's political and financial system. It also means Russian Mafioisi have been given shelter and a great deal of security, which they would not have experiened either in Russia or in Western Europe"

Nick describes techniques used by the launderers, such as "smurfing", where large sums of money are broken up into small amounts that can be deposited into banking systems without arousing suspicion. Unfortunately, there is no benevolent Papa Smurf giving orders to the little smurfs. More often than not, there is a sinister figure like Semion Moglevitch, or the even more dangerous, Victor Bout.

The 'Merchant of Death', Victor Bout, has fed the hunger for arms, oil, diamonds, dollars, and mercenaries of many of the world's governments. Reportedly a friend of Vladimir Putin, and an oligarch of the new Russia, he lives freely in Moscow. A majority of his ventures have been legitimate, such as an enterprise to import frozen chickens from South Africa to Nigeria, or an airline flying UN peacekeepers to Somalia in Operation Restore Hope. He was involved in more unsavory enterprises however, such as reportedly supplying both sides in Afghanistan in the 1990s with surplus Soviet armaments through Slovakia. His double-sided persona is reflected in the Rwandan venture, wherein he allegedly supplied arms to the Hutu extremists, as well as flying French peacekeepers there. His fingers were in many pies in conflict regions, from Liberia to Monrovia.

He was monitored and investigated at length, but post the election of George W Bush, the monitoring of arms sales in Africa was scaled down, among a host of international crime-fighting efforts that saw the same fate. Post-9/11, Nick tells us, he was left alone, on orders from the National Security Council, mainly because "the US government wanted Russia on its side in the War on Terror. To win this co-operation, they apparently felt the need to assure Russia that it wouldn't be pressured about Bout."

The center-piece of the book is a study in Terrorist Financing, large and small. The many-headed hydra of the Al-Qaeda is explored at length. Estimates are that the tragedy of 9/11 cost no more than $500,000, a true drop in the bucket for these groups. Nick explains how terrorist financiers maintain many layers between themselves and the groups for whom the money is intended, or the final purposes to which the funds are put. He raises the very real danger that 'terrorist groups are now prepared to join forces to create a global terrorist black market. Market forces will enable the economically more powerful groups like Al Qaida to live longer, and even take over other weaker groups.'

The case study of the Al Qaeda, or 'the base, is a terrifying glimpse at this underbelly of capitalism. From his own roots as a successful businessman and financier to his role as manager of the 'Maktab al-Khidamat' or Welfare Office in Kabul, Osama Bin Laden straddled the open and secret worlds of big money. The name 'World Islamic Front' is now used by the group, and they grew by alliances, mergers and acquisitions, like any more respectable conglomerate. After 9/11/2001, the War on Terror succeeded in it's primary purpose of defenestrating the 'head office' of the organization, and driving many of its key members into hiding, or arresting/killing them. This has unfortunately only accelerated the already under-way 'devolution of power from the center to outlying cadres'. The lack of a monolithic organization has empowered lesser-known groups to execute smaller attacks, besides affording the local franchises the ability to recruit fools for the 'larger cause', which is mostly non-existent.

Nick describes Al Qaeda's extensive role in the illegal diamonds trade, collaborating with the RUF of Sierra Leone, and generating as much as $1 million in diamond sales per year in the 1990s. He tells us how the sticky business of honey exports is a convenient method for terrorist groups to secrete illicit funds as well as weapons, etc in the honey containers, unlikely to be searched very well at customs offices.
The son-of-a-bitch Osama Bin Laden developed a commercial taste for honey after he left Saudi Arabia under a cloud in 1991 and moved to Sudan. His deputy the murdering anally bankrupt Dr. Ayman Mohammed Rabi al-Zawahri, apparently pioneered the exploitiation of the honey distribution network when he was a criminal evildoerleading light in the United Dog Lovers Front Islamic Jihad.

Nick also looks at other pioneers in Global terror such as the IRA of Ireland, the LTTE of Sri Lanka and the PKK of Turkey. He acknowledges the difficulty of terming some groups as terrorists when they seem to be fighting for their own rights of self-determination. The means adopted however, and the channels, such as heroin, arms and diesel, have other purposes, and effects - to the worse for society, more often than not.

In the third section of the book, he studies the lucrative and very large black markets in diamonds, drugs and cigarettes. I will only quote a piece from the diamonds section that sums it all up, at least for me:
"The diamond trade is built on fantasies and bluff. The fantasy that diamonds are scarce was created by De Beers which controls the supply with an iron grip. The bluff involves the bargaining between dealers over every deal, the leap into the unknown taken by every cutter when he buys a diamond,...The dream means lives are lost and livelihoods are made to bring tiny, useless stones from remote riverbeds to the ring finger of the majority of married women in the West...The more that diamonds have become the criminal's best friend, the more they have served the goals of corrupt politicians and terrorists in countries where they are mined."

He next looks at 'bad banks' - the channels that actually facilitate and create the means for money laundering and terrorist financing. The willingness of large commercial banks like Citibank to service criminal clients and corrupt government heads is explored. Dirty clients mean that cents on every dollar we withdraw from an ATM are blood- or drug-stained. He touches on corruption even in high places, such as details of the 'Casablanca sting', run by the DEA, which exposed drug connections high in the Mexican government until it was shut down prematurely on orders from the State Department.

The Hawala, or unofficial financial system used to transfer money between Western and Eastern/Asian/African economies is studied. It's benefit as a means to transfer funds for simple workers, as well as it's potential and actual use by terrorist financiers is described. The recent case of Hemant Lakhani, subject of this week's "This American Life" on NPR, convicted of arms trading by the US Government is a case in point, although not mentioned in the book. These petty financiers often enough are unable or choose not to distinguish between sources of funds, or discriminate against the ultimate destination or purpose. This makes them witting or unwitting henchmen of the global villains. The 'laundering footmen' are the true 'baby smurfs' of the global washing machine.

Nick Kochan wraps up this engrossing book with a look at what the world is doing to stop this spin cycle of money. He describes how the United States 'got religion' after 9/11, following years of inaction on money laundering. He notes the enforcement frenzy in recent years, but wonders about it's sustainability once the furor dies down. Few of the systemic problems are being addressed, or big players forced out, shut down, or taken out of circulation. The special case of London as a new hub of financial irregularities, almost an 'offshore haven' is studied, particularly affecting after the recent attacks of 7.7. Cyber-launderers are also touched on, although not in much detail. The potential for easy and convenient laundering through e-auctions, online casinos, and telemarketing is all too real to ignore. The lack of a paper trail and government control makes this channel a tempting one for the goons to abuse, as they do.

This book is not one that will allow the reader to sleep easy at night, or to wilfully ignore the money trails we participate in, unknowingly part of a global network of dirty money.

Referenced in the Bharteeya Blog Mela and by DesiPundit

The Washing Machine: How Money Laundering and Terrorist Financing Soils Us/Nick Kochan Art And Science Of Money Laundering/Brett F. Woods The Laundrymen : Money Laundering the World's Third Largest Business/Jeffrey Robinson All Is Clouded by Desire : Global Banking, Money Laundering, and International Organized Crime (International and Comparative Criminology)/Constance A. Weaver Wages of Crime: Black Markets, Illegal Finance, and the Underworld Economy/R. T. Naylor The Merger : The Conglomeration of International Organized Crime/Jeffrey  Robinson Confessions of an Economic Hit Man/John Perkins Drugs, Oil, and War: The United States in Afghanistan, Colombia, and Indochina/Peter Dale Scott Offshore Money Book, The : How to Move Assets Offshore for Privacy, Protection, and Tax Advantage/Arnold  Cornez

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