Tag Archives: black market

A Ready-Made Vehicle for Dirty Money: Trade

Money-laundering. image from wikipedia

A few years ago American customs investigators uncovered a scheme in which a Colombian cartel used proceeds from drug sales to buy stuffed animals in Los Angeles. By exporting them to Colombia, it was able to bring its ill-gotten gains home, convert them to pesos and get them into the banking system.This is an example of “trade-based money laundering”, the misuse of commerce to get money across borders. Sometimes the aim is to evade taxes, duties or capital controls; often it is to get dirty money into the banking system. International efforts to stamp out money laundering have targeted banks and money-transmitters, and the smuggling of bulk cash.

But as the front door closes, the back door has been left open. Trade is “the next frontier in international money-laundering enforcement,” says John Cassara, who used to work for America’s Treasury department. Adepts include traffickers, terrorists and the tax-evading rich. Some “transfer pricing”—multinationals’ shuffling of revenues to cut their tax bills—probably counts, too. Firms insist that tax arbitrage is legal, and that the fault, if any, lies with disjointed international tax rules. Campaigners counter that many ruses would be banned if governments were less afraid of scaring off mobile capital. Trade is “a ready-made vehicle” for dirty money, says Balesh Kumar of the Enforcement Directorate, an Indian agency that fights economic crime. A 2012 report he helped write for the Asia/Pacific Group on Money Laundering, a regional crime-fighting body, is packed with examples of criminals combining the mispricing of goods with the misuse of trade-finance techniques. Using trade data, Global Financial Integrity (GFI), an NGO, estimates that $950 billion flowed illicitly out of poor countries in 2011, excluding trade in services and fraudulent transfer pricing. Four-fifths was trade-based laundering linked to arms smuggling, drug trafficking, terrorism or public corruption.

The basic technique is misinvoicing. To slip money into a country, undervalue imports or overvalue exports; do the reverse to get it out. A front company for a Mexican cartel might sell $1m-worth of oranges to an American importer while creating paperwork for $3m-worth, giving it cover to send a dirty $2m back home. One group of launderers was reportedly caught exporting plastic buckets that cost $970 each from the Czech Republic to America. To lessen the risk of discovery the deal may be sent via a shell company in a tax haven with strict secrecy rules. This may mean using a specialist “re-invoicing” firm to “buy” the oranges at an inflated price with an invoice to match and charge the importer the true price. The point is to get paperwork to justify an inflated transfer to the seller. Re-invoicers are used by multinationals to shift profits around, which gives them a veneer of respectability, says Brian LeBlanc of GFI—but they also “feed a giant black market in the offshore manipulation of paperwork”…

American authorities have ratcheted up penalties for banks that assist money-launderers, knowingly or not. In 2012 they reached a $1.9 billion settlement with HSBC after concluding that Latin American drug gangs had taken advantage of lax controls at its Mexican subsidiary. And last year they imposed a $102m forfeiture order on a Lebanese bank implicated in a complex scheme involving the export of used cars to West Africa with the proceeds funnelled to Hizbullah, an Islamist group. Alternative remittance systems and currency exchanges, such as the trust-based hawala networks in Asia and the Middle East, and Latin America’s Black Market Peso Exchange (BMPE), offer another route to launder money through trade. ..A recently leaked Turkish prosecutor’s report describes an alleged conspiracy involving Turkish front companies and banks, an Iranian bank and money-exchangers in Dubai. By marking up invoices for food and medicine allowed into Iran—to as much as $240 for a pound of sugar—the scheme gave Iranian banks access to hard currency from Iran’s oil sales that was locked in escrow accounts overseas, to be transferred only for approved transactions…

In the meantime, launderers who curb their greed and invoice goods worth $10 for $9, or $11, will probably continue to get away with it. A dodgy deal is almost impossible to spot if the pricing is only slightly out and you see just one end, says one American investigator. “You can study the slips all day long, and all you see is stuff being imported and exported.”

Excerpts from Trade and money laundering: Uncontained, Economist, May 3, 2014, at 54

The Race for Qaddafi’s Weapons, US in Libya

The fall of Libyan dictator Muammar Qaddafi has kicked off a race to recover key types of weapons taken from his stockpiles, such as shoulder-fired anti-aircraft missiles, by getting U.S. operatives to buy them before terrorists do.  There is evidence that a small number of Soviet-made SA-7 anti-aircraft missiles from Qaddafi’s arsenal have reached the black market in Mali, where al-Qaeda in the Islamic Maghreb is active, according to two U.S. government officials not authorized to speak on the record.

The disintegration of Qaddafi’s four-decade dictatorship has created a business opportunity for looters trafficking in the war-stricken country’s missiles, which would enable terrorists to attack military or civilian aircraft. With a buyback program, operatives on the ground seek out the sellers and offer high prices to recover the weapons.  “A buyback program is now critically important,” said Matt Schroeder, director of the Arms Sales Monitoring Project at the Federation of American Scientists, in a telephone interview. “In Iraq, hundreds of missiles were recovered like this and in Afghanistan in the 1990s.”

There is no evidence of looting of Libya’s chemical weapons, which have been under 24-hour watch via aerial reconnaissance, electronic surveillance and agents on the ground, according to U.S. officials.

The potential proliferation of Libyan small arms, portable weapons and old artillery shells that can be made into roadside bombs is a threat the U.S. considers serious and has taken urgent steps to combat, according to a State Department official who was not authorized to discuss the threats.  “We’re very concerned about those weapons turning up in neighboring countries,” Frederic Wehrey, a senior policy analyst at the RAND Corp. in Santa Monica, California, who has been studying the Libyan uprising, said in a telephone interview. “They’re the ideal terrorist weaponportable, easy to use and capable of inflicting large numbers of casualties.”

Army General Carter Ham, head of the U.S. military’s Africa Command, told the Senate Armed Services Committee on April 6 that Libya once had as many as 20,000 surface-to-air missiles. “Many of those, we know, are now not accounted for, and that’s going to be a concern for some period of time,” he said.

The Soviet SA-7 and SA-7b, an updated model, are the main shoulder-fired missile in Qaddafi’s arsenal. The units are about five feet long and sell on the black market for several thousand dollars, although the price fell as low as $500 when Saddam Hussein’s weapons were looted and flooded the market after the 2003 U.S. invasion of Iraq, according to a 2004 report from the Federation of American Scientists….The U.S. State Department is giving $3 million to two international non-profit organizations operating in Libya to secure and destroy weapons and munitions. The groups have been working since early May in coordination with Libya’s National Transitional Council.

The Obama administration said in May that it was committing $1.5 million to collect and destroy Libya’s missiles and other light weapons, according to a July 6 report by the Congressional Research Service.

NATO aircraft have kept Qaddafi’s vast military and industrial complex there under constant surveillance since the rebellion began in February, and asked rebel leaders to look for signs of mustard gas or other chemical or biological weapons. The surveillance includes Libya’s two main chemical weapons depots, which are at Sebha and Rabta, according to the two U.S. government officials.  “All sensitive elements of Libya’s nuclear program, including everything that Libya received from the A.Q. Khan network, were removed in early 2004,” U.S. State Department spokeswoman Victoria Nuland told reporters in Washington. “The last of the highly enriched uranium, the bomb-making fuel, was removed from Libya in 2009.”  Libya does have a supply of yellow cake, a uranium concentrate powder used to make bombs, and it’s safeguarded at the Tajoura nuclear research facility, Nuland said.

Mustafa Abdel Jalil, chairman of the Libyan National Transitional Council, said yesterday in Benghazi that no chemical or biological weapons have been found since rebel forces entered the capital, Tripoli, this week. Libya agreed in 2003 to destroy its chemical weapons, which at the time included an estimated 25 tons of mustard gas and some 3,300 bombs and artillery shells equipped to deliver.

U.S. May Buy Looted Libyan Missiles Sold in Mali’s Black Market,Bloomberg, Aug. 26, 2011