Archive for June, 2006

Globalization and Money Laundering

Thursday, June 29th, 2006

The era of globalization has many advantages over the previous eras as it involves the international integration of information, capital, business and technology and leads to the development of the global market, free and capitalistic market, not of local ones. Now we are getting farther, faster, easier, cheaper, deeper, smarter, better, etc.

But aren’t there any side effects? There are, and major ones.

Nowadays globalization gives the criminals a advantage to swiftly transfer money across international borders. Now the “dirty” money can get into the international banking system farther, faster, easier, cheaper, deeper, smarter, better, etc. And it goes without saying that the deeper “dirty money” is hidden, the more difficult it is to identify its nature.

So, globalization is a great challenge for law enforcement and financial organizations.

Money Laundering & Bank of Credit and Commerce International

Saturday, June 24th, 2006

The Bank of Credit and Commerce International (BCCI) was a large international bank that was founded in Pakistan in 1972. The BCCI operated in 78 countries, had over 400 branches, and its assets were about $25 billion.

The Bank of England closed the BCCI in London in 1991 because of the evidence on fraud and money laundering. The scandal began and soon more details were revealed to the public by the US and UK. The Bank of Credit and Commerce International appeared to be involved not only in money laundering, but also in support of terrorism, arms trafficking, tax evasion, bribery, the sale of nuclear technologies, illegal immigration, smuggling and the illicit purchases of banks and real estate. American and British investigators disclosed that the BCCI avoided centralized regulatory review and committed fraud on a grand scale, it had its own shipping and commodities trading companies, diplomatic corps and even intelligence network.

The liquidators, a BVI-based company Deloitte & Touche, filed a lawsuit against Price Waterhouse and Ernst & Young, the bank’s auditors. The further lawsuit followed in 1998. Of course, the lawsuit procedure related to this took quite a time and only last year trials ended.

The whole story is available at, but here, in this blog, another thing is important. Just 2 decades ago the Bank of Credit and Commerce International was considered to be a reputable and respected financial titan, today it went down in the annals of history of anti-money laundering on a global – international – scale.

FATF as a policy-making body to fight against money laundering

Saturday, June 17th, 2006

The acronym FATF means Financial Action Task Force on Money Laundering.

The FATF is an inter-governmental body founded in Paris in 1989 to develop and promote national and international policies concerning money laundering and terrorist financing.

The FATF deals with adopting and implementing measures to counter the criminal use of the financial system – it examines money laundering trends and techniques, reviews actions already been taken at an international level, establishes the basic framework for anti-money laundering, publishes and updates recommendations regarding the threat of money laundering, etc.

The key areas of activity of the FATF are as follows:

  • setting national anti-money laundering standards and counter terrorist financing standards;
  • evaluating how countries have implemented measures that meet its set of standards;
  • identifying and studying methods and trends of money laundering and terrorist financing.

The Financial Action Task Force on Money Laundering currently consists of 31 countries and territories and 2 regional organizations. The FATF also actively co-operates with many international and regional bodies dealing with combating money laundering and terrorist financing.

Investment vs. Money Laundering. Part 2. Diamonds

Tuesday, June 13th, 2006

The same as gold, diamonds are valuable, portable and compact way of investment – and that of money laundering as they can be easily hidden and transported.

However, diamonds are, in a way, more complex than gold. Individual diamonds may cost much more than an equivalent weight of gold, but diamonds are unique, so, there has to be a buyer for each individual diamond. Also, a diamond cannot simply be cut in half, to make two diamonds worth half its prise each. The valuation of diamonds is a much more complicated process than the valuation of gold as requires a specialist and does not guarantee a sale.

Diamonds do not leave paper trail like cash, which can both law-abiding citizens and money launderers feel comfortable. Although some diamond companies claim that diamond resource are quite scarce, there is an abundant, unmonitored supply of them.

The same as gold, the simplest way of money laundering through diamonds is a direct purchase with criminal proceeds. Then, diamonds can be used for trading activities, for instance, purchasing of gaming chips at casinos, retail foreign exchange transactions, forged invoicing, etc. It is supposed that in some countries terrorist groups use diamonds to finance their operations.

This year US government reported that diamonds are one of products which let money launderers beat the American system. The US Money Laundering Threat Assessment (MLTA) is the US analysis that pointed out money laundering vulnerabilities across new techniques that criminals use. The first new technique the MLTA named was smuggling conflict diamonds, which was followed by the black market Peso exchange, online payment systems and stored value cards.

Investment vs. Money Laundering. Part 1. Gold

Friday, June 9th, 2006

Gold has been considered to be valuable treasure for centuries. Gold as an investment has been stored in the houses of the wealthy European and Asian families for thousands of years.

This type of treasure is still topical in the modern world as nowadays investing in gold is very popular. Although last decades were relatively poor for this precious metal, last 3-4 years gold prices are steadily increasing and investment in gold is not just convenient because of gold being portable and compact but also quite trendy.

The stock market can never be as stable as gold, currency can be subjected to inflation and devaluation, but gld is nothing more and nothing less than gold. Moreover, its price is not likely to decline. At the golden market, the purity of gold is easy to determine.

So, since ancient times gold remains, perhaps, the main non-currency means of holding money. It is a good choice to invest in it. But gold is also a good choice for laundering “dirty” money. The advantages of investing in gold are also attractive to money launderers. The advantages they like best are its convertibility, high intrinsic value and potential anonymity in transfers. Most money laundering schemes employing gold are related to drugs trafficking, organized criminal activities, corruption and illegal trade.

Also, gold itself may be the result of crime that needs to be laundered – for example,if stolen or smuggled by developing a system of false invoicing. Sometimes gold purchases and sales can serve as a cover for the money laundering operation.

So, gold is a precious metal that is a good investment direction for law-abiding citizens and money laundering methods for criminals.

Money Laundering as a Process

Monday, June 5th, 2006

Money laundering is rather a complex process than a single act. Criminals have to make this process in a dynamic way as, first of all, their money trail is evidence of their crime and, secondly, the money is risky to hold and it has to be protected.

So, how it works?

The process of money laundering can roughly be divided into basic 3 steps that can happen either one by one or simultaneously, or separately.

These steps are placement, layering and integration. The first step is taken when money is placed into the the country’s financial system or drawn out of the country. Those who launder money want to remove “dirty” money from the location where money can be detected. The second step is trying to conceal the identity of the owner of “dirty” money by means of creating complicated layers of financial transactions to make the audit miss the trail and obtain anonymity. Integration is a final step necessary to integrate and assimilate the “cleaned” money into the legitimate financial system – in simple words, to make everybody believe in the legal status of the funds.

It is obvious that it is realistic to detect the fact of money laundering on the first step and extremely difficult on the last one. This is why international laws, directives, measures, methods and plans regarding anti-money laundering are often concentrated on the importance of the prevention of money laundering at an early stage.