The Mafia, the highest stage of capitalism.
Transnational Organised Crime - an Escalating Threat to the Global Market
Special Report
Mr. Kees Zijlstra (Netherlands)
naa.be
Excerpt:
V. MONEY LAUNDERING
28. Considering estimated figures of the annual turnover of organised crime groups and assuming that roughly half that turnover must somehow be recycled into the legal economy, the amount of annually laundered money could be as much as US$250 - $500 billion. Given the windfall profits organised crime generates, transforming illegal profits into legal assets stands as one of their most formidable challenges. One might define money laundering as "conversion of illegally obtained proceeds into apparently legal profits, during the course of which deliberate cover-up methods are used to prevent or impede the disclosure of the origin of the assets concerned". The laundering process involves three phases:
1.placement of cash proceeds into the financial system through banks or other financial institutions, which is carried out either through a number of small transactions (so-called smurfing) or through smuggling large amounts of cash out of a country and depositing it where the reporting requirements are less stringent (parking);
2.layering or obfuscating the origins of cash proceeds through numerous transactions, which quickly obscure the source of the funds and thereby gravely complicate the task of investigative auditors;
3.integration of the now laundered money into the legal financial and economic system.
29. Money laundering has evolved into a highly professional activity involving lawyers, accountants, tax consultants, banking professionals, etc. Given the windfall profits their activities generate, criminal organisations are in a position to hire top level professionals to assist them in laundering. Methods include the purchase of movable assets and stocks, participation in auctions, and purchase of shares in family-owned companies. Yet money laundering is also an Achilles heel of organised crime for it is precisely at this point where criminals briefly expose their holdings and it is at this juncture where investigators have an opportunity to break into the criminal network at the higher level.
30. According to one US official, a very dramatic increase of organised criminal activity has occurred on US securities markets, and this has given these groups an opportunity both to launder proceeds and commit new crimes. Criminals have focused their attention largely on thinly traded stocks which are generally listed on the NASDAQ exchange. These crimes are relatively easy to commit and difficult to prove in a court of law. Reconstructing the crime requires the authorities literally to trace through thousands of manipulative transactions, and witnesses, often fearful of violent reprisal, commit perjury rather than co-operate with investigators. Moreover, the punishment for these kind of crimes in the United States, at least, has not been sufficient, so the risk-reward trade-off has favoured the criminal. There are documented cases of organised crime families taking over entire brokerage firms and using these to drive stock prices upwards through high pressure sales tactics. Invariably this is followed by stock dumping, which leaves investors holding worthless paper while generating huge profits for the criminals. Oftentimes, these criminal endeavours are internationally organised, giving criminals an opportunity to exploit international tax havens and secrecy laws.
31. Apart from the traditional businesses used for money laundering - catering, gambling casinos, restaurants, supermarkets, used car businesses, foreign currency exchange offices, etc., - investments of "dirty money" are often made in those economic activities which support or cover criminal activities (so called "synergy effect"): purchasing real estate, establishing transport companies, tour operators, or pharmaceutical manufacturing facilities. The stock markets also provide ample opportunities for money laundering. US authorities face a growing presence of Mafia groups operating in the stock market to manipulate prices and launder money. The US stock market is generally considered one of the world's most transparent, so the fact that it faces a problem of Mafia penetration suggests that the problem is likely to be even more serious in less developed and more opaque markets.
32. Money laundering itself can generate great profits. One real danger is that through money laundering, criminal influence tends to seep into legitimate sectors of the economy. Swiss authorities, for example, are increasingly worried about the growing presence of organised crime groups originally attracted to that country because of its banking secrecy laws. Mafia groups there quickly moved beyond money laundering operations and into local businesses such as restaurants and hotels.
33. "Tax havens" and "offshore centres" accord criminal groups extremely lax fiscal supervision, loose commercial and company law, and thus favourable prospects for economic growth. Panama, the Britain's Channel Islands, Liberia, Liechtenstein, the Cayman Islands and other Caribbean islands are among the better known tax havens, and to varying degrees guarantee a high measure of banking secrecy. All have been associated with money laundering operations. Cyprus has emerged as the favourite banking centre for Russians seeking to hide their assets.
34. Money laundering takes place at the borderline between licit and illicit activities. Once laundered, money is almost impossible to trace, particularly given the advent of genuinely global financial electronic transactions. Even if the flow of "dirty money" is traced, law enforcement agencies find it exceedingly difficult to substantiate their allegations before the courts. Moreover, tracing money is time consuming and costly. Even more frustrating is that the "dirty phases", when criminals are most vulnerable to detection, are carried out by the lowest ranking members of the crime groups, while the bosses often, but not always, assume an active role only after the money has been effectively laundered. In some cases, especially where the state is particularly weak, crime bosses are able to insinuate themselves directly in the political process, for example, by lobbying or underwriting the expenses of political groups. Their goal, of course, is to ensure that their ill-gotten gains are further protected. Once entrenched, this pattern becomes a palpable threat to democracy, particularly in societies where a democratic culture is not fully developed or has been long suppressed.
35. Several international organisations have articulated a new set of priorities in the fight against money laundering: criminalisation of the laundering criminal proceeds, limitation of bank secrecy, "know your customer rules", identification and report of suspicious transactions, improved regulation of business or professions conducting financial operations, asset forfeiture and workable international co-operation mechanisms. Although the consequences of pervasive money laundering are widely understood, the methods are ever shifting. Just as one loophole in the financial system is closed, criminal groups quickly discover or create another, and the pattern seems to continue ad infinitum. Anticipating the criminal groups' next move requires not only great vigilance on the part of governments and police authorities, but also dramatically enhanced international co-ordination.
36. International collaboration to fight money laundering is therefore essential. The OECD established the Financial Action Group against the laundering of capital in 1990 and advanced 40 recommendations to fight this practice. The European Council's convention on money laundering which includes confiscation of property has only been ratified by eight states. This convention allows for the direct transmission of evidence of violations.
[...]
___________________
Obviously, mafia money's advantages over legitimate money are manyfold: first, it's not initial, up-front capital that needs to be exploited. The money to be laundered is already a net income proceeding from some previous, illegal traffic. Hence its lead over legitimate capital, that is what I'd call the laundering premium. Whereas clean money must abide by sound accounting principles and is expected to eventually enjoy a positive ROI, mafia proceeds already represent a "double-digit profit-rate" that can be further trimmed by a few percentage points --the laundering premium-- and still results in a fat profit-margin for the overall criminal cycle.
Combine that with a struggling labor-intensive industry and you get the perfect match: an old, large company employing several thousand workers is on the brink of bankruptcy.... Now, who will question the rescue of that ailing company by some "white-knight" investor if, in the end, only half the jobs get upheld? The governor, the mayor, the senator, the local daily, actually the whole local community will just stick together in supporting the last-chance-business-plan.
And that's how the lawful and legitimate nature of capitalism gets turned upside down: as allegedly legitimate, clean money can longer sustain the lives of million of honest households and as mafia money fills the gap, then tell me, who's the genuine supporter of capitalism's social fabric? The financial jugglers who keep their capital circulating in cyberspace, or your local mafia don who got you hired at the plant and offered your son that brand new car?
You don't like child-trafficking for prostitution, you don't like drugs, you hate arms smuggling, you'll never set a foot in Las Vegas, you don't watch X-rated channels, etc. Fine, but remember, all the money that's squeezed out of those dirty businesses pays for your boondoggle outfit.....
Gus. |
