How do you move millions of dollars from one place to another?
Obviously, you use a bank.
But what if the money is dirty?
The Organized Crime and Corruption Reporting Project (OCCRP) has documented several laundromats, e.g. the Troika Laundromat.
A laundromat is a scheme of shell companies and bank accounts to move money – often Russian money – offshore. The investigations read like a spy novel, full of criminals, politicians, lawyers and bankers.
For example, this article explains how Moldovan judges enabled flows out of Russia by authenticating guarantees on “defaulted loans” between shell companies.
Sometimes, bankers looted their own institutions, see The Vienna Bank Job for details.
Fascinating stuff, involving major Western banks as well.
How should authorities respond to these illicit activities?
In the EU, several countries have jointly proposed to create a centralized anti-money laundering (AML) supervisor.
Joshua Kirschenbaum has pointed out that the U.S. could counter malign financial activity by targeting banks that facilitate organized crime.
As a follow-up on yesterday’s post, read this story about how Deutsche Bank Trust Co. Americas handled payments from Dankse Bank‘s Estonian unit.
A number of quotes will give you an idea of the priorities at the bank:
[W]hen workers sought broader scrutiny of certain clients, they got a familiar response from some higher-ups, the officer said: Shut up, focus on the transaction in front of you, file your paperwork and move on.
Although U.S. executives routinely promised regulators they’d get tough, former staffers say such efforts were often disregarded in favor of cozy relationships with overseas customers.
Throughout Deutsche Bank, compliance staff members were considered to be “one step above the janitors,” an unnamed former executive told lawyers who filed a 2016 lawsuit against the bank.
In Jacksonville, that task [i.e. know your customer] fell to an office that was understaffed and overly permissive, insiders recall.
Swedish tv station SVT has investigated suspected money laundering by Russian and Ukranian customers of Swedbank. Oligarchs used accounts at Swedbank’s Estonian branch to move money offshore. The documentary is available online in English: part 1 and part 2.
At the end of part 2, Daria Kaleniuk, executive director of the Anti-Corruption Action Center in Kiev is asked “why do you think they [i.e., the bank] let this happen?”. Ms. Kaleniuk replies “because it’s profitable!”.
However, I’m not convinced that is true. Payments are a low-margin activity that expose banks to a lot of downside risk. Violating anti-money laundering (AML) rules have cost banks hundreds of millions of dollars in recent years.
In my opinion, criminals succeed in money laundering because compliance with AML regulation was (is?) not a priority for top executives. A lack of funding and management attention for compliance leads to a mentality of “just check the boxes, so it looks like we did what we had to do”.
Stronger enforcement, including higher fines and other sanctions, might change that situation.
[A] higher share of women on the boards of banks […] is associated with greater stability. As I have said many times, if it had been Lehman Sisters rather than Lehman Brothers, the world might well look a lot different today. – Christine Lagarde, Managing Director of the International Monetary Fund
In today’s finance & crime news:
“Swedbank AB has fired its chief executive officer, Birgitte Bonnesen, amid allegations the bank was used to launder billions of dollars in Russian money on her watch.” – Bloomberg
For your information, five of the eleven members of Swedbank’s Board of Directors are women.
Facebookpost over de rol van banken in de strijd tegen crimineel geld:
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Createspace enables independent authors to publish their works and to distribute them through Amazon.
Amazon takes care of the printing, shipping, and payments. The author receives a monthly royalty payment. I used Createspace to publish Bankers are people, too.
Unfortunately, criminals have also discovered that they can use the platform for money laundering.
Brian Krebs explains how it works on his blog, KrebsonSecurity. Someone publishes a bogus book and sets an extremely high price for it, e.g. $555. They use stolen credit cards to buy the book. Amazon pays the “author” about 60% of the retail price in royalties. This money looks like a legit income. The stolen money has been laundered. Continue reading “Crooks with books: Laundering money as an “author” (part 1)”