How do they do it? Well, let’s say you’re a small-fry guy with $50,000 stashed in your Hawke’s Bay attic from thieving. Or, a big-shot with a tidy million or two coming your way, via electronic transfers. Money you’ve creamed off inflated building contracts you awarded to your big-shot buddies. You sure mean to keep your pile hidden. You don’t want the government or anyone else’s hands in it. God forbid.
In 1920s Prohibition America, gangster Al Capone pumped dirty money through laundromats, rinsing it “clean” with honest cash earned by washing people’s shirts. That’s how we got the phrase “money laundering”. Now most of us own a washing machine and your local launderer is more likely to be the corner shop, restaurant or other cash-rich business, says Pol. (Perhaps in homage to Capone, meth money is laundered through a car-wash business in the hit TV series Breaking Bad.)
At glittering jewellery shops, antique dealers and galleries, items’ values can easily be fudged. It makes upmarket retail stores great places to mix dirty money with clean – something a crime-ring operating out of Los Angeles’ jewellery district took advantage of when it laundered $US1.2 billion in just 18 months for Colombian drug kingpins back in the 1980s, says Pol.
Ah, yes, that genteel summer’s outing where the wine flows, and the urbane money launderer might hope to relax and restock his cellar. Pol’s friend spotted possible laundering at a wine and food festival recently. When, at the end of a splendid day’s tasting, he went to exchange his $36 worth of unused “festival dollars” for credit at the region’s wineries, he noticed a flustered cashier. She’d just been presented with about $2000 worth of “festival dollars” from another customer.
Auckland’s property market sure is hot. And it’s almost certainly hotter than ever with money launderers. For two reasons. One, real estate agents are exempt from the latest anti-money laundering law. Two, money launderers relish a pricey property market – because they can launder millions more at a time. So much more expedient! (So notes a Transparency International UK report.)
Quiz time: how much money can be stuffed into a briefcase? $10,000? $100,000? Answer: $1 million. Not long ago, an individual turned up at a Kiwi lawyer’s office with a briefcase carrying around that sum in bank notes. He thought he’d simply pass it over to his lawyer as final settlement for a property he’d bought. He was mistaken. The rather nervous lawyer advised his client that, er, no, he couldn’t pay with cash. So the buyer went away in huff, only to return a few hours later with a bank cheque for the full amount. Meaning, the briefcase full of cash was still out there, somewhere. Even he wasn’t dumb enough to trot down to the local bank with it.
The gambling den: the money launderers’ traditional temple. Professional launderers might get their stooges to pump cash into the pokies and have them sit there long enough to recoup most of their money in winnings, minus the 13-ish per cent the machines are programmed to retain. Not a bad return. Or they might load up the pokies with credit, cancel that credit and get their money back suitably “cleaned”. That’s how police believe methamphetamine magnate Royce Duncan largely laundered $882,000 worth of drug money over two years at Auckland’s SkyCity casino, the New Zealand Herald reported.
Fact: vast global networks of shell companies shield perpetrators of heinous crimes, terrorism and corruption. Sharman and his colleagues uncovered just how easy it is to flout international standards prohibiting anonymous shell companies when they impersonated everyone from would-be money launderers to terrorism financiers. They emailed 7400 incorporation agents in 180 countries who, for a fee, form companies on behalf of third parties. “We said, ‘We want a shell company and we don’t want people to know our business and we don’t want to pay much tax,’” he explains. Here’s one actual reply:
The import/export business features high on the launderer’s popularity chart, according to Pol’s research. While trade-based laundering often involves smuggling and duty evasion, it’s hard for customs officials to spot the fake “trading” which doesn’t need real goods to trade, as long as a regular-looking paper trail can justify electronic transfers of funds. Before long, your local drug dealer looks like a successful business entrepreneur, who’s earned his wealth in the import/export business.
We’re talking about the underbelly of the professional financial services industry here – the unscrupulous Wolf of Wall Street wannabes who, with wilful blindness, manoeuvre dirty money through financial market vehicles: stocks, bonds, futures, foreign currency speculation and so forth. Most people’s lack of interest and knowledge around this stuff helps their money-grubbing schemes go undetected. Says a source: “In a trading environment where some professionals get paid per transaction, rather than a percentage of the ‘upside’, and where the scale has grown to a point whereby sums equivalent to the world’s GDP are traded daily, extraordinary demands are made on human honesty. Add in that most trading is now software-driven at high speed and anything is possible.”
The first time 70-year-old Yvonne heard of anti-money laundering regulations was when she went to her bank to transfer $10,000 to her daughter’s family in England. The anxious bank teller called his manager over to talk to her. He knew Yvonne well, but still asked her some prying questions before processing the transaction. Kiwis can’t transfer more than $10,000 out of the country at any one time without it being flagged as potentially suspicious. Soon, we probably won’t be able to transfer more than $1000 off-shore without banks needing to send a transaction report to the Police Financial Intelligence Unit.
To meet their obligations under the AML/CFT Act, certain businesses and professionals – or “reporting entities” in the legal lingo – must have anti-money laundering compliance programmes, designed to detect and deter money laundering and terrorism financing. They have to appoint a compliance officer (although there’s no specific training required to become one) and they must do due diligence on their customers. “Reporting entities” file suspicious transaction reports to the Police Financial Intelligence Unit – something they’re doing in increasing numbers. And that rise in reporting “is increasingly contributing [to] and initiating investigations,” into everything from scams and local drug distribution to complex transnational cases involving co-operation with international partners, says Detective Superintendent Greg Williams. Still, actual prosecutions for money laundering remain very low.
At least $NZ1.5 billion is laundered in New Zealand every year, excluding tax evasion ($7.2 billion annually) and excluding trade-based laundering – which is believed to be substantial. The estimate comes from the 2010 National Risk Assessment issued by the Police Financial Intelligence Unit. Work on a new assessment is under way. Meanwhile, the international agency Tax Justice Network estimates New Zealand’s total shadow economy (including tax evasion, but excluding criminal activities such as drug dealing and smuggling) stands at $20.5 billion annually.
Photos: Nicola Edmonds and Getty Images