Friday, 12 July 2013

Washing Your Dirty Money

What's a fun loving criminal going to do about getting his money cleaned? The cost of a full blown money laundering operation is both very expensive (at up to 40% of value) and rife with uncertainties and betrayals. Now there have always been ways of means for criminals to turn stolen goods into hard cash .... the good old fashioned 'fence' (or sometime pawn broker), would take stolen items and offer the thief a percentage of the perceived cash value in the hope of later recouping a greater value themselves and thus making their profit on the deal.

Now this was all well and good in the days when stolen silverware was the item - the value obtained by the criminal was determined by how 'hot' the item was, and the end value to the fence. But now days the thief is not going to be moving a couple of hundred pounds worth of items, they are likely to be moving millions of pounds worth of drugs, arms or people trafficking money. They also want it to be moved around the globe - so this places a particular emphasis on speed and reliability.

So what are launderers to do?

Old fashioned approaches still work to some degree.

Buying Gold or Diamonds can move fair amounts but requires an element of smuggling and physical couriers. Which mean its expensive and with an element of risk.

Buying stocks, bearer bonds or shares - they will allow large money moves and internationally but require some element of money laundering before purchase or the services of a 'bent' money broker. Still, it is time tested and once completed can be hard to trace later.

Property - surprisingly large amounts of money can be moved by purchasing properties, but apart from the issue of paying the seller (which can be done fairly easily via capital in kind - drugs, diamonds etc - if the seller has criminal links) - there is the slowness in turning the property into cash that would hinder many criminals. e.g. Russian / Georgian gangsters prefer their wealth in liquid assets, or wearable items.

Bank transfers - most large international banks move millions electronically from offices around the world - this is done to stop all the cash ending up in one spot such as London. Some banks may be willing to facilitate transfers to foreign climes (for a consideration) .... a good few years ago, I heard a story that the London branch of the Bank of Iraq (under Mr Hussein and Sons); one of our then Arab 'allies', would be willing to do this (for a fee). The money would be brought in to the bank as cash. They would put this in to the vault, but add the value to the electronic amount to be transferred that night, and then open an account in the branch overseas, to which the criminal wanted the money (minus the 'commission'). Now how easy this is to arrange, and how often it could be done, I can't say, but its obvious that its probably an occasional activity at best.

Cash / Wire transfer services - these are very popular with Africans - they are supposed to be regulated but hey, this is Somalis or Nigerians. Where there is a will, there is a way, and hundreds of millions leave Europe and the US by this method. Most of this is untracked - however very large amounts, in the millions, would undoubtedly attract unwanted attentions.

So we now move to the Hi-Tech computer savvy methods of choice:

AIPS - The Money Launderers Choice

Anonymous Internet Payment Systems (AIPS): This is a simple system whereby you deposit funds by opening and account with for example a name, e-mail address, and birth date. Essentially the providers were companies like the now defunct 'Liberty Reserve' and the 'Azitos payment system' - there is also another one which is a Moscow-based service called 'WebMoney'. However the criminals (especially Eastern Europeans), liked the 'Liberty Reserve' service for several reasons:

  • It didn't do much checking (if any), and
  • It was based outside of the US or Russia
  • It only charged 1% commission
  • It was essentially anonymous to create and account (an email and user name).
  • Deposits could be made through third-parties using a credit card or bankwire
  • Deposited funds were then "converted" into Liberty Reserve Dollars or Liberty Reserve Euros, which were tied to the value of the US dollar and the euro respectively, or to ounces of gold.
  • No limits were placed on transaction sizes.
  • Transactions were "100% irrevocable" i.e no recalls.

The redemption of the Liberty Reserve Dollars etc was achieved by someone purchasing the virtual money amount from you e.g. Liberty Reserve Euro's, for a fee (standard was 9%), and giving users the cash.

Its closure has created a dilemma - other 'providers' are slightly more scrupulous in monitoring account activity. They often require nominally more information ('WebMoney' for example require, a name, address, telephone and email address for registration). Unfortunately, they are also much more heavily monitored: Web Money are known to be heavily monitored by the Russian FSB (successors to the KGB) who will act if activities are harming Russia, but are less interested if its western interests that are harmed.

BitCoins - are another widely used virtual currency, which although not as flexible as Liberty Reserve, do offer a semi unregulated method of moving monies - But the biggest 'BitCoin exchange' has already announced that its users must provide identification documents to use the service to withdraw cash, in what appears to be an effort to avoid displeasing US law enforcement agencies. They are likely to become regulated very soon.

So was the closure of Liberty Reserve a blow against money laundering? Well yes, but hardly a killer. As one expert put it "I have no doubt that within twenty-four hours most of them figured out another way of getting money from point A to point B."


  1. Interesting piece, however I feel like there's still something missing : I've just robbed a bank and I have £200K in cash, how do I buy BitCoins, or whatever?

    1. Very easy.

      Google "How to Buy BitCoins" and voilà, 5 million results later and your bank raid money has a new home. E.g. BitCoin Purchase Tutorial


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