How To Make Dirty Money Clean

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CAMERA PRESS
How to make dirty
money squeaky clean
Spot the difference between straight and bent money.
Melissa Benn watches the bulging case of
drug cash being taken to the cleaners.

The British Government's rehearsed outrage at the collapse of the Bank of Credit and Commerce International (BCCI) looks a little lame in the light of what a London taxi driver told me recently. A keen reader of Time, Newsweek and the business pages of the daily papers, he'd known all about the shady side of BCCI for 18 months at least. 'What about all that money-laundering business in Miami?' he shouted back at me through the glass partition. 'People jailed, the lot. Don't tell me the Government didn't know about that!'

He was referring to BCCI's association with another collapsed institution, President Manuel Noriega of Panama. In January 1990, BCCI was fined $15 million by a Florida court for its part in a massive drug money laundering job for the then Panamian President. Six BCCI executives, including Noriega's personal banker, Amjad Awan, were subsequently jailed for the money-laundering offences.

Laundering – that is, the conversion of ill-gotten gains into some form of usable currency – is one of the older tricks of the financial world. But the modern term probably originated with gangster/entrepreneurs like Al Capone in the 1920s and 1930s, who set up laundry companies as fronts for the money they received from drugs, gambling and prostitution.

Or are we being unfair to gangsters? In his account of a life of active citizenship, A Man of Honour, Joseph Bonanno – supposedly the figure on whom Mario Puzo's Godfather was based – spends pages repudiating claims put by the US Narcotics Strike Force that he 'wanted to purchase Cadillac dealerships in California to launder dirty money'. So detailed is his rebuttal of this outrageous slur, including pages on his own clever evasion of the Strike Force, that readers are left wondering at the missed business opportunities of such dealerships for one so acute.

High times
Equally acute – but a little less self-righteous – is Howard Marks, the Oxford graduate and socialite drug dealer currently serving 25 years in a Florida prison. In the late 1960s Marks had problems dealing with the profits of his burgeoning drug career. According to David Leigh's high spirited biography of Marks, High Times, 'Long-haired Notting Hill ex-students with no visible means of support were bad bets for avoiding police interest.' Marks decided to start a respectable small business. Financing a sewing partnership, Anna Belinda Ltd, run by two dreamy women friends (yes, Anna and Belinda) he set about equipping and furnishing the business through non-existent companies and generating tremendous profits from the sale of non-existent dresses.

None of the straight participants in the business ever had any idea what it was really for – until years later, when things started to go wrong. But 'illegal' friends were told the stark truth by a delighted Marks. 'I'm making lots of money from dope and sticking it into Anna Belinda.'

A decade later Marks was one of the biggest marijuana dealers in Britain. Ownership of a Swiss bank account plus membership of the National Federation of the Self Employed brought him firmly under the sway of Thatcherism. 'Howard felt a successful small businessman's triumph, and the stirrings of something even deeper,' writes Leigh enigmatically.

But laundering remained an ever more tedious problem. Even the conspicuous feasting of his wedding party held soon after Thatcher's victory was part of the elaborate exercise of 'fronting'. Vintage champagne, unlimited caviar, swans sculpted in ice… less a form of celebration than yet another way to soak up large amounts of money.

Developments in the last decade of drug dealing make Marks now look positively small time. In a special 1990 International Financial Action Task Force report on money laundering it was suggested that sales of cocaine, heroin and cannabis amount to approximately $122 billion per year in the United States and Europe.

Straight professionals
As much as $85 billion a year of this could be available for laundering and investment. One Task Force member estimated global profits at the 'main dealer' level – the level most subject to international laundering – at about $30 billion a year.

So how is laundering actually handled when such large amounts are at stake? Naturally, it requires the aid of those with a knowledge of the banking and legal system – lawyers or accountants or bankers – or those already in the business who are willing to put 'bad' money through. Not all middle-class professionals are as straight as the South Wales banker whom Howard Marks approached to launder 11 million Nigerian pounds. He had to be given a glass of water after the request was made, and was easily reassured by Marks that it had 'nothing to do with drugs'.

One way of laundering is to transport cash out of the country, put it into accounts and trusts in institutions with guaranteed secrecy. European countries like Switzerland and Luxembourg have long been renowned for the confidentiality of their banking systems – but secrecy laws have already been loosened following strong international criticism. Off-shore paradise islands like the Bahamas, Cayman Islands and Virgin Islands may experience fewer international pressures.

Transporting cash is not as easy as it may sound. Pablo Escobar, the Colombian drug dealer, supposedly lost $400 million when it rotted away in the basement of a California house. He couldn't get it out of the country. Ramon Milan Rodriguez, one of Noriega's helpers, set up his own air freight company – Consolidated Air Services – complete with uniforms, a company logo and an executive jet, to move money from Miami to Panama. Tailor-made 'courier boxes' were constructed to hold differing quantities of cash. So impressive was the service, Rodriguez was asked to handle straight business – he refused.

Detailed records, found by the US authorities after the arrest of Rodriguez, showed that in the nine months between August 1982 and May 1983 his personal Lear Jet had made 47 flights from Miami to Panama, carrying $151 million. The forty-eighth flight never made it. Customs agents raided the plane – due to leave Fort Lauderdale International Airport on May 4 1983 – moments before take off. They found on board 20 boxes containing $5,449,962.

Oscar Cuevas, another launderer, used Brinx's (the American security firm) to transfer boxes of cash from the US to London. Cuevas would then take the cash and pay it into London branches of American banks. From there it would be funnelled back into the US. At one point Cuevas was considering buying his own bank in Spain – always so much more useful to own your own financial institution.

But new initiatives on the part of the major industrial countries are now putting launderers worldwide under serious pressure. The G7 Financial Action Task Force, comprising the seven leading industrial countries, including the US, Japan and Germany, recently made proposals to crack down on drug trafficking and 'laundering havens'. These include setting up a 'white list' of countries prepared to comply with international attempts to drive out launderers. According to one expert, sanctions against those countries not on the white list might include making it impossible to secure IMF loans or push through a financial deal with whitelisted countries.

Despite G7 rigour, a cat-and-mouse game seems to be developing in which laundering is squeezed out of one area, only to reappear in another. For instance, patterns of excess cash reserves in major US federal banks in the 1980s indicate an ever-shifting trail of 'dirty money' – from Miami in the late 1970s to Los Angeles in the mid-1980s. And according to recent reports from Federal authorities in Texas, their banks are now being overloaded with unaccountable cash.

Take another example. All US banks must now report any deposit of more than $10,000. This may be a more unworkable law for the regulators than for the launderers. Congressional hearings have already heard evidence of its avoidance through the labour-intensive technique of 'smurfing'. One (hooded) professional told the hearings that team leaders who co-ordinate a group of smurfers will go to a chosen city with hundreds of thousands in dollars. Each smurfer will then make a number of separate deposits, each at below the $10,000 limit, at individual banks.

Launderers are also moving their money out of the newly regulated big banks into smaller institutions – exchange houses, cheque-cashing companies, and casinos. And in July this year, Chancellor Kohl of Germany warned that launderers were now shifting their terrain to the ex-communist countries. Dr Kohl told his cabinet that intelligence reports indicated profits from drug trading were being cleaned up and invested in East Germany. Hungary and Bulgaria, ever hungry for Western currency and with stringent bank secrecy laws, have also been named as possible targets.

Loopholes
The loopholes for drug money seem never ending, casting serious doubt on the ability of even the ever more technologically sophisticated national and international networks to take effective action. A key problem is this: legitimate businesses have long been abusing tax and legal loopholes to protect and increase their investments. So why shouldn't drug barons, so closely entwined with legitimate business and so closely mimicking them in money-making techniques, do the same?

After all, what's good enough for Saatchi and Saatchi is good enough for anyone. Like Saatchis, Launderers Inc have increasingly turned to the art market to protect their investment. Since the 1987 stock-market crash, this has been one area where values have continued to rise. Employing completely legitimate dealers – and money from companies that are registered abroad, or secret bank accounts – the launderer is free to purchase fine works of art.

But should that exquisite Rembrandt be provoking just a bit too much Interpol attention, how about a vintage Bentley instead? With a spate of recent arrests of traffickers dealing in fine art and antiques, Police Review claims that classic cars are now the buoyant market… But then I expect my taxi driver knows about all that already.

Melissa Benn writes on UK social issues