Financial Crime and AML in the Balkans

1
Financial Crime and AML in the Balkans

• The major problems that need to be countered

2
Money Laundering is a misnomer

• Organised crime is cash heavy
• wrong to assume it wants to legitimise ill-gotten
  gains
• money now goes where the rate of return is
  highest often that is into illegal business
• moving money from soft currency economy to hard
  currency area not laundering but hardening

3
Soft currency problems

• Roubles dont buy BMWs. Dollars do.
• Drugs buy dollars
• sex buys dollars in all its varieties- straight,
  bent, paedophilia, photos, videos
• slaves buy dollars
• peons buy dollars

4
First set of problems

• Illegal transnational businesses
• War on terror
• Tax avoidance
• Proximity to the EU
• Proximity to former USSR and its crime groups
• Smuggling and Trafficking in Human Beings and
  weapons
• Sanctions avoidance
• Corruption

5
Illegal Transnational Businesses

• Drugs
• extortion
• auto theft
• prostitution
• alien smuggling
• traffic in people
• contract murder

• Bank fraud
• tax fraud
• stock fraud and manipulation
• metals/minerals smuggling
• illegal arms dealing

6
War on Terror

• Many organisations now proscribed by US and EU
• Obligation to seize their funds
• Picture very complex
• Long-surviving groups mimic and interact with
  organised crime

7
How have they survived?

• By organising funding streams for
• Training
• Weaponry
• Food, shelter
• Prisoner and prisoner family support
• Publicity
• Overground support groups and political parties

8
Old and New sources of funding

• Armed Robbery
• Extortion
• kidnap ransom
• Voluntary contributions
• Overseas diaspora
• foreign state support
• sale of literature

• Fraud
• Drugs
• Clubs
• Gambling
• counterfeit products
• legitimate businesses
• stock market manipulation
• franchising

9
Terrorism needs an economic base as well as
weapons

• successful terrorist groups create a profitable
  business
• terrorist groups that survive turn their hands to
  crime mafia, triads
• violence is itself a business, or at least a
  service that can be bought and sold
• As Howard Marks said to Jim McCann if youre
  smuggling guns, you can smuggle drugs. Youre in
  the smuggling business

10
5 principle sources of al Qaeda funding Senator
Bayh

• Own money
• Wealthy individuals in the Gulf
• Front companies run at a profit
• Illegal activities eg smuggling, money-laundering
• Charities, both directly and by skimming

11
In the Sudan

• El-Hijrah Construction and Development
• Wadi al-Aqiq export-import
• Taba investment global stock markets
• part-owner el-Shamal Islamic Bank
• farms peanuts, sunflowers cattle-breeding
• Laden International export-import
• Bakery, Furniture
• International al-Ikhlar Co. honey

12
Elsewhere at same time

• Sanctions-busting for Sudan to disguise product
  origin, used Cyprus and other countries
• Kenya ostrich farms and shrimp boats
• Turkey forests
• Africa Sierra Leone? diamond mines
• Tajikistan agriculture
• minor projects as cover for terrorist ops.

13
Second Afghan period

• Al Barakat and al Taqwa
• Al Barakat is Somalias largest company and part
  owns the Somali Internet Company. It provides
  money transfer services for the Somali diaspora
• Al Taqwa also provides money transfer. Has
  offices in Lugano, Switzerland

14
Charities

• US has designated 7 foreign charities as having
  links to al Q
• And closed two US-based ones as having links to
  bin Laden and the Taliban
• Holy Land Foundation, largest US-based Islamic
  foundation has had assets frozen because of links
  to Hamas

15
Al-Qaida

• Bin Laden reckoned he lost 200-300 million on
  projects in the Sudan 91-96
• Bankrolled Taliban to tune of 100 million
  1996-2001
• We have no idea what he spent in Chechnya,
  Somalia, Bosnia or elsewhere

16
Since 9/11 and military action in Afghanistan

• Evidence suggests individual operations funded in
  Indonesia and elsewhere
• Members of Steering Committee have transferred
  funds by hand to local operatives. Munitions too.
• Need to distinguish between Afghan/Pakistan
  operation, S.E.Asian operation and Iraq operation
• As number of operations increases mistakes will
  be made.
• There must be new front companies that havent yet
  been identified. Its not just hawala banking.

17
Tax Avoidance

• Often intimated that US and EU real interest in
  attacking money laundering and other financial
  crime is to break bank secrecy
• To follow assets and money moved abroad by own
  citizens
• To avoid taxation
• Same with Russia!

18
Proximity to the EU

• Warehousing for drugs
• Warehousing for counterfeit products
• Cigarettes
• Other high duty commodities
• People smuggling

19
Who wants people?

• Sex industry obviously
• domestic service
• hotels and catering
• places ignoring safety regulations
• seasonal fruit-picking etc.
• Horrible places Siberia, Brazilian jungle
• dodgy hospitals for organs

20
Three angles

• Recruitment
• transportation
• targeting potential employers

21
Players in the enterprise

• Arranger/investor
• recruiter
• transporter
• corrupt public officials
• guides and crew members

• Information gatherer
• enforcer
• support
• debt-collector
• money-mover

22
Corruption

• Most illicit businesses need access to government
  officials
• Documents, especially for travel
• But also for goods
• And government Contracts
• As well as foreign aid
• But banks can be corrupt as well as public sector
  officials
• And transnational companies are often corruptors

23
Krysha system

• Means roof system of patronage and structured
  corruption protection
• Requires connection with bank
• Deep penetration of government structures
• deploys armed force, either illegal, private
  security or a local or national government unit
  of militsiya 30 of personnel involved or army

24
Money-laundering

• Why do it, if youre a bank?
• Avoid taxes
• defraud overseas aid donors
• distorted idea of nature of capitalism
• dont believe the playing field is level

25
Areas requiring study

• KGB methods of funding agents and operations
  shell companies?
• Non hard currency trade with developing
  countries Asian bankers as middlemen hawala and
  chitty style?
• Exchange of prostitutes for goods. Standard
  measure of exchange?
• Drugs as currency

26
But does it matter?

• Chicago group would say its just the market
  finding ways around excessive taxation and
  draconian anti-business legislation
• West worried about potential instability and
  possible military conflict
• West benefiting from capital flight

27
Problems

• Inhibiting growth of civil society
• Impoverishing employees in public sector
• cant have a market economy without a cash
  economy
• Rule of law a bad joke
• Undermining chance of democracy
• Increasing likelihood of return to
  authoritarianism