The Hindu Business Line : Washing dirty money

CLEANLINESS is a virtue, normally. In some cases, however much you clean, there is the stigma that never goes. For instance, funds that are born of illicit origin can never shake off the tainted tag in spite of best of efforts. Bhure Lal's book Money Laundering, from Siddharth Publications, aims to provide `an insight into the dark world of financial frauds'.

If you were to type the name of the author and publisher and search in Google, what could come first is "Inter Services Intelligence, Bibliography", citing the author's other book Monstrous Face of ISI. He is a doctorate in economics who has been "a whistleblower against corruption and landed himself in hot water a number of times."

For starters, money laundering is the conversion or transfer of property, knowing that such property is derived from serious crime, and the idea is to smudge its origin. No housebreaking or hit-and-run, one might reason, so who is hurt?

The preface explains how money laundering is inseparable from large-scale criminal enterprises. "It camouflages the dirty, tainted money generated by anti-social, anti-economic activities like drug trafficking, firearms smuggling, international bank and securities frauds, bribery, intellectual property theft, and other unlawful activity. Once criminals successfully disguise their illicit proceeds, they can reinvest them in their criminal organisations, expand their operations, and profit from their crimes."

How do criminals outsmart the enforcement agencies? They deploy "a team of experts such as chartered accountants, attorneys, bankers, mafia." Oh, no, the holy CAs are getting lumped along with the underworld, but that is a fact to reckon with, because the wash-cycle for money is not as easy as giving it a detergent bath. There are laws to pore over, tax provisions to meander through, clauses to be plugged in, and a respectable face to be given for what hides underneath the suit.

The chapter on `history' traces the origin of the phrase to mafia ownership of Laundromats in the US. "Gangsters there were earning huge sums in cash from extortion, prostitution, gambling and bootlegging. They needed to show a legitimate source for these monies."

The fame as an ingenious money launder does not go to Al Capone, but to Meyer Lansky ("affectionately called the Mob Accountant") for his discovery of the benefits of numbered Swiss Bank Accounts. "The use of the Swiss facilities gave Lansky the means to incorporate one of the first real laundering techniques: the use of the `loan-back' concept."

Thus, illegal money got disguised as loans "provided by compliant foreign banks which could be declared to the revenue and a tax-deduction obtained in the bargain".Similar to GDP, there is the GCP, the gross criminal product, which is beyond $1,000 billion a year, globally, according to Christian de Brie.

"This is nearly 20 per cent of world trade. The annual profits from drug trafficking are estimated at $300-500 billion. There is a mushrooming synthetic drug trade accounting for 8-10 per cent of the world trade. Computer piracy has a turnover in excess of $200 billion, counterfeit goods $100 billion, European Community budget fraud $10-15 billion, animal smuggling $20 billion."

What are the costs and profits? "After allowing for overheads (production and suppliers, intermediaries and corruption, investment expenditure, management costs, losses from seizures and crackdown) amounting to roughly 50 per cent of turnover, that still leaves annual profits of $500 billion." A must-read for auditors who want to know where the trail leads to.

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