THE UNTOLD TRUTH ABOUT GLOBAL MONEY LAUNDERING, INTERNATIONAL CRIME AND TERRORISM PETER LILLEY FULLY REVISED AND UPDATED THIRD EDITION “Peter Lilley is the leading British money laundering expert” DAILY MAIL DIRTY DEALING DIRTY DEALING i DIRTY DEALING iii DIRTY DEALING THE UNTOLD TRUTH ABOUT GLOBAL MONEY LAUNDERING, INTERNATIONAL CRIME AND TERRORISM FULLY REVISED AND UPDATED THIRD EDITION PETER LILLEY London and Philadelphia Also by Peter Lilley Hacked, Attacked and Abused First published by Kogan Page Limited in 2000 Reprinted 2001 Second edition 2003 Third edition 2006 Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publi- cation may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road 525 South 4th Street, #241 London N1 9JN Philadelphia PA 19141 UK USA www.kogan-page.co.uk © Peter Lilley, 2000, 2003, 2006 The right of Peter Lilley to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN 0 7494 4512 2 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Lilley, Peter, 1943– Dirty dealing : the untold truth about global money laundering, international crime and terrorism / Peter Lilley.—3rd ed. p. cm. ISBN 0-7494-4512-2 1. Money laundering. 2. Organized crime 3. Terrorism–Finance. I. Title. HV6768.L55 2006 364.16’8—dc22 2005035377 Typeset by Saxon Graphics Ltd, Derby Printed and bound in the United States by Thomson-Shore, Inc iv Contents A note to the third edition vii Preface: my beautiful launderette ix 1. In the beginning… 1 2. The nth largest global business activity 28 3. The nearest thing to alchemy 47 4. Lost in the wash: the business of money laundering 64 5. Complete anonymity 88 6. Washed in space: cyber laundering in the 21st century 108 7. Terror Finance Inc. 127 8. Whiter than white: the official response 159 9. Coming clean: preventative strategies for business 182 10. The final spin 193 Appendix I: web directory 201 Appendix II: glossary of terms 205 References and further reading 212 Index 215 v vi There is no fortress so strong that money cannot tak e it. (CICERO, 106–43 BC) Gold is tested by fire, man by gold. (ANCIENT CHINESE PROVERB) A note to the third edition When I was asked to revise Dirty Dealing for a third edition I approached the original text – first written in 1999/2000 and then revised in 2003 – with some trepidation. Not because of a fear of what I had originally written but because I was not at all sure what would need to be revised and how any revisions could be achieved. In the end, I have let much of the original text stand, with relevant amendments and updates. I have also added a significant amount of new material, most principally Chapter 7 on terrorist financing. I do not make the grandiose claim that this book provides a history of money laundering; but I think it does give a valid snapshot of what has happened since the late 1990s. In the original 2000 edition of Dirty Dealing, terrorist financing merited a few mentions in passing. By the 2003 edition – written in the immediate aftermath of 9/11 – a new chapter on the subject was added to the book. When I reviewed this 2003 chapter as part of the preparation for this edition I quickly realized that my views had shifted, and that I needed to produce a completely new chapter. If this new chapter is more sombre than others in this book, this is because I think that the issue of terrorist financing (and terrorism as a whole) is one of the most disturbing prob- lems of the twenty-first century. There is also one other major change: the first two editions of Dirty Dealing contained a country index listing individual jurisdictions together with their inherent money laundering and organized crime risks, as well as details of the Financial Action Task Force (FATF) country ‘blacklist’. Because this information is constantly developing and changing I have taken the view that it would be a far more useful and timely resource if it were online. I have therefore not included it in this edition – but an online version can now be found at www.dirtydealing.net. This website also vii contains various other support materials for this book including short films on terrorist financing and money laundering. It will also have updates and newsletters on the subjects covered by Dirty Dealing. Two other comments: if you agree, disagree or want to add your views to what I have written please feel free to write to me at pl@proximalcon- sulting.com. Finally, this book would have been much more difficult to write without the support of my family and the Proximal team: Valerie Dalgleish, Jacqueline Ahmed, Ramona Richards, Jane Shave and James Lilley. To all of them: thank you. Peter Lilley viii A note to the third edition Preface: my beautiful launderette Behind every great fortune is a crime. (HONORÉ DE BALZAC) With few exceptions criminals are motivated by one thing – profit. Greed drives the criminal, and the end result is that illegally gained money must be introduced into a nation’s legitimate financial systems… Money laundering involves disguising assets so they can be used without the detection of the illegal activity that produced them. This process has devastating social and economic consequences. Money laundering provides the fuel for drug dealers, terrorists, arms dealers to operate and expand their operations… Left unchecked, money laundering can erode the integrity of our nation’s and the world’s financial institutions. (THE UNITED STATES DEPARTMENT OF THE TREASURY FINANCIAL CRIMES ENFORCEMENT NETWORK, FINCEN ADVISORY, MARCH 1996, 1, ISSUE 1) ix Money is laundered to conceal criminal activity associated with it, including the crimes that generate it, such as drug trafficking or illegal tax avoidance. Money laundering is driven by criminal activities. It conceals the true source of funds so that they can be used freely. It is the support service that allows criminals to enjoy the fruits of their crimes. It allows crime to pay and often, pay well. (THE UNITED STATES OFFICE OF THE COMPTROLLER OF THE CURRENCY, MONEY LAUNDERING: A BANKER’S GUIDE TO AVOIDING PROBLEMS) A few weeks before I started writing this version of Dirty Dealing, I was sitting in a Starbucks coffee house in North America. Having just survived a 10-hour transatlantic flight I was trying to beat jet lag and stay awake by drinking numerous cups of cappuccino. I was also taking the time to reflect on the week ahead: delivering a new anti-money laundering train- ing programme that we had devised. One of my prime thoughts was how to begin each of the training sessions. As I drank my coffee and read the local newspaper, I came across the short article that was to provide the introduction for my talks. It told me about Cesare Lombroso, who lived between 1835 and 1909 and was considered by some to be the world’s first criminologist. He saw wickedness and criminality as an evolutionary throwback and because of this he argued that it was possible to pick out criminals visually. In 1871, he wrote that ‘a criminal’s ears are often of a large size, [and] the nose is frequently upturned or of a flattened charac- ter’. Other signs of criminality according to Lombroso were a sloping fore- head; long arms; rodent-like incisors; premature wrinkles; excessive hairiness (but only in women). And as for tattoos, only criminals wore them. This material related to one key element of the training sessions: the identification of suspicions or ‘Red Flags’ of money laundering, that is to say, those elements in a transaction, pattern of transactions and/or customer profile or customer’s activities that may indicate possible laun- dering activity. Attendees needed to learn about such issues because in the post 9/11 environment many of the world’s anti-money laundering proce- dures are almost wholly dependent on employees identifying suspicions of money laundering and reporting these suspicions to relevant authori- ties. Whereas prior to the events of 9/11 such ‘regulated’ employees would be working only in banks or other financial institutions, now almost any employee anywhere who deals with financial transactions is under an obligation to identify anything that may be suspicious and to report it. In general terms, if you work in an auction house, as an accountant, in real estate, as a car dealer or as a jewellery dealer – in fact anyone in any field in x P reface [...]... proceeds of crime are integrated into the banking systems and business environments of the world: black money is washed so it ends up whiter than white (hence the descriptive French terminology blanchiment d’argent, literally, the ‘bleaching of money ) This is the process whereby the identity of dirty money that is the proceeds of crime and the real ownership of these assets is transformed so that the proceeds... their second-generation follow-ons in the United States; the Japanese Yakuza; Colombian cartels such as the Medellin and Cali; Russian and Eastern European mafia; Nigerian and West African gangs; South African organized crime groupings; the Juarez, Tijuana and Gulf cartels in Mexico These groups and other similar ones are far from amateurs Like any other pan -global, multimillion dollar business they are... able to tackle the problems themselves Criminals and terrorists have no respect whatsoever for laws, regulations, decency – or, ultimately, for human life They will do whatever they need to do to wash the proceeds of their crimes, or in the case or terrorists, to ensure that the funds are available when and where they need them in order to mount their latest outrage The history of money laundering, as... mindset these crimes are probably associated with the drug trade Of course, money laundering is this, but it is also a whole lot more To understand and appreciate the all-consuming power and influence of money laundering one needs to go back to the purpose of crime The vast majority of illegal acts are perpetrated to achieve one thing: money If money is generated by crime, it is useless unless the original... it The rise of organized crime is now an accepted, if regrettable, fact of global business life The massive sums of money generated by such activity need to be legitimized by inserting and washing them in international banking and business systems Running parallel are the globalization and internationalization of markets; the sophistication of information technology; and the uncertain political and. .. corrupt heart of many of the social and economic problems experienced across the globe Why is the process called money laundering’? The term probably originated in the United States in the 1920s When criminal gangs were trying to disguise how they got their money they took over businesses with high cash turnovers such as launderettes and car washes Then they mingled their dirty cash with genuine clean... associated with the washing of criminal funds, the original use of the phrase related to the very real business of washing clothes Although the emphasis in the term has shifted, Preface xiii the techniques that were used in the beginning are very similar to those of today: co-mingling dirty money with clean funds and trying to pass it off together as legitimate business receipts Where does the dirty money that... laundering is, where the money that needs to be laundered actually comes from, and why it is such a global problem To try to explain the basic issues, these are the types of questions that I usually get asked on the washing of dirty money and the dirty dealing associated with it What is money laundering? As described in later chapters of this book, the perception that still endures of money laundering... across the world each year And that total is merely one part of the global money laundering process There has been a convergence in the last two or three years of key factors that have encouraged, facilitated and sponsored the explosion in money laundering There are a number of significant ingredients: ᔡ ᔡ ᔡ ᔡ ᔡ ᔡ The globalization of markets and financial flows, most evident in the dizzying rise of the. .. funds they have stolen from their home country or they are looking for anonymous and discreet homes for bribery payments (sorry, gifts) they have somehow acquired The term money laundering’ appears to have originated in the United States in the 1920s Criminal gangs then were trying to do much the same as they are today: dissociate the proceeds of their criminal endeavours from the activities themselves . THE UNTOLD TRUTH ABOUT GLOBAL MONEY LAUNDERING, INTERNATIONAL CRIME AND TERRORISM PETER LILLEY FULLY REVISED AND UPDATED THIRD EDITION “Peter Lilley is the leading British money laundering. expert” DAILY MAIL DIRTY DEALING DIRTY DEALING i DIRTY DEALING iii DIRTY DEALING THE UNTOLD TRUTH ABOUT GLOBAL MONEY LAUNDERING, INTERNATIONAL CRIME AND TERRORISM FULLY REVISED AND UPDATED THIRD. the untold truth about global money laundering, international crime and terrorism / Peter Lilley. —3rd ed. p. cm. ISBN 0-7 49 4-4 51 2-2 1. Money laundering. 2. Organized crime 3. Terrorism Finance.