Thursday, December 20, 2012

(Backgrounder) Money Laundering: What Is Money Laundering?

Over the last few weeks, we have heard a lot banks about Banks Laundering money belonging to organized crime operations, rogue states and even terrorist networks. In this backgrounder, The Carnage Report will answer the question; what exactly is money laundering?

What is Money Laundering?

Money laundering is the process by which illegally attained funds are put through a series of transactions so that when it comes out at the end it becomes money that is attained legally. Typically the money is deposited into an off shore account, foreign bank, or business that keeps few records. This allows for the money to then be transferred back as a tax exempt legal currency.

The act of money laundering was established as a criminal act back in 1919 in the USA. However due to the lack of documentation banks were required to carry, many  instances of laundering went unnoticed. In 1970, the United States congress passed the Bank Secrecy Act (BSA). Because of the Bank Secrecy Act, forms were introduced to create a paper trail for banks and the IRS to follow like bread crumbs. This allowed the IRS to disrupt and destroy many money laundering operations and organizations most notable related to the mafia, drug trafficking, and other less than reputable ventures.

Money Laundering Examples Relating to Current Affairs

There have been many money laundering operations that have come to light within this past few years. The RBS ( Royal Bank of Scotland) has been in trouble as recently as last July with the US Federal Reserve for suspected breaking of the American trade sanctions with rogue nations, including Iran. This probe derailed the sell-off of RBS's US subsidiary, Citizens to Santander a Spanish based bank. The well-known ING Bank back in June was slapped with a $619 million settlement for an investigation into compliance with the United States sanctions levied against Iran, Cuba, and numerous other countries.

At the time, it was the biggest fine ever paid by a banking institution to settle accusations, wrapped in facts, for money laundering. During the investigation by the Treasury Department, there were more than twenty thousand transactions found with deleted or manipulated information. This allowed individuals in countries under sanctions to move money into and out of the United States. Lloyds TSB reached a settlement with the United States and New York State back in January for $350 million. They admitted to moving more than $300mil for Iranian clients by stripping personal information to hide the identity of their clients.

Not to be out done, Credit Suisse has been laid with a $539 million in monetary penalties for its connection to violations of the International Emergency Economic Powers Act and of course New York State law. The Swiss banking giant saw an increase in its dealings with Iranian financial firms by almost 400% from 2002 at about 49,000 transactions to 2005 reaching over 200,000 transactions. This was because in 2003 the Lloyds TSB stopped clearing activity for its Iranian clients. Those clients switched to the less regulated bank, Credit Suisse.

Credit Suisse went from just stripping information to forming a team called the “specially designated payment team” that manually reviewed over 95% of all transactions from Iranian clients.  These are just some of the recent banks to settle or be fined for failing money laundering practices. However, there is one that must be talked about in detail as it is extremely recent in news.
The current biggest known money laundering case would be the HSBC snafu in which the settlement for the fine and forfeit of illegal moneys was estimated at around $1.92 billion. Back in July 2012, there was a 300 page report compiled for a United States Senate committee finding failure upon failure that HSBC was being used as an aqueduct for drug cartels and rogue nations to funnel money into the United States financial system. This led United States authorities to the nearly $2 billion fine against HSBC for failing to stop laundering under the banking systems. 

The most note-worthy to me would be the dealings with Saudi Arabia's Al Rajhi Bank. The Al Rajhi Bank was a member of Osama bin Ladin's “Golden Chain” of Al Qaeda financiers. The decades of dealings made it hard for HSBC to cut off their ties. Their own internal compliance offices asked for dealings to be terminated as early as 2005. The United States government even had hard evidence of the terrorist relationships that Al Rajhi Bank had, but HSBC still continued to do business with them until 2010.

In another branch, HSBC Mexico failed to close accounts of high-profile clients that were involved in drug trafficking. Both Mexican and United States authorities expressed deep concern over the ability of drug trafficker to circumvent the Anti-Money laundering regulations of US banks by first transporting US dollars to Mexico and then using HBMX 
(branch of HSBC in Mexico) to ship the money into the United States. To look further for an example, the HBMX shopped over $7 billion to the United States main body HSBC. 

Of course, HSBC classed Mexico as a low-risk country and continued to fail to adequately monitor its dealings and transfers of money into and out of the country. This is just part of the many money laundering problems that the HSBC had in the “closet”. Though this is a major blow to the money laundering practices around the world, it is still sad to see HSBC not be brought up on criminal indictment charges that would have further stressed the severe penalties for pursuing money laundering as an acceptable form of business. Still the criminal indictment was only dropped after attaining the high fines by the prosecutors.

Final Thoughts

Obviously everything here boils down to one simple thing. Greed. With so many banks around the world failing to enforce anti-money laundering practices, I find my trust and the trust of the people is being eroded to the point where it is becoming hard to maintain a positive outlook towards banks. Now, do not get me wrong. Banks are a needed commodity for business and clients from all walks of life, but the more failures and corruption are displayed for the world to see; the more it hurts the economic stability of the all nations. This is because banks are built on a type of trust. A trust that should be without doubt, but that is becoming an extremely rare commodity. So, I urge everyone to be wary and keep watch for money laundering is just the tip of the ice-burg in a far greater problem of rampant corruption in our financial institutions. 

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