Financial Crime and AML in the Balkans The

Financial Crime and AML in the Balkans The major problems that need to be countered

Money Laundering is a misnomer • Organised crime is cash heavy • wrong to assume it wants to legitimise illgotten 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

Soft currency problems • Roubles don’t 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

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

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

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

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

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

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 Mc. Cann: “if you’re smuggling guns, you can smuggle drugs. You’re in the smuggling business”

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, moneylaundering • Charities, both directly and by “skimming”

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 cattlebreeding] • Laden International export-import • Bakery, Furniture • International al-Ikhlar Co. [honey]

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.

Second Afghan period • Al Barakat and al Taqwa • Al Barakat is Somalia’s 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

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

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

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.

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!

Proximity to the EU • • • Warehousing for drugs Warehousing for counterfeit products Cigarettes Other high duty commodities People smuggling

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]

Three angles • Recruitment • transportation • targeting potential employers

Players in the enterprise • • • Arranger/investor recruiter transporter corrupt public officials guides and crew members • • • Information gatherer enforcer support debt-collector money-mover

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

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

Money-laundering • • • Why do it, if you’re a bank? Avoid taxes defraud overseas aid donors distorted idea of nature of capitalism don’t believe the playing field is level

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

But does it matter? • Chicago group would say “it’s 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

Problems • Inhibiting growth of civil society • Impoverishing employees in public sector • can’t have a market economy without a cash economy • Rule of law a bad joke • Undermining chance of democracy • Increasing likelihood of return to authoritarianism