Reflections during Hurricane Dorian

My personal reflections and Random Thoughts. 01&02/09/2019 – Labor Day 2019 weekend. Unlike in Zambia (1st May) , the Labour Day in USA, is a federal holiday observed annually on the first Monday of September. Originally it was a day organized to celebrate various labor associations’ strengths and their contributions to the United States economy. Presently it is a day that gives workers a day of rest and celebrates their contribution to the American economy. It is the Monday of the long weekend known as Labor Day Weekend and it is considered the unofficial end of summer. It was a perfect time for me to watch series of documentaries of “The Men who Built America” (among them Cornelius Vanderbilt, John D Rockefeller, Andrew Carnegie, J.P Morgan and Henry Ford are among the innovators and associated with big business). “The Food That Built America” (among them stories of innovation and rivalries behind food industry tycoons Milton Hershey, John and Will Kellogg, Henry Heinz, C.W. Post, the McDonald brothers, KFC, Coca-Cola and many more. “The Making of the Mob” and “Lords of the Mafia” among others the Stories of Lucky Luciano, Al Capone, Gambino, Bonano, Lucchesse,Carlos Marcello, the Cosa Nostra, Pablo Escoba and El Chapo among many others The Inspiring great stories and the Scary ones kept me busy and ease the tension and fear of the devastation of the Hurricane Dorian caused to the Bahamas and now heading towards the State of Florida where part of my Clan live. God gracious spare us.

In the field of Financial Crime Risk, operations, compliance, management, detection, investigations and prevention, the Professional and Certified Anti Money Laundering specialists (CAMS) and crime professionals have not yet formally agreed on when or where the concept and act of “money laundering” came from or invented. Some have argued that AML was not invented during the Prohibition era in the United States, but many techniques were developed and refined then. Many methods were devised to disguise the origins of money generated by the sale of then-illegal alcoholic beverages. Many have Followed Al Capone’s 1931 conviction for tax evasion.

Remember though that mobster Meyer Lansky transferred funds from New Orleans slot machines to accounts overseas. Again after the 1934 Swiss Banking Act which created the principle of bank secrecy, Meyer Lansky bought a Swiss bank where he did transfer his illegal funds through a complex system of shell companies, holding companies and offshore accounts. The term “money laundering” itself does not derive, as is often said, from the story that Al Capone used Laundromats to hide ill-gotten gains.

Others have stated and categorically so that it was Meyer Lansky that perfected money laundering’s older brother, “capital flight,” transferring his funds to Switzerland and other offshore places. Others have argued that the first reference to the term “money laundering” itself appeared during the Watergate scandal. US President Richard Nixon’s “Committee to Re-elect the President” moved illegal campaign contributions to Mexico, then brought the money back through a company in Miami. It was Britain’s Guardian newspaper that coined the term, referring to the process as “laundering.”

Still, the AML story may not be complete without the mention of one notorious character known as Pablo Escobar. The bloody leader was one of the most profitable of the Medellin drug gangs. At one time his gang was so successful that they were spending $2,500 of dollars a month on rubber bands to wrap around their bundles of cash. Corruption and intimidation characterized Escobar’s dealings with the Colombian system. He had an effective, inescapable policy in dealing with law enforcement and the government, referred to as “plata o plomo,” (literally silver or lead, colloquially [accept] money or [face] bullets). This resulted in the deaths of hundreds of individuals, including civilians, police officers and state officials. It has been well documented that Escobar bribed countless government officials, judges, and other politicians! The son of a gun used banks heavily to launder his gang’s cash, and it is worth remembering that money laundering represents the proceeds of some very unpleasant activities indeed and sources! Drugs, corruption, illegal arms deals and other serious predicate offenses of AML.

The undeniable fact is the Anti-Money Laundering (AML) regulations are always tightening to combat criminal activity globally. These measures are putting on criminals including organized crime syndicates (triads of China, Yakuza of Japan) Jerabos of Kopala in Zambia), fraudsters, politically exposed persons and even banks and other financial institutions.

Over the last 25 years, the amount of money laundered has steadily been increasing. The United Nations Office on Drugs and Crime estimated approximately USD1.6trillion or 2.7 percent of global GDP was laundered in 2009. That was ten years ago. Less than one percent of this global illicit financial flow is ever seized and frozen. We might wonder whether criminals are winning. This is of serious concern to regulators and financial investigators as the proceeds of money laundering fuels serious transnational crime, as research by Celent showed.

To give an insight into different types of Money Laundering, their techniques and the efforts to combat them, Finance IQ examined Asia’s biggest money laundering cases ever. I will add on by sharing the initial series of alleged corrupt Leaders and Money Laundering Cases hopping that Lessons can be learned for others to avoid falling into the same trap.

Some interesting series of alleged corrupt Leaders and Money Laundering Cases are tabulated below in the hope that those who seek Political Power and Leadership may deeply reflect on Subtle Salient Lessons Learnt for others to avoid falling in the same trap.

a) Perpetrator: Ex- President Chen Shui-bian
Country: Taiwan
Chen Shui-bian served as President of Taiwan from 2000 to 2008. Despite allegations of corruption during his two terms, Presidential immunity prevented prosecutors charging Chen while he was in office. However once he stepped down in May 2008, legal proceedings against him soon began.
In his defense, Chen stated that “Money is dry, and cannot be laundered. The money is clean, it is not dirty, and does not need laundering.”

Chen received a life sentence in September 2009 after being found guilty on charges of money laundering, bribery and embezzlement of government funds totaling NT$490m, (USD 15m). His wife, Wu Shu-Chen, already jailed for perjury in the case, was also sentenced to life for corruption.
Speaking of the sentencing, court spokesman Huang Chun-ming described Chen’s corruption as having done, “grave damage to the country.”
Chen argued that both the charges and trial were politically motivated, leading him to appeal against the verdict. This resulted in one of the lesser corruption charges that he had embezzled USD 330,000 of diplomatic funds, being overturned by insufficient evidence. While Chen’s sentence has since been reduced to 19 years in prison, both Chen and Wu remain in prison today.

b) Ferdinand Marcos
Marcos was a lawyer who ruled as President of the Philippines from 1965 to 1986 before being overthrown by a popular people’s revolt. He was number two (2) on Transparency International’s most corrupt leaders list having laundered billions of dollars of embezzled public funds through the United States, Switzerland, and other countries, during his 20 years in power.

His wife, Imelda, famously left over 2,500 pairs of shoes in her closet when the pair fled Manila. The Amount Laundered has been estimated to be between USD5Billion – USD10 Billion. What was the Punishment? Marcos died of a heart attack in 1989 while in exile in Honolulu, Hawaii, awaiting his trial.

c) Pablo Escobar
He is regarded as the richest and most successful criminal in world history. In 1989, Forbes magazine declared Escobar as the seventh richest man in the world, with an estimated personal fortune of US$ 9 billion. He and his brother’s operation were so successful that at its height they were spending US$1,000 a week just purchasing rubber bands to wrap the stacks of cash. Also, since they had more illegal money than they could deposit in the banks, they stored the bricks of cash in their warehouses, annually writing off 10% as “spoilage” when the rats crept in at night and nibbled on the hundred dollar bills. Pablo Escobar is suspected to have money laundered between US$5-US$10 billion. His Punishment was confinement in what became his luxurious private prison for several months in 1992. He escaped after hearing he would be transferred to another prison and was killed soon after.

d) Ex-President Suharto of Indonesia
President Suharto ruled Indonesia for 31 years, between 1967 and 1998. Soon after his forced resignation, Time magazine published an article alleging it had traced some $15 billion in wealth accumulated by his family in 11 countries. The magazine also documented more than $73 billion in revenues and assets that had passed through the Suharto family’s hands during his tenure as President of Indonesia.
He is number one (1) on Transparency International’s list of most corrupt leaders. The amount Laundered has been estimated to be between US$15 and US$35 billion. His Punishment? In his mid-eighties, Suharto was considered too old to be brought to trial and died in 2008. During that time Suharto amassed an estimated personal wealth of between USD$15 and $35bn. The immense scale of his alleged corruption led Transparency International to rank him number one (1) in their league table ranking the most corrupt individuals of all-time.

Suharto stepped down as President on May 21, 1998, amidst growing civil unrest, political discord, and accusations of corruption. Only once out of power did legal action begin against him; a legal action that was however impeded by the former leader’s fading health.

To the frustration of his opponents, the apparent reluctance of the judiciary to prosecute Suharto left him free of the prosecution to the very end. In 2008, a civil court judge acquitted Suharto of corruption charges but ordered his charitable foundation, Supersemar, to pay USD 110m. While it was found that money had been diverted from a scholarship fund for underprivileged children, the judge ruled that Suharto and his family were not directly responsible for the embezzlement.
Transparency International described the actions of Former President Suharto as a demonstration of how corruption on such scale, “undermines the hopes… of developing countries”.

e) Organized crime: Country of Hong Kong
The perpetrator was Carson Yeung. A Hong Kong businessman who made his fortune trading in penny stocks/shares, eventually becoming the president of English football club Birmingham city football club in 2009.

After years of high leaving the charges brought against team included money laundering totaling a value of HKD 720 (USD92.8 million) from entities including casinos and suspected criminals. It was ruled that between 2001 and 2007 much of the money which went through Five of Yeung’s bank accounts came from illicit sources in Macau. In his defense, Yeung claimed that the funds were Casino winnings. He was unable to convince anyone, let alone the judge. Yeung was sentenced to six years imprisonment.

“He did not care where the money came from, and he did not bother to ask,” said Judge Douglas Yau, adding that Mr. Yeung had lied throughout his testimony. “He was just making it up as he went along.”

f) High profile businessmen and fraudsters

The propensity and affinity for some to gauge an opportunity to misappropriate or divert funds to increase one’s wealth is too great for some people. While they may consider themselves “under the radar,” the examples below demonstrate that in the end crime doesn’t pay.

Perpetrator: Wirapol Sokphol a.k.a “The Jet-Setting Monk. Country: Thailand.

Wirapol Sokphol came to international attention in 2013 when a video was released of him dressed in monk’s robes, traveling board a private plane, counting colossal stacks of the US dollars and wearing designer accessories.

He is thought to have amassed an estimated fortune of THB1 billion (USD32million) through a variety of illegal means including the embezzlement of funds donated to him for religious purposes by his followers. The charges against him include statutory rape, embezzlement, and online fraud.

In order to avoid prosecution, the Jet-Setting Monk fled Thailand and is suspected to be residing in the United States of America where he owns a Buddhist retreat some seventy-five miles south of Los Angeles. Authorities estimate that at least Thailand Baht (Thailand Currency) of THB300 million (USA 9.2Million) disappeared from his bank accounts since he vanished. However, in September 2013, Thailand’s Department of Special investigations announced that it had discovered hidden assets worth tens of millions of Baht belonging to the Jet-Setting Monk himself.

“Over the years there have been several cases of men who abused the robe, but never has a monk been implicated in so many crimes,” said Pong-in Intarakhao, the case’s Chief investigator of the Department of Special Investigations.” “We have never seen a case this widespread, where a monk has caused so much damage to so many people and Thai Society.”

“I always wondered what kind of monk has this much money,” said one of his regular pilots, Piya Tregalnon. “The most bizarre thing is what was in his bag… it was filled with stacks of 100 dollar bills”. Wirapol Sukphol remains at large to this day.

g) Organized crime.
Drugs, smuggling, and organized crime account for about 3/4 of all money laundering, thereby making effective anti-money-laundering (AML) practices pivotal in the fight against serious transnational crime. The successful detection of money laundering has the dual effect of not only interrupting the funding of criminal activities but also assisting law enforcement agencies in the arrest and prosecution of the criminals involved as these following examples will demonstrate.

h) Perpetrator: Ruan Zhizhong
Country: China and Vietnam.

In August 2009 Chinese law-enforcement raided an underground bank and money laundering gang that had sent an estimated USD1.46 billion abroad in illegal transfers.

Chinese media reported that, “During a raid of the gang’s headquarters in Guangxi’s Fangchenggang City, Police seized 70 deposit books, 590 bank cards, two cars, six computers and 680,000 Yuan (USD99, 400) in cash” as well as freezing 327 related bank accounts involved in the money laundering case with a total value of 47.5 million Yuan (USD7.6million).

According to a Guangxi Police Spokesman, Qin Yongjun, the gang had been opening legal bank accounts in Guangxi as well as Guangdong and Fujian Provinces. They then used the accounts to make illegal electronic transfers abroad mainly to Vietnam.

For many years the Chinese government has imposed restrictions on the overseas transfer of money. This led parties to resort to underground banks to illegally launder and move money abroad. As a way to simultaneously facilitate the legal transfer of funds and at the same time reduce related criminal activity, the Chinese State Administration of Foreign Exchange has since relaxed its policy on international transfers, yet related incidents continue to occur.

i) Organized crime:
Perpetrator: Unnamed money laundering Gang
Country: Australia

In January 2014 Australia’s biggest money-laundering investigations, Project Eligo seized AUD5.7million (USD5.3million) in cash from a location in Sydney. Investigators believe that money was being laundered through centers in the Middle East and Asia using techniques including but not limited to structuring, trade-based money laundering, and informal value transfer systems. It is also suspected that part of the funds was being directed to Lebanese militant group the Hezbollah.

When speaking of the incident, John Schmidt Chief Executive Officer of AUSTRAC, Australia’s anti-money laundering agency said remittance sector is recognized internationally as being anti-risk of being exploited by serious and organized crime groups. “Over the past two years, AUSTRAC has taken regulatory action against 15 Remitters. Importantly, the task force will continue to work with the alternative remittance sector and relevant industry bodies to build resilience and safeguard against such organized crime threats” said Mr. Schmidt.

Since its establishment in December 2012, the Eligo Task Force has successfully uncovered 40 separate money-laundering operations across Australia, seized of AUD586million (USD550 million) worth of assets, drugs, and cash and identified almost 128 Serious organized crime activities previously unknown to law enforcement agencies.

j) The Perpetrator: The Yakuza
Country: Japan

The largest group in the Japanese Yakuza, the Yamaguchi-Gumi, is involved in drug trafficking, human trafficking, extortion, prostitution, fraud and money laundering both in Japan and abroad. These activities are estimated to generate the group billions of dollars in illicit funds annually. To combat such criminal activities, financial investigation units and financial institutions have begun putting pressure on the Yakuza and its affiliates by freezing its assets.

In February 2012, USA President Barrack Obama identified the Yakuza as a significant transnational criminal organization (TCOs) and charged the US treasury department with pursuing additional sanctions against their members and supporters. The Treasury Department proceeded to designate the largest group within the Japanese Yakuza, the Yamaguchi-Gumi and two of its leaders as targets of its sanctions authority. This action resulted in the freezing of any assets the designated persons had within the jurisdiction of the United States and prohibiting any transactions with them by the U.S. persons.

The pressure against the Yakuza has since increased as Japan’s Financial Services Agency ordered Mizuho Financial, one of the wealthiest financial institutions in the World, to improve its compliance regarding suspected loans known criminal organizations.

Japan’s Police Agency estimates that due to this increased pressure from regulators, the membership of the Yakuza is steadily declining as it becomes increasingly difficult to launder the money.

k) Perpetrator : Do Santos Jnr
Country: Angola

Jose Eduardo dos Santos ruled Angola for 38 years. During his regime, he was accused of running the country’s economy to enrich himself and those around him.

The son of Angola’s former president Jose Eduardo dos Santos (ruled Angola for 37 years) is alleged to have planned to siphon off USD1.5 billion when he ran the oil-rich country’s sovereign wealth fund, the finance ministry officials claimed.

Jose Filomeno dos Santos is accused of “fraud, misappropriation of funds, money laundering and associating with criminals.” Nicknamed “Zenu,” Filomeno dos Santos was appointed to head the USD5billion oil-fuelled sovereign fund by his father in 2013 but then was sacked by President Joao Lourenco, who took power in January 2018.
Former central bank governor Valter Filipe da Silva has been charged alongside Filomeno dos Santos, who has promised to “cooperate” with the authorities. The younger Dos Santos has been placed under judicial control.
The finance ministry said Filomeno dos Santos disguised the transfer as a project aimed at attracting investment in Angola with the help of a fake guarantee from Credit Suisse. The Swiss bank claimed that “documents had been forged” and that it had not received “any money relating to this case.”

The finance ministry said USD500 million had been transferred to a London bank and that Angola was supposed to make two more such payments. The first transfer was blocked by British authorities who suspected foul play.
Filomeno’s half-sister Isabel dos Santos was sacked from her job as head of state oil giant Sonangol. Isabel is thought to be Africa’s richest woman.
L) Ponzi and Pyramid schemes

Dr. Joseph T. Wells’ Encyclopedia of Fraud, Third Edition aptly describes the characteristics of a Ponzi scheme. A Ponzi scheme is an illegal business practice in which a new investor’s money is used to make payments to earlier investors.
In accounting terms, money paid to Ponzi investors, described as income, is actually a distribution of capital. Instead of returning profits, the Ponzi schemer is spending cash reserves, all to raise more funds. Where a basic investment scam raises money and disappears, the Ponzi scheme stays in business by circulating investor funds. There are usually little, or no legitimate investments are taking place. Promoters used most of the funds for expensive lifestyles and transferred into property or offshore accounts. Schemes typically run for at least a year, although some Ponzis have flourished for a decade or more.

The Better Business Bureau has labeled Ponzi-style financial rings “the biggest single fraud threat confronting American investors.” Highly publicized nationwide booms in real estate (the 1980s) and the stock market (1990s) gave rise to an epidemic of investment fraud. Every one of the top frauds cited by the North American Securities Administrators (including Internet and other high-tech scams, telemarketing, and abusive sales practices) has been run as a Ponzi scheme. According to the Securities Exchange Commission (SEC) and the North American Securities Administrators Association (NASAA), scammers pitching phony securities cost United States investors between $10 and $15 billion a year. This is more than a million dollars an hour. Many of these scams use the Ponzi method – paying off a few early investors with other investors’ money under the guise of stirring up business. Telemarketing boiler rooms, whose frauds cost an estimated $40 billion a year, often run Ponzi schemes.

The Encyclopedia of Fraud details the “The Federal Trade Commission (FTC) and the SEC are the U.S.’s two major enforcement organizations that target Ponzi schemes. Federal jurisdiction privileges allow FTC and SEC agents to pursue scams across state borders. For example, an operation may be incorporated in Florida, sell most of its products in Louisiana and bank its profits in Tennessee. Prosecuting has to encompass each venue and relate local activities to the larger scheme.

“The SEC files about 500 complaints a year against unscrupulous investment promoters, and 25% of those are Ponzi schemes. However, the largest number of Ponzi scheme complaints are filed on the state level by state authorities, including attorneys general and state-level regulatory agencies. The FTC shuts down about ten pyramid schemes every year and takes action of one form or another against dozens of bogus investment opportunities. While the SEC can pursue civil and criminal complaints, the FTC’s powers are limited to civil remedies, usually an injunction and a financial judgment for investor losses.”

“A Ponzi scheme and an illegal pyramid scheme both use new investors’ money to pay earlier investors. The difference between the two lies in the way each scheme is promoted. Illegal pyramids generate revenue by continually recruiting new members. The promoters may offer merchandise or services for sale—or may not—but the only significant revenues come from recruitment. Though a pyramid-style compensation plan is not illegal, it is illegal to run a business in which recruiting new people generate all of the funds.”

In his book Frankensteins of Fraud, Wells writes the history of Charles Ponzi and how his scheme became a well-known, remarkably enduring fraud of modern times. “Known as the Father of the Ponzi scheme, Charles Ponzi, or Carlo Ponzi, was born in 1882 in Parma, Italy. He came from a family of hoteliers and was sent to Rome for a university education. But a string of gambling debts and criminal charges for theft and forgery cut short his schooling and prompted his family to send him to America. At the age of 19, he arrived at Boston Harbor. In his self-published autobiography, The Rise of Mr. Ponzi, he claimed that he had only $2.50 with which to begin his new life. He had left with $200 in cash from his family but lost the greater part by gambling with some of his shipmates.”

After working odd jobs, Ponzi was employed as a bank clerk in Montreal, where he began handling international wire transfers. Ponzi began stealing immediately, was arrested and served time before eventually making his way back to Boston. There his plan took shape, as Wells explains:

“Ponzi hatched what would become known as the Ponzi scheme in December 1919. A coalition of international postal services had begun selling postal reply coupons after World War I ended. Each coupon was good for one stamp in any of the affiliated countries; this allowed the mail services to continue operations smoothly despite the instability of most European currencies at the time. Ponzi reasoned that he could persuade investors to capitalize on the fluctuating currency prices by using the postal reply coupons in a series of exchanges.”

Instead of making legitimate trades, Ponzi “used money from his latest round of investors to pay those who had purchased his ‘securities’ earlier. By convincing people to reinvest their funds, he was able to postpone his financial obligations even longer.” Wells writes that newspaper reports in 1920 exposed Ponzi’s scheme, and despite his claims of innocence, “a federal audit confirmed his operation was bankrupt, owing perhaps $4 million or more to investors.”

Wells describes the rest of Ponzi’s life as one of a fugitive and swindler. “After his arraignment, Ponzi jumped bail and fled to Florida, where he sold swampland as an investment property. He and his wife Rose were both arrested in Jacksonville in 1924 and charged with fraud. The charges against his wife were dismissed, but Ponzi was ordered to stand trial. However, an errant judge, not realizing he had one of the country’s most infamous swindlers before him, allowed Ponzi to post bail. He fled on a ship bound for Genoa, Italy. Authorities later apprehended him when the ship docked in Houston, Texas. Ponzi was convicted in federal court in 1925 and sentenced to 5 years imprisonment. After serving three years, he was turned over to the Massachusetts judicial system, which sentenced him to seven more years.

“Though he fought the deportation charges against him, Ponzi was forced to return to Italy in 1934. Frederico Mussolini, who was eager to hear how his countryman had wreaked such havoc in the American financial system, received him warmly. His family connections eventually won him an appointment as the business manager to an Italian airline headquartered in Rio de Janeiro. He lost the position when it was discovered that the airline was being used to smuggle diamonds, strategic materials, and spy communications to the Fascist regime. Ponzi was innocent, later expressing his consternation that he had not been recruited into the effort.

“Sometime in the 1940’s he paid a small press in Brooklyn, New York to print his autobiography, The Rise of Mr. Ponzi. Extant copies are available at the University of Texas and the Library of Congress, but the book was never reprinted. Charles Ponzi died penniless in a charity ward outside of Rio in 1949.”

No doubt Charles Ponzi’s story casts a long shadow on fraud. People still remember the name “Bernard Madoff” in the USA. As investigators sorted through the financial mess that resulted from Madoff’s massive fraud, Ratley shared some advice for fraud examiners working to sniff out the next Ponzi scheme:

“Never judge the suspected fraudster by your own standards,” Ratley said. “They will do things that would appear absurd to the trained professional. If you think, ‘they wouldn’t do that,’ get that thought out of your mind. It’s your job to investigate, verify and confirm all of the facts where fraud is involved.”

Have a productive month of September 2019 . Stay well and be blessed.

Published by Kemman

Regulatory and Independent Consulting Professional with expertise in Financial Crime Risk Compliance encompassing Anti-Money Laundering (AML), Countering Terrorism Financing (CTF), Anti-Bribery & Corruption (ABC – FCPA & UKAB), Global Trade & Sanctions, Bank Secrecy Act (BSA), Know Your Customer (KYC) and Customer Due Diligence (CDD), Internal Audit Testing, Reviews, Validation, Risk Assessment. Worked in Asia, Africa, Europe, the Middle East, North America (USA). Banking & FinTech, Anti-Sex & Human Trafficking Advocate, FOREX & Cryptocurrency trading, Travel & Tours, Telecommunications & Energy.

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