Current Money Laundering Typologies In
10 Selected Jurisdictions
Authors: Federico Gil and John R. Miller
Faculty Advisor: Marcos Kerbel
Florida International University
School of International and Public Affairs
Master of Arts in Global Governance
April 2015
FlU – MAGG Capstone Report
Contents
1.
Introduction ...................................................................................................................................... 4
2.
Peru .................................................................................................................................................. 5
2.1
Background................................................................................................................................................................ 5
2.2
Typology 1 – Illegal Gold Mining ............................................................................................................................. 6
2.2.1
Typology 2 – Football clubs overstating ticket sales................................................................................................ 10
2.3
2.3.1
3.
I2 chart – Illegal Gold Mining ........................................................................................................... 9
I2 chart – Football clubs overstating ticket sales .............................................................................. 12
Uruguay ......................................................................................................................................... 13
3.1
Background.............................................................................................................................................................. 13
3.2
Typology 1 – Purchases of large plots of rural land ................................................................................................. 14
3.2.1
3.3
Typology 2 - Football Player Bridge Transfers ........................................................................................................ 19
3.3.1
4.
I2 chart – Purchases of large plot of rural land ................................................................................. 17
I2 chart – Football player bridge transfers ........................................................................................ 23
Belize ............................................................................................................................................. 24
4.1
Background.............................................................................................................................................................. 24
4.2
Typology 1 – Corozal Free Zone (over-invoicing)................................................................................................... 26
4.2.1
5.
I2 chart – Corozal Free Zone (Over-Invoicing) ................................................................................. 27
Dominican Republic ...................................................................................................................... 29
5.1
Background.............................................................................................................................................................. 29
5.2
Typology 1 – Loan Back Scheme and Back to Back Loan Scheme ......................................................................... 30
5.2.1
Typology 2 – Labor Unions in the Bus Services Sector ........................................................................................... 35
5.3
5.3.1
6.
I2 chart – Loan Back Scheme and Back to Back Loan Scheme .......................................................... 34
I2 chart – Labor Unions in the Bus Services Sector – Overstating Member Dues ............................... 37
Greece ............................................................................................................................................ 38
6.1
Background.............................................................................................................................................................. 38
6.2
Typology 1 – Trade Based Money Laundering (Under Invoicing) .......................................................................... 39
6.2.1
Typology 2 – Non-profits (Overstating Donations) ................................................................................................. 42
6.3
6.3.1
7.
I2 chart – Trade Based Money Laundering (Under Invoicing) ........................................................... 41
I2 chart – Non-profits (Overstating Donations) ................................................................................ 43
Turkey ............................................................................................................................................ 45
7.1
Background.............................................................................................................................................................. 45
7.2
Typology 1 – Bulk Cash Smuggling ........................................................................................................................ 45
7.2.1
8.
I2 chart – Bulk Cash Smuggling ...................................................................................................... 47
Singapore ....................................................................................................................................... 49
8.1
Background.............................................................................................................................................................. 49
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8.2
Typology 1 - Brick and mortar casinos well regulated; Online casinos banned ....................................................... 50
8.2.1
9.
I2 chart – Brick and Mortar Casino .................................................................................................. 53
Kenya ............................................................................................................................................. 54
9.1
Background.............................................................................................................................................................. 54
9.2
Typology 1 – Laundering Somali piracy ransom payments via real estate............................................................... 55
9.2.1
10.
I2 chart – Laundering Somali piracy ransom payments via real estate ............................................... 57
Nigeria ........................................................................................................................................... 58
10.1
Background.............................................................................................................................................................. 58
10.2
Typology 1 - Churches ............................................................................................................................................ 59
10.2.1
11.
I2 chart – Churches ......................................................................................................................... 61
South Africa ................................................................................................................................... 62
11.1
Background.............................................................................................................................................................. 62
11.2
Typology 1 – Motor Vehicle Sellers ........................................................................................................................ 63
11.2.1
11.3
11.3.1
I2 chart – Motor Vehicle Sellers ...................................................................................................... 65
Typology 2 – Illegal Diamonds ............................................................................................................................... 66
I2 chart – Illegal Diamonds ............................................................................................................. 68
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1. Introduction
The FIU-MAGG Capstone Team was asked to conduct open source research into money
laundering typologies in selected jurisdictions: Peru; Uruguay; Belize; Dominican Republic;
Greece; Turkey; Singapore; Kenya; Nigeria; and South Africa. The objective of these searches
was to identify up-to-date and prevalent typologies and describe the step by step process applied
by each to launder illicit funds.
Our research was comprised of online searches with each jurisdiction’s main government
agencies, major media outlets (newspapers; radio and television stations) and informal media
(blogs and independent news sites). Searches were also conducted through databases containing
international media; academic research databases;
subject matter related websites (InSight
Crime; Offshore Alert; etc.); international organizations (Financial Action Task Force;
International Monetary Fund; etc.); regional organizations (Organization of American States;
African Union; etc.); and regional money laundering groups (Financial Action Group of Latin
America; Eastern and Southern Africa Anti Money Laundering Group; etc.).
Searches were capped at no later than 2010, although most typologies are based upon
information published from 2013 to 2015.
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2. Peru
2.1 Background
Peru is not a major financial center or offshore hub. However, it recently overtook
Colombia as the world’s largest cocaine producer.1 Money laundering is used to integrate illegal
earnings from the production and trafficking of cocaine into the Peruvian economy. From 20022013 the Peruvian economy grew at an annual rate of 6%, further providing cover for illicit gains
to enter the licit economy.2
In 2014, Peru’s Financial Intelligence Unit3 (FIU) submitted 96 financial intelligence
reports4 (FIR’s) totaling US$ 3.293 billion to the Ministerio Publico - Fiscalía de la Nación
(MPFN).5 Of these, illegal mining, with 23 FIR’s totaling US$2.765 billion, and drug trafficking
with 10 FIR’s and US$78 million, were the most prevalent criminal activities.6 According to
Peru’s FIU, the most popular typology used to launder these funds is through investments in
illegal gold mining. Additionally, an extensive review of Peruvian media and other online
sources indicates that a typology not currently listed among the most prevalent but that has
recently gained momentum, is through the use of the country’s national sport, football.
Office of National Drug Control Policy, “Survey Shows Significant Drop in Cocaine Production in Colombia”, July 30, 2012,
https://www.whitehouse.gov/ondcp/news-releases-remarks/survey-shows-significant-drop-in-cocaine-production-in-colombia
1
Mercedes Vera and Yu Ching Wong, “Peru: Latin America’s Economic Performer”, International Monetary Fund, February
22, 2013, http://www.imf.org/external/pubs/ft/survey/so/2013/car022213d.htm ; The World Bank, “Country and region specific
forecasts and data,” Global Economic Prospects, http://www.worldbank.org/en/publication/global-economicprospects/data?region=LAC
2
Unidad de Inteligencia Financiera del Peru falls under the authority of the country’s main financial regulator, the
Superintendencia de Banca, Seguros y AFP (Regulatory Agency for Banks, Insurance Companies and Pension Funds).
3
FIR’s or Informes de Inteligencia Financiera are confidential financial intelligence reports about activities, which after
investigation have been deemed to involve money laundering and are submitted to the Ministerio Publico – Fiscalía de la
Nación (a Department of Justice equivalent) for possible prosecution.
4
“Información Estadística Unidad de Inteligencia Financiera Del Perú, Superintendencia de Banca, Seguros y AFP – Enero
de 2007 a Diciembre de 2014” (Statistical Information Financial Intelligence Unit of Peru, Regulatory Agency for Banks,
Insurance Companies and Pension Funds – January 2007 to December 2014). Hereinafter FIU Statistical Information –
January 2007 to December 2014.
5
6
FIU Statistical Information – January 2007 to December 2014.
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2.2 Typology 1 – Illegal Gold Mining
Peru is currently the world’s fifth largest producer of gold with approximately US$ 10
billion in net revenue derived from its export, 22% of which comes from illegal mining.7
According to GAFILAT8, transnational criminal organizations (TCOs) use primarily two
methods to launder funds through illegal gold mining. First, TCOs invest in mining operations in
isolated areas under its control. In Peru, the Madre de Dios region along the Bolivian and
Brazilian borders, which also serves as the main drug route for processed cocaine entering
Brazil, is the focus of illegal mining activity.
During the placement phase, the group’s investment in the illegal mine includes costly
purchases of tools and heavy machinery. This equipment is often imported through local dealers
controlled by the criminal organization. Such is the case of the Sanchez-Paredes drug trafficking
organization, which supplied its mining operations, Compañía Minera San Simón S.A.9 and CIA
Minera Aurífera Santa Rosa S.A.10, with the necessary equipment through its own local
dealerships.11
Once the mine is functional, the extracted gold is sent to a local processing plant. The
plants are only allowed to accept gold accompanied by paperwork from the Ministerio de
Energía y Minas (MEM) proving its legitimate origin. However, the group purchases falsified
documents through “facturadores” (receipt makers). These “facturadores” are either current or
Thomson Reuters, “GFMS Gold Survey 2014”, April 2014, http://trmcsdocuments.s3.amazonaws.com/377d4e994bb540b286d7ccf30b81bece_2014041764718_GFMS%20Gold%20Survey%20201
4%20(locked).pdf; Luis Velasquez, “Minería ilegal actúa aliada a otras actividades criminales”, La Republica, January 12,
2013, http://www.larepublica.pe/17-01-2013/mineria-ilegal-actua-aliada-otras-actividades-criminales
7
Grupo de Acción Financiera de Latinoamérica (Financial Action Group of Latin America), Latin America’s regional money
laundering organization and a Financial Action Task Force Associate Member.
8
Compania Minera San Simon S.A. was incorporated in Peru on August 29, 2000 and is currently active. The compa ny’s
RUC or tax identification number is 20474053351.
9
CIA Minera Aurifera Santa Rosa S.A. was incorporated in Peru on April 21, 1993 and is currently active. The company’s
RUC or tax identification number is 20109989992.
10
11
United States of America et al v. Any and All Funds on deposit at JPMorgan Chase Account Number 31442003 held in the
Name of Cia Minera Aurifera Santa Rosa SA, aka Comarsa et al, No. 1:12-cv-07530, in The United States District Court for
the Southern District of New York, filed on October 9, 2012. (Verified Complaint).
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former MEM employees or have an associate within the agency. After processing, the “dirty”
gold has been “cleaned,” at which point the layering phase begins.
During the layering phase, the gold is passed along a chain of several acopiadores
(collectors) and then sold to international refineries and precious metal dealers via gold exporting
companies in Peru. Some of the gold is turned into jewelry before being exported. The local gold
export companies serve merely as vehicles for the transaction. Of the 120 gold exporting
companies registered in Peru, 60 have been flagged by its FIU for possible money laundering.12
Such is the case of Darsahn International Inc. SAC13, which in 2013, the very year it was
created, emerged as Peru’s fourth largest gold exporter with US$ 337 million in shipped cargo. 14
The company was found to have two employees and registered to an apartment located above a
Chinese restaurant in a rundown Lima neighborhood.15 Recently the country’s largest gold
exporter Universal Metal Trading SAC16, with US$ 901 million in exports, has also come under
suspicion.17 In 2012, Luis Zavaleta Vargas, head of MEM’s hydrocarbons division, was forced to
resign after it was revealed that he and his brother were actually the company’s owners.18
The criminal group receives payment from the international refinery or precious metals
dealer through wire transfers or checks made out to shell companies, where it is further layered
through subsequent transactions. Some of these metals dealers are U.S. companies such as
Oscar Castilla, “Mitad de exportadoras de oro en la mira por minería ilegal”, El Comercio, February 12, 2014,
http://elcomercio.pe/peru/madre-de-dios/mitad-exportadoras-oro-mira-mineria-ilegal-noticia-1708977; Please see list of 60
Peruvian gold trading firms suspected of money laundering here: http://3.elcomercio.e3.pe/ima/0/0/8/2/4/824628.jpg
12
Darsahn International Inc. SAC was incorporated in Peru on April 8, 2013 and dissolved on May 22, 2014. The company’s
RUC or tax identification number is 20552336756.
13
14
“Exportadoras Bajo Sospecha”, El Comercio, February 12, 2014, http://3.elcomercio.e3.pe/ima/0/0/8/2/4/824628.jpg
Oscar Castilla, “Mitad de exportadoras de oro en la mira por minería ilegal”, El Comercio, February 12, 2014,
http://elcomercio.pe/peru/madre-de-dios/mitad-exportadoras-oro-mira-mineria-ilegal-noticia-1708977
15
Universal Metal Trading SAC was incorporated in Peru on January 28, 1999 and is currently active. The company’s RUC or
tax identification number is 20421226378.
16
Oscar Castilla, “Director de Energía y Minas es el mayor exportador de oro”, El Comercio, March 30, 2012,
http://elcomercio.pe/politica/gobierno/director-energia-minas-mayor-exportador-oro_1-noticia-1394710
17
“Destituyen a director de Energía y Minas”, Peru 21, March 31, 2012, http://peru21.pe/2012/03/31/opinion/destituyendirector-energia-y-minas-2018060
18
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Miami based, Kaloti Metals & Logistics LLC19, and NTR Metals LLC20 of Dallas, Texas.
However, the most prevalent metals dealer in our research linked to money laundering, including
the Sanchez-Paredes clan mentioned above, is Italpreziosi S.p.A. of Italy.21
The second method TCOs use to launder funds is to intimidate legitimate mining
companies into selling their gold for them. During the processing stage, the group supplies the
mining company with its illegal gold, which is mixed in with the company’s legal gold. The
processing plant receives all the necessary paperwork for the totality of the gold from the
legitimate mining company. The “dirty” gold has now been merged with the “clean” gold,
making it impossible to trace.
The layering phase in this circumstance is similar to the previous method. The processed
gold goes through a local export company before it is sold to an international refinery or precious
metals dealer of the criminal group’s choosing. In this situation, the mining company receives
payment, deducts a generous seller’s fee, and then transfers the shares of the group’s proceeds to
its shell companies.
It should be noted that TCOs have several different off-ramps available in this process.
For example, a TCO can receive payment from the collectors or processing plant and not
continue farther along the process to the local export company or international metals dealer. A
TCO may also receive payment through a variety of means not discussed in this report, such as
in goods for use or sale.
Cesar Romero, “Incautan 58 kg de oro a empresa de ‘Peter Ferrari’”, La Republica, March 21, 2015,
http://www.larepublica.pe/21-03-2015/incautan-58-kg-de-oro-a-empresa-de-peter-ferrari
19
Oscar Castilla, “Aduanas incautó media tonelada de oro ilegal por US$18 millones”, El Comercio, January 8, 2014,
http://elcomercio.pe/lima/sucesos/aduanas-incauto-media-tonelada-oro-ilegal-us18-millones-noticia-1683890
20
Oscar Castilla, “Internan 176 kilos de oro ilegal en Banco de la Nación”, El Comercio, March 3, 2014,
http://elcomercio.pe/lima/sucesos/internan-176-kilos-oro-ilegal-banco-nacion-noticia-1713465
21
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2.2.1
I2 chart – Illegal Gold Mining
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2.3 Typology 2 – Football clubs overstating ticket sales
Although the Peruvian professional football league is among the least competitive on the
continent, its revenues surpass more successful leagues such as Ecuador’s and Uruguay’s. Over
the last few years, annual revenue reported by soccer clubs has risen sharply. In 2010, clubs
reported US$ 30 million in revenue22, while in 2013, the sum stood at roughly US$ 68 million.23
In November 2014, Peru’s Ministerio Publico - Fiscalía de la Nación (MPFN) opened an
investigation into the country’s football clubs nexus with TCOs and their involvement in money
laundering.24 According to Peruvian media, one of the principal ways TCOs launder money
through the clubs is by overstating attendance at matches.
During the placement phase, a criminal group either takes control of a football club, as has
repeatedly occurred in Colombia25, or works in collusion with it. A majority of ticket sales at
Peruvian matches are paid in cash at the ticket booth, creating a significant cash turnover. In this
manner, football clubs are no different than any other cash-generating business, such as
restaurants and nightclubs. Felipe Cantuarias, former president of Club Sporting Cristal, one of
the country’s most popular clubs, summarizes it best by suggesting that if one analyzes the
revenue that some clubs report in ticket sales and then takes a look at their stadiums during
games, it’s clear that the figures do not add up.26
Roberto Rosado, “Congreso halla indicios de lavado de dinero en el fútbol”, Gestion, May 23, 2011,
http://gestion.pe/noticia/762204/congreso-halla-indicios-lavado-dinero-futbol
22
Raul Castro Pereyra, “Ingresos de los clubes de fútbol en Perú habrían llegado a S/. 191 millones”, Gestion, January 14,
2014, http://gestion.pe/economia/ingresos-clubes-futbol-peru-habrian-llegado-s-191-millones-2086173
23
“Fiscalía De La Nación Anuncia Megaproceso A Instituciones Deportivas Por Presunto Delito De Lavado De Activos ”,
Ministerio Publico – Fiscalía de la Nación, November 3, 2014, http://www.mpfn.gob.pe/index.php/prensa/informacion-deprensa/438-fiscal-de-la-naci%C3%B3n-anuncia-megaproceso-a-instituciones-deportivas-por-presunto-delito-de-lavado-deactivos
24
“Treasury Designates Colombian Organized Crime Group La Oficina de Envigado for Role in International Narcotics
Trafficking”, U.S. Department of the Treasury, June 26, 2014, http://www.treasury.gov/press-center/pressreleases/Pages/jl2441.aspx; Alejandro Pino, “Narcotráfico y fútbol en Colombia: pasado y presente”, Razon Publica, October
1, 2012, http://www.razonpublica.com/index.php/econom-y-sociedad-temas-29/3299-narcotrafico-y-futbol-en-colombiapasado-y-presente.html
25
“Expresidente de Cristal denuncia irregularidades en el fútbol peruano”, Peru 21, April 8, 2014,
http://peru21.pe/deportes/expresidente-cristal-denuncia-irregularidades-futbol-peruano-2177932
26
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For example, a club with an average attendance of 5000 spectators reports attendance
figures of 9000 per game. If the actual ticket revenue for the game is US$ 60,000 (5000 tickets
at US$ 12 each), the club reports US$ 108,000 (9000 tickets at US$ 12 each). If the US$ 48,000
difference is multiplied by 30, the average amount of home games played by a first division club
per season, the sum increases to US$ 1,440,000. Of course this method works best at struggling
soccer clubs with low-to-medium attendance records, where games are usually not sold out.
At this point, illicit cash has been combined with revenue from legitimate ticket sales and
deposited into the club’s bank account. The illicit funds are then siphoned off from the total
ticket sales and layered through shell companies and offshore accounts. Checks or wire transfers
are then issued from clean accounts and made available to the criminal group. As in the previous
section of this report, it should be noted that TCOs have off-ramps available during this process.
For instance, a TCO may receive payment in a variety of ways, once the ticket sales have been
deposited into the club’s bank account, and not continue on with the formal laundering process.
Congressman Renzo Reggiardo accused four clubs in particular of exaggerating
attendance figures: Football Club Melgar (FBC Melgar) of Arequipa; Sport Boys Association of
Callao; and Lima’s Club Alianza Lima and Club Universitario de Deportes. In January 2015, the
MPFN declared that it had opened a money laundering investigation into FBC Melgar.27
Figure 1: FBC Melgar stadium – Estadio Monumental Virgen de Chapi (capacity 40,000)
Carlos Herrera, “Investigan a colombianos y al Melgar por lavado de dinero”, La Republica, January 14, 2015,
http://www.larepublica.pe/14-01-2015/investigan-a-colombianos-y-al-melgar-por-lavado-de-dinero
27
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Retrieved from https://www.flickr.com/photos/mikkoknuuttila/11779536365/sizes/m/in/photostream/
2.3.1
I2 chart – Football clubs overstating ticket sales
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3. Uruguay
3.1 Background
Uruguay is an offshore hub and serves as a major financial center for its MERCOSUR28
trading partners, Argentina, Brazil and Paraguay. The country has one of the lowest corruption
rates in Latin America and among its highest standards of living. 29 It provides money launderers
with the stability of a European banking safe haven and the practicality of a South American
jurisdiction. Since 2009, the Government of Uruguay (GOU) has taken concerted steps to
strengthen its anti-money laundering structure.
These reforms include signing bilateral financial information exchange agreements,
modernizing its public records access and investing in Uruguay’s Financial Intelligence Unit
(FIU).30 In 2012, its efforts were recognized by being taken off the OECD’s31 grey list of
countries that do not provide adequate anti-money laundering standards.32 GOU’s next focus is
on criminalizing money laundering as a stand-alone offense, a topic currently being discussed in
Parliament, before the country’s 2019 Financial Action Task Force evaluation.33
There is a presence of Colombian, Mexican and Russian transnational criminal
organizations (TCO’s) in the country. More significantly, TCOs based in Argentina and Brazil,
heavily favor it as a stepping stone in the layering process and often to integrate their illicit
funds. Corrupt public officials in those countries use it for all three phases of the money
28
MERCOSUR, Mercado Común del Sur (Common Market of the South), is a free trade bloc originally composed of
Argentina, Brazil, Paraguay and Uruguay. In 2012, Venezuela became a full member six years after applying for
membership. In 2012, Bolivia applied for membership and is currentl y an associate member.
29
“Corruption By Country”, Transparency International, 2014, http://www.transparency.org/country#URY
Uruguay’s FIU, the Unidad de Informacion y Analisis Financiero (Fi nancial Information and Analysis Unit) or UIAF, falls
under the authority of the Superintendencia de Servicios Financieros (Regulatory Agency for Financial Service s), a division
of the Central Bank of Uruguay.
30
31
Organization for Economic Cooperation and Development.
32
“Uruguay economy: Removed from OECD’s grey list”, EIU ViewsWire, January 20, 2012.
Nicolas Delgado, “Uruguay es ‘plaza regional’ para lavado de evasores según autoridades”, El Observador, April 20, 2015,
http://www.elobservador.com.uy/noticia/303095/uruguay-es-plaza-regional-para-lavado-de-evasores-segun-autoridades/
33
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laundering process. Recently, current Argentine President Cristina Fernández de Kirchner, her
husband, former President Nestor Kirchner, and several members of her administration were
linked to money laundering via Uruguay. Around the same period, several senior executives of
Petróleo Brasileiro S.A.34, Brazil’s state owned oil company, as well as Luis Bárcenas35,
treasurer of Spain’s Partido Popular political party, were involved in similar scandals.
According to its FIU, the typologies most often used by non-Uruguay based groups are
bulk cash smuggling, real estate and trade based money laundering.36 An extensive review of
Uruguayan media and other online sources, confirmed that foreign groups often launder funds
through real estate, particularly the purchase of large plots of rural land. These searches also
identified money laundering through the country’s football clubs, via player transfers, as a
prevalent typology.
3.2 Typology 1 – Purchases of large plots of rural land
From 2000 to 2012, seven million hectares of rural land in Uruguay were sold for close to
US$ 9 billion.37 This represents approximately 43% of the country’s total surface. 38 A significant
number of these purchases originated in Argentina and Brazil. In 2013, Argentines (40%)
outnumbered even Uruguayans (37%) as subjects of suspect transaction reports, with Brazilians
(7%) coming in third.39 As socioeconomic unrest persists in those countries, there capital will
continue to seek refuge in Uruguay. Much of it is invested in large plots of rural land. TCOs and
Anthony Boadle, “Former Petrobras executive charged with taking bribes”, Reuters, February 24, 2015,
http://www.reuters.com/article/2015/02/24/brazil-petrobras-cervero-idUSL1N0VY16020150224
34
“El juez pide a Uruguay el bloqueo de las cuentas de Bárcenas en ese país”, El Mundo, July 23, 2013,
http://www.elmundo.es/elmundo/2013/07/23/espana/1374582906.html
35
“Analisis Estadistico de los Reportes de Operaciones Sospechosas Recibidos” (Statistical Analysis of Received Suspect
Transaction Reports), Banco Central del Uruguay - Unidad de Informacion y Analisis Financiero, 2013. Hereinafter FIU 2013
STR Information.
36
“En una década se vendieron campos por 9.000 millones de dólares”, La Republica, June 3, 2013,
http://www.lr21.com.uy/economia/1107979-en-una-decada-se-vendieron-campos-por-9-000-millones-de-dolares (Hereinafter
La Republica, June 3, 2013).
37
38
La Republica, June 3, 2013.
39
FIU 2013 STR Information.
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corrupt public officials have already exploited the influx of capital into Uruguay from its
neighbors, often with their own purchases of rural land.
One example is the US$ 14 million, 150 hectare, purchase of the “El Entrevero” estate,
located near Punta del Este, a summer playground for the region’s wealthy. In 2013, Argentine
media revealed that Lázaro Báez (Báez), a business partner of former President Nestor Kirchner
and his wife, current President Cristina Fernández de Kirchner (Cristina Kirchner), overpaid US$
10 million in illicit funds for the estate. Raising suspicions even further is that the land was
purchased from Manuel Perez Gadin40, a close ally of the Kirchner’s, through a complicated web
of offshore accounts and Uruguayan shell companies.41 Reloway Company S.A., one of the
entities used by the network, was found registered to a residence whose occupants had never
heard of the company.42 Moreover, several of the companies were registered to the same
business address in a small office suite.43
That same year, Argentine federal authorities filed a criminal complaint against Báez for
his leading role in a network accused of laundering public funds at the behest of the Kirchner’s
and their associates.44 The scandal has been termed “La Ruta del Dinero K” (The Route of the KMoney) and has engulfed much of Cristina Kirchner’s administration. The funds for El Entrevero
came from kickbacks involving large infrastructure projects in Argentina. The kickbacks were
“Escribano e inmobiliario declararon por presunto lavado de dinero”, Subrayado, June 17, 2013,
http://subrayado.com.uy/Site/noticia/24435/escribano-e-inmobiliario-declararon-por-presunto-lavado-de-dinero
40
Leonardo Luzzi, “El sector inmobiliario es más vulnerable al lavado de dinero por los precios de la tierra”, El Observador,
May 6, 2013, http://www.elobservador.com.uy/noticia/249866/con-precios-de-la-tierra-altos--ese-sector-es-mas-vulnerableal-lavado/
41
“Bajo investigación: ¿un campo que costaba US$ 4 millones fue facturado por US$ 14 millones?”, El Observador, April 26,
2013, http://www.elobservador.com.uy/noticia/249128/bajo-investigacion-un-campo-que-costaba-us-4-millones-fuefacturado-por-us-14-millones/ (Hereinafter El Observador, April 26, 2013).
42
43
Address: World Trade Center, Luis Alberto de Herrera 1248, Suite 228, Monte video, Uruguay CP 11300; Companies
registered at address that were linked to Báez and suspected of money laundering:
Asesores Empresarios Corp. S.A.; ATC Argentine Trust Company; Austral Construcciones S.A.; Badial S.A.; Bursátil
Sociedad de Bolsa S.A.; Dalmaran S.A.; Organización de Asesoramiento y Consultora Internacional S.A.; SGI Argentina
S.A.; Teegan Incorporated; and Vanquish Capital Group S.A.
“Lavado de dinero: Marijuan imputó a Lázaro Báez y cuestionó a los fiscales antilavado”, Clarin, May 3, 2013,
http://www.clarin.com/politica/Lazaro_Baez-lavado-Marijuan_0_912508963.html
44
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both paid in cash or other monetary instruments and flown in suitcases to Uruguay for
placement. The network used small regional airports, such as El Jagüel near Punta del Este, or
clandestine runways to enter Uruguay.45 They also used the Buquebus ferry connecting Buenos
Aires with main Uruguayan cities such as Montevideo, Colonia and Punta del Este.46
During placement, the illicit funds were divided up and deposited in bank accounts
controlled by various Uruguayan companies. In this manner, large cash and other monetary
deposits were broken up, or smurfed, in order to not raise suspicions. During layering, the funds
passed through accounts and shell companies in offshore jurisdictions such as the British Virgin
Islands, Panama and Switzerland. Once the layering process was complete, a portion of the funds
returned to the same or a different Uruguayan shell company which ultimately purchased the
plots of land. Since the El Entrevero sale involved collusion between the buyer and seller and an
overpayment of US$ 10 million, indications are that during integration, the seller received
payment, deducted a fee, and returned the remainder of the funds to the network.
Although real estate companies have been covered by reporting requirements since 2005,
government officials have accused the industry of widespread underreporting.47 Transactions
involving rural land are particularly underreported. In 2012, purchases of rural land constituted
only about five percent of non-financial based suspect transaction reports. In 2013, although the
figure rose, it stood at only nine percent.48 In the El Entrevero sale, the notary involved in the
45
El Observador, April 26, 2013.
“Uruguay no es hipócrita ante el lavado”, El Pais, April 23, 2013, http://www.elpais.com.uy/informacion/uruguay-no-eshipocrita-ante-el-lavado.html
46
“Aconsejan a inmobiliarias para evitar lavado de activos”, El Pais, April 24, 2014,
http://www.elpais.com.uy/economia/noticias/aconsejan-inmobiliarias-evitar-lavado-activos.html
47
48
FIU 2013 STR Information.
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transaction, Adolfo Pittaluga Shaw, was fined US$ 276,035, while the real estate agent,
Alejandro Perazzo, received a US$ 88,934 penalty.49
3.2.1
I2 chart – Purchases of large plot of rural land
Natalia Roba, “El lavado de dinero tiene sus intocables”, El Pais, April 26, 2015, http://www.elpais.com.uy/quepasa/informe-lavado-dinero-intocables-justicia.html
49
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3.3 Typology 2 - Football Player Bridge Transfers
In international football, players (or more precisely the rights to their employment
contract) are sold from one club to another for a transfer fee. In 2014, Fédération Internationale
de Football Association (FIFA), world football’s governing body, recorded over US$ 4 billion in
player transfer fees.50 The transfer market is so large that in 2007 FIFA created its own
specialized anti-money laundering unit, Transfer Matching System GmbH, to monitor the
transactions. Player transfers attract TCOs for two reasons, first because they lack transparency
of the origin of the funds behind the transaction, and second, because most of them are paid in
offshore jurisdictions.
In South America, the matter is further complicated by the dominant role of player agents
licensed by their domestic soccer associations. Behind these agents are often offshore entities
ultimately controlled by TCOs. It appears that Argentine and Brazilian based TCOs have
infiltrated several Uruguayan football clubs via player agents. They use the clubs as vehicles for
player transfers originating in those countries and on their way to Europe, for layering and tax
evasion. The practice has become known as “pases puentes” (bridge transfers). Bridge transfers
use triangulation to take advantage of Uruguay’s low capital gains tax rate and conceal the
source of illicit funds. It is worth noting that Uruguay’s role in this typology is strictly in the
layering phase of the TCO laundering process. Once a bridge transfer goes through a Uruguayan
football club, the illicit funds, which are represented in the TCO’s ownership rights in the player,
have already been placed in the financial system.
During a bridge transfer, prior to a player being sold to the European club purchasing his
rights, the player (on paper) is transferred to a Uruguayan club. Although the player never sets
“International transfers worth 4 billion dollars in 2014”, eNews Channel Africa, January 13, 2015,
http://www.enca.com/sport/soccer/international-transfers-worth-4-billion-dollars-2014
50
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foot in Uruguay or competes for that club, he is temporarily listed as its player. When that
intermediary club receives payment, it deducts a seller’s fee and then pays the ultimate owner of
the player’s rights. FIFA regulations tacitly condone this process by allowing a player to register
with up to three clubs, although compete for only two, per season.51
A glaring example of a bridge transfer is the 2008 sale of Brazilian Givalido Viera de
Souza, popularly known as Hulk, to Portuguese Futebol Club do Porto. Although Hulk never
played a game for Club Atletico Rentistas (Rentistas), a club averaging 415 per game in
attendance, it received nearly US$ 26 million from the transfer fee.52 The sale was facilitated by
Juan Figer (Figer), a Uruguayan agent based in Brazil. Since 1999, Figer oversaw US$ 56
million in bridge transfers of Brazilian players through Rentistas. 53 According to Rentistas vice
president Wilmar Valdez, Figer manages funds from Qatari and English groups which he invests
in Brazilian players and then uses Rentistas as a vehicle to place them in Europe.54
Recently, several financial entities have been penalized by Uruguayan authorities for
their involvement in bridge transfers. In 2013, the Royal Bank of Canada closed its branch in
Uruguay following a raid by the country’s organized crime unit. The investigation came after a
request from Argentine federal judge Norberto Oyarbide (Oyarbide) to analyze transactions at
RBC suspected of being bridge transfers.55 It should be noted that in 2008, Uruguay fined RBC,
close to US$ 50,00056, for failing to abide by know your customer regulations involving a US$ 2
“Regulations on the Status and Transfer of Players”,Fédération Internationale de Football Association, September 27, 2012,
http://www.fifa.com/mm/document/affederation/administration/02/53/22/21/regulationsstatusandtransfer_e_2012_neutral.pdf
51
Alex Duff, “FIFA Drops Transfer Probe Into Brazil Striker Hulk’s Agent”, Bloomberg, March 20, 2014,
http://www.bloomberg.com/news/articles/2014-03-20/fifa-drops-probe-into-hulk-s-26-million-transfer-via-uruguay (Hereinafter
Bloomberg, March 20, 2014).
52
53
Bloomberg, March 20, 2014
E. Barreneche and Gonzalo Terra, “Preocupa a FIFA triangulación de pases de clubes uruguayos”, El Pais, July 17, 2013,
http://www.elpais.com.uy/informacion/preocupa-fifa-triangulacion-pases-clubes-uruguayos.html
54
Gonzalo Terra, “RBC recibió la mayor multa de la historia por no prevenir lavado”, El Pais, August 17, 2013,
http://www.elpais.com.uy/informacion/rbc-recibio-mayor-multa-historia-prevenir-lavado.html
55
Alistair Macdonald, Rita Trichur and Will Connors, “Money-Laundering Fears Fuel an RBC Retreat”, The Wall Street
Journal, February 2, 2015, http://www.wsj.com/articles/money-laundering-fears-fuel-an-rbc-retreat-1422924488
56
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million dollar transaction for Colombian drug trafficker Gustavo Duran Bautista.57 Oyarbide’s
request also led to the closure of the local branch of Alhec Group, a financial services firm based
in Argentina.58 In both these instances, the football clubs suspected of being involved in bridge
transfers were Boston River S.A.D.; Club Atlético Bella Vista; Club Atlético Cerro; Club
Atlético Progreso; Institución Atlética Sud América; and Rampla Juniors Fútbol Club.
Bridge transfers were also used, although through which clubs remains unclear, by La
Banda del Doctor (The Doctor’s Gang), a Colombian TCO operating in Argentina and headed up
by Jhon Eduard Martínez Grajales (The Doctor) and Jesús Antonio Yepes Gaviria. The group
purchased and managed players at top Argentine clubs through agent, Fabián Andrés Martínez
Grajales (The Doctor’s brother) and his company Football Group Internacional S.A., and used
Uruguayan clubs to place them in Europe.59 A similar strategy was utilized by Los Monos (The
Monkeys), an Argentinian drug trafficking organization, led by fugitive Ariel Máximo Cantero.
In 2013, the group was identified as the 10-40% owner to the rights of Angel Correa (Correa)
through a Uruguayan company. 60 Correa, a blue-chip forward, who played at the time for Club
Atlético San Lorenzo de Almagro, was transferred a year later to Club Atlético de Madrid for
US$ 9.4 million.61 Although this transfer did not go through a Uruguayan club, an investigation
by Argentine federal authorities revealed that Correa’s agent, Francisco Lapiana, purchased the
Nicolas Delgado, “Lavado de dinero: un tiron de orejas del Banco Central ”, El Observador, April 20, 2015,
http://www.elobservador.com.uy/noticia/303107/lavado-de-dinero-un-tiron-de-orejas-del-banco-central/
57
E. Barreneche and F. Tiscornia, “BCU cerró financiera investigada por Justicia de Argentina y Uruguay”, El Pais, July 10,
2013, http://www.elpais.com.uy/informacion/bcu-cerro-financiera-investigada-justicia.html
58
“Una peligrosa banda narco habría lavado dinero con pases de futbolistas argentinos”, Diario La Capital, November 4,
2013, http://www.lacapital.com.ar/ed_impresa/2013/11/edicion_1820/contenidos/noticia_5030.html ; "Banda del Doctor" bajo
investigación en Uruguay”, El Pais, November 3, 2013, http://www.elpais.com.uy/informacion/banda-doctor-investigacionuruguay.html
59
Germán de los Santos, “Creen que una banda narco es dueña del pase de un jugador de San Lorenzo”, La Nacion,
November 9, 2013, http://www.lanacion.com.ar/1636762-creen-que-una-banda-narco-es-duena-del-pase-de-un-jugador-desan-lorenzo (Hereinafter La Nacion, November 9, 2013).
60
Matthew Morlidge, “Atletico Madrid complete signing of 'new Sergio Aguero' Angel Correa from San Lorenzo (so, will he
play in the new kit?)”, Daily Mail, May 28, 2014, http://www.dailymail.co.uk/sport/football/article-2641106/Atletico-Madridcomplete-signing-new-Sergio-Aguero-Angel-Correa-play-new-kit.html
61
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rights and managed up to 120 players for Los Monos.62 Some of these players were placed in
Europe via bridge transfers, although for far lesser sums than Correa’s.
Lastly, further raising suspicions of the country’s football clubs being used as vehicles for
money laundering, in April 2015, media reported that Eduardo Eche, President of Club Nacional
de Football, one of the country’s most popular clubs, served as the former head of the local
branch of Banca Privada D’Andorra (BPA).63 In March 2015, BPA was designated by the U.S.
Department of the Treasury as a foreign financial institution of primary money laundering for
knowingly facilitating transactions on behalf of TCOs.64 In 2011, BPA’s branch was fined and
had its operating license removed by the Central Bank of Uruguay for violations of its antimoney laundering regulations. However, soon after BPA reappeared in Uruguay as Noswey S.A.
Asesores de Inversión (Noswey SA), with Eche as its president. Then in October 2014, months
after Eche had resigned his post, Noswey SA was shut down by the Central Bank for similar
violations.65
62
La Nacion, November 9, 2013.
Nicolas Delgado, “Un banco intervenido en Europa por lavar dinero fue multado en Uruguay”, El Observador, April 14,
2015, http://www.elobservador.com.uy/noticia/302635/un-banco-intervenido-en-europa-por-lavar-dinero-fue-multado-enuruguay/
63
“FinCEN Names Banca Privada d’Andorra a Foreign Financial Institution of Primary Money Laundering Concern”, Financial
Crimes Enforcement Network, March 10, 2015, http://www.fincen.gov/news_room/nr/html/20150310.html
64
Javier Chicote, “Uruguay sanciona a un directivo del Barca”, Diario ABC, January 24, 2014,
http://www.abc.es/deportes/futbol/20140125/abci-uruguay-sanciona-directivo-barcelona-201401242055.html
65
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3.3.1
I2 chart – Football player bridge transfers
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4. Belize
4.1 Background
Belize is a young country, having established independence from the United Kingdom in
1981.66 Its porous borders with Guatemala and Mexico make it a major transshipment point for
marijuana and cocaine. Belize’s small population of just over 340,000 (approximately the size of
Tampa, Florida) makes its domestic market not a large source of laundered funds.67 Instead, it
serves as an offshore hub where nonresident transactions are facilitated by lax regulations and its
national currency, the Belize Dollar, being pegged to the United States dollar.
In April 2015, Bank of America severed its correspondent banking relationship with
Belize Bank Limited, the country’s largest commercial bank. 68 This measure means that the bank
will no longer be able to conduct many international banking transactions, including wire
transfers between the United States. The move is part of a “de-risking” strategy by large US and
European banks to minimize their exposure to high risk areas, particularly where earnings are
small.69 According to the Central Bank of Belize, the measure does not affect the country’s other
domestic banks, ScotiaBank Belize Ltd., Atlantic Bank Ltd., First Caribbean International Bank
Ltd., and Heritage Bank Ltd..70
Belize’s economy is primarily based on tourism and the sale of natural resources, both of
which thrive due to its proximity to major markets such as the United States and Mexico.
According to media, the Gulf Cartel and Los Zetas are disputing the region along the Belize-
“Belize Overview”, The World Bank, April 2015, http://www.worldbank.org/en/country/belize/overview (Hereinafter: Belize
Overview, April 2015).
66
67
Belize Overview, April 2015.
“Press Release – Foreign Correspondent Banking Relationship”, Central Bank of Belize, April 23, 2015.
(Hereinafter: Central Bank of Belize Press Release, April 2015).
68
Adele Ramos, “Bank of America severs relation with Belize Bank”, Amandala Newspaper , April 23, 2015,
http://amandala.com.bz/news/bank-america-severs-relations-belize-bank/
69
70
Central Bank of Belize Press Release, April 2015.
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Mexico border.71 This area contains the Corozal Free Zone (Corozal), the larger of the country’s
two free trade zones, supposedly tailored to Mexican shoppers seeking duty free bargains. In
April 2015, Belize Bank Limited announced that it would be closing its branch in Corozal.72 The
decision is widely seen in response to greater international scrutiny on the bank’s vulnerability to
money laundering, such as Bank of America’s move. Thus, all indicators point to a prevalence of
trade-based money laundering in Corozal.
However, Belize’s vulnerability to prevalent forms of money laundering are difficult to
pinpoint due to the country’s undeveloped online presence. Its media and government websites
are outdated and contain only rudimentary information. The lack of resources is also evident in
Belize’s Financial Intelligence Unit, which is poorly trained and understaffed.73 It even has to
hire private attorneys to litigate money laundering prosecutions. 74 Because it is difficult to
identify current typologies through Belizean online sources, over-invoicing via trade-based
money laundering in Corozal, which experts agree the country is vulnerable to, is an issue.
Figure 1: Corozal Free Zone
“Pacto Narco En Tamaulipas: El Cártel del Golfo y Los Zetas anuncian alianzan para que haya ‘paz”, NotiCaribe,
November 11, 2014, http://noticaribe.com.mx/2014/11/11/pacto-narco-en-tamaulipas-el-cartel-del-golfo-y-los-zetas-anuncianalianzan-para-que-haya-paz/
71
“Belize Bank Closes Its Doors At CFZ”, CTV3 Publisher, April 24, 2015,
http://www.ctv3belizenews.com/index.php?option=com_content&view=article&id=6175:belize -bank-to-close-its-doors-atcfz&catid=43:economy&Itemid=111
72
“US concerned about money laundering, financial crimes in region”, Jamaica Observer, March 8, 2011,
http://www.jamaicaobserver.com/news/US-concerned-about-money-laundering--financial-crimes-in-region_8487728
73
“2014 International Narcotics Control Strategy Report (INCSR) - Belize”, U.S. Department of State, 2014,
http://www.state.gov/j/inl/rls/nrcrpt/2014/vol2/222688.htm
74
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Retrieved from http://ambergriscaye.com/art2/1004953_1470917403124630_1306569461_n.jpg
4.2 Typology 1 – Corozal Free Zone (over-invoicing)
Corozal was established in 1994 on 267 acres and has grown to over 300 wholesale and
retail companies, several warehouses, a gas station and the Princess Hotel and Casino. 75 In
Corozal, as with other free trade zones, goods are traded, handled, and imported and exported
with very little interference from customs officials. These areas also attract business through very
low tax rates, especially when the goods are traded for use outside the country where the trade
takes place.
In many cases, cash is brought into Corozal in bulk, and used to make poorlyregulated duty free purchases. While there are systems in place in which cash transaction and
suspicious transaction reports are supposed to be filed when being used for major purchases,
filing requirements at Corozal are rarely enforced and customers who pay for goods in cash
are seldom subjected to know-your-customer regulations. According to Mexican media,
Corozal is the major entry point for counterfeit cigarettes entering the country from China,
Vietnam, India and Paraguay. 76 Some of the cigarettes are smuggled in hollowed out vans the
eight miles separating Corozal from the small city of Chetumal, Mexico. Others are
75
Corozal Free Zone website: http://www.belizecorozalfreezone.com/?page_id=433
Isabel Mayoral Jiménez, “Mexico: Cigarro illegal, con ganancia exponencial”, CNN Expansion,
http://www.cnnexpansion.com/economia/2012/11/20/cigarro-ilegal-con-ganancia-exponencial
76
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repackaged, resulting in links being cut from the cigarettes’ origin in order to disguise their
true resale destination.
Due to the presence of the Gulf Cartel and Los Zetas in the region surrounding
Corozal, it is likely that they use the zone to commit trade based money laundering, especially
over-invoicing schemes. Particularly, the cartels could purchase counterfeit cigarettes and then
export them at an above market price to an importer in Mexico they control. In this manner,
overvalue is transferred from the seller to the buyer. To reduce risk of detection, the transaction
could be made through a Belizean shell company.
More precisely, the cartels could create a Belizean shell company to purchase large
amounts of counterfeit cigarettes. The cigarettes could then be repackaged in Corozal and
exported to a Mexican company controlled by the cartel. For example, the cartel could export 1
million cigarettes valued at 10 cents each but then invoices US$ 1 per item. The Belizean shell
company wire transfers US$ 1 million when the orders true value was US$ 100,000. In this
manner, the cartels could transfer US$ 900,000 in illicit funds to their home country for
integration.
4.2.1
I2 chart – Corozal Free Zone (Over-Invoicing)
27
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5. Dominican Republic
5.1 Background
The Dominican Republic’s (DR) location in the center of the Caribbean, and its porous
border with Haiti make it a major transit point for cocaine, marijuana and ecstasy destined
for the US and Europe. There is a heavy presence of Colombian, Mexican and Venezuelan
transnational criminal organizations (TCO’s) in both Haiti and the DR. Eastern European
groups have also recently been identified in the north of the country. 77 Drug trafficking,
human trafficking and financial fraud, especially identity theft and forged credit cards, are
the main sources of laundered funds.
According to DR’s Financial Intelligence Unit 78 (FIU), the most prevalent typologies
used to launder these funds are through real estate, vehicle dealerships, monetary instruments
(stocks, bonds and certificates of deposit), non-profit organizations and trade based money
laundering.79 An extensive review of DR media and other online sources, confirmed that one
of the most popular methods of laundering funds is through real estate development, often
involving loan or mortgage fraud. Media searches also identified money laundering through
labor unions in the transportation sector as an emergent typology.
Jan Velinger, “Members of Czech gang arrested in Dominican Republic”, Radio Prague , October 30, 2012,
http://www.radio.cz/en/section/curraffrs/members-of-czech-gang-arrested-in-dominican-republic; “Russian, Italian mafias take
root, Dominican official warns”, Dominican Today , February 14, 2011,
http://www.dominicantoday.com/dr/local/2011/2/14/38607/Russian-Italian-mafias-take-root-Dominican-official-warns
77
DR’s FIU, the Unidad de Análisis Financiero (Financial Analysis Unit) or UAF, falls under the authority of the Comité
Nacional Contra el Lavado de Activos (The National Committee Against Money Laundering). The Committee is composed of
the Presidente del Consejo Nacional de Drogas (President of the National Council Against Drugs); Magistrado Procurado r
General de la Republica (Attorney General); Secretario del Ministerio de Hacienda (Secretary of the Ministry of Treasury);
and the Presidente of the Superintendencia de Bancos (President of the Regulatory Agency for Banks).
78
However, there is also a specialized money laundering unit, Unidad de Antilavado, within the Procuraduría General de la
Republica (Attorney General’s Office). As a result, in 2006, DR was expelled from the Egmont Group for failing to have one
comprehensive FIU.
79
Dr. Fidias F. Aristy Payano and Dr. Dulce M. Luciano, Comité Nacional Contra el Lavado de Activos, Unidad de Análisis
Financiero, January 29, 2013, http://www.alianzaong.org.do/wp-content/uploads/2013/09/Uniodad-de-Lavado-de-Activos.pptx
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5.2 Typology 1 – Loan-Back Scheme and Back-to-Back Loan Scheme
DR is experiencing a high end construction boom, making real estate development one
of its most vibrant economic sectors. In 2012, it represented the country’s fourth largest
source of foreign direct investment with US$ 203 million. 80 However, the supply of luxurious
real estate heavily outweighs its demand, indicating a prevalence of money laundering. 81
Recently, DR media exposed a probable high-profile loan back scheme that a TCO used to
launder funds via high-end real estate.
In a loan back scheme, during the placement phase, a criminal group provides a
cooperating financial institution with illicit funds. The financial institution then issues a loan
or mortgage for a similar amount to a shell company controlled by the criminal group. The
group then invests the loan in real estate via the shell company. The illicit funds take on the
appearance of a legitimate loan and the image is reinforced by scheduled loan payments
made by the group. The funds are then layered and integrated through the sale and rental of
the real estate.
The financing of the Torre Atiemar (Atiemar), a 19-floor luxury condo building
located in Santo Domingo’s upscale Esperilla neighbourhood, has all the indicators of a loan
back scheme. In 2005, at Atiemar’s ground breaking ceremony, President Leonel Fernandez
hailed the real estate project as a fine example of foreign direct investment in the country. 82
In 2010, its construction was halted after its owner, Arturo Del Tiempo Marques (Del
“2014 Investment Climate Statement, Executive Summary”, U.S. Department of State, June 2014,
http://www.state.gov/documents/organization/227161.pdf
80
Ircania Vasquez, ”Sobreoferta afecta sector inmobiliario de lujo en RD”, Listin Diario, August 9, 2013,
http://www.listindiario.com/economia-y-negocios/2013/8/8/287649/Sobreoferta-afecta-sector-inmobiliario-de-lujo-RD
81
Tania Molina, “Atiemar, dos torres que mirarán al futuro arquitectónico de la ciudad”, Diario Libre, December 1, 2005,
http://www.diariolibre.com/noticias/2005/12/01/i81250_atiemar-dos-torres-que-mirarn-futuro-arquitectnico-ciudad.html
82
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Tiempo) was arrested in his native Spain for trafficking 1,200 kilos of cocaine. 83 Del Tiempo
was linked to a drug trafficking network, which included Colombian Germán Eduardo Duque
García, which laundered illicit gains through large real estate projects. 84 Garcia is also listed
on the infamous HSBC Falciani List 85 as one of the banks high profile tax evaders. 86
Apart from Atiemar, Del Tiempo’s network also financed the Margot Towers in Santo
Domingo, a US$ 110 million project which was never completed. 87 It is unclear whether he
financed this project through a loan back scheme.
Figure 1: Torre Atiemar
Figure 2: Illustration of Torres Margot
“Dominican Republic casinos, auto dealers, condos launder the most drug money”, Dominican Today, September 26, 2013, Retrieved from
http://www.dominicantoday.com/dr/local/2013/9/26/49074/Dominican-Republic-casinos-auto-dealers-condoslaunder-the-most-drug; Retrieved
from http://img216.imageshack.us/img216/1442/margot16ds.jpg
Figure 3: President Fernandez (right) and Del Tiempo (middle) at Atiemar’s ground breaking
ceremony
“Tribunal autoriza secuestro judicial de torre Atiemar”, El Día, March 11, 2010, http://eldia.com.do/tribunal-autorizasecuestro-judicial-de-torre-atiemar/
83
Gustavo Olivo Peña, “Del caso Arturo del Tiempo, en RD todo “se esfumó”, sólo quedó la torre Atiemar”, Editora Acento,
February 14, 2014, http://acento.com.do/2014/actualidad/1164513-del-caso-arturo-del-tiempo-en-rd-todo-se-esfumo-soloquedo-la-torre-atiemar/
84
In 2008, Hervé Falciani, an employee of HSBC Bank PLC’s Swiss private banking division, released to European tax
regulators confidential client information of the banks highest net worth tax evaders. The list included 80,000 to 130,000
names from over 180 countries.
85
Daniele Grasso and Marcos Lamelas, “Lista Falciani: el rastro del dinero del HSBC conduce hasta el tráfico de cocaína”,
El Confidencial, February 11, 2015, http://www.elconfidencial.com/economia/lista-falciani/2015-02-11/de-barcelona-a-larepublica-dominicana-el-dinero-de-la-coca-en-la-lista-falciani_703920/
86
Jacqueline Morrobel and Rossany Zapata,“Llegada de fiscal español al país coincide con incautaciones de propiedades de
Del Tiempo”, El Nuevo Diario, March 25, 2010, http://www.elnuevodiario.com.do/mobile/article.aspx?id=192250
87
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Narciso Isa Conde, “Agosto y Atiemar: Impunidad Explicable”, Tiro Al Blanco, November 16, 2010, Retrieved from
http://isaconde.info/?p=700
Figure 4: President Fernandez (middle), Del Tiempo and his son, Arturo del Tiempo
Manzarbeita – Photograph taken October 2005
“La ‘guerra’ anti drogas sólo ha dejado más exclusión social, asesinatos y violación de derechos”, Editora Acento, September 16, 2014,
Retrieved from http://acento.com.do/2014/actualidad/8171371-la-guerra-anti-drogas-solo-ha-dejado-mas-exclusion-social-asesinatos-yviolacion-de-derechos/
The Atiemar loan back scheme was exposed when it was revealed that a state
controlled bank, Banco de Reservas, granted Del Tiempo a US$ 13.3 million loan to finance
the project. It is also suspicious that the loan was not issued to Del Tiempo’s real estate
company, Grupo Inmobiliario P & P, but rather to several of his shell companies. 88 Media
searches identified these shell companies as Picasso Corporate Holdings LTD, Picasso
Investments S.A., and Prado Universal Corporation. Online corporate searches with the Registro
“Suerte propietarios apartamentos Torre Atiemar en manos Banco Reservas”, Diario Horizonte, February 25, 2011,
http://www.diariohorizonte.com/print.php?nid=10228&origen=1
88
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Publico of Panama identified a Prado Universal Corp. incorporated in Panama on January 31,
2002 and currently active.89
In Del Tiempo’s case, it is probable that he provided Banco de Reservas with illicit
funds and then had most of the funds lent back to him via shell companies which then
financed the Atiemar project. The other option is that Del Tiempo was using a back-to-back
loan scheme. In this situation, Del Tiempo would have obtained the loan by presenting Banco
de Reservas with collateral derived from illicit funds.
In both circumstances, the illicit funds take on the appearance of a legitimate loan.
However, before the funds were integrated, Del Tiempo’s arrest in Spain, led to Atiemar’s
appropriation by the Procuraduría General (Attorney General). It should be noted that high
profile government figures, such as Rafael Guzman Fermin, then head of the Policía
Nacional (National Police), owned million dollar condos in the building. 90 This suggests that
Del Tiempo’s network may have not only been using Atiemar to launder funds but also to
purchase protection from authorities.
The company’s ficha or corporate identification number is 412024. Oriel Francisco Kennion and Berta Acoca de Patton are
listed as its subscribers of shares, a formality required by Panamanian law. It is not mandatory to declare the actual
shareholder or ultimate beneficial owner of the entity.
89
Rosado Mateo, “Presidente DNCD confirma padre jefe PN compró apartamento en torre Atiemar”, Listin Diario, March 10,
2010, http://www.listindiario.com/la-republica/2010/3/15/134962/Presidente-DNCD-confirma-padre-jefe-PN-comproapartamento-en-torre-Atiemar
90
33
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5.2.1
I2 chart – Loan Back Scheme and Back to Back Loan Scheme
34
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5.3 Typology 2 – Labor Unions in the Bus Services Sector
Busing serves as the DR’s only form of mass transit. On a daily basis, hundreds of
thousands of passengers pay their bus fares in cash. The significant cash turnover renders bus
services susceptible to money laundering. In the DR, a majority of bus services in urban
areas, particularly mini-busing, is provided by small to medium enterprises. Each
independent of the other, but linked through a labor union which binds them together in order
to yield the influence of a large corporation.
Every enterprise is responsible for turning over a percentage of their cash intake to
their respective union. According to the Policia Nacional (National Police), these labor
unions have been infiltrated by TCOs.91 An analysis of unions in other Latin American
jurisdictions indicates that the transportation unions are possibly used to overstate the
amount of bus tickets sold by their members. In February 2015, the Procuradoria General
(Attorney General) declared that it had opened a contract killing of rival union members, and
money laundering investigation into the Union Nacional de Transportista y Afines (National
Allied Transportation Union or Unatrafin). 92
It is possible that Unatrafin, during the placement phase, combined cash derived from
illicit activities with legitimate member dues and deposited the totality into the union ’s bank
account. Although cash generated from bus fares is in small denominations with a
cooperating financial institution, the union is not constrained in its cash deposits. For a fee,
the union can then siphon off the illicit funds from legitimate member dues and either issue
checks or other monetary instruments, or it can choose to transfer the funds to shell
91
Tania Molina, “El Ministerio Público y la Policía investigan a dirigentes choferiles por lavado de activos ”, Diario Libre,
February 6, 2015, http://www.diariolibre.com/noticias/2015/02/06/i1001141_ministerio -pblico-polica-investigan-dirigenteschoferiles-por-lavado-activos.html (Hereinafter: Diario Libre, February 6, 2015).
Andrea Ramos, “Jefe PN asegura existen elementos contundentes en contra del regidor de Pedro Brand”, Noticias Sin,
February 5, 2015, http://www.noticiassin.com/2015/02/existen-los-elementos-probatorios-contundentes-que-vinculan-alregidor-en-estos-hechos/
92
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companies and offshore accounts for layering. The criminal group can then integrate the
funds via checks or wire transfers from clean accounts. It is worth noting that this method
presents TCOs with several off-ramps that can be used to receive payment at earlier stages of the
laundering process. For example, the TCO may receive payment after the illicit funds have been
deposited into the union’s bank account, instead of moving onto the layering process.
Media searches also identified the following transportation unions linked to money
laundering: Central Nacional de Transportistas Unificados 93 (National Central of Unified
Transportation Workers or CNTU); Confederacion Nacional de Transporte 94 (National
Transportation Confederation or Conatra); and Movimiento Choferil del Transporte 95
(Movement of Transportation Drivers or Mochotran).
Mariela Mejia, “Sindicalistas transporte dispuestos a que los investiguen”, Diario Libre, February 7, 2015,
http://www.diariolibre.com/noticias/2015/02/07/i1002641_sindicalistas -transporte-dispuestos-que-los-investiguen.html
(Hereinafter: Diario Libre, February 7, 2015).
93
94
Diario Libre, February 6, 2015.
95
Diario Libre, February 7, 2015.
36
FlU – MAGG Capstone Report
5.3.1
I2 chart – Labor Unions in the Bus Services Sector – Overstating Member Dues
37
FlU – MAGG Capstone Report
6. Greece
6.1 Background
Greece serves as a financial center for the Balkans and as a bridge between Eastern and
Western Europe. Its underground economy is the second largest, after Mexico, among OECD96
members.97 In 2011, according to Global Financial Integrity, a Washington, D.C. non-profit,
US$ 109 billion of illicit funds entered the country.98 Further exacerbating the money laundering
environment, Greece is consistently ranked as one of the most corrupt countries in the European
Union (EU).99 Evidence of this corruption is apparent in its dysfunctional Financial Intelligence
Unit100 (FIU), which is underfunded and does not meet international standards.101 Its task is
further complicated by Greece’s lax regulations which do not criminalize money laundering as a
stand-alone offense and do not require reporting entities to conduct enhanced due diligence
searches of politically exposed domestic persons.
Greece functions as a hub for Balkans, Georgian and Russian transnational criminal
organizations (TCOs). The 2008 global financial crisis, of which Greece is a high profile victim,
did not curtail crime, but instead further spread it. The drying up of credit at financial institutions
96
Organization for Economic Cooperation and Development.
Clark Gascoigne, “Greece Lost $261 Billion in Illicit Financial Outflows from 2003 -2011, GFI’s Baker Tells Der Spiegel”,
Global Financial Integrity, September 4, 2012, http://www.gfintegrity.org/press-release/greece-lost-261-billion-illicit-financialoutflows-2003-2011-gfis-baker-tells-der-spiegel/ (Hereinafter Global Financial Integrity, September 4, 2012).
97
98
Global Financial Integrity, September 4, 2012.
99
“Corruption By Country”, Transparency International, 2014, http://www.transparency.org/country#GRC_DataResearch
Greece’s FIU is comprised of seven Board Members, one from each of the following agencies: Financial Crim e
Investigation Office; General Directorate of Economic Policy of the Ministry of Finance; Ministry of Justice, Transparency &
Human Rights; Bank of Greece; Hellenic Capital Market Committee; Hellenic Police Headquarters; and Hell enic Coast Guard
Headquarters.
100
However, two other specialized money laundering units exist: the Financial Sanctions Unit and the Source of Funds
Investigation Unit. All three units fall under the purview of the Anti -Money Laundering, Counter-Terrorist Financing and
Source of Funds Investigation Authority (FIA). The FIA is led by a Public Prosecutor to the Supreme Court which is appointed
by the Supreme Judicial Council.
Dr. Tryfon Korontzis, “The Financial Crime In Hellas And Its Combating By The Hellenic Law Enforcement Agencies. The
Contribution Of The EU Organizations Of Europol and Eurojust”, European Scientific Journal, December 2013.
101
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allowed TCOs to step in and fill the gap with illegal loans. Estimates are that the loan shark
business quadrupled from 2009 to 2012 and totaled between €5 billion to €10 billion a year.102
Additionally, drug trafficking, human trafficking, smuggling of counterfeit goods and
recent financial crimes are the main sources of laundered funds. The most prevalent typologies
used to launder these funds are through real estate, the stock market, and trade-based money
laundering (TBML). An extensive review of Greek media and other online sources identified
indicators of TBML as well as money laundering via non-profits as a prominent typology.
6.2 Typology 1 – Trade-Based Money Laundering (Under Invoicing)
Greece is a maritime country. Since up to 80% of global commerce is carried out by sea,
it plays a prominent role in international trade.103 Its fleet (vessels listing Greece as their
domicile, and not by the flag they fly) ranks first with 16% of the global merchant fleet.104
Behind only tourism, the shipping industry is the country’s second largest export sector and
generates 5% of its GDP.105 TCOs use the Greek shipping industry to transfer goods purchased
with illegal proceeds and then disguise their origin through TBML, particularly under-invoicing.
During the placement phase of an under-invoicing scheme, a criminal group purchases
high valued products with illicit gains, and then exports them, usually to their home countries, at
below market price to an importer they control. The placement phase continues when the TCO
sells those products for their true value. The funds are then deposited in a financial institution as
revenue derived from legitimate sales. Once the funds have been deposited, they can be layered
and integrated as the TCO sees fit.
Roberto Saviano, “Where the Mob Keeps Its Money”, The New York Times, August 25, 2012,
http://www.nytimes.com/2012/08/26/opinion/sunday/where-the-mob-keeps-its-money.html?_r=0
102
Maria Prandeka and Vasilis Zarkos, “The Greek maritime transport industry and its influence on the Greek economy”,
Eurobank Economic Research, Economy & Markets, May 2014, Volume IX, Issue 5, page 1. (Hereinafter Economy &
Markets, May 2014).
103
104
Economy & Markets, May 2014
105
“Restis jailed pending money laundering trial in Greece”, Financial Mirror, July 29, 2013.
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In TBML, there is an inclination for high value but small, easily portable, such as jewelry
and precious metals, that can be sold or traded on secondary markets.106 Media searches revealed
that TCOs in Greece have a preference for counterfeit brand name items such as clothes,
handbags and watches.107 According to the European Commission,108 Greece represents about
20% of all EU counterfeit seizures and ranks third among counterfeit source countries.109
The willingness of TCOs to use Greece as a transshipment point for counterfeit goods
along with local counterfeit production points to a prevalence of under-invoicing schemes.
Under-invoicing is particularly attractive to Balkans and Greek-based TCOs, as the scheme
works best when the importing country has weak customs enforcement. For example, an
Albanian-Greek based TCO can set up its own Greek based shipping company and transport
1,000 fake items of clothing valued at U$ 100 apiece to one of its importers, but invoices US$ 20
per item. The Albanian importer wire transfers US$ 20,000, the invoice amount, to its Greek
counterpart and sells the clothing for their true value, US$ 100,000. The importer then deposits
the proceeds of those sales with a financial institution where the revenue appears to have
originated from legitimate sales. The Albanian TCO can then layer and integrate the funds as it
chooses.
Samuel McSkimming, “Trade-Based Money Laundering: Responding to An Emerging Threat”, Deakin University Law
Review, 2010, Volume 15, Issue 1, page 10.
106
“Greek raids reach €30 million for quarter: nation still tops in Euro counterfeiting seizures”, Applied DNA Sciences, 2011,
http://www.adnas.com/company-blog/greek-raids-reach-%E2%82%AC30-million-quarter-nation-still-tops-euro-counterfeitingseizures
107
“Report on EU customs enforcement of intellectual property rights, Results at the EU border 2013”, European
Commission, 2014,
http://ec.europa.eu/taxation_customs/resources/documents/customs/customs_controls/counterfeit_piracy/statist ics/2014_ipr_
statistics_en.pdf
108
109
EU counterfeit goods source countries: China: 66.12%; Hong Kong (China): 13.31%; Greece: 5.83%; Turkey: 3.68%;
United Arab Emirates: 2.49%; Ghana: 1.96; India: 1.77%
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6.2.1
I2 chart – Trade Based Money Laundering (Under Invoicing)
41
FlU – MAGG Capstone Report
6.3 Typology 2 – Non-profits (Overstating Donations)
In February 2014, the General Inspector of Public Administration (GIPA), Greece’s main
anti-corruption authority, probed over 3,000 non-profit organizations (NPOs) for their
involvement in possible money laundering.110 The move came after several NPOs associated
with Hellenic Aid, the Foreign Ministry’s overseas development program, were linked to fraud
and money laundering. According to GIPA, of the 3,000 NPOs probed, nine out of ten appear
“problematic,” in that they lack the appropriate paperwork and bookkeeping. 111 GIPA blames
the mess on a lack of oversight and that NPOs are not required to conduct their own internal
audits.112
Greek NPOs are particularly attractive for money laundering because they are easy to
create and are subject to minor regulation. They do not fall under know-your-customer rules
(KYC). TCOs are also attracted to NPOs because they are cash intensive, have several donation
streams (cash or online, mailed checks, wire transfers, etc.), enjoy the public trust and have an
international presence. NPOs provide the TCOs with the means to not only launder money but
also their reputations, and to exert further influence in areas they operate.
In 2014, the Athens-based International Demining Center (IDC), was shut down after it
was revealed that it defrauded Hellenic Aid of €9 million. It claimed that it had removed mines
from over a million square meters in warzones such as Bosnia, Lebanon and Iraq. 113 Although
online searches did not link the IDC to TCO or terrorist financing, it is easy to grasp the
“Nine in 10 NGOs ‘problematical,’ says corruption watchdog”, Kathimerini, February 19, 2014,
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_19/02/2014_537526 (Hereinafter Kathimerini, February 19, 2014).
110
111
Kathimerini, February 19, 2014.
112
Kathimerini, February 19, 2014.
“International demining NGO involved in 9-million-euro scam”, Lambrakis Press, February 17, 2014,
http://www.tovima.gr/en/article/?aid=568475
113
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attraction that such groups have for NPOs. Besides having no oversight in its home country, the
IDC had several donation streams and operated in areas with a heavy TCO and terrorist presence.
For instance, an Albanian-Greek based TCO could create the Greek-Albanian Diaspora
Fund (GADF) to launder illicit funds out of Greece and into its home country. During the
placement phase, it would combine illicit funds with legitimate donations and deposit the totality
in a financial institution. Since NPOs are not subject to KYC rules, rarely would GADF’s
suspicious deposits raise apprehensions. During layering, GADF could transfer those funds to
another Albanian NPO or entity controlled by the same group in the guise of its normal conduct
of business. GADF could then integrate the funds in Albania as it chooses.
6.3.1
I2 chart – Non-profits (Overstating Donations)
43
FlU – MAGG Capstone Report
44
FlU – MAGG Capstone Report
7. Turkey
7.1 Background
Turkey serves as a financial center for Central Asia and acts as a bridge between Europe
and the Middle East. It is favoured by regional terrorist groups as a means of placement and
integration. This is particularly common along Turkey’s border with Syria, where illicit funds
from the Islamic State of Iraq and the Levant (ISIL) are introduced into its financial system.
From kidnapping to black market oil sales, ISIL generates a significant cash turnover from its
activities. Much of it is placed into the Turkish banking system by bulk cash smuggling,
which is then layered through wire transfers.
However, Turkey’s FIU 114 is unprepared to track these transactions, since it does not
record cash deposits and international wire transfers. Due to the topical relevance of ISIL and
its use of Turkey to launder funds, our research dates from April, 2013, the widely accepted
birth of the group, to the present. As such, an extensive review of Turkish media and other
online sources indicates that its banking system is not only being used by ISIL to place ca sh
and then layer it through wire transfers, but is also used to layer and integrate funds that were
deposited in banks in the Middle East.
7.2 Typology 1 – Bulk Cash Smuggling
From large bank heists, black market oil sales, ransom payments, human trafficking,
grassroots extortion and selling looted antiquities, ISIL has a formidable cash intake. The
114
Turkey’s FIU, the Financial Crimes Investigation Board (MASAK) falls under the authority of the Ministry of Finance.
45
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group may never attempt to place a significant amount of this cash in the financial system
and simply choose to expend it in its current form. However, it is inevitable that an important
portion of it will find its way into the formal financial system. Turkey plays an important role
in this process as a means of placement and layering.
Although ISIL’s territorial control has been fluid, it has maintained a presence along
Turkey’s borders with Iraq and Syria. This is a porous area containing smuggling routes used
by locals for centuries. 115 These land routes are being used for bulk cash smuggling into
Turkey, where it is deposited into its banks. However, Turkey’s FIU116 and anti-money
laundering structure are unprepared to track these transactions, since cash deposits and
international wire transfers are not recorded. This is reinforced when the cash is broken up
into small amounts, or “smurfed.” Further adding to the country’s permissiveness in
receiving illicit funds, there are no enhanced due diligence requirements for foreign or
domestic politically exposed persons.
In addition ISIL’s practice of placing funds in Turkey, the country is also used as a
method of layering. The same bulk cash smuggling process described above is also being
used in areas near ISIL-controlled territory. Among the most vulnerable countries is
Lebanon. In 2015, media reported on allegations that Turkey’s Odea Bank, a branch of
Lebanon’s Bank Audi was being used by ISIL as a means of layering. 117 After illicit funds are
placed in Lebanon for layering purposes, ISIL transfers the funds into accounts located in
other Sunni Muslim countries. Both Turkey’s geographic location and the sophistication of
its banking sector make it a principal source of these funds. It should be noted that our
“Extremists through a secret passage from Turkey into Syria, $ 10 bribe guards”, WarEye, August 28, 2014,
http://www.wareye.com/extremists-through-a-secret-passage-from-turkey-into-syria-10-bribe-guards/
115
116
Turkey’s FIU, the Financial Crimes Investigation Board (MASAK) falls under the authority of the Ministry of Finance.
117
“Bank Audi denies report on ties to ISIS”, The Daily Star, April 3, 2015.
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searches found no indication of how ISIL integrates funds in Turkey for its use when the
laundering process is complete. Nevertheless, its government has been markedly slow in
reacting to its exposure to ISIL’s money laundering techniques. This reluctance to adapt its
money laundering structure to the challenges presented by ISIL led the Financial Action Task
Force to retain Turkey in its high-risk and uncooperative category. 118
7.2.1
I2 chart – Bulk Cash Smuggling
Tom Keatinge, “Turkey's Dirty Money Why Ankara Is Still on FATF's Gray List”, Foreign Affairs, February 25, 2014,
http://www.foreignaffairs.com/articles/140970/tom-keatinge/turkeys-dirty-money
118
47
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48
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8. Singapore
8.1 Background
Singapore is a high-income island city-state that serves as a major financial center and
offshore hub for Southeast Asia. It has one of the world’s “most business-friendly regulatory
environment(s)”119 and among its lowest corruption rates. 120 However, this is countered by
draconian laws prohibiting behaviour that the government deems to be “anti-social.”121
Regulation against money laundering is strict. The latest figures available reveal that in 2012,
Singapore had a high number of money laundering prosecutions (28) and convictions (27). 122
Singapore’s Financial Intelligence Unit 123 oversees a robust anti-money laundering
framework that covers a wide range of entities and comprehensive suspicious transaction
reporting guidelines. The US$ 4.17 billion in annual revenue reported by Singapore ’s two
casinos raises the concern that they are being used for money laundering. However, an
extensive review of Singapore media and other online sources, failed to identify these
casinos as vulnerable to money laundering due to strict oversight in place.
“Singapore Overview”, The World Bank, April 2015, http://www.worldbank.org/en/country/singapore/overview (Hereinafter:
Singapore Overview, April 2015).
119
120
121
“Corruption By Country”, Transparency International, 2014, http://www.transparency.org/country#SGP
Singapore Overview, April 2015.
“2014 International Narcotics Control Strategy Report (INCSR) - Singapore”, U.S. Department of State, 2014,
http://www.state.gov/j/inl/rls/nrcrpt/2014/vol2/222820.htm
122
Singapore’s Financial Intelligence Unit, the Suspicious Transaction Reporting Office, falls under the authority of the
Commercial Affairs Department, a division of the Singapore Police Force.
123
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8.2 Typology 1 - Brick and mortar casinos well regulated; Online
casinos banned
According to the Association of Certified Fraud Examiners (2014), casinos are a main
means by which money is laundered in countries with a robust regulatory environment. 124 In
Singapore, where its free-market ethos provides a fertile environment for gambling, there are
currently two major casinos, the Marina Bay Sands and Resorts World Sentosa, both of which
opened in 2010. These casinos are cash intensive and provide their patrons with a range of
financial services, including deposit and credit services, funds transfer services, and currency
exchanges. This creates ample opportunities to launder money, often in large amounts equivalent
to the volume of currency with which these casinos deal in the normal conduct of business.
While there is a strong potential for money laundering through Singapore’s two primary
casinos, there are strident measures in place to prevent it. The law enforcement arm of
Singapore’s Casino Regulatory Authority (CRA) is internationally respected as a stringent
watchdog. First, Singapore’s casino operators are required to file cash transaction reports for
transactions over US$ 10,000. Second, casinos are forbidden from making any transaction
“involving the conversion of money from one form to another” in instances when these funds are
not being used for gambling purposes. 125 They are also required to determine the “purpose and
ownership” of each cash transfer, on penalty of having such funds confiscated by the
government.126 Finally, casinos are legally mandated to be on guard for “any suspicious
124
“2014 Fraud Examiners Manual”, Association of Certified Fraud Examiners, 2014. (Hereinafter: CFE Manual, 2014).
“Singapore National Money Laundering and Terrorist Financing Risk Assessment Report ”, Singapore Ministry of Finance,
2014,
125
http://www.mas.gov.sg/~/media/resource/news_room/press_releases/2014/Singapore%20NRA%20Report.pdf (Hereinafter
Singapore Ministry of Finance, 2014).
126
Singapore Ministry of Finance, 2014.
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transaction” taking place in their business, as well as to report such suspicion in the event that
they have any “reasonable grounds” to suspect that criminal action is taking place.127
One great example of a way for TCOs to launder illicit funds and circumvent rigorous
regulations enforced by Singapore’s authorities is by buying chips or casino credits to gamble
with. By doing this, winning or losing doesn’t matter per say as long as the TCOs, do not gamble
all their cash away and avoid buying in or cashing out more than or even close to US$ 10,000 at
any single time. For example, as long as the individual exchanging money for chips does not
exchange more than US$ 10,000 at a time, they will be less likely to be investigated due to
regulations set forth by Singapore’s CRA. More than US$ 10,000 will set off a red flag.
In this circumstance, the placement stage of money laundering occurs after the individual
has received the chips and gambled and later cashed the chips (still considered “dirty” money)
out for “clean” money in the form of cash or a casino check. For example, in Singapore, because
of its stringent regulations against money laundering, if someone wanted to launder US$ 100,000
in a single day, at least 11 people would be needed in order to not reach the daily per person
limit. This would be done by purchasing chips, then gambling for a while, and then cashing out
soon after. Layering within this particular form of money laundering happens once the individual
redeems their chips for a casino check, then turns around and asks the casino to wire transfer the
amount to another account in another country or to a branch of the same casino. For instance
wire transferring the amount from the casino in Singapore to their “sister” casino in Macau. Once
this has been accomplished, it is much more difficult for the illicit funds to be traced due to the
cross-border transaction. After the illicit funds have been cleared, they are now considered legal
tender and ready for integration.
127
Singapore Ministry of Finance, 2014.
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The international proliferation of online gambling has also worried Singapore’s
authorities to its exposure to money laundering. Online casinos are relatively new to Singapore
and require little capital to establish, while offering both patron-clients and their managers
“virtual anonymity…[with] many of the same features” as traditional casinos.128 This includes
allowing patrons to establish accounts through which they can transfer funds and perform wire
transfers.129 Although these new online casinos have caught the eye of Singapore’s regulators,
they are often difficult to track due to their large number and because many times they will
“function as unregulated banks.”130
While Singapore has established clear laws and regulations to restrict the illegal use of
their conventional casinos, laws prior to 2014 were considerably less clear regarding online
casinos, especially with regard to money laundering. For many years, Singapore law was “hazy”
when it came to regulating these casinos, as the laws pertaining to gambling are often “archaic”
holdovers from a time before where gambling was not carried out on the Internet the way it is
today.131 Current law in Singapore has been declared to be “inadequate to deal with online
gambling,” but there has yet to be new legislation and regulation introduced to regulate the
illegal use of these services.132
In 2014, rather than explore the establishment of laws which would regulate online
gambling, the Ministry of Home Affairs elected instead to ban these services outright. The ban
on online gambling is a blanket solution to this problem. Rather than mount the considerable
effort that it would take to regulate this complex industry, which often becomes a ‘cat and
128
CFE Manual, 2014.
129
CFE Manual, 2014.
130
CFE Manual, 2014.
131
Y.W. Ming, “Regulating Online Gaming in Singapore”, World Services Group, 2012,
http://www.worldservicesgroup.com/publications.asp?action=article&artid=4529 (Hereinafter: World Services Group, 2012).
132
World Services Group, 2012.
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mouse’ game between regulators and websites which can pop up overnight to replace those shut
down, Singapore has instituted a US$ 500,000 fine for any gambling website found to be
operating in its jurisdiction. This represents a strict, though temporary, solution this major
problem, which is likely to be amended in the future by more comprehensive regulation of online
casino activity.
8.2.1
I2 chart – Brick and Mortar Casino
53
9. Kenya
9.1 Background
Kenya is surrounded by failed states (Ethiopia, Somalia, South Sudan and Uganda),
which rely on it as a financial services center, and as a sanctuary from armed conflict.
However, the September 2013 Westgate Mall, and April 2015 Garissa University terrorist
attacks by Somali-based Al-Shabaab solidified the idea Kenya can no longer stay immune to
the region’s growing unrest. Along with a large Muslim population, Kenya has a sizeable
Middle Eastern immigrant community, both of which rely on remittance systems to transfer
funds back to their native countries.
In addition to the threat of terrorist groups laundering funds through remittances , Kenya
is especially vulnerable to networks of Somali pirates depositing substantial ransom
payments in its banking system. The chief draw of Kenya for this group lies in “Kenya's
sophisticated financial services, business and legal sectors,” as well as “relative political
stability,” all factors which make it “a safe house in a bad neighborhood.”133 Among the most
commonly used methods for Somali pirates to launder funds in Kenya are bulk cash
smuggling and real estate investments.
Red-flagging typologies associated with these methods is hampered by the poor
reporting requirements of Kenya’s Financial Intelligence Unit’s134 (FIU). It does not record
K. Migro and S. Dawson, “Kenya: Chic Nairobi Throbs to the Beat of Dirty Money”, All Africa, 2013,
http://allafrica.com/stories/201312120134.html
133
Kenya’s FIU, the Financial Reporting Centre, is overseen by the Anti -Money Laundering Advisory Board (AML Board). The
AML Board is composed of the Permanent Secretary of the Ministry of National Treasury; Attorney General; Governor of the
Central Bank; Inspector General of Police; Chairman of the Kenya Banker’s Association; Chief Executive Officer of the
Institute of Certified Public Accountants of Kenya; and two representatives with money laundering expertise from Kenya’s
private sector.
134
currency transaction reports, and only since 2012 has it accepted suspicious transaction
reports.135 Nonetheless, an extensive review of Kenyan media and other online sources
confirmed bulk cash smuggling by Somali pirates, which was then invested in real estate as a
prominent typology.
9.2 Typology 1 – Laundering Somali piracy ransom payments via
real estate
Somalia is a failed state with nearly no legitimate economy and dominated by competing
warlords, terrorist groups and networks of pirates. In 2011, the total revenue derived from
Somali piracy was US$150 million.136 There is evidence indicating that these funds are smuggled
into Kenya by couriers and middlemen who work for the Somali pirates and other criminal
groups.
During placement, illicit funds from Somali pirates, mainly from ransoms, are smuggled
into Kenya. The preferred methods are air transportation, using clandestine runways, and
over ground, using the harsh roads and paths connecting the countries. According to a World
Bank study, there are up to 812 unofficial routes used by Somali pirates for smuggling into
Nigeria.137 Once the funds are in-country, they are broken up into small deposits, or smurfed,
in order to be placed in a Kenyan financial institution. Then they are transferred to bank
accounts in offshore jurisdictions for layering.
“2014 International Narcotics Control Strategy Report (INCSR) - Kenya”, U.S. Department of State, 2014,
http://www.state.gov/j/inl/rls/nrcrpt/2014/vol2/222742.htm
135
“Pirate money promotes global criminal activity”, Reuters, November 1, 2013, http://www.trust.org/item/20131101223540a5i18/
136
“Pirate Trails: Tracking The Illicit Financial Flows From Pirate Activities Off The Horn Of Africa”, The World Bank, 2012.
(Hereinafter: The World Bank, 2012).
137
Once the funds are ready for integration, the networks purchase real estate in Kenya via
the offshore accounts ultimately owned by the pirate network. The World Bank study
identified real estate investments by Somali pirates as far as Asia and Europe, and ranging
from small mom and pop shops and gas stations to large joint ventures.138
138
The World Bank, 2012.
9.2.1
I2 chart – Laundering Somali piracy ransom payments via real estate
10. Nigeria
10.1 Background
Nigeria is a perfect storm of criminal and terrorist activity. The country serves as a
major drug transit point and a hub for terrorist financing. It is a pioneer in online financial
scams, including the notorious “419 scam,” named after the pertinent section in Nigeria’s
criminal code. A myriad of criminal activities serve as the main sources of laundered funds:
drug trafficking, human trafficking, illegal oil sales, smuggling of counterfeit goods and
various cybercrimes. Multiple domestic and foreign TCOs operate in the country, including
the Neo Black Movement of Africa, Andean cocaine traffickers, Pakistani and Southeast
Asian heroin traffickers and Eastern European syndicates.
According to the Nigerian Financial Intelligence Unit 139 (NFIU), the most prevalent
typologies used to launder these funds are through bulk cash smuggling, real estate, offshore
wire transfers, political campaign financing, vehicle dealerships and trade based money
laundering.140 An extensive review of Nigerian media and other online sources indicates that
a typology that has recently garnered attention is money laundering through the nation ’s
churches.
139
NFIU falls under the authority of the Economic and Financial Crimes Commission (EFCC). The EFCC is composed of the
Central Bank, Ministry of Finance, Ministry of Justice, Ministry of Foreign Affairs and several other law enforcement, nation al
security and financial agencies. A congressional bill, the Nigerian Financial Intelligence Agency Autonomy Bill, has been
held up in Congress since 2013. The law would remove the NFIU from the EFCC and make it an independent agency.
140
Nigeria Financial Intelligence Unit: http://www.nfiu.gov.ng/
10.2 Typology 1 - Churches
In June 2013, the Central Bank of Nigeria (“CBN”) froze the accounts of numerous
churches under suspicion of laundering funds for terrorist group Boko Haram. 141 The
Christian Association of Nigeria (CAN) protested the measure by directing its members to
cease reporting its financial transactions to the CBN. According to them, their members
would never associate themselves with a group that violently targets Christians. Additionally,
CAN accused CBN authorities of purposefully exempting churches with connections to
President Jonathan Goodluck’s administration.142 Although some of CAN’s protests may be
legitimate, Nigerian churches are particularly vulnerable to money laundering.
One aspect of Nigerian law that attracts money launderers to churches is that they do no t
have a limit on the amount of bank accounts they can open. This allows for corrupt churches
to establish several branches, essentially what amounts to “shell churches” where small
churches with little to no congregation are used as fronts for money laundering. Each one of
these branches then opens their own series of numerous bank accounts. Further expanding
the problem, corrupt churches appoint several individuals as church pastors, each of which
split off and forms their own churches.
According to an academic article, during placement, Nigerian churches laundering illicit
funds combine these with legitimate donations. In order to break up large cash quantities into
smaller deposits, the churches resort to smurfing. During layering, the funds are transfe rred
to Nigerian shell companies, which keep the funds in-country, or they transfer a portion of
Obinna Akukwe, “Sanusi, CBN Freezes Accounts Of Churches; Seeks Boko Haram Sponsors among Pastors And
Priests”, 247 U Reports, June 21, 2013, http://247ureports.com/sanusi-cbn-freezes-accounts-of-churches-seeks-boko-haramsponsors-among-pastors-and-priests/
141
Kato Gogo Kingston, “Churches and private educational institutions as facilitator of money laundering: The case of
Nigeria”, Journal of Advanced Research in Law and Economics, 2011, Vol 11 2(4): 136-142.
142
the funds to foreign banks, often in offshore jurisdictions. Whenever the group decides to
integrate or repatriate its clean funds, it does so through the same shell companies and
offshore accounts.
10.2.1 I2 chart – Churches
11. South Africa
11.1 Background
South Africa has the most stable economy and advanced financial sector on the
continent. However, its sizeable informal economy and a variety of large immigrant groups,
make it a hotbed of transnational crime. The country has an across the board presence o f
TCOs, many of which use the country to manage their African operations. These include
South American and Indian drug traffickers, Chinese Triads, Japanese Yakuza’s, Lebanese
trafficking syndicates and Eastern European identity thieves. 143 Apart from illicit drug sales,
financial fraud, human trafficking, theft of precious minerals and stolen vehicles are the main
sources of laundered funds.
According to South Africa’s Financial Intelligence Unit 144, the most common practices
to launder funds is through bulk cash smuggling and designated non-financial businesses and
professions, especially real estate and vehicle dealerships. 145 Although money laundering is
criminalized in South Africa, it is rarely indicted as a stand-alone offense. Instead, authorities
include it as a secondary charge along with other offenses. 146 This results in the
underreporting of money laundering, and as a result of this, its pervasiveness difficult to
estimate. Accordingly, an extensive review of South African media and other online sources
identified both vehicle and illegal diamond smuggling as widely used methods of laundering
funds.
“2014 International Narcotics Control Strategy Report (INCSR) – South Africa”, U.S. Department of State, 2014,
http://www.state.gov/j/inl/rls/nrcrpt/2014/supplemental/228006.htm (Hereinafter: International Narcotics Report – South
Africa, 2014).
143
144
South Africa’s FIU, the Financial Intelligence Centre, falls under the authority of the Ministry of Finance.
145
South Africa’s FIU: https://www.fic.gov.za/
146
International Narcotics Report – South Africa, 2014.
11.2 Typology 1 – Motor Vehicle Sellers
Motor vehicle smuggling is a major route by which funds are laundered into and out of
South Africa. According to a report by the Institute for Security Studies, indications are that
motor vehicle smuggling for the purposes of money laundering lies in concealing illicit funds by
investments in legitimate businesses such as car dealerships.147 Thus, groups that steal cars in the
country’s neighbors and smuggle them into South Africa, or South African-owned vehicles
stolen in the country, may launder proceeds back into the South African economy in this manner.
Dealerships which pose a “high risk” for money laundering will sell “smuggled vehicles at a
lower price,” as compared to the same vehicles obtained legally in South Africa.148
There is also significant use of the ‘Hawala’ remittance system in car smugglers’ and
‘front’ dealerships’ money laundering practices. Hawala is a system of value transfer which acts
as an informal barter and economic exchange, and comprises a great deal of the South African
informal ‘underground’ economy. Vehicles which are stolen in other nations (or off the streets in
South Africa) may be sold through legal or illegal dealerships, or through the Hawala economy.
Motor vehicle dealerships in South Africa may be established through the use of proceeds from
the sale of stolen motor vehicles through money which is obtained for such vehicles through this
mode of informal ‘parallel’ banking.
According to a report by the South African car insurance industry, vehicles are smuggled
into South Africa through several methods, including the use of false registrations and
“duplicate” documentation which belongs to a vehicle with the same model and make as the
A. Hubschle, “Organized Crime in Southern Africa: First Annual Review”, Institute for Security Studies, 2010,
http://www.issafrica.org/uploads/OrgCrimeReviewDec2010.pdf (Hereinafter: Institute for Security Studies, 2010).
147
148
Institute for Security Studies, 2010.
vehicle which is being smuggled into or out of the country. 149 Additionally, vehicles are
smuggled in a covert manner, through vessels or shipping containers, or smuggled into South
Africa by use of air transportation. When vehicles are smuggled into South Africa ‘in the open,’
through use of falsified or duplicate registrations, it is very difficult to detect. These methods and
the laundering that they facilitate are assisted by border posts where there is often a lack of
compliance with proper inspection procedures, or by criminals who target border crossings
where there are officials who are known to be corrupt.150
Additionally, South African banks have been known to take advantage of South African
police corruption and lapses in police security in order to facilitate the theft and resale of stolen
vehicles. Money launderers have stolen vehicles which have been smuggled into South Africa
after they have been found stolen and impounded. This is a significant factor with regard to this
laundering typology because the reports identify the complicit nature of South African banks and
the inability of its police to maintain strong security over vehicles impounded after they have
been stolen. Once they have been stolen again from police impound, these vehicles are then resold at lower than market rates and the proceeds from the sale are laundered into the formation of
‘front’ car dealerships which serve to launder their proceeds into the South African economy.
“What are the methods used to smuggle vehicles across South African borders?”, Arrive Alive, May 18, 2010,
http://carinsurance.arrivealive.co.za/what-are-the-methods-used-to-smuggle-vehicles-across-south-african-borders.php
(Hereinafter: Arrive Alive, 2010).
149
150
Arrive Alive, 2010.
11.2.1 I2 chart – Motor Vehicle Sellers
11.3 Typology 2 – Illegal Diamonds
The diamond trade also provides a strong means by which money is laundered in South
Africa. As described by a 2013 report by the Financial Action Task Force (FATF), criminals in
the country launder funds through the South African economy by the illegal diamond trade. 151 In
this context, the diamond trade is only a pretext for the transferring of funds from one account to
another to conceal the way in which it was obtained. Additionally, money launderers purchase
diamonds with the cash proceeds of crime, and then sell the diamonds for cash at a “later date or
different location.”152 The South African Minister of Finance has stated that authorities believe
that “$2 billion and $8 billion was being laundered through South African institutions every
year” through the use of legal diamonds and other precious stones.153
The FATF report highlights the fact that the “sale and resale of diamonds within the national
and international diamond industry is a function of the diamond and jewelry cycle,” which
provides a strong opportunity for “laundering the proceeds of crime.”154 This cycle facilitates
laundering by making use of all stages of the diamond sale, from countries where diamonds are
produced, including South Africa, which produced 8% of the world’s diamonds in 2012, to
middle-stage parties which ‘polish’ rough diamonds, and finally to the nations where they
ultimately reach the market. As South Africa includes economic elements at all stages of this
cycle, it is a prime location for diamond-facilitated money laundering.
“Money Laundering and Terrorist Financing Through Trade in Diamonds”, Financial Action Task Force, 2013,
http://www.egmontgroup.org/library/download/318 (Hereinafter: FATF Report, 2013).
151
152
FATF Report, 2013.
153
FATF Report, 2013.
154
FATF Report, 2013.
Illegal diamonds are used in South Africa for money laundering by criminals who will sell
or trade the diamonds, or by criminals who will illegally “re-cut” the diamonds into new shapes
as a means of concealing their illicit source.155 One reports details how the use of diamonds for
money laundering involves hiding the proceeds from stolen motor vehicles: Vehicles stolen in
South Africa will be smuggled out of that country, where they will often be exchanged for
diamonds, which then can be re-sold in South Africa. This practice often involves the use of
complicit or corrupt merchants who sell precious stones for domestic consumption.156
C. Goredema, “Profiling Money Laundering in Eastern and Southern Africa”, Institute For Security Studies, 2013,
http://www.issafrica.org/uploads/Mono90.pdf (Hereinafter: Institute For Security Studies, 2013).
155
156
Institute For Security Studies, 2013.
11.3.1 I2 chart – Illegal Diamonds