ABC OF MONEY LAUNDERING

Abacha was named as being responsible for wholesale looting of up to 10% of Nigeria’s national income.... (but) family insists to this day that the vast amount of money was generated by wholly legal means.

Aderemi Medupin 

Defining Money Laundering

In the simple but enlightening language of The Economic Times, Money laundering is the process of hiding the source of money obtained from illegal sources and converting it to a clean source, thereby avoiding prosecution, conviction, and confiscation of the criminal funds. A similar offer from Investopedia states: Money laundering is the illegal process of making large amounts of money generated by criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. The money from the criminal activity is considered dirty, and the process “launders” it to make it look clean. A shorter, yet more instructive rendition is that from the United Nations which states that: Money laundering is the processing of criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardising their source.

It bears recalling that money laundering has been addressed in the UN Vienna 1988 Convention Article 3.1 describing Money Laundering as: “the conversion or transfer of property, knowing that such property is derived from any offense(s), for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in such offense(s) to evade the legal consequences of his actions.”  This is in line with INTERPOL’s rendition, that: Money laundering is concealing or disguising the origins of illegally obtained proceeds so that they appear to have originated from legitimate sources. It is frequently a component of other serious crimes such as drug trafficking, robbery or extortion.

Upfront, it needs to be acknowledged that money laundering has assumed a global spread as revealed by the INTERPOL as it’s now found in areas where it might least be expected, such as environmental crimes. As the reader may wish to note, the list of environmental crimes includes several primary categories, such as wildlife crimes, illegal mining, pollution crimes, illegal fishing, and illegal logging. All of them breach environmental legislation and may cause significant harm not only to the environment but to human health as well. It is estimated that more than $2 trillion is laundered annually. Not surprising, the advent of cryptocurrency, such as bitcoins, has exacerbated this phenomenon, in effect constituting a bane to society as a whole. As documented by Sanction Scanner, money laundering is one of the largest crimes the global economy has been dealing with for centuries, and it is growing. According to the International Monetary Fund (IMF), the money laundering rate is between 2-5 percent of GDP. This ratio corresponds to an enormous amount of the world's total money..

How Money Laundering is Carried Out

As explained by Investopedia, the process of laundering money typically involves three steps, namely: placement, layering, and integration.

• Placement- Placement surreptitiously injects the “dirty money” into the legitimate financial system.  At this stage, the money launderers inject the crime money into the financial system. That is often done by depositing funds into a bank account registered to an anonymous corporation or a professional middleman. In effect, moving the funds from direct association with the crime
• Layering- Layering conceals the source of the money through a series of transactions and bookkeeping tricks. The money so injected by placement is moved or spread over various transactions in different accounts of the same country and other countries where anti-money laundering laws are not so stringent, thus, making it difficult to trace the source. In effect, disguising the trail to foil pursuit.
• Integration- In the final step, integration, the now-laundered money is withdrawn from the legitimate account to be used for whatever purposes the criminals have in mind for it. Such well-placed and well-layered money again enters the financial system, obliterating the original association with crime and using such laundered money as if it came from clean sources, thus defeating the law. The criminal might then invest such clean money into a legal business claiming payment by producing fake invoices or even start a bogus charity, placing themselves on the board of directors with an exorbitant salary. In effect,  making the money available to the criminal from what seem to be legitimate sources

Of course, not every laundering process necessarily entails all the three steps outlined in the standard format presented here. The ways money is laundered are always evolving as criminals come up with creative ways to launder their illicit funds. For example, criminal gangs move illegally obtained funds around the globe using banks, shell companies, intermediaries and money transmitters, attempting to integrate the illegal funds into legal businesses and economies.  Nowadays, money mules play a key role in this context; these are people who act as intermediaries for criminal gangs, even when they are not aware of the fact they are laundering illegal funds.

Consequences of Money Laundering

When money laundering is successfully carried out, the laundered funds can be used to fund other criminal activities. One of the acknowledged consequences of money laundering is .that it makes the rich richer, thereby contributing to income inequality in society. Legitimizing the proceeds of illegal activities like drug trafficking, terrorism funding, people smuggling, etc., have a tremendous social and economic cost on the society.

The Fight against Money Laundering

Given that money laundering has serious negative socio-economic consequences, global and local regulators draft regulations to minimize these effects and prevent money from money, as it were. Understandably, therefore, anti-money laundering measures have gained importance to prevent and curb such practices. In this vein, governments worldwide have imposed anti-money laundering (AML) laws and regulations, as well as privacy and disclosure protections. Specifically, banks and other financial institutions are required to comply with these AML procedures to ensure a safe system, where criminal activities are detected and reported to authorities. AML fines of non-compliance hold banks responsible for not following legislation to prevent money laundering schemes.

Just as a footnote and on a point outside the purview of our interest, Investopedia posed the question: How Can You Tell If Someone Is Laundering Money? Its answer: There are several red flags to look out for that may point to money laundering. Some of these include suspicious or secretive behaviour by an individual around money matters, making large transactions with cash, owning a company that seems to serve no real purpose, conducting overly-complex transactions, or making several transaction just under the reporting threshold.

Notable Cases of Money Laundering

On November 14, 2022, the blog of a financial crime monitoring organization carried a feature on, “The 4 Most Notorious Money Laundering Incidents of All Time”, highlighting the first four following cases:

1991. Bank of Credit and Commerce International (BCCI): Founded in Luxembourg in 1972 by Pakistani businessman Agha Hassan Abedi, BCCI Banka, while establishing its headquarters in Belgium, soon expanded globally and operated mainly outside the U.K. However, they were involved in fraud and money laundering activities of up to U.S. $ 23 billion. In 1990, allegations surfaced following an investigation by Price Waterhouse that BCCI falsified transactions and it turned out that large, unregistered deposits were made in the bank. Some figures were accused of money laundering at BCCI. Other allegations included using sophisticated processes such as privacy havens and bribery. The result led to the end of BCCI in 1991.
1992. HSBC Case: HSBC Holdings, the biggest bank in Europe, in 2012, HSBC paid a fine totaling $1.9 billion because it failed to prevent drug cartels from using the bank to launder nearly $1 billion.

• Wachovia Bank: This was one of USA’s largest banks by 2010. However, during the period 2004-2007, it had allowed drug cartels from Mexico to launder an estimated $380 billion through its branches. The cartels smuggled US Dollars from drug sales across the Mexican border, which they then used on money exchangers (Bureau De Change) to deposit in their personal accounts. The bank failed to determine the origins of these funds which made it to pay around #110 million to the US in asset forfeiture.

1. The Benex Scandal: In what was to become known as the “Benex Scandal,” vast sums of money with suspected links to the Russia mafia made its way into “Benex Worldwide” accounts at the Bank of New York, one of America’s oldest and most prestigious banks. This so called “capital flight” money — the economic term applied when money or assets rapidly flow out of a country — was then distributed amongst various European companies before returning to Russia. It is estimated that during the period 1996 to 2002 between $7 and $9 billion was laundered through the Bank of New York accounts. After a massive police operation, numerous arrests were made.

 Financial Crime Academy has served its own list of money laundering cases, from which two are extracted to complement our initial four.

1. Commerzbank: One of the most significant fines in the UK is related to the London branch of Commerzbank. In June of 2020, Commerzbank faced a $50 million fine. This German banking corporation failed to enact applicable know-your-customer regulations relating to thousands of the bank’s customers and ignored multiple warnings from the prudent regulator beforehand. In 2016 and 2017, the bank failed to comply with AML and KYC legislation. With a resource deficiency of employees working in the anti-money laundering department, Commerzbank hired 47 new employees, bringing their departmental total up to 50 AML professionals to avoid future fines. Even so, the bank failed to accommodate and provide adequate AML protection and was charged.
2. Deutsche Bank: Involved in two separate problems, the bank faced charges in the US and UK for failure to comply with various regulations. With fines exceeding $150 million, this German bank has been tied to many controversies across the world in recent years. The location in New York faced severe fines for crimes tied to non-compliance with KYC legislation after being entwined to the late Jeffrey Epstein. Epstein, convicted of various abuse crimes, put the bank at risk after failing to follow KYC laws. Deutsche Bank reportedly chose not to follow the rules in place despite knowing the criminal history of Epstein, allowing various apprehensive transactions upwards of millions of dollars. Similarly, Deutsche Bank paid out $600 million in fines in 2017 related to a Russian money-laundering scandal.

For a balanced coverage, six individual, as opposed to corporate, cases are hereunder highlighted, courtesy of GSI Group Company, UK:

1. Franklin Jurado: In 1996, Harvard educated Franklin Jurado pleaded guilty to laundering $36 million on behalf of Colombian drug lord José Santacruz-Londoño. Using his economic wizardry, Jurado moved the cocaine profits far and wide in an effort to make them seem like legitimate earnings. After being funneled through various European banks and companies, the funds would eventually make their way back to Santacruz-Londoño’s businesses in Colombia. Eventually, a bank collapse in Monaco highlighted Jurado’s connection to several accounts. An extremely noisy bank counting machine at his house in Luxembourg did not help his cause, either. He was sentenced to seven-and-a-half years in jail.

2. Sani Abacha: During Sani Abacha’s five year reign (1993–1998) as military dictator of Nigeria he and his family managed to transfer national funds of up to £5 billion ($8 billion) into foreign bank accounts. Listed by Transparency International as the fourth most corrupt leader in recent history, Abacha was named as being responsible for wholesale looting of up to 10% of Nigeria’s national income. Following his sudden death in 1998 — possibly due to poisoning — the Nigerian government was able to recover $2 billion of the funds. Abacha’s family insists to this day that the vast amount of money was generated by wholly legal means.

3. Al Capone: The best known of America’s mobsters was at the forefront of the birth of modern money laundering schemes. It is estimated that he laundered $1 billion through various businesses. His first businesses were in fact laundry-focused, which, being cash operated, were very helpful in hiding and disguising illegal gains. The fact that Capone made use of the laundry trade is frequently given as the origin for the phrase “laundering” — however this is still subject to debate. Capone was eventually indicted in 1931 for a different financial crime: tax evasion.

4.    Meyer Lansky: Following Capone’s imprisonment one of his contemporaries, the Polish born “mob’s accountant” Meyer Lansky, deduced that he needed to hide the root of money gained through illegal means in order to avoid the law. It has been said that he can be credited with establishing the modern form of money laundering. He siphoned off around $1 billion from his growing casino empire into Swiss bank accounts and businesses in Hong Kong, South America and the Caribbean. He was never convicted and died in 1983 with an estimated net worth of $100 million.

5.    Ferdinand Marcos: Ferdinand Marcos, an ex-lawyer, was president of the Philippines from 1965 to 1986 before being removed from power by a popular uprising. During his reign he laundered billions of dollars of stolen public funds through banks in the US and Switzerland. It took the Philippines a massive operation, known as “Operation Big Bird,” to retrieve the money (estimated as US$7.5 billion). As a memorable indication of Marcos’ opulent lifestyle it is widely remembered that his wife Imelda owned over 2,500 pairs of shoes, very well ahead of a former Nigerian Oil Minister.

6.    Pablo Escobar: The most successful criminal ever known, it has been said that at one point Pablo Escobar was so rich he spent $1,000 a week on rubber bands in order to wrap his bundles of cash. Escobar’s business was drugs — at one time his cartel controlled 80% of the world’s cocaine trade. Laundering money was central to Escobar’s empire, and his recipe for success was relatively simple: “[Y]ou bribe someone here, you bribe someone there, and you pay a friendly banker to help you bring the money back.” In 1989, Escobar’s personal fortune was estimated at $9 billion, making him the seventh richest man in the world. His criminal career — and life — ended in 1993 following a gun fight with Colombian authorities.

A Brief on the Nigeria Scene

Not surprising, even if uninspiring, Nigeria is not absent in the league of money launderers and the government has not been indifferent and it registers as a candidate deserving of attention, no matter how brief. This isolated focus is without prejudice to the case of Sani Abacha already cited. The Nigerian Resolution Law Firm has drawn attention to the fact that the principal law governing money laundering in Nigeria is the Money Laundering Prohibition Act (2011) and the leading government agency investigating and prosecuting the offences of money laundering in Nigeria is the Economic and Financial Crimes commission (EFCC).

On November 27, 2014, Auwal Ibrahim Musa of Zero Corruption Coalition issued a statement on the platform of an umbrella CSO- UNCAC Coalition, themed: “Money Laundering and Asset Recovery: The Case of Nigeria”, submitting as follows: In Nigeria, it is disheartening that despite efforts to tackle money laundering and other financial crimes alarming examples of such crimes are abundant. Statistics released by Nigerian anti-corruption agencies like the EFCC, ICPC, as well as international organisations have revealed that trillions of naira meant for national development have been mismanaged or looted by corrupt leaders, officials and other Nigerians since independence. There have been and continue to be efforts to return some of the looted funds to Nigeria. It is important that when assets are returned this is done transparently, accountably and with multi-stakeholder oversight.

The author went further to recall that cases of corruption and money laundering are not unusual in Nigeria and a great number of high-profile corruption cases have remained inconclusive. Indeed, some former state governors who have cases to answer have brazenly come back to political reckoning. They confidently walk the streets today, deliberating on national issues. A report by the EFCC claimed that between January and December 2012, it filed about 353 cases in different courts in the country with about 53 convictions recorded. He lamented justifiably that it is worrisome that Nigerian leaders appear to handle corruption with levity. This has been the case with the late Sani Abacha who has been honoured by the Nigerian government despite detailed evidence of his misdeeds.

Finally on Abacha, Auwal Ibrahim Musa reported how the panel set up by Sani Abacha’s successor in 1998 secured early records which revealed that between November 1994 when Abacha took power and June 1998 when he died, Abacha had taken from the Central Bank of Nigeria funds totaling US$ 2,263,520,497.00 in cash withdrawals, travellers’ cheques and telegraphic transfers, by means of false security vote letters fraudulently claiming that the funds were needed for national security. This is detailed in a US Department of Justice complaint filed in November 2013 which led to freezing assets in March 2014 and the forfeiture in August 2014 of over US$ 480 million in corruption proceeds hidden in bank accounts around the world by Abacha and his co-conspirators. As reported by the Department of Justice, the judgment is the result of the largest kleptocracy forfeiture action brought in the department’s history.

The next candidate on Musa’s list is James Ibori, the former governor of Delta State, a case of that also illustrates why there is reason for concern about the lack of accountability in Nigeria. Ibori was governor of the oil-rich Delta State between 1999 and 2007 and was sentenced in September 2013 to 13 years imprisonment in Britain after pleading guilty in February 2012 to 10 counts of fraud and money-laundering worth tens of millions of pounds. Ibori had reportedly hidden some of his assets in the oil firm Oando and money passed from the company’s accounts to Ibori’s Swiss accounts. Ibori’s case remains one of the biggest embezzlement cases witnessed in Britain, and the successful prosecution of Ibori was also a rare example of a senior Nigerian politician being held to account for the corruption that blights Africa’s most populous country.

In its November 8, 2021 edition, Sahara Reporters reported how a Federal High Court sitting in Abuja convicted Ex-Pension Boss, Maina for Money Laundering, haven stolen N2billlion meant for Pensioners. The report recalled how the EFCC in 2015 had declared the man wanted; subsequently on his return, the Court found him guilty. The same online media outlet reported the case of the US revealing how Hushpuppi laundered funds for North Korean Bank Hackers. The story is that Alaumary - a prolific money launderer for hackers engaged in ATM cash-out schemes, cyber-enabled bank heists, business email compromise (BEC) schemes, and other online fraud schemes, perpetrated cyber-enabled heist from a Maltese bank in February 2019 and conspired with Ramon Olorunwa Abbas, aka 'Ray Hushpuppi', and others to launder the stolen funds.

 Projected Profile of Money Laundering

A legitimate question is: What is the success rate of money laundering? Using global statistics on money laundering, some researchers found that only 0.1% of illegally gained funds are recovered from criminals. Hardly surprising, criminals have incorporated cryptocurrencies in their money laundering techniques. Furthermore, identity theft has become one of the top money laundering trends. The good news is that governments and committed corporate bodies have not been relenting in their anti-money laundering drives as the anti-money laundering software market has been projected to reach $1.77 billion by 2023.

Inevitably, there are at least two broad levels at which the fight against the menace of money laundering must be fought: national and international levels. In practical terms, however, the fight has to be championed from the domestic level while adapting borrowed models and seeking cooperation of other nations. Indeed, given the demonstrated pivotal role of money laundering in facilitating corrupt acquisition of wealth, the seriousness of a government in tackling corruption can be measured by how much seriousness it demonstrates on the AML front. I come in peace, please.