(This was my paper
for Session 1 on 2nd September, 2013 of the 31st
Cambridge International Symposium on Economic Crimes at Jesus College. Sadly, for a personal reason I could not introduce it for discussion. Today I include it in my blog.)
Governments are
not keen on tackling economic crimes. The bigger the crime the greater are
one’s chances of getting away. A pick pocket caught nicking a few cents is
certain to be jailed for 3 years in most countries. But, if a big bank defrauds
billions the bank gets away with a fine- if that.
Vast amounts of
dirty money from real estate, under and over invoicing, insurance, securities, commodity
futures, arms, terrorism, tax evasion and fixing interest rates is filtered
into legal channels daily, with the help of the only Holy Cow in most
countries- banks. Banks profit by other dodgy means too. There are many
economic crimes but I shall focus on money laundering, which tries to camouflage the proceeds of crime so that the money can not be linked to the crime.
It is
a conspiracy that must have a triad – a criminal, business executives and
bankers. These are the people who break laws to transform dirty money into legal
investment. A criminal Lone Ranger may have hundreds of millions, but he can
use it legally only with the help of banks. And bigger the bank the more
efficient, expensive and reliable its laundering services will be.
A Conference on
Cooperation against Drug & Crime held in Steyning, UK in Feb, 1997 had estimated that about £2.4
trillion are laundered every year, and that drugs alone accounted for £ 600 –
850 bln. Incredibly, fifteen years
later, the UN said that same amount of money was laundered. In this interregnum
volume of all kinds of criminality and businesses has increased immensely. These
days when every economic activity is being estimated it is surprising that there
is none for this peer of economic crimes.
The last twenty
years of my service in the Government of India were spent in booking economic
criminals and narcotics traffickers. What I learnt was that the bigger the
economic crime, the greater the chances of escaping jail.
In the late 80s
some large Indian corporate houses, against whom there was incontrovertible
evidence of evading millions of £ of taxes, got away. Their smart lawyers
stitched up cases in courts for decades till new bureaucrats replaced old, zeal
faded and retribution was ignored. In one case against a leading cigarette
manufacturer a false rape case was lodged against me to show
me as a bad character so that they could take advantage of it in the tax
evasion cases being fought in higher courts. They didn’t get any advantage from
that but delays caused by other diversions eventually diluted the case so much that even a light tap on the wrist was not considered. Same tenderness towards too big to jail companies continues in India as much as elsewhere in the world.
India, like 190
other countries, has excellent laws against money laundering. And here too they
don’t work against the biggest offenders.
A too self
congratulatory 2012 survey of Anti Money Laundering measures in India found
that in some of the parameters like Know Your Customer (KYC), Sanction
Screening, Periodic Review of Customers etc India had done well. “Reserve Bank of India had fined 48
Indian Banks in six months leading up to June 2011 for violating the KYC and
AML norms. ...”. India
joined the Financial Action Task Force – a UK idea- in 2010.
Then, in May, a
sting operation on some of the biggest banks in India – foreign and Indian- exposed
this feel good survey. An Indian news channel Cobrapost wanted to deposit half
a million £ in several banks provided no questions would be asked. Each transaction
was filmed. Each bank guaranteed that they would launder it in such a way that no
Anti-Money Laundering Authority would be able to sniff it out! India’s Central Bank - Reserve Bank of India-
was stunned and quickly acted against some of the filmed banks. Twenty two
banks- Indian and foreign- were fined about £5.6 mln for violating anti-money
laundering guidelines. Amongst the
Indian banks was the Government owned State Bank of India and amongst the
foreign were Barclays, Royal Bank of Scotland, Bank of Tokyo Mitsubishi etc.
Yet, in June
2013 at its plenary meeting FATF decided that India had done well!
No criminal
economic opportunity in India is ever wasted and money continues to be
laundered daily. In India the known
sources of money laundering are officially thought to be political activity,
terrorism, shares, hawala and illegal
corporate activities. Not a whiff about drug related money amongst the
publicized reasons.
Narcotics linked
money laundering cases in India ought to be many, but there are not many cases.
Hashish is smuggled abroad in plenty. With quality of Indian heroin (above 60%)
improving some of it is going abroad. India’s fast expanding pharmaceutical and
chemical industries produce sensitive chemicals like Ephedrine, Acetic
Anhydride (AA), Potassium Permangnate and many other UN watched substances, which
can be misused to prepare several expensive narcotics and synthetic drugs. Thirty
five liters of Acetic Anhydride, used in making heroin, can be bought legally
in India for about £ 30. In Dubai or Afghanistan it will get at least £400.
Some ten years ago
Dubai Customs seized a shipment of about 11 tons of Indian AA miss declared, I
think, as rat poison. It was produced by an Indian firm called Mehak Chemicals.
I was involved in the follow up investigation and several Indians were
prosecuted here and the importer in Dubai executed, but despite requests for
tracing the payment route nothing happened.
India is one of
the five largest manufacturers of synthetic Ephedrine in the world. There is a KYC
protocol that is supposed to be followed by the manufacturers. Yet many tons of
Indian Ephedrine are smuggled to Burma and a ton or so is seized every year in
that country. The profit is at least a
1000%. Ephedrine is essential for producing Ecstasy or Amphetamine Type
Stimulants. Resultant payments are stashed with eager banks abroad.
While preparing
this paper I was surprised to find that there was only one significant drug
related money laundering case. And that was in 1989. An Indian Sam Biryani was caught
with 1 kg of heroin in New York. Bank transactions of $7 mln were detected in
follow up investigations. That was the first and last big case of drug related money
laundering in India, as far as I know. In real estate and tax evasion related
money laundering, some cases have been made, but they are all minor ones.
There is willing
help from abroad too. About 70 kgs of a $100,000
psychotropic substance imported from Belgium, miss declared as a cheap chemical
worth about $800, was seized by the narcotics office I was working in around
2000. Investigations about the payment route were stone walled. Belgian
authorities did not help. The INCB was impotent.
The modern day
practice of criminals using banks to convert illegal money into legal started
in the US in the 30s when criminal money was sent to Swiss banks and returned
as loans or investment.
Every September in such disciplined and peaceful environment of Jesus College, Cambridge, UK are the dirty and distasteful deeds of international crimes are discussed>
The US at that time was in the midst of the foolish
War on Drugs. That country accepted that the biggest single contributor to money
laundering was drug money, but quixotically attacked mainly the lowly street
level drug user and pusher. Reagan in a fine hate speech in November, 1988 ignored
the bigger threat from drug traffickers and money launderers and hit out at the
addict. The affect is that the US still arrests one drug user/pusher every nineteen seconds, while a
big time money launderer is not caught in years.
The world kept reshaping its anti money
laundering laws to keep up with digital developments. India’s anti money
laundering laws of 2002 were amended five times. The penalties are prodigious,
but not much effect. It is as difficult for a rich criminal to be jailed as it
is for a camel to pass through the eye of a needle.
In these hard times banks need to be profitable.
The means do not matter. Greed does. If banks protect such criminality there is
little that a Government will do to check it. Drugs are reliable business. Recession
cannot trouble it. The money it generates is sorely needed by banks and
corporations. Real estate, arms,
chemicals, ponzi schemes have their ups and downs, but never drugs. Money
matters, not principles.
I had asked my
friends in Europol and Serious Organised Crime Agency (SOCA) to share some old
cases that must have been made, but was surprised to draw a blank. The examples
are all from the US, which country has to its credit some dedicated whistleblowers
and hawkeyed journalists.
The
most prominent example of a bank laundering money from drugs is the Bank of
Credit and Commerce International (BCCI).
With its drug money profits it tried to take over the First American
bank too. BCCI started in 1972 from Pakistan and had become by 1982 the 7th
largest bank in the world, with its head offices in London and Karachi. The CIA
used this bank to supply arms and finance the Afghan mujahideen and the Nicaraguan Contras. The mujahideen used the BCCI to transfer drug funds and to buy arms, with
CIA’s help. By the end of the 80s the fall of the Soviet occupation in
Afghanistan became imminent. The CIA thought that BCCI’s connection with drugs
including the Medlin Cartel of Mexico and Cali of Colombia could eventually
embarrass the US. So they pulled the plug. In the mid 1980s the US Customs took over investigations and an undercover agent Robert Mazur got the confidence of both the Medlin Cartel and BCCI officials. By July 1991 the BCCI was history. There have been no arrests though two of its executives are still wanted. Perhaps being a Pakistan bank helped in its extermination. Similar zealousness has never again been shown while investigating banks. No Robert Mazur was sent to bring down a bank.
The Hong Kong and Shanghai Banking Corporation (HSBC) had between 2005 and 2010 moved about £ 36 trillion across Mexico, Switzerland, Cayman Islands, Iran, Saudi Arabia and Syria. Of this money it had accepted £ 10 bln in narcotics tainted cash over two years from Mexico. In one single transaction £ 3 bln was accepted in cash. The Cartels had had special bags made so that they could be slipped through the HSBC teller windows. It was fined only £ 1.3 bln in the US in 2011. On 4th March 2013 HSBC announced profits of £ 18 bln in 2012 and gave £ 3 mln bonus to its CEO. The British Government has not even gently chided the HSBC. The stink from such collusion does not bother sniffing journalists or jurists of that emerald isle.
In February, 2013 US Senator Elizabeth Warren raged at a meeting of the Senate Banking Committee "HSBC paid a fine, but no individual went to trial, .... How many billions do you have to launder for drug lords....before someone will consider shutting down a financial institution like this? .....If you are caught with an ounce of cocaine, the chances are good you're going to jail. If it happens repeatedly, you may go to jail for the rest of your life..." an exasperated Warren thundered into the wind.
The HSBC continues to launder money from criminal acts and tax evasion etc.. The leaks by its former employee Herve Falciani- the Snowden of banking, has thrown up numerous cases across the world. Unashamed and nonchalant, HSBC and other banks continue to pretend that nothing wrong has happened or that they will ever be touched.
In April 2006, Mexico seized 5.7 tons of cocaine, worth £ 60mln from a jet in the Mexican port city of Ciudad del Carmen. The paper trail led to Wachovia Bank, now a subisdary of Wells Fargo. Billions of £ in wire transfers, cheques and cash shipments wewre made into Wachovia accounts. Criminal proceedings started against Wachovia but were settled out of court. Conveniently. In March 2010, Wachovia "paid federal authorities £100 mln as penalty for transactions connected to drug smuggling, and a further £45 mln fine for failing to monitor cash to ship 22 tons of cocaine. The total fine was less than 2% of the bank's £12.3 bln profit for 2009. Not a single executive was jailed.
In June, 2013 UK Parliamentary Commission on Banking Standards' Fifth Report said bankers should in future be accountable for their actions, and their bonuses must be witheld. The Treasury welcomed the report, calling it a "very impressive piece of work." Maybe UK banks will be more accountable. Maybe they will act against HSBC! As for the USA, what can be said about a country that allowed Citigroup to draft a new bill to regulate the banking sector? ( Rolling Stone, May 2013) Senator Warren's is a lone voice in the all dominating criminalised world.
The US "has a history of doing the right thing only after exhausting all other oprions". Maybe with growing public pressure, in a couple of decades banks in that country will not escape justice and nor will their executives.
In the US the DEA tries at least. In 1994 there was Operation Dinero in which £ 45 million in cash, nine tons of cocaine were seized and 88 people of Cali cartel arrested. Then in 1996, a Harvard-educated economist Franklin Jurado was sent to prison for cleaning £28 million for Colombian drug lord Jose Londono. People with dirty money hire financial experts to handle the laundering process. Operation Green Ice in 1997 netted 16 tons of cocaine. In 2009 there was Operation Accelerator in which £50 mln in cash, 12 tons of cocaine and many more tons of marijuana, ATS pills etc were seized, and 755 of Sinaola cartel were arrested. But no banker. After every such case, optimistic reports claimed that they would never recover! They always did. In the past twenty years there have been about 103 DEA Operations and they only prove that drugs trafficking and money laundering continue.
The sub
continent has a non banking system of transferring money abroad. Its called hawala. Money is given to a hawala agent in one country and he will
honestly transfer it to a bank or person in some other country. The amounts
involved were not large, but now up to half a million £ are being transferred.
Their clients range from Bangladeshi, Indian and Pakistani labourers working
abroad to investors, real estate magnates, merchants and drug dealers.
In Afghanistan, once again a hub of money laundering, much
of the tons of cash being thrown around by NATO forces to buy information or
for minor development, goes instead to buy opium and opiates. These $ land in Dubai
banks, and used for criminal activities in Europe and the US. Some of this laundered money builds the
notorious and garish “poppy palaces” of Kabul, Herat and Zaranj. Everyone knows
this,
but the Financial Transactions and Reports Analysis Center of Afghanistan
(FinTRACA) is as ineffective as similar organizations in many countries.
Afghanistan perhaps is one of the few countries where secret
service funds are being laundered, liberally and profligately. Professor Barry
Rider, the organizer of these Symposia here, had said “it may often be
beneficial to the State as well as to individuals, not only to keep the origin
of certain funds secret but actually to disguise their provenance.” ( Insider Dealing and Money Laundering in the
EU: Law and Regulation by Dr. Richard Alexander
of SOAS, London) Justification for such use is almost impossible, as it
invariably leads to misuse. Perhaps Prof. Rider had CIA’s use of BCCI by encouraging
arms sales and drugs trade by the mujahideen
to pull down the Soviet occupation in mind. The effect of the amoral operation’s
spectacular failure can still be seen from the continuing uncontrollable surge
of opium production and needless bloodshed.
There
is an another popular fiction - if banks were properly led economic crimes
would decrease. HSBC, the bank that laundered drug money, had been led during
the eventful years from 2005 to 2010, by Revd. Stephen Green, an ordained priest
in the Church of England. He did a better job of serving mammon than god. He
stepped down as CEO of HSBC in December, 2010 and became a Minister of State
for Trade and Investment in the present Conservative-Liberal Government.
And if a bank
can be low enough to launder drug money, will it not do so for transactions
that have less sinful origins? In March 2013 Argentina’s tax agency discovered
that HSBC had helped its clients evade taxes and launder £50 mln in just six months. In UK there are the recent frauds by Kweku Adoboli of UBS Bank and Bruno Iksil of JP Morgan Chase. The former defrauded the £1,4 bln and was sentenced to seven years in jail- a rare feat for a banker, who must have been working alon. The latter caused trading losses of £5.6 bln, and is still free- presumably because he was not working alone.
In an incisive comment Andrew Haldane, Director of Stability, Bank of England said a few years ago “..there is one key difference between the situation today and that in the Middle Ages. Then, the biggest risk to the banks was from the sovereign. Today, perhaps the biggest risk to the sovereign comes from the banks. Causality has reversed.” “The reason could be that in UK banks’ assets are 492% of GDP. That is about 5 times the size of the UK economy! (John Lanchester in LRB 18th July, 2013) That is why these banks will remain too big to fail or jail.
In an incisive comment Andrew Haldane, Director of Stability, Bank of England said a few years ago “..there is one key difference between the situation today and that in the Middle Ages. Then, the biggest risk to the banks was from the sovereign. Today, perhaps the biggest risk to the sovereign comes from the banks. Causality has reversed.” “The reason could be that in UK banks’ assets are 492% of GDP. That is about 5 times the size of the UK economy! (John Lanchester in LRB 18th July, 2013) That is why these banks will remain too big to fail or jail.
Despite a
blizzard of laws and international treaties economic crimes continue to trump
ethics.
The US Attorney General Eric Holder brazenly admitted his helplessness in March 2013 to the US Senate Judiciary Committee. He was talking about banks too big to jail. "The size of some of these institutions becomes so large that it does become difficult for us to prosecute them... if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy." Such a shield is willingly given to their executives too. This is the whine of a helpless official, whose bread may be coming from his Government, but who knows which side to butter. Money, for the moment, lords it over morals and scruples. It has been so for quite a few centuries.
Shakespeare spoke for all times when he wrote these lines in King Lear:
The US Attorney General Eric Holder brazenly admitted his helplessness in March 2013 to the US Senate Judiciary Committee. He was talking about banks too big to jail. "The size of some of these institutions becomes so large that it does become difficult for us to prosecute them... if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy." Such a shield is willingly given to their executives too. This is the whine of a helpless official, whose bread may be coming from his Government, but who knows which side to butter. Money, for the moment, lords it over morals and scruples. It has been so for quite a few centuries.
Shakespeare spoke for all times when he wrote these lines in King Lear:
“Through tattered clothes great
vices do appear;
Robes and furred gowns hide all. Plate sin with
gold,
And the strong lance of justice hurtless breaks.
Arm it in rags, a pigmy’s straw does pierce it. “
I hope that with increasing Commissions of Enquiries and militant journalism and activism years of greed are numbered.
I hope that with increasing Commissions of Enquiries and militant journalism and activism years of greed are numbered.
