To catch the Colombian cartel’s money launderers, Robert Mazur and his colleagues started in the same way as many successful fraudsters: from the feet up.
A reformed thug whom Mazur met at a bail hearing advised him to invest the US government’s funds in expensive shoes, to give a reassuring air of wealth if the cartel ever caught a glimpse of the soles.
Evidence lockers supplied his team with Rolexes to look the part on a trip to Zurich, as well as a loaned Cessna Citation jet and a 52-foot yacht in Miami, on which they could entertain potential business partners.
Mazur spent two years undercover as Robert Musella, a mob-connected Jersey businessman who had a seat at the New York Stock Exchange and could launder funds around the world.
His work led to more than 100 indictments, including participants in Pablo Escobar’s drug empire and General Manuel Noriega, and played a part in the collapse of the BCCI banking group.
Operation C-Chase, now the subject of a film named The Infiltrator starting Bryan Cranston, took place in the 1980s but could easily have been this year, as regulators around the world pursue illegal cash that moves within shell companies and legitimate businesses.
“You can’t begin to count the number of options I had when I was in the underworld to purchase offshore entities,” says Mazur, who now consults for companies and governments on catching criminals. “I paid $3,500 and got a conglomerate of BVI, Liechtenstein, and Panama companies that were put together to give the impression that it was a Europe-based mutual fund – when it was a money laundering machine.
“Most often you were given documents that are presigned and undated that are powers of attorney you can sign at any time if you lose confidence in the law firm that’s funding the entity. So you have that safety net. Nine times out of ten, these people understand they are in the business of creating a lack of transparency.”
Since Operation C-Chase, money laundering and those who try and catch it have become even more sprawling. Laundered money represents between two and five per cent of global GDP, according to the UN – making the black market the fifth largest economy in the world.
The September 11 attacks led to greater powers for US authorities to trace terrorists and other criminals, while the 2008 financial crisis prompted regulators to rethink how secure the banking system really was.
“It led to an explosion in compliance and AML [anti money laundering], not just in knowing your customer, but in making sure that banks were monitoring it with internal audits and senior management oversight. It has had unintended consequences in wholesale derisking by the banks,” said Natasha Small, policy director of financial crime at the British Bankers’ Association.
“Post-2008 firms got to a point where to onboard a customer they had to do all of these things – and if the banks aren’t banking them, they aren’t going away.”
Cash is “the raw material of the criminal economy”, according to the global Financial Action Task Force, yet the time comes in a successful criminal enterprise when banknotes become too cumbersome. The European Central Bank plans to stop printing €500 notes and choke the supply for criminals looking to cut the weight of their cash piles. Border crossings are patrolled by sniffer dogs trained to smell money.
Getting the money into a legitimate account is an obvious route for criminals – and it’s where the authorities have focused their efforts.
Banks, bruised by the financial crisis and a series of fines for poor oversight, are set to spend $8bn next year on anti-money laundering efforts, according to WealthInsight. HSBC paid $1.9bn in fines in 2012 and spent two years being monitored by the US Justice Department, which found the bank had allowed Mexican cartels to launder their money. Barclays was fined £72m last year in the UK for poor checks in its zeal to complete a £1.88bn transaction for a “politically exposed person”.
Mazur is worried that global efforts designed to oust criminals from the banking system could place too much onus on the companies, rather than the authorities, to police the finances of the underworld.
“I think the massive firms play a role but I don’t think they should be used as a means of getting around establishing individual criminal responsibility,” he said.
British banks filed 354,000 suspicious activity reports in 2014, as required by law whenever they see a glimpse of possible money laundering. The National Crime Agency, which oversees this area, also fields consent requests, when banks ask for permission to do a deal where the money might have come from an unlawful source. This process takes up to 31 days, leading to awkward questions from the suspected money launderer about why their transaction is delayed.
“The problem that we have is not so much about people not reporting, but about too much reporting. The quality’s not good and it’s being done defensively,” said Jonathan Pickworth, a white collar crime partner at the law firm White & Case.
Many banks have pulled away from risky areas such as remittances to Somalian customers, rather than spend the necessary time ensuring each customer is not a criminal.
Mo Farah urged Barclays to keep offering remittance payments to Somalia after it withdrew the service in 2013
The UK authorities are acutely aware of the burden being placed on the companies. Andrew Bailey, the new head of the Financial Conduct Authority, said last week that “one of the problems which you hear about frequently is, there is a vast volume of paper reporting”. While supercomputers might one day have the capacity to accurately detect warning signs, the current system is spewing out a “vast body of information and evidence … how do you easily distil it?”
The NCA is in line for an IT upgrade under a Home Office review next year. The investment would be welcomed: even simple tasks like attaching documents to suspicious activity reports are currently impossible.
Meanwhile, the three-year-old organisation is working with the compliance-weary banks to pick up new criminal trends.
The weekly meetings of the Joint Money Laundering Intelligence Taskforce (JMLIT) are a world away from the apparent glamour of Robert Musella’s life. Its website’s claim of convening ten banks at a “secure premises” in the City of London skims over the fact that the meetings take place at whoever’s office has a spare room that week.
Its efforts to share information are nevertheless delivering results. Banks have a forum to voice concerns knowing that the regulators will listen, rather than pounce on signs of potential liability. Since February 2015, more than 500 investigations have begun and 300 accounts have been closed. Accountants and lawyers could be added to the panel as it develops, although it is the banks that have most sight of where the money is flowing.
- “The criminals can exchange information with each other frequently, they’re not constrained by client confidentiality or data protection,” said Angela Foyle, financial services partner at BDO.
- “By sharing the typologies and themes that people are seeing, we can see if there are better ways to match them.”
- “Banks remain a target, if not the target, for regulation because of their position at the terminus of many roads,” said BAE Systems in a recent report on money laundering.
- “Yet banks do not operate in isolation. They operate in a world where intermediaries – lawyers, real estate agents, services companies and others – can, knowingly or otherwise, act on behalf of those with bad intent.
- “Criminals and terrorists know this, and they also look for cracks in the wall to exploit.”
The onslaught of new rules is unlikely to slow down.
The new Criminal Finances Bill, published earlier this month, is set to expand the NCA’s powers to seize homes and other assets under an “unexplained wealth” order, thought to be targeting foreign dignitaries who think the London property market is a safe haven for their unlawful earnings.
The revelations of the Panama Papers were hardly news to most of the banks, and indeed Mossack Fonseca’s use of offshore shell companies began to decline in the mid-2000s. However, the leak prompted more discussion about ongoing changes such as clearer registers of beneficial ownership of companies and properties.
Meanwhile, criminal rings are finding new ways to funnel cash into the financial system. Last year the US authorities arrested three men in connection with a $5bn laundering scheme that poured Mexican and Colombian drug money into Chinese accounts, where it was used to buy counterfeit goods in Guangzhou to ship around the world.
“This will take a concerted effort from governments to create a standard that all companies must adhere to if there’s going to be a difference,” said Mazur. “The amount of money that’s out there looking for money laundering services is massive and whether we like it or not, it does seep into the legal financial markets.”
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