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Organized Crime – A Summary Report

Preprint · July 2018

DOI: 10.13140/RG.2.2.26557.56802

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Artur Victoria
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Organized Crime – A Summary Report
Artur Victoria

Forewords
Not many people have the courage to stand up for their ideals and fight for the better
interests of society, but Giovanni Falcone, along with his friend Paolo Borsellino, is certainly
one who has.

One of the turning points in Falcone's career was the murder of Judge Cesare Torrenova,
after which Falcone asked to work for the Investigative Branch of the Prosecution Office
(Ufficio Istruzione) in Palermo.

Falcone understood that in order to really get to the bottom of how criminal networks
operated investigators and judges had to analyze the patrimonial organisation and banking
activities of these criminals. Knowing where the money was going, and getting an overview
of the organisation and its structure, came to be seen as very important. Falcone's own
investigations uncovered large drug smuggling operations especially to the United States.

These investigations culminated in the so-called Maxi processo di Palermo, the most
important trial against the mafia in Italy. During the trial, testimony was given by Tommaso
Buscetta, a pentito (the literal translation is someone who has repented). Buscetta was a
man who belonged to the mafia and then provided evidence to the state. The Maxi
processo is certainly one of the most famous trials in the history of Italy against the mafia. It
led to 360 convictions, 2665 years of jail and 11 and a half billion liras of fines.

The success of the trial was largely credited to Falcone, Borsellino and their team. Of
course, Falcone had made a lot of waves and the mafia targeted him. The first attempt on
Falcone's life, known as attentato dell'Addura, was unsuccessful. On June 21, 1989, a bomb
in a bag was left on the rocks next to the house Falcone had rented for a holiday. It is
unclear why the bomb failed.

The second attempt on Falcone's life, in May 23 1992, had a more tragic outcome. Falcone,
his wife Francesca Morvillo and their bodyguards were murdered in what is known as the
Strage of Capaci (The Capaci Massacre). Under the orders of Salvatore Riina a half-ton bomb
was placed under the highway leading from Palermo International Airport to the city of
Palermo.

Anna de Fillipo
OPERATIONAL DEVELOPMENT

The inherent common denominators THE STRUCTURE, SAFETY and FINANCING of the
criminal organizations already allowed characterizing the organized criminality.

Still in relationship to a large part of the organized crime (except partly, the terrorist
organizations), we can find another common element: the type of Operational
Development.

The Operational Development of the activities of organized criminality settles down, usually,
according to the following vectors:

a) Extent of national, international and transnational action;

b) Permanent Operational and stabilized, with concerns of tactics and of strategic order;

c) Conjugation of legal businesses and illicit businesses;

d) Chronological Interface and multiple accomplishments of crimes.

The operational development of the organized criminality has these factors.

a) - the reason of being of this criminality type is inside the enlarged extent of territorial
activity and permanent organization and stabilized in the prosecution of the criminal
activities;

b) - the reason of effectiveness of the organizations, for besides the execution of their
objectives I (namely, the economical profits), is into in their flexibility face the deterrent
circumstances, in dynamics of tactical and strategic articulation in the capacity of
dissimulation of the illicit financing sources (illicit businesses), through the creation and
maintenance of licit businesses (real or simulated) that, allow to justify and to "clean" the
obtained global profits.

At the level of the businesses illicit/crimes, are strategies those that, best allows the
"normal" prosecution of the activities of financing of the organization. The practices of the
corruption, covering, and traffic of influences and control of the authorities are usual and
typical.

The organization strategically to mislead difficulties and to avoid (larger) threats to the
operational development of the activities chose as tactics for the organization to obtain
profit, by e.g. traffic of drugs, the extortion and kidnappings, traffic of weapons (or, now,
also, the one of nuclear products), smuggling, among others.

The legal businesses more "sought" by the criminal organizations are spread in several
sectors, as: the finance market (e.g. detention and/or participation in credit institutions,
leasing societies, brokers.) and the market of capitals - preferred by excellence for practices
of bulky operations of money laundry -, the casinos a, hotels, the building societies and
other businesslike import - export firms (often based in taxes paradises - off - shores).

Actually, the infiltration of the organized crime in legal businesses constitutes an additional
tactic for effective reduction of the risk of detection of the net, for the covering and
legitimating the incomes produced that, like this, less suspicions get up as for it's ownership.
Still, the insert in activities and legitimate commercial operations, namely at the
international level, offers to the criminal organizations the possibility to use the legal
circulation and transport of products for part of their illicit cargo.

c) - The criminological reason of the organized crime is partially, in the multiple

accomplishment of illicit and, the criminal interaction.

The operational development of the nets of organized crime give priority to the practice of
multiple illicit criminal be in the optical of safety expressed in:

- Crimes of corruption;

- Traffic of you influence;

- Threats;

- Crimes of homicide, corporal offenses, coactions and threats;

- Drainage of incomes;

- Crime of money laundry;

- Falsifications;

- Tax frauds.

New Forms of Organized Crime

The International Monetary Fund (IMF) to indicate that nearly $ 1 trillion, from criminal
activities, circulating daily in the financial markets.

The UN, moreover, suggests a world market for illicit drugs more than the entire oil
industry, moving a year more than $ 400 billion dollars.

This high volume of financial resources generated by organized crime to be hidden,

disguised and integrated into economic activity permitted.

It is possible to state that the mafias no longer a matter of police to become a financial and
geopolitical issue of first magnitude
A clandestine world buzzing, not subjected to any kind of law or democratic rules,
employs hundreds of thousands of people.

The 'business' includes trade:

- Drugs, weapons (possibly even nuclear),

- Sophisticated technologies obtained through industrial espionage,

- Secret purchase of slaves and white children,

- Human organs used in transplants, transport,

- Passports and visas for falsified entries for illegal immigrants,

- 'Traditional' authorities and of bribery of politicians,

- Extortion,

- exploitation of prostitution and child and adult control of cities or entire regions based on
force and terror imposed by well-armed gangs and organized according to a paramilitary
structure.

Another important factor to be considered is the transnational criminal organizations tripled

the area of cultivation of coca in Colombia, due to new agricultural techniques despite
fumigation under sponsorship of the America.

Organized crime looked further, to try coca plantations in Georgia, on the island of Samoa
and the Democratic Republic of Congo (former Zaire), washing the dirty money in big on
shore, as Miami and New York.

The model is increasingly sprayed, characterized by the limited knowledge among its
members, the time when the operators of the crime held off business. Ability to articulate
world, which drew of new world order of organized crime after the fall of "empire" Soviet in
the early 1990: The international organized crime, an imaginary threat too many in 1990,
was already a global emergency in 1993.

The major unions of the East and the West gather services and personnel as soon colonizing
Western Europe and the United States, increasing drug trafficking in half trillion dollars per
year by washing and reinvested in legal ventures an amount estimated at a quarter of a
trillion of dollars annually.

Much of the phenomenal growth originated from the fact that they had free access to a
territory that covers half the continent of Europe and much of Asia - one sixth of the land
mass - Afloat and essentially defenceless.
According to the Italian police released in Sicily in 2001, a survey done by the Russian
general Vitor Cheborachev confirms: "eighty percent of the banking system of Moscow is in
the hands of the Mafia Russian”.

It happened that dismantle the structures the state has disappeared completely and
entered a different structure (the Russian mafia) to replace it.

The movement of cartels and mafias in the world, however, does not yet constitute a sort of
world federation of organized crime.

Since 1980, the Cosa Nostra became a wide structure.

A direct way of achieving the mafia globalization has been the practice to introduce,
clandestine, illegal immigrants in the core countries of Europe and the USA.

This was the procedure, for example the Chinese Triads and the Yakuza.

The Triads smuggled eight thousand illegal immigrants in Italy in just two years, almost half
of all the Chinese community in the country. (...) The tens of thousands of Chinese illegally
entering the "head-of-serpent" of the triad were not only more profitable that the heroin,
but also a practical necessity. Hong Kong, a showcase of Triads in the world for over a
century, revert to communist China .

The Triads could return to land from where it had fled after the communist - in fact many
were returned - but she would never be their homeland.

More discreet, and operating in the economic level, the Japanese Yakuza "was investing
heavily in all states of the European Union.

Authorities of the Japanese police confirmed that she washed money everywhere, in every
kind of institution financial and industry, legal or illegal - just as the Sicilian Mafia, they
combined a visit to Italy.

Mafia groups that had a tradition of activities limited to their own regions began to join,
probably in the late 80s, to extend its influence to the most remote regions of the planet.
Included in that table the old Italian and American mafia, the Japanese Yakuza, the Triads
based in Hong Kong and Southeast Asia, as well as the new Mafia groups in rapid expansion
in West Africa and the newest Russian mafias (arising from the dismantling of the Soviet
state).

These episodic businesses between mafias are indicating with certainty that these criminal
organizations will be adjusting to the process of economic globalization, which main
feature is the relatively free flow of capital with the support systems highly computerized.

In other words, the dimensions and forms of organization of crime in the contemporary
world have nothing to do with what existed two or three decades. Compared with the
current heads of the crime, Al Capone, for example, is a robber of backyard. It is estimated
that Capone fortune of not more than $ 40 million, which is a lot of money, but nothing that
is comparable to the billions currently moved by mafias.

While national states seek a solution through international strategic cooperation, which is
more effective for the prevention, combating and prosecuting organized crime, through
multilateral organizations like the UN, the criminal organizations by passing tax havens and
new routes, leaving behind -- finally - the metaphor of the times of Al Capone: laundry,
bakery corner of houses of gambling ... are things of the past.

Today, the narco-capital terms "fat" with the greatest naturalness in sessions, live and
electronic, financial markets daily.

After almost two decades of hegemony of the thesis of the minimum, the economic science
is immersed in the search for new paths. The so-called "market fundamentalism" - that
suggested the end of the story - already suggest "greater invention of the state in the lives
of citizens, now emphasizing the need to combat the recession Keynesian-style, now to
invest in national security.

The impasse that wins new contours in the 21st century is placed in the following way by
where to draw the line between pure private sector activities and those that require public
involvement through ownership or regulation is a question.

How to manage services of those holding public or private regulatory involving social
externalities is another.

There is little doubt that we cannot answer them. The lesson may well have been that some
externalities are too big to be faced by the private sector and always require government
funding through collection of taxes to provide services and infrastructure required.

The attempts to blockade the capital attributed to Al Qaeda terrorist network of Osama bin
Laden, were empty.

Indeed, the determination of the United States and Britain of blocking accounts of 27
entities suspected not reached the targets concerned. In Britain, where the freeze hit $ 88
million - with $ 6 million in the U.S. and another $ 6 million in other countries - this figure is
a trace compared to U.S. $ 5.9 billion that moved through the bureau de change, since the
time of Thatcher freely operating funds of criminal origin.

Following the logic of time zones, there are dozens of so-called "tax havens" that make up
the main area of organized crime.

A huge - and intense - laundry global, operating in real time and mounted on a technological
device that works on the logic of masking and clear, digitally, all tracks - just a simple click
and the money "dirty" becomes the "productive capital."
Clearly, tax havens connect and artificial satellites, around the three major financial centres
worldwide: United States, European Union and Japan that is, the link with the Cosa Nostra
mafia-type American, Italian, Russian, Chinese Triads and Yakuza is direct and immediate.

The figures on the amount of resources from organized crime are disagreements, but "the
Newsweek magazine estimates that the capital accumulated for each year by all the mafias
of the world, is $ 3 trillion.

Also in the field of the estimates, the International Monetary Fund (IMF) estimates that the
world business of money laundering movement NTA between $ 500 billion and $ 1.5 trillion
dollars per year - an amount equal to 5% of production world, more than one quarter of
international trade to GDP or the UK.

Of course, this figure includes drug trafficking, other forms of organized crime, political
corruption and tax evasion. There are the kinds of nonsense: "Alone, the Jersey Island
focused applications with a total value of $ 600 billion.

The World Wide Web (Internet), so-called internal networks of organizations (Intranets) and
others like the world is also composed to support the transactions of organized crime.

The world's largest network is the washing SWIFT: In 1973, the 250 largest financial
institutions in Europe and the United States created a cooperative with the name of Society
for Worldwide Interbank Financial Telecommunications.

The network covers the whole territory of the United States, Japan and Western Europe,
and Latin America, including Brazil. Just order a Swift and a password to leave the money in
an area offshore (Bahamas, for example) and between banks in Vienna, Frankfurt and
Miami.

The SWIFT network has two features that much like criminal organizations: a) the possibility
of multiple operations and in short space of time - facilitating the life of a current interest in
clean money, b) the fact that the network is not monitored.

In other words, no and no monitoring system, intelligent, is able to detect suspicious

transactions.

The technology worked out nicely for the interests of international organized crime. The
Swift does not obey borders. It is the network that traffickers and terrorists move much of
his fortune today. It is there that sell the product of political corruption.

In the late 1990s, during the meetings of the UN summit on organized crime, held in Naples
(1994), Cairo (1995) and Vienna (March 2003), reports on the laundering of money
exchanged by the representatives police from dozens of countries represented point to new
strategies for the "purification of dirty money" adopted by the mafias and cartels,
worldwide. In the new geopolitics of organized crime, the markets are on shore in new webs
of washing international scheme.

The criminal organizations are adjusted to the process of economic globalization, which
implies a relatively free flow of capital through systems.

In other words, the dimensions and forms of organization of crime in the contemporary
world have nothing to do with what existed two or three decades.

In the Middle East, terrorists and criminals still use the system known as Hawala, primitive,
which is possible to transfer resources without the need to identify the owner and the
destination.

The confirmations of transfer are made by fax (the page is destroyed after this OK. Schemes
would be well used by bin Laden and the followers of Alspalan Tuerkes, one of the leaders
of the Turkish mafia, which controls the trafficking of heroin and weapons in Eastern
Europe.

Money Laundering
Money laundering is the process of moving money from the illegitimate to the legitimate
economy.

The crime of money laundering consists of knowingly disguising the source, origin or
ownership of illegal funds.

Any criminal transactions are carried out in cash and the function of the money launderer is
often to translate these small sums into a larger, more liquid sum which will be difficult to
trace and more easy to invest.

Money laundering has emerged on a massive international scale with the globalization of
the world economy and the internationalization of organized crime.

Money earned in one region can, with increasing facility, be transferred to another part of
the world, preventing its eventual recovery by law enforcement. With the globalization of
organized crime activity, money is earned in all regions of the world and must be collected,
consolidated and moved.

This growth has been facilitated by new technologies, the increasing movement of goods
and people globally and the declining significance of borders. A large number of
professionals, including lawyers, accountants and bankers, have emerged to provide
services to this criminal and corrupt clientele with large amounts of money at their disposal.
Not involved in the original act, these professionals help perpetuate criminal and corrupt
activities through their services.
Organized crime groups have particularly benefited from the expansion of global financial
markets. They have exploited the differential regulatory regimes and the possibility of
moving money across jurisdictions rapidly in order to hinder detection by taking advantage
of the discrepancies between countries based regulatory systems.

They seek out locales that are less regulated with respect to international anti-money
laundering laws. These havens, frequently offshore banking centres, provide both banking
and corporate secrecy.

They also provide secrecy for the trusts, which are used to hide large-scale assets that are
often illegally diverted from the companies controlled by organized crime groups.

In 1996 economists of the International Monetary Fund (IMF) suggested that 2 percent of
global GDP (gross domestic product) was related to drug crime and the laundered sums
associated with corruption and tax evasion would be an even larger percentage.

The share of the world's economy would be even higher today for several reasons as
many forms of organized crime have grown in this period and the countermeasures have
failed to dent the profits of this activity except at the margins.

Much laundered money has been invested in dollarized accounts and other strong
currencies where it has escaped significant losses through currency devaluations in origin
countries. In offshore regimes where financial capital is untaxed, its growth is faster than
that of money that is part of taxed and regulated regimes.

The range of businesses and financial institutions used to launder money has proliferated
with the profits and the growing sums which need to be laundered. Among the institutions
employed are large banks, offshore banks and financial institutions, currency exchange and
wire transfer businesses, stock brokerage houses, gold dealers, casinos, insurance and
trading companies.

The ability to safeguard the proceeds of transnational criminal activity, tax evasion and
corruption has served as significant incentives for the growth of this activity. There is limited
risk and few deterrents for the money launderers and the professionals who aid their
activities.

The limited seizures that do take place are merely "one more cost of doing business." The
international efforts sponsored by the Organized for Economic Cooperation and
Development (OECD) to limit offshore havens and to sanction countries that facilitate
money laundering have yet failed to sharply curtail money laundering.

Sources of Laundered Millions

Laundered money derives from the full range of illicit activities linked to organized crime
such as narcotics and arms trafficking, trafficking in human beings, extortion, gambling,
counterfeiting of money and goods, trafficking in endangered species and stolen art and
automobiles.

Often, corrupt government officials move the bribes they have received or the money they
have embezzled to offshore locations for security.

Much of this cannot be treated as laundered money in many countries because these
corrupt activities are not predicate offenses to money laundering.

The need to have a pre-existing criminal offense under many criminal codes, is a major
deterrent to effective money laundering investigations. The laundering techniques of
organized crime groups have become increasingly sophisticated.

Experts are retained who have the capacity to disguise the source of funds and make them
look legitimate. For this reason organized crime groups have increasingly penetrated into
legitimate economies and financial markets.

Such operators have laundered the assets from these diversified investments as well as
from the original illicit activities. The money laundering associated with high level
governmental corruption has received more attention in the post-Cold War era.

Corrupt leaders launder money derived from multiple sources: siphoned out of the national
treasury; diverted from foreign assistance; pay offs from foreign investors or contractors
working on development loans from multilateral organizations and proceeds from
privatization.

The wave of privatizations in the 1990s in many parts of the world has contributed to the
increased deposit of funds in unregulated offshore accounts. In the transitional period
from governmental ownership to private ownership when there is limited transparency,
many of the insiders have managed to appropriate significant resources of privatizing firms
and have through elaborate trust agreements, consistent with the laws of the locale, parked
very valuable national resources in financial tax havens.

The money laundering associated with the privatization process has also resulted in large
and visible cases of international money laundering investigated such as the Raul Salinas
case from Mexico and the Pavel Lazarenko case from Ukraine. Investigations into each of
these cases, by Swiss and American authorities, as well as other governments, has totalled
in the hundreds of millions of dollars.

In the Salinas case, pay offs from drug traffickers were commingled with pay offs for
beneficial privatizations of key state-owned industries.

A major question is whether mechanisms will be made available in the future to deter such
deposits and whether procedures will be established to make such sums more easily
recoverable by the source country.
As the corruption issue is no longer a taboo issue for employees of multilateral financial
institutions, the significant money laundering associated with project and structural
adjustment loans have become permissible topics of discussion.

For example, researchers at the IMF now acknowledge that they could observe the financial
flows out of Haiti immediately after international loan funds flowed into the country. An
investigator examining the diversion of a World Bank loan to Pakistan traced $30 million to a
Swiss bank.

Increasingly, the investigators of corruption in these international financial institutions must

be trained to find money laundering because both bribe money and actual project loans
wind up in the banking centres of Western countries.

Banks and Other Financial Institutions Engaged in Money Laundering

The types of financial institutions exploited for money laundering have proliferated as the
reporting requirements on major banks have increased. Offshore banks have sprung up in
many locales to service the demands of affluent clients who seek secrecy and an absence of
reporting requirements.

By the end of 1997, offshore locales housed more than half of all cross-border assets held
globally. Very few countries have been active in taking measures to seize laundered assets.

The exceptions are the United States and Switzerland. However, the amount they have
managed to freeze and confiscate has been very limited compared to the overall total of
illegal monies in their financial markets.

Many other major banking centres, such as those located in England and Germany, have
thousands of suspicious transaction reports yet have comparatively few successful criminal
prosecutions or confiscations of assets.

Therefore, while there are significant risks of getting caught for smuggling drugs, there is
much less chance of getting caught and losing the proceeds of drugs or other criminal
proceeds. Most money laundering occurs in offshore banking centres, many of whose
operations are less highly regulated than those in major banking centres.

Not all-offshore banks are laundering money. The most flagrant abusers are those offshore
locales without any financial infrastructure or any regulatory mechanisms to monitor the
banks or to track the transactions, which pass through their locale.

In these situations individuals and businesses are exploiting the possibility of bank and
corporate secrecy that these locales provide. Many parts of the Caribbean have established
large legitimate banking services that are providing services to a large international clientele
of legitimate businesses.

This offers evidence to indicate that size and location are not absolute determinants of
whether a financial institution is used as a laundering facility for the cleansing of
questionable proceeds.

At present, there are different niches for different categories of money laundering. Drug
dealers have the widest range of assets to dispose of and continuous financial flows,
therefore they use all available financial instruments.

There is significant differentiation in the market. For example, wire transfer businesses are
used primarily by street level drug dealers, whereas the private banking services of major
banks are available only to large-scale clients.

Offshore banks are used by individuals and groups engaged in a wide range of illicit and licit
activities. There are increasing controls on large financial institutions, but recent cases have
revealed that it is still possible to launder vast sums through major banks and through these
banks offshore branches.

Major American banks such as Citibank, the Bank of New York, and Union Bank of
Switzerland (UBS), as well as their offshore branches, have figured prominently in recent
investigations of money laundering.

As one of the minority congresswomen on the United States House of Representatives

Banking and Finance Committee commented, during the Bank of New York hearings, it was
the failure to sanction Citibank in the Salinas case of drug money laundering which has
perpetuated the problem.

While such actions as a Geographic Targeting Order in the New York area has limited wire
transfers out of small businesses, it remains continually possible to move large,
questionable and illegal sums through the private banking operations of major banks.

The profits for the institutions and particularly for the officials of these divisions have made
bankers often turn a blind eye. A recently released U.S. General Accounting Office (GAO)
report, conducted by the investigative branch of the agency, examined the possibility of
laundering money in the United States.

The investigators traced US$800 million of such funds that had been moved into U.S. banks
by one Russian. He did this by registering companies in the "offshore location" of the State
of Delaware, which protects the anonymity of corporations.

The money was subsequently moved into accounts in the private banking sector of Citibank.
No legal action had been taken against the banks, any of the account holders or against the
individual who had managed to move these funds of unknown origin through the American
banking system.

This investigation reveals how sophisticated money launderers can exploit significant
loopholes in United States to move large amounts of questionable money through a leading
American institution.

Money Laundering in the Mercosur

Money laundering is becoming an increasingly serious problem in several of the countries of
the Mercosur. Part of this is related to the need of Colombian and Mexican drug lords to
launder their money, and the greater facility with which they can do this in Spanish speaking
countries.

It also is due to the proliferation of offshore banks in Latin America and the Caribbean,
which now represent 43% of the international total.

The most visible manifestation of this phenomenon has been the construction of the resorts
of Cancun that was done with drug money. Yet the use of hotels through which to launder
money is not confined to Mexico, as the proliferation of luxury hotels in Argentina with
limited clientele is further visible evidence of this problem.

More difficult to detect and investigate is the money laundering through the Mercosur
banking sector, shell companies, commodities brokerages and currency exchanges.

A joint investigation conducted by the Brazilian Federal Police, Central Bank and other
entities reported that between 1998-99, US$18 billion was laundered through Brazil.
Brazilian money launderers, according to the U.S. Department of State, dispose of drug
money and the profits of white-collar crime.

Much of the arms and drugs trade occurs through the border town of Foz de Iguacu. The
proximity to Paraguay, which is a major money-laundering centre for Latin America,
exacerbates the problem. Approximately, 20% of Paraguayan money laundering is related to
drugs, while the vast majority emanates from smuggling and contraband.

No major scandal has disrupted the Uruguayan banking system but the dependence of the
Uruguayan economy on its banking sector has failed to make it very vigilant in reviewing the
source of client funds.

A major money laundering scandal erupted in early 2001 with the Argentine Central Bank
President Pedro Pou accused of covering up illicit cash being moved through local and
foreign banks. He tried to hide from the Argentine congress information on these illegal
transactions. This public scandal emerged after a report by an U.S. Senate Subcommittee on
money laundering traced drug money from Citibank back to an Argentine bank. As much as
US$10 billion may have been laundered through Buenos Aires.

In response to these problems, the South American Financial Action Task Force (Grupo de
Accion Finaciero de Sudamerica contra el Lavado de Avisos-GAFISUD) was established on
December 8, 2000. Its member states' include Argentina, Bolivia, Brazil, Colombia, Chile,
Ecuador, Paraguay, Peru and Uruguay. The vital function of this organization is to improve
coordination in monitoring and combating money laundering in the region.

Why has it been so hard to move against money laundering?

Until recently it has been difficult to undertake measures against money laundering due to
the absence of a necessary political will and the cumbersome international legal
mechanisms which presently exist.

Furthermore, the profits of this activity, particularly within private banking, have been very
lucrative for financial institutions and the registration and associated services. The offshore
locales have provided an incentive for many locales without alternatives. Money laundering
on a large scale has existed since the 1960s.

Dictators have moved money to safe havens and with the rise of the international drug
trade since the late 1960s, there has been an increasing need to move large amounts of
money into the legitimate financial system.

Covert arms sales have been facilitated for decades by money laundering. Even though
many knew this was going on, the fight against money laundering has been treated as a
secondary concern to the preservation of influence within a particular geographic region.
With the end of the Cold War, the desire to protect certain dictators who were key figures in
this strategy collapsed.

There was no longer a need to "protect our dictator," whose corruption became an
embarrassment to the states and consequently multilateral lending institutions. The
massive money laundering out of the states of the former Soviet Union, in the 1990s, has
revealed that the budgets and economies of entire countries can be devastated by the
ability to launder money to major financial centres and offshore locations.

The credibility of such multilateral institutions as the World Bank and the IMF has been
called into question. This tolerance of corruption has been a highly significant factor in the
reduced legitimacy of these institutions that have not been necessarily vigilant in monitoring
the diversion of the loans they have made overseas.
Their new emphasis on corruption is an attempt to reverse this trend. The rise of the
Internet and the speed of financial transactions facilitated by computers have expanded
money laundering opportunities and activities in the latter half of the 1990s.

There are increasing number of Webs sites that solicit money for transfer offshore, the
rise of internet gambling and of virtual banking have made it possible to launder money
without any infrastructure to run or regulate international banking operations. Instead,
the rise of information technology and the growth of untraceable encryption have provided
the possibility of laundering money with greater facility and with almost perfect anonymity.
All that is needed is a computer.

The rise of the new information technology has facilitated an incredible communications
revolution, but it has led to the proliferation of money laundering in some of the most
remote destinations in the world. Such locations include Vanuatu, Nauru, and the Marshall
Islands through whose "banks" billions have been laundered in the last couple of years.

Facilitating the rise of virtual banking in offshore locations has been the willingness of major
banks to receive funds that have been routed through these locales. While well-written
software could screen these transactions and prevent the absorption of these funds into
mainstream banking centres, this has not occurred.

The legal institutions to combat money laundering are much slower than those constructed
on an order before the information age. Therefore, a wire transfer who is moved among
four jurisdictions in an hour, a typical move for a money launderer, will take law
enforcement in the United States a year to unravel because of the need to present
documents to four different jurisdictions to obtain information on the transaction. Law
enforcers in countries without such resources as the United States may never be able to
trace these transactions.

In some cases, it is either legally impossible or physically impossible to obtain needed

information on the money movement because of the bank secrecy or the presence and
protection of trusts. In the United States, a predicate offense is needed to prove money
laundering.

However, this requires cooperation of law enforcement in the source country. In cases
where the money is associated to a high level official or his/her associates, or where
domestic law enforcement has been neutralized by corruption from crime groups, that
crucial cooperation will never be forthcoming. In many countries, many categories of crime
are not predicate offenses for money laundering or there is an absence of money laundering
law, leaving many financial transactions outside the reach of American law enforcement. A
novel situation now exists.

The complexity of the cases of money laundering means that the number and expertise of
the enforcement required to address these crimes is so vital that even well staffed American
law enforcement can address only a few major law enforcement cases annually.
Furthermore, between the corruption of domestic law enforcement in many countries and
bank secrecy in others, most money laundering investigations are condemned to failure
from the start.

As the amounts of money laundered grow, the capacity to address the problem remains
perpetually behind.

Why the current campaign against money laundering?

A growing consensus is developing in many developed countries that the problem of money
laundering must be addressed both within their economies and in offshore locations. Much
of this is proceeding on a diplomatic level and is aimed at financial institutions because the
previous legal strategy has inherent limitations.

Focus is now on prevention rather than on legal remedies. The present movement against
money laundering is the result of a convergence of mutual interests rather than as a
consequence of a unified view of the harms of money laundering.

For the United States, the driving force has been the rise of the international drug trade, a
trade that has enormous financial and social implications for the United States. American
policy makers have become increasingly concerned that money laundering permits the
perpetuation of the drug trade and terrorism.

The possibility to park funds in offshore havens gives these illicit operators the working
capital to perpetrate and perpetuate their activity. But money laundering is not confined to
offshore locales. American authorities now estimate that US$9 billion in narco dollars is
laundered in New York City and US$30 billion dollars of drug money is laundered in Texas.

For European countries, the opening of borders and the establishment of the Euro in 2002
have placed their territory and financial systems at greater risk. The threat of transnational
crime is not only higher rates of violence, unwanted immigrants but also large scale financial
crime and money laundering within the European financial system.

The movement of capital to offshore locations has had severe consequences for Europe's
revenue collection. The increasing amounts of capital sheltered in offshore locations is
preventing the collection of needed taxes, making the maintenance of offshore accounts an
even greater problem for European countries that need substantial revenues to maintain
expensive social welfare systems and take care of aging populations.

Therefore, revenue concerns are more of an impetus for European than American action
against offshore havens.
What is the current campaign against money laundering?
In 1989 the Financial Action Task Force (FATF) was established to coordinate a response to
the problem of money laundering. The following year FATF issued 40 recommendations
against money laundering which were subsequently revised in 1996.

FATF, now consists of 29 countries, and two international organizations and represents the
larger developed countries as well as some of the more affluent developing countries. The
first recommendation requires that countries become signatories to the Vienna Convention
against money laundering.

The Vienna convention only concerns the proceeds of money laundering related to the drug
trade.

However, it does not include the other serious categories of crime with which money
laundering may be associated. Consequently, the recommendations also suggest that
prohibitions against money laundering be extended to other serious offenses. This
discretion has led to many countries differing legislative measures.

Some have not made human trafficking, one of the fastest growing forms of organized
crime, a predicate offense for money laundering. Likewise, corruption remains in most
countries, including the United States, outside the list of many serious crimes, which are
predicates to money laundering.

The recommendations also deal with measures to identify, trace and confiscate laundered
assets. Various measures must be taken by financial institutions to ensure that they
maintain proper record keeping, know their customers and keep records for at least five
years time to permit reconstruction of financial transactions.

Bank officials are required to monitor large and questionable transactions and to report
suspicious transactions to competent authorities without advising the customers in
question.

These principles are applied not only to the domestic banks but also to their subsidiaries
that are located outside of the country. Signatory countries are to intensify controls at the
borders with the purpose of limiting the movement of large amounts of cash.

Furthermore, countries are expected to develop modern methods of money management

such as checks and direct deposits that reduce reliance on a cash economy.

Effective regulatory bodies are to be established to ensure that there are adequate
measures and sufficiently trained personnel to realize the implementation of these
regulations.
Regulators must take efforts to ensure that criminals do not acquire or achieve significant
control over financial institutions. International cooperation must be extended as regards to
suspicious transactions, confiscation, mutual assistance and extradition.

Cooperative investigations should be encouraged and launched when possible. To ensure

cooperation among states, there must be decisions made as to the best venues in which to
prosecute offenders.

Annual Reports are issued by the FATF within which the country teams have monitored the
progress of member states and issues typologies. The Typologies Report follow an annual
meeting in which law enforcement, legal, financial and regulatory experts discuss recent
trends in laundering criminal proceeds, emerging trends that arouse concern and
countermeasures which have proved effective. In June 2000, the FATF listed a group of 15
jurisdictions with serious deficiencies in anti-money laundering efforts. This "blacklist" was
based on extent of compliance with 25 published criteria.

Three of the fifteen jurisdictions are located in the Caribbean and include Dominica, St.
Kitts-Nevis and St. Vincent.

According to the Annual Report issued at the same time, the member countries of the FATF
group are largely in compliance with the regulations. This evaluation is based largely on the
mutual evaluations of the member states.

A dichotomy exists between the perception of the developed countries and the offshore
centres. The tax havens or international financial centres claim that the legislation and
infrastructure are in place and most money laundering occurs through large financial
centres.

On the other side, the mainland countries perceive that money laundering is occurring in
offshore locales. The problem remains that money laundering persists in both kinds of
locales.

The FATF is now turning its attention to such problems as money laundering through on-line
banking, trusts and other non-corporate vehicles, the professionals who facilitate money
laundering, the role of cash vs. non-cash activities and the money laundering of terrorists.

The FATF is only one of several visible multilateral bodies working on money laundering. It
has regional task forces that include the Caribbean Financial Action Task Force and
Asia/Pacific Group on Money Laundering. The United Nations and its Office of Drug Control
and Crime Prevention (ODCCP) has a program against money laundering.

The Organization of American States (OAS) Inter-American Commission on Drug Control, as

well as the Council of Europe, has launched special initiatives on money laundering. Much
has also been done at the national level. The Bureau of International Narcotics and Law
Enforcement of the U.S. Department of State releases annually its International Narcotics
Control Strategy, approximately a quarter of it is devoted to actions against money
laundering and compliance with money laundering regulations. The report assesses not only
drug-related money laundering but that related to other offenses.

A significant group of countries are identified as of primary concern based on their failure to
meet a wide range of criteria concerning asset and information sharing, as well as the
deficiencies of their legal framework. Individual countries have established domestic
Financial Intelligence Units to address problems of financial crime in order to formulate
more effective countermeasures.

These countries share some information within the framework of the Egmont Group. This
informal alliance includes over 45 countries facilitating the exchange of records and
evidentiary materials among member states.

The United Nations Convention Against Transnational Organized Crime, was signed in
Palermo, Italy by 123 countries (December 12-14, 2000). It contains provisions to combat
money laundering as it is related to organized crime.

These include adequate system of internal regulation within the signatory countries,
cooperation on the regional, international and multilateral levels, and the mechanisms
needed to detect the cross border movements of capital. Furthermore, it requires customer
identification, record keeping, reporting of suspicious transactions.

Money laundering in this convention is tied not only to traditional forms of organized
crime but also to the corrupt practices facilitating it.

The enormous growth of money laundering results from several factors simultaneously: the
rise of transnational organized crime, the globalization of corruption and the competition
for capital in an increasingly globalized international economy.

The major actors in this essentially criminal business practice are major banking centres and
offshore locales, although many other institutions and businesses participate. The possibility
of laundering money in so many regions of the world has resulted in the massive transfer of
resources from developing and transitional countries to safe havens in the more developed
countries and more protected offshore locations.

Placement of money overseas, allows criminals and corrupt individuals to evade the control
of local authorities, avoid the instability of domestic banking institutions while securing
access to their funds internationally.

Combating money laundering requires a multi-faceted approach. It is necessary not only to

target the recipients of the laundered money but also to recognize the instability of the
financial system in the source country.
The capacity of different states to combat organized crime and money laundering must also
be enhanced. This is a difficult problem in states that often do not have the sufficient
resources to provide for the basic educational, medical and social needs of their citizenry.
The international actions against money laundering are now focused more on prevention
and sanctions rather than the multi-faceted strategies needed to address the actual causes
of the problem.

Prevention works more effectively in the international financial community than in a single
country where corruption and coercion by crime groups or high level corrupt officials may
prevent the implementation of needed controls.

Sanctioning may work in embarrassing major banking centres into greater compliance but
the enormous profits of private banking services make many institutions adhere to the
letter but not the spirit of money laundering controls.

Their internal audit rules screen out some of the most blatant violators but the proliferation
of trust agreements and front companies make it very difficult to screen clients effectively.
Many larger financial systems, such as Switzerland, which have served as major repositories
for drug kingpins, corrupt officials, and oligarchs are evaluated as in compliance of money
laundering provisions.

Yet they do not provide enough law enforcement resources to investigate the vast amounts
of money and the diversity of actors who are laundering money through their financial
system.

Therefore, the probability of successfully laundering large sums may be greater and there
are many jurisdictions that are considered medium or high risk for money laundering by the
FATF. In developing countries, which house many offshore locations, there is desperate
competition for capital.

Some Caribbean nations suggest that the drive against offshore locations is not motivated
so much by the desire to combat money laundering but to counter the competition for
financial services. In the absence of development alternatives, there is often little incentive
to get out of the money laundering business.

The sanctioning regime that has been instituted is being executed without equity. Countries
placed on the high-risk list, otherwise known as the "black-list," by the FATF are not
necessarily the worst offenders.

Some countries with very significant problems of money laundering have escaped
sanctioning because of their political connections. Some small countries in the Caribbean or
territories of larger countries do not have the public relations or the regulatory capacity to
prevent their sanctioning has been exposed to the full force of the FATF.
 Whereas a country like Liechtenstein has the abundant resources to put towards the hire of
lobbyists to clear its name and also address some aspects of the problem.

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