In what way is money from selling drugs "dirty"? Why does it even need laundering?
A few minor comments.
My wife and I have owned and used 1000 CHF notes quite a few times in the past. The last two times we moved apartments I paid part of the moving fee with a 1000 CHF note. We've also bought furniture this way. Nobody was surprised to see this and the notes were accepted without question or comment. To a person who spent their life in Britain this sounds absurd because the British government has - true to form - been trying to wipe cash out for many years to improve surveillance. You can't get any high value notes there, they just don't exist, because the state assumes that anything it can't see must automatically be suspicious. And there's so much street crime, and the police care so little about burglary, it would be very dangerous to hold such notes. But in Switzerland it's safe and the government doesn't try to wipe cash out, so paying with high value notes is common. (Although bank notes are in no way as private as people assume and can be tracked quite well, because they don't tend to circulate far.) This situation makes a mockery of the recommendation to fight crime by removing high value bank notes. The UK did this already and ML is out of control there: criminals just don't care.
I looked into the case of George Cottrell once. The case against Cottrell collapsed because it was founded on entrapment (the eight months was a plea deal in the usual American fashion, and doesn't mean much). It boiled down to undercover FBI agents asking Cottrell, "how could we launder money" and he explained how to do it, in the way anyone familiar with the topic could. He didn't make any offers to actually do it, didn't do it, and that's why "could be jailed for up to 20 years" turned into an eight month plea bargain to let prosecutors save face. Then after he was released he trolled US LE by writing a book called "How to launder money". Usually not given is the subtitle: "A guide for law enforcement and politicians". It's not written for criminals but people love to omit that detail.
Carousel fraud in the EU is a huge problem that governments hate to talk about because they don't know how to fix it and fear that by talking about it, they'll just teach more people how to do it. It's an infinite money glitch but in the real world. It's interesting that the UK thinks they solved it. I suspect they didn't, rather, enforcement collapsed elsewhere and it became easier to just go back to other ways of scamming the government.
I think it has been relaxed a little bit later on, but in Italy everybody does the "I'll charge you X less without VAT" (which is 23% in Italy, I should point out), so this is also fighting that.
Second, I submit that money laundering should not be considered a crime at all. Monitoring it (for example, banks required to report large cash transactions to the government) just leads to mass surveillance of innocent people.
Transferring money from A to B - why should that be a crime? The point of anti-money-laundering laws is that the money generated at point A may have been generated illegally. It isn't the money transfer that is the problem, it is the illegal activity. The police need to put in the effort to prosecute that illegal activity.
This is reminiscent of the continual pressure to break end-to-end encryption. The police want an easy way to do their (admittedly difficult) job. But the price is just too high: mass surveillance, and many false positives, affecting the general populace.
I like cash because it's direct, and where possible I avoid paying by card because I don't want the merchant to pay fees to third parties.
In Europe, most of the time, using cash doesn't imply avoiding taxes on the transaction, but having cash is essentially sovereignty.
* https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...
Found this quote interesting given Europes richest person is the head of a luxury brand company.
I always wonder who was buying all this high end stuff - the concentration of wealth has created a more billionaires - but they aren't that many of them and there is only so many watches one person needs.
It also may explain why China is struggling to establish it's own luxury brands - the money laundering prefers that cross border flow.
> Governments don’t do anything about the status quo, for a number of reasons: it inconveniences them to look too deeply into the darker corners of their own financial systems, and they make money from printing their own currencies and don’t much care how that cash is used. But most of all, they don’t do anything about it because they haven’t got a clue.
The last one couldn't be farther from the truth, and the first one couldn't be farther from a lie.
(Note the two and the zeros in “$20 billion to $80 billion.”)
Wouldn't the person buying the tractor in the US for $$$ have to show where that money came from? Can you show up to John Deere with over a million dollars _in cash_?
Disable Javascript and CSS
For example
curl https://www.lrb.co.uk/the-paper/v48/n09/john-lanchester/squillions \
|sed '1s/^/<meta http-equiv=content-security-policy content=\"default-src none\">/' > 1.htm
firefox ./1.htm
There are also Firefox add-ons that can do this as wellOr use a text-only browser
links https://www.lrb.co.uk/the-paper/v48/n09/john-lanchester/squillions
links -dump https://www.lrb.co.uk/the-paper/v48/n09/john-lanchester/squillionsPeople need to learn about Bitcoin.
Outside of this social graph, where private cash transactions still exist, the state lacks power and relies on stigmatizing cash ownership, consumption, movement. This stigma is largely successful and ubiquitous but inconsequential to anybody that matters or has a lawyer of their own.
Electronic settlement of funds since the 1970s has allowed for the state to leverage financial institutions for records and enforcement. Electronic settlement without institutions since the 2010s removes that power from the government and is merely a reversion to the mean. Any delay in the prevalence of this is both user-error, social stigma, and a government's unfamiliarity with the reality that their own constitutions and documents that organize the state are things that have to be updated to actually remove an expectation of privacy from finance.
> We don’t know what successful money launderers are doing in the present moment. All we do know is what unsuccessful ones have been caught doing in the past.
One major and necessary fallacy inside the social graph is that electronic settlement between institutions assumes that the deputized institutions have blessed the funds and user as not money laundered. Only the user and who they transact with can trigger an investigation by the government at this point, by reporting the money for taxes or in a large withdrawal to cash out of the social graph, without further laundering it. This user error is mostly mitigated as soon as cross border payments are done, because the next financial institution doubly assumes funds from another country's banks are clean. The banks and sovereignty become the washing machine inside the electronic settlement system.
This is doubly important to realize, because it's the tip of the iceberg in brand sovereignty. One country's illegality is not another country's illegality.
You can't simultaneously be for a stigma against withdrawing large amounts of cash, while considering the Communist Party's capital controls to be oppressive. Removing one capital control, blesses the other.
This is a blind spot for most people, since they don't consider them to be the same things, but fortunately this cognitive dissonance highlights the reality. It is impossible to completely stigmatize and the capital routes around the stigma and all capital controls, unless the entire world is under a single totalitarian regime.
All while only the edges, moving between physical cash and electronic system, and moving cash between borders and the electronic system, are policed, in what could really only be the ultimate hubris of expecting the state to be involved at all.
And it's not just cash. Its assets too. The state is hoping for titled and electronic settlement of assets. In the last 30 years a systematic global dismantling of explicit "bearer assets" has been done, when the bearer assets were offered by the state. But this is also unsuccessful, as since the 2010s, the bearer assets created and settled without a financial intermediary have existed and been wildly popular.
All capital controls have been obsoleted while they were never fully implemented to begin with. No matter whether that's the idea of your neighbor holding a lot of physical cash, or a subject of the Communist Party in another country circumventing capital controls you consider oppressive.
This article covers the same points with a wildly contrived conclusion: To attempt to change anything in favor of the state being more effective at enforcing its invented crime of money laundering instead of curbing the actual illicit behaviors. For reasons that are assumed and unexplained, so it's impossible for me to change my view on. My view is simple - capital controls are dead and a waste of time. The article and both books it references actually agree on that. My other view is that the state should just do classic investigative work on illegal behaviors which means finding the people involved and subpoena-ing them, something it seems to have forgotten how to do in favor of relying on deputized intermediaries who are temporary, ineffective, and inconvenience just the law abiding.
> One of these [recommendations is] a change in the legal attitude to drugs [...] with the significant weakness that it is very unlikely to happen in a reasonable time frame
From 18th May:
“A new £30m High Street organised crime unit has been announced by the government after the BBC's year-long investigative reporting into illegal mini-marts, vape shops and barbers.”
https://www.bbc.co.uk/news/articles/ce3pzwx449no
Of course, remains to be seen what, if any, impact this ends up having.
Oh come of Facebook for christ sake. Absolute hogwash.
Yes, although this is mostly by capping the highest regularly circulating note at £50 after the war and then waiting for inflation.
> And there's so much street crime,
[mostly false]
> and the police care so little about burglary,
Sadly true (including "find my iPhone" reports; there was a joke during the Mandelson scandal that this was the one time the Met had managed to locate a phone)
> The UK did this already and ML is out of control there: criminals just don't care.
Yes, which makes a sort of orthogonal point about whether or not cash is actually important for this. There's the conspicuously suspicious businesses ("American sweet shops"), but also more complicated stuff going on (Scottish Limited Partnerships were in the news). Then there's all the Crown dependencies, which are a total financial wild west still.
> Carousel fraud in the EU is a huge problem that governments hate to talk about because they don't know how to fix it
God yes. This is a significant problem in VAT as a concept; I don't understand why the EU loves VAT so much.
But there has been some changes in recent years so I don't know how it is today.
Just sentences like this:
> This isn’t just a problem for far-off countries of which we know little, like the EU and the US and China. Here in the UK [...]
So good! I feel like I'm becoming an old cynic but if it's the tenth time on the day that I read an overdramatized "It's not X, it is Y" in an article, actually good writing just hits different.
They're paying cash for a 20yo bulldozer that leaks enough to be a liability, loading it on a trailer and sending it home.
Now I just need some dirty money to go through the hassle of cleaning
One can use these to insert a Content-Security-Policy, either via HTTP header or <meta> tag, that disables Javascript and CSS
You're correct on the privacy implications. It's shocking how much data AML monitoring companies have collected about you, there's more data points than any single person could think up. These aren't entities owned by the government - they're private companies.
Also yes money laundering does not require cash but I think the author is highlighting the scale of it. Most countries tax consumption a.k.a VAT and 'hidden transactions' such as cash transactions bypass that.
You can be anti-anti-money-laundering but then you also either have to be a complete anarchist or completely anti-taxation and anti-data-collection by corporations and yet still have a reasonable argument for how this will result in the ability for society to have a government.
I'm not saying the system is perfect - far from any means. However the utopia you describe seems infeasible to me.
Indeed. Bitcoin is now a major player in the money laundering business. NFTs are so much better than fake pocelain!
Seemingly the only effective way to solve this would be to ban purchasing highly resellable items with cash and requiring that cash to be deposited in to the system first.
I wonder if the "it's my money, I can withdraw it if I want" argument is good enough to send them on their way? (in addition to $1,000 being such a small amount as to be less-than-trivial when it comes to the overall problem of money laundering).
They just want to track what you spend your money on, that's step one. Step two is to restrict what you can spend your money on, although this is a partial side effect of part 1.
In a lot of cases it's a lot higher than just taking card.
With a dwindling number of legitimate cash users, any business that is pulling in huge sums of cash well beyond the average is going to look increasingly suspicious.
Which creates national security and sovereignty issues. Cash is robust and decentralised. There is a good reason Sweden went from pushing cashless to advising people to keep cash at home for emergencies, and were at least considering an obligation to accept cash for small transactions.
Most people want government to be able to seize assets of baddies. It is possible with cash, it is possible with banks, hardly possible with crypto.
The technology to scam people at scale with untraceable emoney is not everybody's cup of tea.
Speaking from a country that invaded its neighbor, for our government (as well as north korea) it is lovely to have a way around sanctions. Libertarian crypto bros of the west are a godsend.
They are also a godsend to current American president which loves a nice side of washed crypto along with all the other theft.
It is absolutely possible to like cash and dislike crypto
I'll give you one better. I know someone who had their nearly new Range Rover stolen in Manchester - reported to the police etc. Few days later, they found it parked at a car park near a big supermarket. Rang the police, they said well, if you still have the keys...just take it? And he was like hang on, you don't want to look at it, check for drugs, take fingerprints, you know, do any actual police stuff stuff around stolen property? And they were like nope, don't have the time or the people to come out, if you have the keys just take the car back and make sure you tell your insurer you got it, that's all we can do.
In the 21st century the US eventually pressured them into not being a tax haven for anonymous money hidden by US nationals.
The twin questions of tax and terrorism remain as pressure against money laundering.
I'm sorry, that's not how it works.
[0] (Romanian article) https://economedia.ro/parlamentarii-usr-au-depus-un-proiect-...
It's hard to say what happens with all of that.
Collectibles (e.g. trading cards) are still a "cash is king" market. Some dealer only take cash, virtually all of them prefer it, and offer steep "discounts" (lack of markup) for cash.
Also lots of takeaways, they'll be on JustEat/Uber Eats and cash-only in store which is a PITA. My local chippy is cash only and no-delivery. I can't find a single record for a recorded business, or health rating either!
Also if you're talking about Russia, people are switching back to cash en masse because cashless transfer between people is essentially half-criminalized. You run the risk of getting all your bank accounts blocked instantly on mere suspicion or for things outside of your control, with almost no real rules, accountability, or practical ways to push back. It's the way to avoid the runaway government process in the first place.
capital, as an aggregate expression of people's desires, moves like water. if will flow through any small opening
capital controls will flow through any weak link, whether that's a Shanghai free trade zone, a freeport at the airport in JFK or Zurich, physical cash, illiquid assets traded through a trust, or natively in crypto, or crypto wrapped within the same aforementioned structures, no matter what the prevailing or commoner's view is everywhere else in the region
even countries that can change on the whims of an all powerful head of state, they don't really mess with the capital because it drives everyone else away and reduces the head of state's own liquidity and economic driver.
Literal cash, as in actual paper pieces of money, is not a common medium to do so.
Some dealers might be willing to do this for you, but most will not. They will direct you to your local bank to deposit the money and get a cashiers check instead. They do not want the liability of it all. Perhaps better chances at the Ferrari dealer you've bought 14 cars from over the past 30 years I suppose?
I asked my (luxury) dealer if I could pay cash the last time I bought a car and they basically said “hell no, we haven’t done that in over a decade”. The risk of being caught up in some drug money investigation or whatnot is too great.
Coincidentally showing up to your bank with a duffel bag worth of cash to deposit is a great way to both get your accounts closed, as well as be added to a blacklist so it will be very difficult to open an account anywhere else.
The article here is outstanding.
It's not just that, though. It's common here in France for credit card operators to have fees in the 5-10% range (or 0.30€ per operation + 2% of the amount). That's why you often see signs « card accepted above 10€ », and that's why your local shop will probably not mind if you're missing 10 cents when paying cash.
Where do people get these ideas? How do they sincerely hold them?
No non-religious government wants to restrict what you can spend your money on. They want to get a cut of your money, but otherwise it's strictly better for them if you spend as much of it as possible.
If they don't want you to have things, they just attack those things directly, like hard drugs or weapons. No need to restrict your ability to purchase.
Services for laundering cash are going to see a huge uptick in turnover.
You put the cash in the local slot machine, the slot machine owner then purchases legitimate services from your wife / cousin / other family member’s business.
Or you rent a hole in the wall location massage business that that maybe legitimately employs one or two people but on the books they manage to see back to back clients for 20 hours a day.
Another good one is hair dresser / barber, they often take cash.
Are you talking about people who don't pay tax? They create very large national security and sovereignty issues. Countries that don't collect much tax have real problems with both of these.
> There is a good reason Sweden went from pushing cashless to advising people to keep cash at home for emergencies
The key phrase being "for emergencies".
I dont, not while they get to decide who the baddies are.
I don't know about stigma, per se, but there are a few places where businesses have a pretty explicit legal right to refuse cash, UK, Netherlands, Sweden, US. Oddly in PRC refusing cash is illegal.
Cash? As in hundred dollar bills?
Ican’t remember the last time I used cash. My bank statements show that I haven’t made a withdrawal from a cashpoint in the last twelve months. That’s just as well, since it’s significantly more of an effort to get hold of cash than it used to be. Before the pandemic, there were seven cashpoints within a five-minute walk from my house. All of them have now gone: the four attached to banks disappeared when the branches closed, the two in supermarkets were removed, the random one outside a building that used to be a bank but is now a bar has also vanished. Nerds like to say that the plural of anecdote is not data, but in this case, it kind of is, since the general decline in the use of cash is a marked phenomenon across the developed world, and especially in the UK. According to UK Finance, the sector’s trade association, in 2009 cash was used in 58 per cent of all transactions. The figure today is 9 per cent.
Since fewer and fewer people are using banknotes, it follows logically that fewer banknotes are needed, and therefore that fewer banknotes are being printed and put into circulation. Right? Wrong. In the UK, there is £1300 cash in circulation for every single one of us, but the amount of cash we actually hold is one seventh of that figure. The value of banknotes in circulation has been rising sharply for decades, and not just in the UK. In 2005, the total value of all the dollar bills in circulation was $759 billion. By 2015, it was $1.38 trillion. Last year, it hit $2.395 trillion. As Kenneth Rogoff put it in The Curse of Cash (2016), the dumbfounding thing is that ‘no one quite knows where exactly most of it lives or what it is used for.’ According to Oliver Bullough, in his alarming and unsettling book Everybody Loves Our Dollars, in 2022 the average American held $418 in cash, but there was $7357 of cash in circulation for every American man, woman and child. That means that a typical household of four represents $27,756 of missing cash, 80 per cent of which is in the form of the highest denomination US banknote, the $100 bill. That is a hell of a lot of $100 notes unaccounted for, especially when you bear in mind how seldom most people use, or even see, a $100 bill. There are 1.552 trillion euros in circulation, half of it again in the highest denomination banknotes, €100, €200 and €500. (The €500 bill ceased printing in 2019, but is still legal tender. Its nickname gives a clue to its main use: it’s called the ‘bin Laden’.) In Switzerland, 90 per cent of the value of outstanding cash resides in ludicrously valuable CHF 1000 banknotes – a single note is worth £943, or $1285.
So where is all that cash, who’s using it, and for what? The answer proposed by Bullough is bizarre: nobody knows. ‘The number of banknotes is increasing, and the question of why the value of banknotes has increased so markedly remains unanswered.’ Central bankers don’t have much interest in the question. It is immensely valuable for any country to be able to produce currency that’s in worldwide demand: for the cost of printing a few bits of paper, a developed economy receives billions of dollars of value in pounds, dollars or euros. This is called seigniorage, and central bankers are as keen as anyone else on what is in effect free money. But the incuriosity they’ve developed around the question is remarkable. Especially when you home in on what all that cash is actually being used for. According to the Financial Action Task Force, which was set up in 1989 to fight financial crime at a global level, ‘it does not seem unreasonable to suggest that the total amount of cash physically transported for money laundering purposes globally is in the order of hundreds of billions of dollars.’ This seems to be the amazing answer to the question of the missing cash: it’s being used in criminal transactions.
This theme – something not fully understood is going on at a massive scale right under the noses of governments – is dominant in Everybody Loves Our Dollars and in How to Launder Money by George Cottrell and Lawrence Burke Files. Bullough is a star investigative journalist with a long track record in writing about illicit financial flows. Cottrell and Files are also expert witnesses, though they’re an unlikely pairing. Files is an American financial investigator and specialist in due diligence, a veteran in the field – his name comes up in Bullough’s book. Cottrell is a young British man, born in 1993, with an aromatic CV. He was brought up on the toff-infested Caribbean hellhole of Mustique, sent to and then expelled from boarding school in England, supposedly worked in banking for a while, became deputy treasurer of Nigel Farage’s Ukip in 2015, was arrested by IRS agents at Chicago O’Hare in 2016 and charged with 21 counts of money laundering, pleaded guilty to one of them, did eight months’ federal time, went to work for the Brexit Party and currently lives in Montenegro, though he’s still often seen with Farage. He owns a company called Geostrategy, whose website has the unimprovable tagline ‘Reputation is built brick by brick.’ How to Launder Money is no masterpiece, but it is full of good stories and juicy details, and together with the vastly superior Everybody Loves Our Dollars helps us, if not to understand what’s going on (nobody does, apart from the money launderers themselves), at least to begin to understand the known unknowns.
The first of these is how much money laundering takes place. Bullough quotes Jason Sharman, a professor at Cambridge, whose estimate is ‘squillions’. That is an accurate summary of the current state of knowledge. An informed guess, from Michel Camdessus, the longest-serving head of the International Monetary Fund, is that it is somewhere between 2 and 5 per cent of global GDP. The lower figure puts criminal activity at $2 trillion, or the same size as the Russian economy. The higher puts it at $5 trillion, or the same size as the German economy, the third largest in the world. (Cottrell and Files use the higher number.) If it were an industry, money laundering would be the third biggest business in the world, behind commercial property and ahead of pensions.
How did we end up knowing so little about something so big? The answer can be found in the history of the Financial Action Task Force, founded at the G7 summit in 1989. The FATF is the proverbial 800-pound gorilla of anti-money laundering – or AML – activities. You may think that’s already too many acronyms, but brace yourself, because the AML focus of the FATF has led to the regulatory measures KYC (know your customer), SAR (suspicious activity reports), CTR (currency transaction reports), PEP (politically exposed person) and many more. If this sounds bureaucratic and process-based to the point of tragicomedy, that’s because it is. The sheer extent of the legal apparatus, juxtaposed with the sheer extent of the world’s third biggest business, represents failure on a colossal scale. Rich countries, trying to cut down on illicit flows of finance, have focused their energies on the one thing they can see and control: transfers and transactions inside the official financial system. Bullough comes up with an excellent metaphor for this: the FATF is like a drunk looking for his lost keys under a streetlight, not because that’s where he lost them, but because it’s the only place where he can see.
The problem is that most money laundering doesn’t take place under the streetlight. It doesn’t take the form of visible transfers within the official system. A caveat about what we know: money laundering is a little like drug cheating in sport, where the current state of legal enforcement always lags behind the current state of malfeasance. We don’t know what successful money launderers are doing in the present moment. All we do know is what unsuccessful ones have been caught doing in the past. We are drunks looking for our keys in a big empty space with a single torch, and all we can find is evidence of the rare occasions when other people lost their keys.
Some examples are at the simple end, most of them involving what is called ‘placement’: taking illicit cash flows and depositing them in the financial system. The most obvious methods involve businesses that take cash: casinos, construction, nail salons, barbers (and in the UK minicabs, many of which were notoriously under the control of crime families until Uber killed that particular laundry). On Cottrell and Files’s estimation, ‘it typically takes three nail salons to launder the money from a brothel.’ At its most basic, placement involves taking cash payments over the counter, mixing them with illegal cash and depositing them in the bank. One famous example was ‘La Mina’ (‘the gold mine’), a network of gold and jewellery stores in the US which laundered money for the Mexican cartels at a rate of $2 million per day, for two years, giving a total of $1.2 billion. When it was exposed in 1989, an FBI agent said it was ‘the biggest laundering operation we’ve ever seen’.
But it can get more imaginative. You live in Puerto Rico, buy a lottery ticket and win. Good news – but it gets better! At this point a criminal offers to buy your lottery ticket from you, for more than it’s worth, in cash. You get a cash bonus in excess of your win, and the crook gets to launder the money by depositing the apparently legitimate winnings in his bank account. Or say you’re a Chinese maker of porcelain pots. A criminal approaches you and asks you to make a fake antique. He ships the piece to the UK and creates a false backstory for it, according to which it is owned by a private trust ‘to protect the privacy of the owner’ – of course, it’s really owned by him. The trust puts it up for auction, where he gets proxies to bid up the price before buying it himself, for a huge sum. He ‘repatriates’ the fake to China. The Chinese government is keen to bring home high-value art, and offers a tax break to people who do it, so our crook not only gets to launder money and move it abroad, he gets 12 per cent off his tax for doing so.* Why China? Because the government has stringent and energetically enforced controls against moving more than $50,000 out of the country. As a result, Chinese money laundering is such an extensive, ingenious and ever evolving industry that it has acronyms of its own: CUBS, or Chinese Underground Banking System, and IVTS, or Informal Value Transfer System. And why porcelain? Because, as Cottrell and Files explain, the age of ‘jade, paintings, books, metalwork etc … can be determined through non-destructive testing’.
Chinese money laundering is involved in some extremely dark gambling-related activities, which Bullough describes. Money is moved abroad not in the form of cash but in the form of credit transactions through overseas casinos. ‘Handing over control of both debt and debt collection to organised criminals was hugely profitable for everyone,’ he writes. Some Chinese money laundering is less sinister, verging even on the comic. Example: Bicester Village. This extremely successful shopping venue is, according to Bullough, a prime route for Chinese criminals to launder cash. It works like this. A Chinese gang sends drugs to the UK. British drug dealers sell the drugs for cash. British drug dealers give the cash to Chinese students. Chinese students buy luxury goods from Bicester Village. Chinese students ship the goods back to China, where they’re sold and the money given to the drug dealers. Bullough estimates that the Bicester trade is worth £2 billion a year, just from tourists arriving by train. This kind of activity is an issue for the whole luxury market. Bullough asks a police contact about luxury watches, which are a notoriously effective way of moving monetary value. ‘I reckon the luxury watch trade is 80 per cent money laundering. Why wouldn’t it be? You can carry a huge, big bag of money and be very noticeable, or have the same value strapped to your wrist, and be completely anonymous.’ All this is invisible to the modern AML apparatus, which is focused on money that moves through the official financial system.
‘Trade-based money laundering’ follows a similar pattern. Bullough gives the example of a Mexican drug dealer who smuggles product across the border to the US. The drug in question would once have been marijuana, then cocaine, and is now likely to be fentanyl, which is cheap to manufacture and easy to conceal. The drugs are sold in the US for cash, which is used to buy, say, agricultural equipment. The machinery is shipped to Mexico, invisible as part of the $2.2 billion of physical goods that cross the border every day – that’s a total of $800 billion a year. Back home, it is sold by the drug dealer for pesos, which are now clean. The gangsters have exchanged drugs for clean peso bank deposits, without any record of the kinds of financial transaction that the AML/KYC/CTR/SAR apparatus is intended to detect.
It’s ingenious, and it’s also the origin story of modern banking, since it was bankers such as the Medici, originally cloth traders, who pioneered the practice of exchanging goods in one place for credits in another. That’s the reason so many banks have their origin in trading companies: Lloyds in iron, NatWest in cloth, Lehman Brothers in cotton and so on. The modern world economy offers a huge variety of techniques to conceal the movement of money in the flow of trade. Freeports and bonded warehouses, free-trade zones and forged bills of lading, under-invoicing and over-invoicing: all these things provide opportunities to camouflage the flow of illicit money in the mostly legal, overwhelmingly large flow of physical goods. Add the extensive repertoire of tricks used by launderers – shell companies in multiple jurisdictions; hidden ownership; paper trails that run out in long-defunct legal practices and accountancy firms – and it’s a miracle any of the illicit money is ever detected.
Some of the most sophisticated techniques for evading FATF controls are not attempts to hide from the legal frameworks set up by governments, but jujitsu-like tricks that use the authorities’ own systems. Here, as elsewhere, the only examples we have are when the crooks have been busted; we can be confident that there’s a lot more of this going on. The Russian Laundromat of the early 2010s used corrupt judges in Moldova to order the settling of debts for bankrupt companies. The companies were fictitious, and the payment of the ‘debts’ moved money to the supposed creditors’ banks in Latvia. A court-ordered settlement of legal debts? That, to any bank, looks like clean money. Nobody knows how much money the scheme laundered, but estimates range from $20 billion to $80 billion.
An even bigger scam that works through government systems is known as carousel fraud (naturally, it has an acronym too: MTIC, or Missing Trader Intra-Community fraud). This is a scheme which makes use of the fact that the EU does not charge VAT on trade that crosses a border. Bullough:
Imagine two companies which are secretly controlled by the same people. If company A imported some phones, then sold them to company B, it charged VAT on the deal. If company B then exported the phones, it reclaimed – from the government – the VAT it had paid to company A. The integrity of the VAT system depends on the two totals balancing out. The money that A pays in is equal to the money that B takes back. The scam lay in A disappearing and not handing over the money it owed, but B still claiming it. The hidden owners of the two firms therefore earned for themselves 17.5 per cent (the rate at which VAT was then charged) of the value of the shipment of the phones. The more phones you sold to yourself, the more money you made.
The truck full of phones would then simply turn round and repeat the trip. It’s complicated, but ‘all you need to remember is that by importing phones to the UK, flipping them between two shell companies, and exporting them again, criminals earned free money. And they could do it again and again and again.’ Hence the nickname ‘carousel’.
Simple examples were easy to spot, once the authorities knew what they were looking for, so criminal techniques grew in sophistication, with chains of companies used to sell the goods onwards. These ‘buffer companies’ were in many instances legit businesses that had no idea they were participating in a huge fraud. Other schemes moved goods backwards and forwards simultaneously, mixing legitimate transactions with fraudulent ones, and adding missing traders in other countries to make the paper trail even harder to follow. The scam began in the Asian community in Stoke-on-Trent and spread, first in the UK, then throughout the EU. One of the fraudsters, Nasser Ahmed from Bristol, made the Sunday Times Rich List in 2006, with £151 million. He fled court minutes before a guilty verdict in 2005; nobody knows where he is now.
Carousel fraud is a good news, bad news story. The good news is that the UK devoted significant resources and considerable ingenuity to tackling the problem, which is now much smaller than it used to be – in the UK. The bad news is that carousel fraud simply relocated to the EU. The flaw in the design of VAT remains, and the EU has been complacent about addressing it. ‘Europol estimates MTIC to be costing EU member states €50 billion a year, and thus to be the most profitable crime in the EU, far beyond the powers of national authorities to control.’
Far beyond the powers of national authorities to control. That is a truly astonishing state of affairs. The fact is that a great deal is being done to combat it. It’s just that none of it works. The system focuses on the apparatus of AML regulations, which look at financial transactions within the system. That’s flaw number one. Flaw number two is that the apparatus has created the wrong incentives. Banks have a responsibility to report any transactions they think are suspicious and are fined and sometimes prosecuted if they mistakenly let a fraudulent transaction through. For them, there is no upside to the work of checking, just downside risk, so, inevitably, they flag every transaction which could conceivably be seen as suspicious.
This links to the phenomenon of debanking, in which people with any connection not just to crime, but to political activity of any kind, are prevented from having a bank account. Lots of decent people smiled quietly at the news in 2023 that Nigel Farage had been debanked by Coutts. They shouldn’t have: debanking affects just as many people on the left and in the centre as on the right. Ask any Muslim charity; ask any charity trying to help Ukraine. ‘Between 2016 and 2022, the number of accounts being closed annually in the UK rose from 45,091 to 343,350.’ Banks don’t have to give any reason or explanation, and there is no process for challenging a debanking. A piece of news that got much less attention than it should have was the report in the summer of 2023 that Jeremy Hunt, who by that time was chancellor of the Exchequer, had the year before been blocked from opening an account with the UK-based online bank Monzo. This was, he claimed, because he was a PEP – a ‘politically exposed person’. It is very obviously dysfunctional to have rules so hair-trigger sensitive that the chancellor can’t open a bank account.
The rules are extensive, complicated and very expensive to transgress. The result is that in the US alone, banks file ten thousand SARs every single day. That’s 3.8 million reports a year. It is impossible for the authorities to act on every one of those. The outcome is a system that flags so much activity it functionally resembles one that doesn’t flag any activity at all. The scale of the system is flaw number three: all of this is extraordinarily expensive. Compliance – the process of following the rules – costs $206 billion a year globally, according to the research company LexisNexis. That’s a lot of money for a system that looks in the wrong place, doesn’t work even when it’s looking in the right place, and causes enormous amounts of friction to the law-abiding, who are the ones who ultimately bear the cost. Its processes are hugely intrusive (Bullough rightly wonders at how little fuss there is over the privacy implications of SARs), create bureaucratic obstacles to ordinary citizens and businesses, and don’t do what they are supposed to do: prevent money laundering.
Let’s agree that the status quo isn’t working. What to do? Bullough has three recommendations. One of these, a change in the legal attitude to drugs, is a large issue and to my mind a separate one, with the significant weakness that it is very unlikely to happen in a reasonable time frame. Putting that to one side, of his two other recommendations, the first is both simple and radical: it is that governments get rid of high-denomination banknotes. ‘What non-criminals would honestly be inconvenienced if the largest US banknote was a $20 bill?’ he asks. ‘Would fascism really return to Germany if the €200, €100 and €50 banknotes were retired?’ Bear in mind that 80 per cent of the value of US currency is in $100 bills, and 70 per cent of those are held overseas. In the words of an assistant commissioner of the Met, ‘untraceable, untaxable income in the hands of criminals is the new lingua franca of organised crime. The link between Medellín and Moscow is the $100 bill.’
There are precedents for governments taking decisive action in this area. The biggest recent experiment in demonetising banknotes came very abruptly in India on 8 November 2016, when the Modi government, without trailing or discussing or signalling the policy in any way, demonetised 500 and 1000 rupee notes overnight (at the time, they were worth roughly £6/$7.50 and £12/$15). These were vastly the most commonly used Indian banknotes, amounting to 15.44 trillion rupees in value. At that point, 99 per cent of Indians paid no income tax. The idea was to force as much as possible of that huge untaxed economy into the daylight. Anyone holding these notes had to take them to the bank, where newly denominated notes would be issued in their stead. If they had lots of cash, they would have to give an explanation. The policy didn’t work, for reasons that are still being debated, the main one apparently being that people with ill-gotten cash found people to act as their proxies and repeatedly deposit small amounts of cash. This is the same tactic used by money launderers: ‘smurfing’ is the term for using accomplices to make lots of small cash deposits below official reporting thresholds. But what would happen if a government targeted large denomination notes, the kind preferred by professional criminals? Hint to the US Treasury and the European Central Bank: there’s only one way to find out.
Bullough’s other big policy recommendation is to switch some of the hundreds of billions of dollars spent on compliance to research. The illicit flows of money, ‘between 2 and 5 per cent of everything’, are such an important phenomenon in the contemporary global order that our current state of ignorance is indefensible. I haven’t even mentioned gold, which is used all the time in criminal transactions, let alone cryptocurrency, the single biggest recent innovation in money laundering.
This isn’t just a problem for far-off countries of which we know little, like the EU and the US and China. Here in the UK we are at the epicentre of certain sorts of financial crime, laundering money both at high levels through the City and at low levels on our high streets. On 30 April, the Chartered Trading Standards Institute published a head-melting report in which it said that 97 per cent of its officers were aware of suspected organised crime activities operating through local retail premises; that 99 per cent of officers had seen an increase in cash-intensive businesses on their local high streets; that there are areas of the country where ‘as many as half of mini-marts, convenience stores and vape shops, up to a third of American candy stores and one in four fast-food takeaways are estimated to have links with organised crime.’ The recent proliferation of cash-only barbers in high streets seems a fairly clear example of this kind of money laundering. Late last year, Operation Machinize, which focused on these activities, resulted in 2700 premises being raided and 924 arrests. Money laundering is happening all across the UK economy, at scale, right here and right now. It is shameful that we do so little about it, and know so little about it. Last word to Bullough:
In the months before the Labour Party won Britain’s 2024 general election to become the government, I went out for a coffee with a senior adviser looking for ideas to incorporate into the party’s financial crime plan. I said it needed to hire more police officers and give them the time and space to arrest criminals.
‘Well, that’s not going to gain us any headlines, is it?’ the adviser replied.
And that’s where we are. Money laundering is the thing that makes almost all crime possible, especially the crimes that states claim to be most concerned about: drugs and terrorism. The apparatus set up to combat it doesn’t work. It’s also hugely expensive, and it creates a maddening proliferation of obstacles and inefficiencies to ordinary people and legitimate businesses. Governments don’t do anything about the status quo, for a number of reasons: it inconveniences them to look too deeply into the darker corners of their own financial systems, and they make money from printing their own currencies and don’t much care how that cash is used. But most of all, they don’t do anything about it because they haven’t got a clue.
Interchange in the EU is capped at 0.4% for credit cards. Typical costs for processing are much lower than 5-10%.
For example, Adyen charges the 0.4% interchange + their fee of 0.6% and a flat 0.11€. On a 10€ transaction, that's 2.1%.
In most cases this is cheaper than handling cash. When you accept cash, you have to pay somebody to close and reconcile the drawer, take the cash to the bank (or have a security company do it for you), account for shrinkage / mistakes...it's a bit of a myth that cash is cheaper for businesses to handle, especially in places like the EU where card interchange rates are highly regulated.
Now of course, if your cash is not going the usual routes and isn't getting accounted for in the books...that equation can change.
Nothing like as bad as the potential problem of your economy grinding to a halt.
There are other ways to deal with tax evasion. Those countries usually do not have good systems. If you investigate properly, design tax laws properly, chuck a few people in jail, etc. the problem can be solved.
Not using does not close loopholes, or prevent corruption, or stop people sending money offshore.....
> The key phrase being "for emergencies".
If you go cashless you will not have the infrastructure to use cash in an emergency.
Ukraine event's is prime example why finanical privacy is important. I think we're solving taxing issue from wrong angle, we should be look this another angle: Merchants should be identifiable and taxable while customer stay private. GNU's solution "Talor" is very interesting and promising.
I’m not sure the stress is worth (presumably) 20% or so savings for his income.
That is illegal in the UK. That is why many trades people here will accept bank transfers but not cards.
But it doesn't take too many cash purchases that are not inline with your tax returns before somebody is going to start snooping around.
edit: although sometimes, a lot longer than one might expect.
And he was paying his staff under the table in cash anyway! But would still rather just withdraw from the business account, rather than having to deal with handling of customer cash every day.
It's also worth noting there are also huge fixed costs for credit card transactions. We're currently upgrading our pinpads and it's been an absolute nightmare to get the right parts in just for physically connecting the damn things to our counters, we lost almost a whole day of backend POS access for our vendor to push a required update, and I'm looking at more fees to be able to support other types of cards which require POS certification.
We strongly prefer our customers use cash.
Let's ignore the fact that that was done by private companies and not directly by a government.
The mechanism is to make it so undesirable objects are not available for sale. The above comment is implying these things would remain legitimately for sale as normal, but you would be unable to spend money on them.
quite a bit of labor runs on cash. you can usually get a deal for a lot of services by paying in cash. sometimes the floor manager will take cash and never even report the transaction to the business much less the tax man (I rent forklifts and get plating work done this way).
Citation needed? Where did you hear that this is a routine occurrence? That seems risky for everybody involved, and it requires a report to the government from the seller.
Well, they are plenty threatening in the sense that if you don't follow them, they will refuse doing business with you, which suddenly means you can't accept cards at all, which can kill a business entirely.