Clean Bill of Wealth

Once a year, in nearly every major City firm, an unspeakably horrible punishment is meted out by sadistic bosses to their stressed-out employees. All City workers dread this annual torture but they have no choice but to endure it if they are to remain working in the finance industry. When I was a stockbroker

I looked into whether it constituted ‘cruel and unusual punishment’ but found the European Union’s legislation on this matter to be woefully inadequate.

I am, of course, referring to the City’s annual money-laundering test.

There appeared to be no escaping this despicable punishment until I realised in 2004 that anyone in a senior position at my bank was secretly getting their graduate trainee to do it for them. Henceforth, I simply demanded that our team grad sit dutifully at my computer and take this surprisingly difficult web-based exam while I underwent much more demanding challenges – such as seeing just how many banknotes it was possible to slip into Ebony’s G-string without security being called.

This seemed a smart thing to do.

That was until I decided to write a City-based thriller about money-laundering. As I spent hours researching the subject last year, I cursed the woeful ignorance that my laziness had engendered.

I also despaired at the lack of knowledge that every senior banker must also have about this pernicious practice as a result of their idleness, because

I think it leaves our banks wide open to abuse. In fact, I genuinely believe that money-laundering could be the next big scandal facing the finance industry. After the subprime debacle and the recent Wall St insider trading prosecutions it’s about time that investigators revisited this classic bit of financial skulduggery.

Those recent scandals have also ensured that there are many more City regulators around seeking out malpractice, which increases the chances that banks engaged in money-laundering will get caught. Indeed, we’ve already found out that the despots who were deposed by the ‘Arab Spring’ have been squirrelling away much of their ill-gotten gains in British firms and, on this count, our supposedly clean banks have got previous. Most of the $1.6bn looted from Nigeria by the family of the former dictator Sani Abacha was found in supposedly reputable British banks. I think it’s a question of when, not if, serious questions will be raised about the ethics of working with blood-thirsty tyrants (and I’m not talking about your head of capital markets here), as well as global drug dealers and international white slave traders.

So, whether you want to be ahead of the curve regarding this upcoming issue or you’re once again facing the tedious ordeal of the annual money-laundering test, read on and discover everything you’ve wanted to know about money-laundering but were too afraid to ask.

What is money laundering?
Put simply, it’s giving dirty money the appearance of having been earned legitimately. This is done so that its dodgy owners can’t be prosecuted (as the crooked source of their tainted money has been obscured) and so that once-bent money is rendered easier to move around and more difficult for the authorities to confiscate. The IMF estimates that money-laundering comprises 3-5% of the world’s GDP. Since the World Bank estimates world GDP in 2007 was $72.3trn we’re talking about something like $2.17-$3.61trn per year. Whatever method is chosen to launder money, it generally involves three processes: placement (moving the tainted cash somewhere else or changing it into another form); layering (moving the ‘placed’ money into other institutions to further obscure its origins); and integration (returning the now ‘kosher’ money to the legitimate economy).

Surely London isn’t involved in such naughtiness?
London, simply by dint of being one of the world’s financial centres, is without doubt one of the money-laundering capitals of the world and the ‘Arab Spring’ is revealing that our fair city is none too fussy when it comes to accepting wonga from dubious characters. Mohamed Layas, the head of the Libyan Investment Authority (that was based in Mayfair and used to own 3% of Pearson, the owner of the Financial Times) was revealed by Wikileaks to have told US diplomats that Libya’s lovely leaders favour London because of the “ease of doing business” here and its “uncomplicated tax system”. Apparently, the sons of Egypt’s ousted leader, Hosni Mubarak, Alaa and Gamal “love [London] and keep a lot of money there”. Money-laundering expert Martin Woods says that “New York and London have become the world’s two biggest laundries of criminal and drug money” and a 2001 French parliamentary report highlighted “the great permeability of the British banking system” and stated that the City is a “haven for terrorist money-laundering”. Although one’s inclined to think that our cousins over the Channel were once again having a pop, it is noticeable that between 1986 and 1998 only 357 money-laundering cases came to trial in London whereas Italy had 538 and the US had 2,034 in 1995 alone. It’s also noticeable that some 200,000 Suspicious Activity Reports (SARs) are received each year by the UK’s SOCA (Serious Organised Crime Agency) which, taking into account the tiny amount of prosecutions, suggests that their hit rate might be improved.

The launderette connection
Funnily enough the term ‘money-laundering’ does actually have something to do with launderettes. Apparently, the expression originated during prohibition in 1920s America. Criminal gangs led by gruesome characters like Al Capone and Meyer Lansky disguised the dirty cash they made from selling bootleg hooch by abusing cash businesses like launderettes. Interestingly, little has changed since those days and money-launderers still often use cash-intensive and service-orientated businesses to legitimise their ill-gotten gains. Hotels (where guest numbers can be massively inflated), small restaurants (that somehow manage to serve hundreds of covers daily), and nightclubs are classic fronts for cleaning up dodgy moolah. These days, sophisticated crims simply create ‘shell companies’ with an office in some dubious tax haven that involves nothing more than a crackhead kipping next to a single phone line. Complex transactions between these bogus companies are then used to disguise their money’s origins with launderers often using false invoices to cover their trail.

Beware the evil Smurfs!
I’m not talking about those diminutive blue fellahs – though I’ve always found them really creepy. No, I’m talking about a large group of normal-sized human beings who are used to divide a hefty amount of cash into lesser sums that can then be deposited into multiple bank accounts in amounts small enough not to raise suspicions (eg, under $10k in America). This process is called ‘smurfing’ – that is not a new form of sexual deviancy involving dwarfs and blueberry jam.