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.
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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.
From the article:
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