Friday, February 25, 2011

London: The Money Launderer's place of choice

Money Laundering

Money Laundering © fintag

News comments:
I need to be careful here, but London has been the choice of money launderers for years.

So when we read the authorities want to freeze Libyan assets, we have to ask in these over regulated post 9/11 days, how was it these assets (now deemed to be laundered money) ever managed to invest in blue chip companies, real estate and own sovereign debt?

Didn't anyone do a KYC check?

Oh, Tony Blair did and said it was all right.

Del Boy
If I walk into a showroom with a suitcase of cash and try and buy a car, I will be given a once over and probably be told credit cards only and asked for a utility bill and some DNA.

On the other hand if I approached a football club and promised to give them USD500m, I would be welcomed with open arms. No KYC needed because anyone with that sort of money must be a good egg. Only last year Manchester City FC's owner was found to be a money launderer (daily mirror).

Light touch London
For London, it all started with BCCI (wiki). After this crash, the regulators decided it was a one off and only impacted wealthy people and foreigners so instead focused on financial misselling to the small people and how it was unfair small countries could offer lower taxes (and hence calling them the derogatory term - tax haven). They, along with the global community paid lip service to the movement of laundered money because it is very hard to control.

Of course policing has intensified and there are nasty penalties but the problem is everywhere and happening right in front of our eyes. If a few billion arrives into a country and it creates value (jobs, asset inflation etc) then turning a blind eye is fine because we all benefit. Much better to provide cheaper trainers to your people than worry about the 8 year child dying of finger cancer in a remote factory in China ...but that is another blog post.

Here is a hypothetical way of moving that money made illegally into London:

Buy a Premier League football club (you know which ones I am talking about). Buy players from South America for over inflated prices. Pay huge agents fees. Build new stadiums and ensure the developers are your own.

Buy some Commercial Property. London may have a glut of empty properties, but who cares if its a long term hold. Most real estate agents aren't regulated and wouldn't know what to do with a utility bill.

Buy some infrastructure. The UK government is privatising everything so get in there and buy a nuclear power station or two.

Buy some residential property in expensive areas like Bishops Avenue or Belgravia. Develop a block of apartments and buy a couple to ramp up the price of the empty ones and get a few more BVI companies to buy them.

Buy a banking license. Set up a rep office opposite the Bank of England, put in lots of Tier 1 capital and call it the Irish Icelandic Nigeria Bank.

Set up a Sovereign Wealth Fund and pretend its a pension fund. Go off and buy stakes in lots of well known companies and make them look silly. Buy lots of sovereign debt and hold countries to ransom.

Buy some defence contracts. Buy a few planes and then lease them to a neighbouring country and enjoy some clean income.

Ask some hedge funds to run a "managed account" on your behalf.

Open up bank accounts at all the big banks. If you fail the KYC, move onto the next bank for they don't talk to each other.

Create a complex web of offshore companies, have swaps and transfer pricing agreements and set up an import - export business.

The biggest joke with Knowing Your Client is this. If I give you my passport and a utility bill, what does this prove? Nothing. If you check the "don't do trade with these nasty people" spreadsheet that you can download from various government websites and the name doesn't appear then apparently you are clear. No need to worry about fake passports or utility bills or fake names, you have done your job.

So back to Libyan assets. How do we know this money is "illegal"? It is all comingled, just like every other sovereign funds assets, with clean and dirty assets. The biggest problem is that governments are the world's largest money launderers. It is in their interests to play with big money so what they do is put laws to annoy the small people and give them the perception that money laundering is being tackled at grass roots level. Well it's not at all.

Today's shorts:
Libya doesn't have a stake in Reuters (reuters)

UK to freeze London (telegraph)

Obama finds he has to act like a real president (daily mail)

Today's longs:
That font of all knowledge (wikileaks) tell us where the assets are (reuters)

Hong Kong: The Asian's choice for money laundering in 2010 (asiaone).

Tony Blair to be arrested for crimes against reason.


Anonymous said...

You didn't mention citi at all in this blog post.y

Sandra Lee said...

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