Filthy lucre

With the introduction of the electronic funds transfer system, white-collar crime became a whole lot easier. Photo: Pixabay

Guns, drugs and vice have always been the bread and butter of organised crime.

Of all the things that your average cartel boss has to consider, number one is what to do about the money. There is just so much of it and it all has to be laundered.

These are high-risk, high-reward crimes and wherever there are high-end profit margins you will find high-end criminals with high-end bank balances.

In the old days (before the internet) crime syndicates had to shift large sums of actual cash from point A to point B to pay for goods and services. This involved a heavily armed bagman with the physical wherewithal to carry it. Cash is very heavy — about 10 kilograms per $100,000 in notes, plus rubber bands and bag.

Half a million dollars or more and it is already more than 50 kilograms, which makes it difficult to carry and conceal, apart from being a major logistical headache.

In about 1983 things got a lot easier.

Electronic funds transfer

With the introduction of electronic funds transfer, white collar crime, wire fraud and money market-based laundering exploded. Criminals quickly moved their bulk transactions online. There was limited regulation around online banking and, in Australia, criminal involvement in international syndicates skyrocketed.

Still, it was not until 1988 that the Financial Transactions Reporting Act (FTRA) was introduced, administered by the Australian Transaction Reporting Centre (AUSTRAC) set up the next year.

FTRA was designed to profile transaction sets and stem the tsunami of the electronic transfer of dirty money.

Under FTRA, the banks now bore some responsibility for transactions that went through their institutions. They were obliged to submit a Suspicious Transaction Report (SUSTR) about any transactions that met AUSTRAC's definition of “suspicious”.

The bank’s legal obligations were met once the suspect transactions were reported.

By now, there were millions of transactions globally every second and banks knew it was highly unlikely that law enforcement would come knocking on their mahogany front doors.

Even when they did, banks paid the fines and moved on. They dutifully submitted their SUSTR reports and continued on their way, collecting the usual bank fees and charges on every transfer.

The cartels kept getting bigger.

Clearly, the FTRA was not working as well as it could.

Both law enforcement and financial regulators lagged behind cartels in terms of technology, manpower and legislation. The more the war on drugs, guns and vice was ramped up — and the greater the risk of someone going to jail — the higher the value of contraband.

Organised crime quickly finds an organised market and, since deregulation and internet based trading, it has quite literally gone gangbusters.

The stock exchanges, international real estate deals and offshore tax havens all became globally available to anyone with the money. Combined with the vagaries of the Corporations Act the resulting increases in profits became astronomical.

After the 9/11 attacks in 2001, counter terrorism became the new black for law enforcement and financial regulators. Governments threw billions at it.

But, in Australia, it was not until 2006 that the Anti Money Laundering and Counter Terrorism Financing Act (AML/CTF) came in. It largely replaced the FTRA and was far more prescriptive about what constituted a suspicious transaction and what banks had to do about it.

Astonishingly, and still having not learned the lessons of FTRA, regulators allowed the banks to do their own AML/CTF risk assessments.

Multi-million dollar IT systems and audit consultancies were put in place. Compliance specialists and audit firms had a field day. Banks automated banking platforms to monitor transactions and meet reporting requirements.

They then built the ability to flag their own customers as low, medium or high risk into their own IT and compliance systems.

That system spits out a regular audit-able report to satisfy regulators. Suspect transactions are again sent dutifully off to AUSTRAC, which then has to wade through spreadsheets, five-lever-arch-files long, looking for activity the bank had already processed — and been paid for.

The party was far from over.

The money tree

According to the United Nations Office on Drugs and Crime (UNODC) World Drug Report 2020, 5% of the global population uses illicit drugs. While the mix of factors are complex, the drug trade is worth about 1% of global GDP annually. This is about US$194 billion.

Shifting $194 billion in contraband requires a lot of armed security, as shown by the UNODC Global Study on Firearms Trafficking 2020.

According to the Stockholm International Peace Research Institute, the illicit firearms trade is booming, and is estimated to be worth at least $95 billion, likely higher. That’s about $300 billion just in illegal arms trading and illicit drugs alone.

As for vice, in all there are 52 crime types that make up the transnational organised crime cohort, estimated to be about 3.6% of the entire global economy.

The Council for Foreign Relations report The Global Regime for Transnational Crime estimates the global cost of money laundering to be 2% of global GDP. That’s roughly $388 billion. Every. Single. Year.

Groundhog day

In February last year, 13 years after the AML/CTF was introduced, the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was tabled in federal parliament.

It laid bare the extent to which banks remain complicit: bribery, fraud, money laundering and child exploitation. Like FTRA and AML/CTF before it, what the royal commission has taught the banks is just how much they can get away with.

So when Buzzfeed News broke the FinCEN files story in September, no one should have been surprised it included The Australia Report targeting 57 individuals over several hundred pages of transactions.

The global leak revealed that five global banks — JPMorgan, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon — moved dirty money for people and companies, and are tied to the wide-scale looting of public funds in Malaysia, Venezuela and the Ukraine.

The investigation by the International Consortium of Investigative Journalists found that these banks profited from powerful players, including Paul Manafort, a former campaign manager for US President Donald Trump.

Over a decade, JPMorgan processed more than US$50 million in payments for Manafort.

It is proof positive of what many of us had long since suspected: that the banks themselves have become the biggest cartel of all.

The difference is that, in banking, nobody goes to jail.