Illegal international financing networks: the basics
Updated: Apr 1, 2020
Every international scheme to launder money and finance illegal activities has one thing in common: large parts of it don't make sense.
Here are four simple lessons about money laundering. Firstly, if there are too many companies involved in different jurisdictions, it's suspicious. If the jurisdictions themselves are legitimate and the owners of the companies are transparent, it's tax avoidance. If the number of companies is small and the ownership structures are not transparent, it's tax evasion. Finally, if the number of companies is large, the jurisdictions are classic offshore examples, and ownership is totally opaque, then it is the financing of international criminal transactions.
The standard model of offshore banking to move money around unlawfully involves the opening of a company with nominal ownership disclosure rules, nominee directors (that is to say, strangers to the company who agree to do whatever the real owners direct them to do) and a standard corporate structure, but with no physical offices, in an offshore jurisdiction such as the British Virgin Islands. That company, acting by its nominee directors, then opens a bank account in (say) Geneva. There is no lawful way of tracing whether the company does what it says it is doing. Movements of money can be backed up with fraudulent or forged contracts justifying transactions that never took place because the real transaction involved sanctioned oil, drugs or whatever the underlying criminal activity may be.
Nominee directors may be resident in a jurisdiction such as Panama, where they act beyond the reach of international criminal law enforcement and no subpoena can reach them. Even worse: they may have sold a copy of their passport and a facsimile of their signature to a corrupt law firm or other financial services agency, and they may not even know that the are the directors of hundreds of companies. Their signatures are applied to documents whenever the real perpetrators of the criminal transaction need to move money or forge a document justifying it.
With enough companies undertaking fictitious transactions with one-another across multiple opaque jurisdictions, it soon becomes very difficult even for the intelligence agencies to trace what is going on. As a rule, they need insider leads to help them uncover the extent of the criminality involved in the moving of money. And this can be dangerous. International criminal organisations can use the substantial resources at their disposal to attempt to silence their critics, to threaten their families and loved ones, and the like.
However the work of cross-border law enforcement is persistent. Files never get closed. New leads are being followed up all the time. Banks, benefiting from the business, may prefer to turn a blind eye but ultimately governments of repute and standing will not let them. No matter what short-term blunders and embarrassments western governments may try to cover up with fictitious legal stories, the long arm of the international security and intelligence agencies continues to stretch. Law enforcement officials may approach, officially or unofficially, banks and financial services providers, and slowly but surely stem the leak of dirty money. This is the way international criminal organisations suffer a gradual demise; and after they have gone so far in their wayward ways, there is nothing they can do to stop the governments of the west from slowly strangling them. Once the financing has been stopped, the culpable individuals are pursued using the criminal law, across borders, one by one.
If you are in a position of wondering whether to turn state's witness on your knowledge of an international criminal organisation, you should contact us without delay. Whatever the short term consequences of your decisions, the longer term ruin to your life of overlooking gross criminality that all Eyes are staring at is far worse.