ONE of the ways of turning dirty or black money into legitimate money is through money laundering. Money laundering is the process of converting dirty money so it appears legal.
The money is smartly cleaned in order to distinguish its criminal origin and appear to have derived from a legitimate source. Dirty money originates from a predicate crime and obtained illegally from corruption, fraud, embezzlement, financial crime and other profit- driven crimes.
According to PwC’s Global Economic Crime Survey 2016, the global money laundering transactions are estimated at 2 to 5% of global GDP, or roughly U.S. $1-2 trillion annually. Yet based on the United Nations Office on Drugs and Crime (UNODC), less than 1% of global illicit financial flows are currently seized by authorities.
In Malaysia, the Commercial Crime Department of the Royal Malaysian Police reported that “any criminal activity that generates significant profit creates a need for money laundering. Organised crime and financial crime together costs Malaysia between RM15 billion and RM25 billion per annum”.
It is very interesting to note that the very first case of money laundering prosecuted in Malaysia was on a lady. Dr Hamimah Idruss, a former director of Syarikat Safire Pharmaceuticals Sdn Bhd. was charged under the Anti-Money Laundering Act of 2001 for receiving RM41.3 million in illegal gains between June 3 and 10, 2003.
Hamimah was sentenced to 38 years in prison with a fine of RM6.39 million for eight counts of money laundering and ten counts of abetting.
In order for the money to be fully cleaned, it involves three steps. The first step is placement and the most difficult step where the money launderers will try to place the dirty and ill-gotten proceeds into the legitimate financial institutions and system.
Once this is succeeded the next step is called layering. The process of layering occurs when the money is separated from the illegal funds obtained from the original sources.
The money launderers created complex layers of financial transactions. This is to make sure the links between the money launderers and the money could not be easily seen or traced. They will make many bank to bank transfers especially to different account in different names and in different countries.
The final step is known as integration when money is entered in financial systems and placed back in the economy, clean and legally earned funds. At this stage, it is difficult to differentiate between legal and illegal money and wealth. The money launderers will purchase expensive houses, hotels, apartments, diamond and fine art.
Buying piece of expensive art with bribe money is one of the most popular ways to launder money. An expensive art piece could make more profit but less risk and is normally used to transfer money across the border and hide illicit gains.
The Art market Report published by European Fine Art Fair stated that selling fine art was worth $75 billion in 2014. Lately, it is believed that illegal money pumped through art dealers and auction houses have contributed to the rise in value of fine art.
At one of the Art Business Conferences, Michael Martin, head of the forensic and anti money-laundering services at Deloitte Luxembourg, said “art is one of the asset classes that obviously lends itself to money laundering.”
According to New York Times, in 2013, a more high-profile laundering case surfaced when a Jean-Michel Basquiat painting worth $8 million was found in a crate at Kennedy Airport on its way from London.
The crate went through customs with a valuation of $100; though it contained Basquiat’s 1982 painting Hannibal (commodities valued under $200 aren’t required to be declared at customs). The painting had been bought and shipped by Brazilian Banker Edemar Cid Ferreira in an elaborate scheme to launder over $50 million that was illegally obtained when Ferreira’s bank, Banco Santos, went bankrupt.
The free ports, which exist in Singapore, Switzerland and Luxembourg, offer a variety of tax benefits and maximum security warehouse because the goods stored in them are technically in transit. The Economist magazine reported that the Freeport near the Geneva airport alone is thought to hold USD100-billion of art.
Bloomberg reported that Jho Low himself wrote on March 13, 2014, to an employee of a private art dealership that had sold him a painting by Claude Monet for $35 million a few months earlier.
The lender “can take all the art no problems,” he wrote the next day. “All in Geneva free port. Speed is the most important and one with a fairly quick and relaxed kyc(know your customer) process.”
Lately, the perception of art market has changed and many countries have tightened its money laundering rules. In 2016, Switzerland passed a law that required cash transaction limited only to USD135, 000.
Payment above that will have to be made by credit card, making easier for law enforcement to trace illegal money.
As long as the process looks realistic, reasonable and logical, the money launderers use their creativity to launder money which needs a hiding place. Indeed money laundering is always needed when there is something to hide.
* Datuk Akhbar Satar is the President of theTransparency International-Malaysia (TI-M).
** The views expressed here are strictly those of the author and do not necessarily reflect those of Astro AWANI.