Dirty Money: You don’t need Bitcoin to move it

May 3, 2014 17:10 UTC
Dirty Money: You don’t need Bitcoin to move it.

Bitcoin arrived on the World scene in 2009. There are people, of dubious character, interesting people, that have been transferring dirty money throughout the World, a long time before 2009. They can be very clever in how they accomplish this, and Bitcoin, despite all of the media’s bad press, still isn’t their chosen method of cash transfer.

The Economist magazine recently carried out an investigation of the size of this illicit trade. According to Balesh Kumar of the Enforcement Directorate there are examples of criminals utilising the mispricing of goods with the misuse of trade-finance techniques. Using trade data, Global Financial Integrity (GFI), an NGO, estimates that $950 billion flowed illicitly out of poor countries in 2011, excluding trade in services and fraudulent transfer pricing. Four-fifths was trade-based laundering linked to arms smuggling, drug trafficking, terrorism or public corruption.


[dropcap size=small]I[/dropcap]f I have, for example, $20,000 in America that I wish to transfer to my Bank in Ireland. Remember, the money must be legitimate, or at least seem to be legitimate, when it arrives, so how do I transfer it? The solution is simple, as well as being hundreds of years old; I transfer the money via the winds of trade. Trade based money-laundering is a huge issue as well as being almost impossible to detect. Governments are targeting bank transfers and purchases of gold and precious stones but as they concentrate on the front door, the back door that opens to imports and exports is more open than ever. People transferring ‘dirty money’ from one jurisdiction to another simply buy stock and export that to the country of choice, legitimately. The stock is then sold, and the revenue received, less duties and taxes, is fully legitimate.

Trade is “the next frontier in international money-laundering enforcement,” according to John Cassara, formerly of the US Treasury department. The other point to be aware of is that governments are slow to legislate to reduce capital flows inwards through trade simply because they don’t want to scare off potential mobile capital.

The most common technique used is simply, mis-invoicing. To bring money into a country, undervalue imports or overvalue exports; do the reverse to get it out. A front company working for a Mexican cartel might sell $1m-worth of oranges to an American importer while creating paperwork for $3m-worth, giving it cover to send a dirty $2m back home. One group of launderers was reportedly caught exporting plastic buckets that cost $970 each from the Czech Republic to America.

To lessen the risk of discovery the deal may be sent via a shell company in a tax haven with strict secrecy rules. This may mean using a specialist “re-invoicing” firm to “buy” the oranges at an inflated price with an invoice to match and charge the importer the true price. The point is to get paperwork to justify an inflated transfer to the seller. Re-invoicers are used by multinationals to shift profits around, which gives them a veneer of respectability, says Brian LeBlanc of GFI—but they also “feed a giant black market in the offshore manipulation of paperwork”.

The secret of moving ‘Dirty Money’ from one location to another is to do it carefully. The prices quoted should not be completely out of order from the truth; smart criminals know that smaller transactions with tighter margins get through, big transactions with huge margins get caught. Bitcoin has many advantages in trade but as a means of transferring undeclared, or dirty money, from one location to another, it is simply not a well designed tool. The old methods, in this case, still seem to be the best.

Image by Shutterstock.

More of: money laundering
@P.J. Delaney@delboyir

Masters in Public Administration, Bachelors in Mgt., I live in Ireland, I have a bit of a background in Economics and lots of opinions on everything else.

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