By Akhbar Satar
One of the ways of turning dirty or black money into legitimate money is through money laundering. The money is smartly cleaned in order to hide its criminal origin and to make it appear as if it was derived from a legitimate source. Often enough, the dirty money is obtained through corruption, fraud, embezzlement and other forms of financial crime.
According to PwC’s Global Economic Crime Survey 2016, global money laundering transactions are estimated at two percent to five percent of global GDP – or roughly one to two trillion US dollars – annually. Yet, according to the United Nations Office on Drugs and Crime (UNODC), less than one percent of global illicit financial flows are currently seized by authorities.
In Malaysia, the Commercial Crime Department of the Royal Malaysian Police has reported that “organised crime and financial crime together costs Malaysia between RM15 billion and RM25 billion per annum.” It also said, “Any criminal activity that generates significant profit creates a need for money laundering.”
It is interesting to note that the first person prosecuted for money laundering in Malaysia was a woman. Hamimah Idruss, a former director of Syarikat Safire Pharmaceuticals Sdn Bhd, who was charged under the Anti-Money Laundering Act of 2001 for receiving RM41.3 million in illegal gains between June 3 and June 10, 2003. She was sentenced to 38 years in prison and fined RM6.39 million for eight counts of money laundering and 10 counts of abetting in the crime.
In order for dirty money to be fully cleaned, three steps are involved. The first step is placement and this is the most difficult step. The money launderers will try to place the ill-gotten proceeds into legitimate financial institutions and systems.
The next step is called layering. The money launderers create complex layers of financial transactions. This is to make sure the links between the money launderers and the money are not be easily seen or traced. They will make many bank-to-bank transfers, especially to different accounts in different names and in different countries.
The final step is known as integration. This is when money is entered into financial systems and placed back in the economy as 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, diamonds and art work.
Buying a piece of expensive art with bribe money is an effective way to launder money. Expensive art pieces can be used to transfer money across borders and hide illicit gains.
The Art Market Report published by the European Fine Art Fair stated that transactions in fine art were worth US$75 billion in 2014. Lately, it is believed that illegal money pumped through art dealers and auction houses have contributed to the rise in the value of fine art
Michael Martin, head of forensic and anti-money-laundering services at Deloitte Luxembourg, has been quoted as saying that “art is one of the asset classes that obviously lends itself to money laundering.”
As reported by the New York Times in 2013, a high-profile laundering case surfaced when a Jean-Michel Basquiat painting worth US$8 million was found in a crate at Kennedy Airport on its way from London. The crate went through customs with a valuation of US$100 although it contained Basquiat’s 1982 painting “Hannibal”. (Commodities valued under US$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 more than US$50 million that was illegally obtained when his bank, Banco Santos, went bankrupt.
The free ports in Singapore, Switzerland and Luxembourg offer a variety of tax benefits and maximum security warehouses because the goods stored in them are technically in transit. The Economist magazine stated that the free port near the Geneva airport alone is thought to hold US$100 billion worth of art.
In this connection, it is interesting to note a Bloomberg report quoting a letter that the controversial Malaysian businessman Loew Taek Jho (Jho Low) allegedly wrote on March 13, 2014, to an employee of a private art dealership that had sold him a Monet painting for US$35 million a few months earlier.
Referring to a “lender”, Jho Low allegedly said that the person could “take all the art” with “no problems”. He also allegedly said, “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 on the art market has changed and many countries have tightened their money laundering rules. In 2016, Switzerland passed a law that limited cash transactions to US$135,000. Any payment above that amount will have to be made by credit card, making it easier for law enforcers to trace illegal money.
Unfortunately, most law enforcement agencies, prosecutors and judges are not equipped to tackle money laundering through the art market.
As long as the process looks realistic, reasonable and logical, the money launderers use their creativity to launder ill-gotten money. Indeed, money laundering is always needed when there is something to hide.
Akhbar Satar is the President of Transparency International Malaysia
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