Saturday, October 14, 2006

Is contemporary money laundering law intended to deal more with tax evasion?

The World in 2025

“…Thus began the fierce endeavour of the State to squeeze the population to the last drop. Since economic resources fell short of what was needed, the strong fought to secure the chief share for themselves with a violence and unscrupulousness well in keeping with the origin of those in power and with a soldiery accustomed to plunder. The full rigour of the law was let loose on the population. Soldiers acted as bailiffs or wandered as secret police through the land. Those who suffered most were, of course, the propertied class. It was relatively easy to lay hands on their property, and in an emergency, they were the class from whom something could be extorted most frequently and quickly…”

Is this too fanciful, do you think, too apocalyptic? Well, this is not a dark prediction, proceeding from the recesses of some futurologist’s ‘heat oppressed brain’, but a direct quotation taken from The Cambridge Ancient History, pp. 263-264, in the section that deals with the decline of the Roman Empire.

It was a time when the ordinary Roman citizen and those who served him, whether as slaves, freemen or attendants, learned that everything that they had once taken for granted, their much vaunted civic independence (‘Civis Romanus Sum – I am a Roman Citizen’) had long since disappeared. As the once-near guaranteed certainty of their invincible Empire collapsed into what we have come to call the ‘Dark Ages’, the citizens found themselves the victims of a State-turned-predator, as the money required to sustain the normal structure of civic control ran out.
Then, as the controllers of an increasingly feral society looked for even more ways to justify the seizure of the property of the citizen to maintain their own status, the citizens themselves looked for ways to get away and escape, taking with them as much of their property as they could most easily carry. In many cases this meant debating with corrupt magistrates and tax collectors, to negotiate the amount of personal property and private goods which their lawful owner had to leave behind, in order to be left with just enough to sustain any form of lifestyle across the border, in another country, and beyond the Empire.

As more citizens found that escape, the ‘ultimum refugium’, was their only hope, so the State increased the pressure upon those who remained. Returning to the Cambridge Ancient History, we are told;

“…If the propertied class buried their money, or sacrificed up to two-thirds of their estates to escape from a magistracy; or went so far as to give up their whole property in order to get free of the domains rent, and while the non-propertied class just ran away, the State replied by increasing the pressure…”

If you have ever wondered why so many Roman buildings, houses, farms, fortified homes and private estates have been discovered, left almost intact, with a wealth of artifacts; and why modern archaeologists have been able to learn so much about the end of the Roman era while excavating them, it is because they were almost certainly just abandoned, agri deserti, by their owners, as they sought to escape from this renegade army of tax collectors and State registered looters, as the dark shadows of Barbarianism gathered over the decline of the Roman Empire. This analysis also helps to explain why such large hoards of gold and silver coins and plate are continually being found by contemporary treasure hunters. Released from the grip of the cold sticky clay of old fields in the near vicinity of ancient Roman homesteads, valuables, whose hiding-place has remained undiscovered for two thousand years, have been dug up in virtually the same state as when their fearful owners buried them to hide their personal wealth from those who posed the greatest threat to their well-being, the last emperors’ tax collectors.

The relevance of these historical anecdotes to a modern paper on money laundering will soon become more apparent in the ensuing pages as I attempt to deconstruct and re-evaluate the reasons why international money laundering legislation has reached its present stage of development, and, of more concern, why there is still more room for it to grow. Make no mistake, both the US and the UK, already have the necessary laws to confiscate and remove personal assets from their citizenry with an equally sparse lack of requirement to justify their actions, as those which their historical counterparts used 2 thousand years ago. Then, the purported justification was no doubt the need to counter the perceived threat from the Barbarians and the Visigoths, today it is the threat from International Organised Crime and Terrorism.

There is legitimacy therefore in seeking to extrapolate from what information we already have and which we possess now, to determine a picture of the future in the year 2025. I am doing this to seek to place in context that which is reported later in the text. In so doing, I am inviting the reader to exercise his or her own skill and judgement to decide whether what I am writing is a realistic analysis of the real reasons which lie behind the introduction of the international laws and regulations which purport to deal with money laundering and the financing of terrorism.
Like so much else about the money laundering story, the facts and the fantasies have become interchangeable, depending on whose agenda is being best served. This is largely due to the fact that governments on a global basis have so far found no substitute for the value possessed by their ability to instil in the mind of the public, the fear of the actions of the ‘international cartels of organised crime gangs and terrorists’, a series of moral panics which they are anxious to emphasise and at pains to amplify. Coupled with this, they have for so long, steadfastly refused to try and calculate any meaningful and realistic statistics of the real size of the money laundering problem, preferring instead to cling to an armoury of figures so fantastical as to be risible. In doing so, they demonstrate that they do not have to face up to the limitations on their core thinking, and are content to continue to operate on the margins of intellectual legitimacy. Under the shadow of this tattered banner they have long sought to justify their actions and support their ambitions to introduce confiscatory legislation of draconian proportions, which, under any ‘ordinary’ or ‘normal’ or non-contentious circumstances, would have no chance of getting on to the statute book.

Hardly a news story breaks in which some government official or politician, seeking to introduce even more legislation designed to further curtail the rights of the citizen, or to share even more private and confidential information among even more law enforcement agencies, can report his intentions without the traditional bromide of the need to combat the actions of criminals or international terrorists being trotted out.

In a story headed ‘Terrorists use stolen blank passports’, reported in the Philippine Star on 29th February 2004, an Interpol conference was reported to have been told that hundreds of thousands of stolen blank passports plus millions of other virgin documents allow terrorists to ‘breeze across borders’

The real purpose behind this no doubt shocking story was an attempt by the secretary-general of Interpol, Ron Noble, to demand the sharing of important and highly contentious criminal information among all the signatories to the Interpol agreement. Presently only 34 countries out of the 181 members of Interpol share such data, and they alone report over 80,000 missing passports. ‘…That’s only what’s on file…’, Noble is reported to have breathlessly told the conference. ‘…You can imagine the rest. If we don’t have a global database with everyone contributing, think of all the terrorists and criminals trading in documents…

But what possible value would a global database of such suspected criminal information be, and to whom, and how much would it cost? More importantly, what damage could be done if this information was unfortunately leaked into the wrong hands? Why does Interpol, which is nothing more than an international police information-exchange mechanism, suddenly need to control a mega-database of all the information about all the criminals in the world, information which is already maintained everywhere else in the world? Is this not more to do with power and relationships between competing law enforcement and intelligence agencies and the struggle for bigger budgets, at the expense of other competing systems. Is this not precisely the appalling state of affairs which existed between the FBI and the CIA on and up to 11th September 2001, where both agencies, jealous and resentful of each other’s remit, budgets and powers, refused to share information and intelligence with each other, on the basis of ‘need to know’!
In the same newspaper on 29th February 2004 another story outlined how a report from Paris showed the Financial Action Task Force (FATF) demanding that Governments consider tighter controls on religious groups and charities to stop them from being used to fund terrorists. The report complained that charities were still being used to fund extremists. Governments, it was reported are unable to monitor religious organisations in countries where they enjoy a special legal or constitutional status. The report concluded by calling for alternative solutions to guarantee transparency and access when necessary to competent authorities.

This last sentence is thinly-disguised language which when interpreted means that the next round of FATF recommendations will include legal requirements for all charities to submit reports on income and expenditure, or some other similarly over-bureaucratic requirement, and to allow their books to be examined and investigated by police and revenue authorities.

Quite how such a facility would have made any difference to preventing the 9-11 attacks, as an example, is hard to see. In that case, the perpetrators opened a perfectly normal bank account in a small bank, having transferred the funding in from another bank by the normal channels. They had credit cards and other modern financial services facilities. Nevertheless, because charitable giving is now perceived by law enforcement and security agencies to be a conduit for a wide variety of illicit funds, charities themselves must become subject for special scrutiny.
Why senior police officials and law enforcement agencies behave in this way, and the purposes to which all this new proposed legislation is intended to be put, is the purpose of this management report. It is designed to permit the financial practitioner to have a clear, and unambiguous alternative interpretation of the reasons for the need for anti-money laundering legislation, the better to make the necessary commercial judgements on such issues as ‘best practice’ compliance; Basle II risk management provision, or what level of spend is necessary to provide IT support for financial transaction monitoring.

As with all alternative interpretations, it is wise to begin by looking for explanations from a completely different perspective.

In the next edition, I shall expand on this concept.

Saturday, October 07, 2006

Saturday 7th October 2006

Having taken the example from my son, Ross, I have now opened my own blog. From time to time I shall publish my own views and thoughts on this site, and welcome comments from interested readers.