tag:theconversation.com,2011:/au/topics/money-laundering-3420/articles
Money laundering – The Conversation
2024-03-27T12:00:09Z
tag:theconversation.com,2011:article/226062
2024-03-27T12:00:09Z
2024-03-27T12:00:09Z
Kenya has tightened its laws to stop money laundering: why banks are the focus
<p><em>Kenya’s banking industry has in recent years been in the crosshairs of <a href="https://www.centralbank.go.ke/wp-content/uploads/2023/06/Money-Laundering-and-Terrorism-Financing-National-Risk-Assesstment-Report.pdf">national</a>, <a href="https://www.businessdailyafrica.com/bd/economy/how-sh72bn-hard-cash-inflow-put-kenya-on-dirty-money-watch--4321252">regional</a> and <a href="https://nation.africa/kenya/news/interpol-seeks-unravel-puzzle-of-laundered-sh25bn--3795554">international</a> watchdogs, given the country’s role as a financial hub in eastern Africa. In 2023 Kenya enacted <a href="https://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/2023/TheAntiMoneyLaunderingandCombatingofTerrorismFinancingLawsAmendmentAct2023.pdf">laws</a> to curb money laundering and combat terrorism financing</em>.</p>
<p><em>While the laws have led to <a href="https://www.reuters.com/article/idUSL8N2AY62G/">tougher sanctions</a> on some banks, the risk of money laundering remains, and the country was recently <a href="https://www.businessdailyafrica.com/bd/opinion-analysis/columnists/what-kenya-stands-to-lose-in-financial-crimes-grey-list-4537478">greylisted</a> by the <a href="https://www.fatf-gafi.org/en/home.html">Financial Action Task Force</a>. A grey list contains countries that are actively working with the Financial Action Task Force to address loopholes in countering money laundering, terrorist financing, and proliferation financing.</em></p>
<p><em><a href="https://law.uonbi.ac.ke/latest-news/dr-constance-gikonyo-appointed-member-capital-markets-tribunal">Constance Gikonyo</a>, a corporate law academic who has researched the place of <a href="https://www.researchgate.net/publication/340113669_Banks_in_Kenya_and_anti-money_laundering_obligations_the_conflicts_of_interests_arising">banks</a> and <a href="https://wiredspace.wits.ac.za/items/4b63e591-221a-4f39-897a-dbf15325aa6c">piracy</a> in money laundering, answers questions about existing loopholes</em>. </p>
<h2>How is money laundered through banks?</h2>
<p>Money gained illegally can be laundered by placing it into the financial system, through banks. Those who launder money typically engage in <a href="https://insights.namescan.io/smurfing-vs-structuring/">“smurfing” and “structuring”</a>. This is the breaking down of large sums of money into smaller transactions so as to evade the reporting threshold and to avoid suspicion. In Kenya, the reporting threshold has been increased from US$10,000 to US$15,000. Banks have to report certain transactions to the Financial Reporting Centre.</p>
<p>Once in the financial system, the money is moved around in a process known as <a href="https://www.unodc.org/e4j/en/organized-crime/module-4/key-issues/money-laundering.html">layering</a>. Funds are moved through different banks using different transactions and bank accounts so as to disguise the illicit origin of the money. </p>
<p>Once the money is disguised, the banks will again be involved in the process of <a href="https://amluae.com/what-is-integration-in-money-laundering/">integration</a>. This is where the money is deposited into the bank account of the person or entity that finally uses it. That way, the criminal proceeds are integrated with legitimate funds. These funds make their way into the economy through investments such as purchasing a property.</p>
<h2>Why are banks the prime targets of money launderers?</h2>
<p>Banks offer a gateway into the financial system. Once the funds are in the financial system it is easier to disguise their illegal origin. Also, technological advancements and integration of the global financial system makes it easier and faster to move the money around and across borders.</p>
<p>Some banks have weak know-your-customer procedures – mandatory checks meant to identity and verify customers when opening an account and periodically over time. These can be exploited. Banks don’t always continue monitoring customers effectively. </p>
<p>There are also cases of complicit individuals within banks using the system to aid money laundering. </p>
<h2>What are the duties of banks?</h2>
<p>Kenya’s law, the <a href="https://www.treasury.go.ke/wp-content/uploads/2023/09/POCAMLA-REGULATIONS.pdf">Proceeds of Crime and Anti-Money Laundering Act</a>, imposes duties on banks in seeking to deal with money laundering. Banks must:</p>
<ul>
<li><p>Evaluate their customers thoroughly. The due diligence should be based on an assessment of the customer as a risk. The riskier a customer appears to be, the more comprehensive the evaluation should be. </p></li>
<li><p>Keep records of transactions and customer identification information for at least seven years after the end of engagement.</p></li>
<li><p>Report suspicious transactions and cash transactions of US$15,000 or more to the Financial Reporting Centre, an agency created under the same law for the purpose of fighting money laundering.</p></li>
<li><p>Hire money laundering compliance officers and ensure continuous staff training on anti-money laundering and combating financing to terrorism. All banks are required to develop internal policies, procedures and controls to combat these crimes.</p></li>
</ul>
<h2>What challenges do banks face in fighting money laundering?</h2>
<p>Technological advancements mean that money launderers can be a step ahead of the measures the banks have put in place. The criminals can find ways to avoid detection by the systems in banks. The rise of digital and cyber-enabled financial crimes increases the challenge for banks. Compliance requirements mean banks have to invest in personnel, technology and training. This increases their operation costs. Banks also invest in research to help identify weaknesses in their systems.</p>
<p>Banks have to balance regulatory requirements with customer service and customer privacy. Customer background checks can be intrusive but a bank faces sanctions and reputational risks if it does not do them.</p>
<p>Corrupt individuals working in banks can assist in money laundering. Banks should vet staff when they hire them, especially those in sensitive roles, and continuously monitor them. </p>
<p>The global nature of the financial system means banks must deal with financial institutions and different regulatory standards in different jurisdictions. Compliance with all these can be a challenge. Criminals will identify the loopholes and gaps created by these differences and seek to exploit them. </p>
<h2>What are the main markers of a well-governed financial system?</h2>
<p>A well-governed financial system has effective policies and practices for combating money laundering and financing of terrorism. The relevant authorities ensure the laws are enforced. There should also be international cooperation, and engagement between the private sector and relevant regulatory and enforcement agencies. </p>
<p>Effective supervision by the central bank is a feature of a well governed system. Central banks ensure the stability, soundness and integrity of the banking system. They should establish a proper regulatory framework for banks, tighten their licensing and approval processes, ensure continuous monitoring and examination of sector players, and provide early warning systems. Weak supervision would mean that consumers were not adequately protected. This leads to loss of public trust and international confidence. Financial instability could be the end result.</p>
<p>The public and private sectors should collaborate actively. In Kenya the Financial Reporting Centre and the Law Society of Kenya are working together towards implementing the anti-money laundering provision which requires lawyers to report entities that make suspicious transactions.</p>
<p>Regulatory bodies and law enforcement agencies need resources to do their work. Preventing, identifying and dealing with financial crimes requires funds to innovate, to develop staff capacity and for infrastructure. </p>
<p>Transparency and accountability in financial institutions encourages compliance with regulatory standards. Banks with a culture of innovation and investment in new technologies are best placed to achieve transparency and accountability.</p><img src="https://counter.theconversation.com/content/226062/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Constance Gikonyo does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
A well governed financial system is effectively supervised by the central bank.
Constance Gikonyo, Corporate Law Lecturer, University of Nairobi
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/225934
2024-03-25T15:08:37Z
2024-03-25T15:08:37Z
Kenya’s greylisting for weak action on money laundering and terrorism financing: what that means and what must happen next
<p><em>Kenya and Namibia are the <a href="https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-february-2024.html">latest</a> African countries to be placed on the Financial Action Task Force’s grey list over their weak measures against money laundering and terrorism financing.</em></p>
<p><em>Being on the grey list is <a href="https://www.pwc.com/ke/en/blog/fatf-grey-list.html">typically seen</a> as an indictment of a country’s ability to identify and effectively redress financial crimes. It warns investors to be cautious in dealings with the country.</em></p>
<p><em>Financial crimes researcher <a href="https://scholars.latrobe.edu.au/ldekoker">Louis de Koker</a>, who has recently studied the <a href="https://www.mdpi.com/2227-9091/11/5/81">economic consequences of greylisting</a>, answers questions on the move.</em></p>
<h2>Why is Kenya on the grey list?</h2>
<p>In February 2024 Kenya was <a href="https://www.cnbc.com/2024/02/23/fatf-financial-crime-watchdog-adds-kenya-and-namibia-to-its-grey-list.html">greylisted</a> by the <a href="https://www.fatf-gafi.org/en/home.html">Financial Action Task Force</a> (FATF), the world body that sets standards for combating money laundering and the financing of terrorism and weapons of mass destruction. At the same meeting, Namibia was also listed while Uganda was removed from the grey list.</p>
<p>The Financial Action Task Force, an intergovernmental group of economically powerful countries, maintains a set of standards to safeguard the integrity of the international financial system. Kenya, Namibia and Uganda are not members of the task force but they are members of the Eastern and Southern Africa Anti-Money Laundering Group, an associated regional body. </p>
<p>All countries that are members of the Financial Action Task Force or any of the regional bodies are regularly evaluated by their peers. Countries are rated on technical compliance with the standards, as well as the effectiveness with which those standards are implemented. </p>
<p>Kenya’s mutual evaluation reports revealed a host of strategic deficiencies. Kenya, for example, had not taken appropriate steps to investigate and prosecute money laundering and terrorist financing offences or to assess and mitigate crime risks associated with crypto assets.</p>
<p>When a country performs poorly in its mutual evaluation the Financial Action Task Force may place it in a one-year <a href="https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/More-on-high-risk-and-non-cooperative-jurisdictions.html#:%7E:text=The%20FATF%20continually%20identifies%20and,and%20was%20enhanced%20in%202009.">observation period</a>. During the observation period, the country works with the Financial Action Task Force or its regional body to address the identified weaknesses.</p>
<p>If at the end of the observation period the country has not been able to address the deficiencies appropriately but has an action plan to address them and has made the political commitment to do so, the task force may put that country on its list of “jurisdictions under increased monitoring”, also known as the “grey list”. This is what happened to Kenya and Namibia in February 2024.</p>
<h2>What are the consequences?</h2>
<p>At face value, the list sends a positive message. According to the Financial Action Task Force, countries on the list have committed themselves to resolve the identified deficiencies within agreed time frames. They are therefore working actively to improve their compliance with the Financial Action Task Force standards. Greylisting also triggers international technical and other assistance to help countries to improve their compliance levels.</p>
<p>The market, however, tends to respond negatively to countries that are greylisted. Some countries and regulators (including the <a href="https://finance.ec.europa.eu/financial-crime/high-risk-third-countries-and-international-context-content-anti-money-laundering-and-countering_en">EU</a> and the <a href="https://www.gov.uk/government/publications/money-laundering-advisory-notice-high-risk-third-countries--2">UK</a>) also compel their institutions to treat the businesses and persons linked to greylisted countries as higher risk customers and parties. The accompanying enhanced due diligence measures (such as collecting and verifying more information about the customer and the customer’s funds) slow down the pace of business, increase transaction costs and may even threaten deals and business relationships.</p>
<p>In the past two years, the Financial Action Task Force has <a href="https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-february-2024.html">called on</a> foreign regulators and their markets to take a measured approach. It added explicitly to its greylisting statement that it does not call for enhanced due diligence measures against greylisted countries and cautioned against termination of business relationships. It is not clear that this has had the intended effect.</p>
<p>In a recent <a href="https://www.mdpi.com/2227-9091/11/5/81">study</a> my co-authors and I found that greylisting appears to continue to have a negative economic impact on listed countries. Correlations point to a negative impact on GDP growth rates and, worryingly, even development aid appears to be adversely affected. Some of the negative impacts may lag after delisting. Uganda may, for instance, take some time to see the positive benefits of being off the list.</p>
<p>Impact, however, differs from country to country, and smaller economies are often likely to face greater impact than large economies.</p>
<h2>What does Kenya need to do now?</h2>
<p>Since its 2022 mutual evaluation report, Kenya has been working to improve its compliance levels. Now it must implement the <a href="https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-february-2024.html">agreed action plan</a> to address the remaining strategic deficiencies. Actions include completing a national terrorist financing risk assessment and sharing the results with the public and private sector stakeholders. Kenya is also committed to improving its risk-based supervision of regulated entities including licensing and supervision of virtual asset (crypto) service providers.</p>
<p>Other actions required include:</p>
<ul>
<li><p>enhancing risk-based compliance and the reporting of suspicious transaction reports to the <a href="https://www.frc.go.ke/">Financial Reporting Centre</a></p></li>
<li><p>increasing the number of money laundering and terrorist financing prosecutions to match the country’s risk levels</p></li>
<li><p>revising the framework for the regulation of non-profit organisations and their oversight to ensure that mitigating measures are risk-based and do not disrupt or discourage legitimate non-profit organisations’ activity.</p></li>
</ul>
<p>Uganda spent four years on the grey list. Given what Kenya will need to achieve, a time-frame of three to four years may be realistic.</p>
<h2>Why does greylisting matter to Africa?</h2>
<p>Greylisting poses a challenge for sub-Saharan Africa. Since February 2024, the region accounts for 12 of the 21 grey-listed countries. The listed countries include <a href="https://theconversation.com/south-africa-has-been-grey-listed-for-not-stopping-money-laundering-and-terrorism-funding-what-it-means-200696">Nigeria and South Africa</a>. The economic impact of this level of simultaneous greylisting on the development of the region as a whole gives cause for concern. </p>
<p>The reasons why countries from this region have not been able to meet the task force standards adequately should be probed. Is there really a sufficient level of political commitment to fight money laundering, corruption and terrorist financing? Given the negative impact of crime and the negative impact of a failure to implement the crime combating standards, can the region afford political complacency?</p>
<p>The task force is about to start another round of mutual evaluations. Countries that are delisted in this round may be listed again in the next round. The listed countries have the opportunity now to ensure that these serious crimes are combated appropriately. Doing so will serve the national interest and prevent a relisting in the future.</p><img src="https://counter.theconversation.com/content/225934/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Louis de Koker received funding from the Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GiZ) to research the economic impact of greylisting.</span></em></p>
Kenya must complete a national terrorist financing risk assessment and share it publicly.
Louis de Koker, Professor of Law, La Trobe University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/217026
2023-11-07T13:37:52Z
2023-11-07T13:37:52Z
Sam Bankman-Fried sentenced to 25 years − how he went from $30B crypto CEO to prison inmate
<figure><img src="https://images.theconversation.com/files/585146/original/file-20240328-16-k9vxuj.jpeg?ixlib=rb-1.1.0&rect=189%2C146%2C5208%2C3492&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Sam Bankman-Fried got 25 years for his role in overseeing a multibillion-dollar crypto fraud.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/BankmanFriedFTX/649eb5aa36574414b000b71c063de543/photo?Query=bankman-fried&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=322&currentItemNo=15">AP Photo/Seth Wenig</a></span></figcaption></figure><p><em>The case of Sam Bankman-Fried, who <a href="https://www.reuters.com/technology/sam-bankman-fried-be-sentenced-multi-billion-dollar-ftx-fraud-2024-03-28/">was sentenced on March 28, 2024, to 25 years in prison</a>, is emblematic of the fast-paced world of cryptocurrency, in which vast sums of money can be made or lost in the blink of an eye.</em></p>
<p><em>In early November 2022, the crypto exchange FTX was valued at more than US$30 billion. By the middle of that month, <a href="https://www.cnn.com/2022/11/15/business/ftx-madoff-bankman-fried-bair/index.html">FTX was in bankruptcy proceedings</a>. And less than a year later, on Nov. 3, 2023, its founder, Sam Bankman-Fried, was found guilty of <a href="https://www.wired.com/story/sam-bankman-fried-trial-explained/">seven counts of money laundering and fraud</a>, following a trial that featured less than a month of <a href="https://www.wsj.com/finance/currencies/sam-bankman-fried-ftx-trial-news-updates-fbef824b">testimony</a> and only about four hours of jury deliberation.</em></p>
<p><em><a href="https://scholar.google.com/citations?user=VxWst50AAAAJ&hl=en&oi=ao">D. Brian Blank</a> and <a href="https://scholar.google.com/citations?user=FKJSqjEAAAAJ&hl=en&oi=ao">Brandy Hadley</a> are professors who study finance, <a href="https://www.doi.org/10.1111/EUFM.12311">executives</a>, <a href="https://doi.org/10.1111/fire.12274">corporate governance</a> and financial technology. They explain how and why this incredible collapse happened, what effect it might have on the traditional financial sector and whether you should care.</em></p>
<h2>1. What happened?</h2>
<p>A million years ago, back in <a href="https://inside.com/campaigns/inside-tech-2021-07-21-28706/sections/243700">2019</a>, Bankman-Fried founded FTX, a company that ran one of the largest cryptocurrency exchanges.</p>
<p>FTX was where many crypto investors traded and held their cryptocurrency, similar to the New York Stock Exchange for stocks. Bankman-Fried also founded <a href="https://www.forbes.com/profile/alameda-research/?sh=563773816570">Alameda Research</a>, a hedge fund that invested in cryptocurrencies and crypto companies. </p>
<p>In the traditional financial sector, these two companies would be entirely separate firms, or at least have firewalls in place to avoid conflicts of interest. But in early November 2022, news outlets reported that a <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/">significant proportion of Alameda’s assets</a> were a type of cryptocurrency released by FTX itself. </p>
<p>A few days later, news broke that FTX had allegedly been loaning customer assets to Alameda for risky trades <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">without customers’ consent</a> and also issuing its own FTX cryptocurrency for Alameda to use as <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">collateral</a>. As a result, criminal and regulatory investigators began scrutinizing FTX for potentially <a href="https://www.law360.com/assetmanagement/articles/1549319?nl_pk=c7efe457-0cc1-4a20-9d63-ded5145502ae&utm_source=newsletter&utm_medium=email&utm_campaign=assetmanagement&utm_content=2022-11-15&read_more=1&nlsidx=0&nlaidx=0">violating securities law</a>.</p>
<p>These two pieces of news basically led to a bank run on FTX, and soon afterward, FTX, Alameda Research and 130 other affiliated companies founded by Bankman-Fried filed for bankruptcy. This left <a href="https://www.cnbc.com/2022/11/15/ftx-says-could-have-over-1-million-creditors-in-new-bankruptcy-filing.html">huge numbers</a> of investors who bought cryptocurrencies through the exchange with <a href="https://www.cnn.com/2022/11/14/business/ftx-customer-money-bankruptcy/index.html">no good way to get their money back</a>.</p>
<p>Within a month, Bankman-Fried was <a href="https://www.nytimes.com/2022/12/12/business/ftx-sam-bankman-fried-bahamas.html">arrested</a> and <a href="https://www.foxbusiness.com/politics/ftx-founder-sam-bankman-fried-arrested-bahamas-us-expected-request-extradition-authorities-say">charged with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering</a> by the Southern District of New York. In February 2023, <a href="https://www.reuters.com/legal/new-indictment-unsealed-against-bankman-fried-containing-12-charges-2023-02-23/">additional criminal charges</a> related to political donations were announced, followed by <a href="https://www.cnbc.com/2023/03/28/sam-bankman-fried-paid-over-40-million-to-bribe-at-least-one-chinese-official-doj-alleges-in-new-indictment.html">another indictment</a> in March related to bribery.</p>
<p>Bankman-Fried’s <a href="https://edition.cnn.com/2023/10/03/investing/sbf-trial-jury-selection/index.html">first trial began on Oct. 3, 2023</a>, and largely focused on the “<a href="https://www.bloomberg.com/news/live-blog/2023-10-26/sam-bankman-fried-testifies-at-fraud-trial">essentially unlimited</a>” access to capital Alameda had on the exchange through a secret line of credit. </p>
<h2>2. Did a lack of oversight play a role?</h2>
<p>In traditional markets, corporations generally <a href="https://www.law360.com/bankruptcy/articles/1549089?nl_pk=6ef803a8-f435-44cb-93f5-de6a024ff206&read_more=1&nlsidx=0&nlaidx=3">limit the risk they expose themselves to</a> by maintaining liquidity and solvency. Liquidity is the ability of a firm to sell assets quickly without those assets losing much value. Solvency is the idea that a company’s assets are worth more than what that company owes to <a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-15-2022/card/ftx-says-number-of-creditors-in-bankruptcy-could-top-1-million-LrfYrHxDtIoVBV42QDiG?mod=djemMoneyBeat_us">debtors and customers</a>.</p>
<p>But the crypto world has generally operated with much less caution than the traditional financial sector, and <a href="https://www.nytimes.com/2022/11/11/technology/ftx-investors-venture-capital.html?smid=tw-dealbook&smtyp=cur">FTX is no exception</a>. About <a href="https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-balance-sheet-was-bad">two-thirds</a> of the money that FTX owed to the people who held cryptocurrency on its exchange – roughly $11.3 billion of $16 billion owed – was backed by illiquid coins created by FTX. FTX was taking its customers’ money, giving it to Alameda to make risky investments and then creating its own currency, known as FTT, as a replacement – cryptocurrency that it was unable to sell at a high enough price when it needed to.</p>
<p>In addition, nearly 40% of Alameda’s assets were in FTX’s own cryptocurrency – and remember, both companies were founded by the same person. </p>
<p>This all came to a head when investors decided to sell their coins on the exchange. FTX did not have enough <a href="https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is-still-looking-for-money">liquid</a> assets to meet those demands. This in turn drove the value of FTT from over $26 a coin at the beginning of November 2022 to under $2 by Nov. 13. By this point, FTX owed more money to its customers than <a href="https://www.bloomberg.com/opinion/articles/2022-11-09/bankman-fried-s-ftx-had-a-death-spiral-before-binance-deal">it was worth</a>.</p>
<p>In regulated exchanges, investing with customer funds is <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">illegal</a>. Additionally, auditors validate financial statements, and firms must publish the amount of money they hold in reserve that is available to fund customer withdrawals. And even if things go wrong, the Securities Investor Protection Corporation – or SIPC – protects depositors against the loss of investments from an exchange failure or financially troubled brokerage firm. The crypto world lacks such guardrails.</p>
<h2>3. Why is this a big deal in crypto?</h2>
<p>While the collapse of FTX and Alameda – valued at more than $30 billion and now essentially worth nothing – was dramatic, the bigger implication is simply the potential <a href="https://apnews.com/article/sam-bankman-fried-ftx-crypto-downfall-a2eaec231027dfd9f18426ff8982bbf8">lost trust in crypto</a>. </p>
<p>Bank runs are rare in traditional financial institutions, but they are <a href="https://www.wsj.com/articles/crypto-com-withdrawals-rise-after-ceo-admits-transaction-problem-11668350510">increasingly common</a> in the crypto space. Given that Bankman-Fried and FTX were seen as some of the biggest, most trusted figures in crypto, these events may lead more investors to think twice about putting money in crypto.</p>
<h2>4. If I don’t own crypto, should I care?</h2>
<p>Though investment in cryptocurrencies has grown rapidly, the entire crypto market – <a href="https://www.coindesk.com/markets/2021/10/21/crypto-market-cap-surges-to-new-record-27-trillion/">valued at over $3 trillion</a> at its peak – <a href="https://beincrypto.com/institutional-investment-in-crypto-experts-weigh-in-on-implications/">is much smaller</a> than the $120 trillion <a href="https://medium.com/ngrave/too-big-to-fail-crypto-market-size-vs-traditional-assets-eff4bb2ec529">traditional stock market</a>.</p>
<p>While investors and regulators are still evaluating the consequences of this fall, the impact on any person who doesn’t personally own crypto will be minuscule. It is true that many larger investment funds, such as
BlackRock and the Ontario Teachers Pension, held investments in FTX, but the estimated <a href="https://www.ai-cio.com/news/ontario-teachers-pension-could-lose-95-million-on-ftx-investment">$95 million the Ontario Teachers Pension lost</a> through the collapse of FTX is just 0.05% of the entire fund’s investments.</p>
<p>The takeaway for most individuals is not to invest <a href="https://www.wsj.com/articles/ftx-sam-bankman-fried-sit-in-the-crosshairs-of-u-s-prosecutors-11668398012?mod=djem10point">in unregulated markets</a> without understanding the risks. In high-risk environments like crypto, it’s possible to lose everything – a lesson investors in FTX learned the hard way.</p>
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<h2>5. What does the trial reveal about the regulatory environment for crypto?</h2>
<p>The trial of Bankman-Fried brought attention to the ever-evolving and complex nature of cryptocurrency regulation and oversight. At the conclusion of the case, <a href="https://www.reuters.com/legal/bankman-fried-trial-poses-biggest-test-date-cryptos-top-cop-2023-09-29/">Damian Williams, the federal prosecutor for the U.S. Justice Department</a>, underlined the <a href="https://www.reuters.com/legal/ftx-founder-sam-bankman-fried-thought-rules-did-not-apply-him-prosecutor-says-2023-11-02/">department’s dedication to fighting fraud,</a> even in the relatively new crypto space.</p>
<p>This case shows that the U.S. is willing to assert broad jurisdiction over financial crimes targeting its citizens, regardless of where the perpetrating company is based, which in FTX’s case was <a href="https://www.wired.com/story/sam-bankman-fried-crypto-paradise-bahamas/">the Bahamas</a>. Notably, this trial did not fall directly under the supervision of the Securities and Exchange Commission or other regulatory bodies, although pending civil cases from both <a href="https://www.sec.gov/news/press-release/2022-219">the SEC</a> and the <a href="https://www.coindesk.com/policy/2023/02/13/cftc-case-against-sam-bankman-fried-postponed-until-after-criminal-trial/">Commodity Futures Trading Commission</a>, <a href="https://news.bloomberglaw.com/securities-law/bankman-frieds-legal-woes-extend-far-beyond-criminal-trial">along with ongoing</a> class-action lawsuits, underscore the <a href="https://www.nri.com/-/media/Corporate/en/Files/PDF/knowledge/publication/lakyara/2023/09/lakyaravol376.pdf?la=en&hash=48DA9E99702BA223ACB48E1C378E1F6833C399EF">complexities in regulating the cryptocurrency sphere</a>. </p>
<p>Despite a recent crypto crackdown by the SEC, the U.S. continues to lag behind other nations in establishing comprehensive crypto regulations. This is evident in the <a href="https://www.cnbc.com/2023/10/30/uk-confirms-plans-to-regulate-crypto-industry-with-formal-legislation.html">formal regulatory frameworks introduced by places such as the U.K.</a> and the European Union. The International Monetary Fund’s <a href="https://www.imf.org/en/Blogs/Articles/2023/07/18/crypto-needs-comprehensive-policies-to-protect-economies-and-investors">call for comprehensive regulations</a> further underscores the necessity for more robust regulatory measures within the crypto industry, hinting at a widening gap between the U.S. and much of the rest of the world.</p>
<p><em>This is an updated version of a story that was <a href="https://theconversation.com/dramatic-collapse-of-the-cryptocurrency-exchange-ftx-contains-lessons-for-investors-but-wont-affect-most-people-194692">originally published</a> on Nov. 17, 2022.</em></p><img src="https://counter.theconversation.com/content/217026/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
The downfall of the onetime multibillionaire holds lessons for investors and regulators alike.
D. Brian Blank, Associate Professor of Finance, Mississippi State University
Brandy Hadley, Associate Professor of Finance and the David A. Thompson Distinguished Scholar of Applied Investments, Appalachian State University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/216991
2023-11-03T04:18:06Z
2023-11-03T04:18:06Z
Sam Bankman-Fried convicted for massive FTX fraud, in stark reminder of risks of crypto trading
<p>It is not just crypto tokens that have spectacular downfalls. So can crypto personalities. </p>
<p>Sam Bankman-Fried founded FTX, one of the world’s largest exchanges for so-called cryptocurrencies, which collapsed last year owing billions of dollars. Now he has gone from being hailed as potentially the <a href="https://www.newyorker.com/magazine/2023/10/02/inside-sam-bankman-frieds-family-bubble">world’s first trillionaire</a> to a lengthy term in prison.</p>
<p>After a month-long trial, a New York jury took less than five hours to <a href="https://www.theverge.com/policy/2023/11/2/23943236/sam-bankman-fried-trial-sbf-fraud-guilty">find him guilty</a> on seven counts of fraud and money laundering. </p>
<p>Bankman-Fried’s conviction highlights the risks of crypto markets, where people trade tokens with no fundamental value via hugely complex and poorly regulated financial machinery.</p>
<p>The Australian government is currently considering how to protect consumers in such markets. Treasury has commenced a <a href="https://treasury.gov.au/consultation/c2023-427004">consultation process</a>. But it will not be an easy task when so much of the activity occurs overseas or in cyberspace.</p>
<h2>FTX was not fine</h2>
<p>Bankman-Fried chose to testify in his own defence. But he failed to convince the jury he was merely a <a href="https://www.reuters.com/legal/sam-bankman-frieds-trial-ftx-fraud-charges-heads-closing-arguments-2023-11-01/">maths nerd</a> with a poor memory who was unaware of what his friends and colleagues were doing with the companies in which he was the largest stakeholder.</p>
<p>In FTX’s final days, as concerned customers started withdrawing their deposits, Bankman-Fried tweeted “<a href="https://www.ft.com/content/eef6d795-3442-44e1-bab4-05863094d9b9">FTX is fine. Assets are fine</a>”. It appears the jury did not accept he truly believed this at the time.</p>
<p>The verdict is a salutary warning about the dangers of unregulated financial markets such as crypto. As the former chair of the United Kingdom’s Financial Conduct Authority put it, fraud is “<a href="https://www.ft.com/content/723b5753-06e1-4cd8-a629-dd795f9068f2">a feature, not a bug</a>” for much of the industry.</p>
<p>Crypto tokens such as Bitcoin have no underlying assets to give them some fundamental value. They only generate a return if the owner can sell at a higher price, to someone who expects the price to go even higher. This makes them one of the purest examples of a speculative bubble.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/almost-no-one-uses-bitcoin-as-currency-new-data-proves-its-actually-more-like-gambling-207909">Almost no one uses Bitcoin as currency, new data proves. It's actually more like gambling</a>
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<h2>No government</h2>
<p>One of the ironies of the crypto market is that cryptocurrency is sold as a way to avoid having to trust governments or banks, as one does with traditional currency. But in practice, crypto trading often relies on trusting individuals – some of them charlatans such as Bankman-Fried.</p>
<p>Punters thought they could trust FTX to mind their funds for them while they switched between speculative crypto tokens such as Bitcoin and Dogecoin. They were not investing in FTX, or even lending their money to it. </p>
<hr>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/the-spectacular-collapse-of-a-30-billion-crypto-exchange-should-come-as-no-surprise-194442">The spectacular collapse of a $30 billion crypto exchange should come as no surprise</a>
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<p>But instead of letting customers’ funds sit around waiting to be withdrawn, FTX transferred a lot of them to another company, Alameda Research. This was an investment fund, poorly run by Bankman-Fried and his cronies. </p>
<p>It is still not clear what happened to all the missing billions. Some of the money was frittered away on extravagant living. Some went to pay celebrities for advertisements and endorsements, such as the famous Super Bowl clip starring comedian Larry David. At least David can say he was warning people against “getting into crypto”.</p>
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<p>Some of the missing cash went on large political donations. Much was lost on poor bets by Alameda which failed to hedge against the risk that the price of crypto tokens could quickly plummet.</p>
<p>FTX was essentially a casino. But Bankman-Fried both owned the casino and was gambling in it – and gambling with other people’s chips. </p>
<h2>Prison looms</h2>
<p>Bankman-Fried is still <a href="https://www.reuters.com/legal/ftx-founder-sam-bankman-fried-thought-rules-did-not-apply-him-prosecutor-says-2023-11-02">proclaiming his innocence</a>. But he looks likely to be in prison for decades. </p>
<p>He will find out how long on March 28 2024. It <a href="https://www.ft.com/content/24d153b0-0c28-4946-acbe-2e93329bca52">could be more than a century</a> if he receives the maximum penalty on all the counts on which he has been convicted. And he may yet face further charges. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/fallen-crypto-king-sam-bankman-fried-was-perfectly-positioned-to-make-a-religion-of-himself-213893">Fallen crypto king Sam Bankman-Fried was 'perfectly positioned to make a religion of himself'</a>
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<img src="https://counter.theconversation.com/content/216991/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Cryptocurrency tycoon Sam Bankman-Fried may face a jail term of more than a century after conviction on seven counts of fraud and money laundering.
John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of Canberra
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/210659
2023-09-05T17:03:24Z
2023-09-05T17:03:24Z
Universities and their students are vulnerable to money laundering – new research
<figure><img src="https://images.theconversation.com/files/542976/original/file-20230816-21-towf59.jpg?ixlib=rb-1.1.0&rect=46%2C0%2C5184%2C3445&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Students are at risk of being exploited by financial and organised criminals.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/back-view-man-presenting-students-lecture-478521652">Monkey Business Images/Shutterstock</a></span></figcaption></figure><p>Money laundering jeopardises the security of UK citizens and the integrity of its economy. Money launderers often target financial institutions, but they are also increasingly <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/945411/NRA_2020_v1.2_FOR_PUBLICATION.pdf">targeting</a> lesser regulated or unregulated sectors, such as universities. </p>
<p>Our <a href="https://orca.cardiff.ac.uk/id/eprint/160289/">research</a> has focused on how universities apply anti-money laundering legislation, as well as their response to identified threats. We have found that universities, their employees and students are vulnerable to threats from money launderers because universities are not explicitly included within the UK’s money laundering, terrorist financing and transfer of funds <a href="https://www.legislation.gov.uk/uksi/2017/692/contents/made">regulations</a>.</p>
<p>The government’s anti-money laundering laws and regulations focus on preventing the crime by requiring organisations to submit suspicious activity reports to the National Crime Agency’s (NCA) <a href="https://nationalcrimeagency.gov.uk/what-we-do/crime-threats/money-laundering-and-illicit-finance/ukfiu">Financial Intelligence Unit</a>. These are reports of financial transactions that may be linked to money laundering.</p>
<p>In the UK, <a href="https://www.nationalcrimeagency.gov.uk/who-we-are/publications/480-sars-annual-report-2020/file">more than 90%</a> of suspicious activity reports submitted to the NCA are from financial or credit institutions. However, money launderers have adapted their techniques to exploit the weaker controls and regulations in the university sector. </p>
<p>UK universities, in some cases, <a href="https://carnegieendowment.org/files/Page_AfricaUK_Corruption_1.pdf">attract</a> the family members of convicted criminals and corrupt politically exposed persons. These are people who hold prominent positions in government, business or other organisations. Their status makes them <a href="https://www.fatf-gafi.org/content/fatf-gafi/en/publications/Fatfrecommendations/Peps-r12-r22.html">vulnerable</a> to corruption and involvement in money laundering schemes.</p>
<p>The NCA <a href="https://www.nationalcrimeagency.gov.uk/news/nsa2020">revealed</a> in 2020 that increasing numbers of students are having their bank accounts used by organised criminals. Young people can be used or exploited as “<a href="https://www.bbc.co.uk/news/uk-england-45797603">money mules</a>” by crime gangs for laundering money. In 2018, students Abdi Mohamed and Nyanjura Biseko were <a href="https://www.bbc.co.uk/news/uk-england-sussex-46196850">found guilty</a> of laundering more than £10,000 through their bank accounts, part of a £37,986 fraud.</p>
<p>There have also been instances where people have used their student loans to finance terrorism. For example, Yahya Rashid was <a href="https://www.theguardian.com/world/2015/nov/18/yahya-rashid-used-student-loan-join-isis-syria-youth-custody">jailed</a> for five years in 2015 after using his student loan to pay for himself and four friends to go to Syria to join the terror group, Islamic State.</p>
<h2>What we found</h2>
<p>We sent freedom of information requests to 120 universities across the UK to discover how anti-money laundering legislation is being applied. Nine out of ten institutions responded to our requests, and while some universities provided a full response to every question we asked, others declined to answer some or all questions. Overall, <a href="https://orca.cardiff.ac.uk/id/eprint/160289/">we found</a> there is a disparity among universities regarding the implementation of anti-money laundering legislation. </p>
<p>A significant minority of universities are failing to provide staff and students with guidance on money laundering and terrorism financing risks. We found that 20% of respondents do not provide any internal anti-money laundering training for staff. While 24% of respondents do not provide any guidance to their students on the risks posed to them by financial and organised criminals. </p>
<p>Some universities are failing to recognise the money laundering risks inherent in large cash payments, with more than 21% of respondents willing to accept cash payments. For example, three universities received more than £1 million in cash between 2019 and 2020, for tuition fees and accommodation. This is concerning, particularly given that some universities do not impose any limits on cash payments. </p>
<p>Also, universities are seemingly failing to recognise the value of the financial intelligence created by submitting suspicious activity reports. This is despite the fact that university employees are bound by the obligation to submit these reports under the <a href="https://www.legislation.gov.uk/ukpga/2000/11/contents">Terrorism Act 2000</a> and the <a href="https://www.legislation.gov.uk/ukpga/2002/29/contents">Proceeds of Crime Act 2002</a>. </p>
<p>In fact, we found that most universities do not submit any suspicious activity reports at all to the NCA. Most suspicious activity reports are submitted by a small number of universities. </p>
<p>This means that while universities are not explicitly included within the regulations, the current disparity of its application by the sector will continue. It means that universities and their employees are at risk of criminal and civil liability for committing money laundering and terrorism financing offences, or for failing to establish preventative measures. </p>
<figure class="align-center ">
<img alt="Students wearing black gowns throw their mortar board hats in the air." src="https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Students can be exploited as ‘money mules’ by organised criminals.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/portsmouth-july-20-graduation-ceremony-university-298907810">Enrico Della Pietra/Shutterstock</a></span>
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<p>To reduce the risks to which universities and their students are exposed, the UK’s money laundering, terrorist financing and transfer of funds <a href="https://www.legislation.gov.uk/uksi/2017/692/contents/made">regulations</a> should be explicitly applied to the higher education sector. This should include providing guidance to staff and students on terrorism financing and money laundering risks. And allowing cash payments for accommodation and tuition fees should be prohibited, or at least severely restricted.</p><img src="https://counter.theconversation.com/content/210659/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Higher education institutions are not explicitly included within the UK’s anti-money laundering regulations.
Nicholas Ryder, Professor of Law, Cardiff University
Henry Hillman, Lecturer in Law, University of Reading
Sam Bourton, Senior Lecturer in Law, University of the West of England
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/208758
2023-07-28T15:38:08Z
2023-07-28T15:38:08Z
Terrorists are using fraud to fund their activities – the UK government needs to act urgently
<figure><img src="https://images.theconversation.com/files/539487/original/file-20230726-17-fgwvcy.jpg?ixlib=rb-1.1.0&rect=49%2C0%2C5472%2C3604&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The link between fraud and terrorism financing in the UK has been overlooked by successive governments.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/concept-credit-card-theft-hackers-cards-1107463670">JARIRIYAWAT/Shutterstock</a></span></figcaption></figure><p>Fraud is one of the most popular methods now used to fund terrorist activities. But the connection between fraud and terrorism financing in the UK has been overlooked by successive governments, despite <a href="https://www.justiceinspectorates.gov.uk/hmicfrs/publications/an-inspection-of-the-police-response-to-fraud/">an acknowledgement</a> of that link. </p>
<p>Worryingly, the UK government’s new <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1154660/Fraud_Strategy_2023.pdf">fraud</a> and <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1171084/CONTEST_2023.pdf">counter-terrorism</a> strategies offer no policies to tackle the problem.</p>
<p>Until the terrorist attacks in the US in September 2001, the international community had focused its financial crime efforts on tackling money laundering. As a result of 9/11, governments instigated a “<a href="https://www.routledge.com/The-Financial-War-on-Terrorism-A-Review-of-Counter-Terrorist-Financing/Ryder/p/book/9781138708310">financial war</a>” on terrorism which has limited the sources available to terrorist groups. Now similar work is needed to tackle the acts of terror funded through fraud.</p>
<p><a href="https://orca.cardiff.ac.uk/id/eprint/160123/">My research</a> focuses on the numerous terrorist attacks which have been financed by fraud. This work has identified a terrorism financing dossier, which includes passport fraud, immigration fraud, identify theft, financial fraud and tax fraud. </p>
<p>Benefit fraud is one of the most common methods used to fund terrorism in Europe, especially in Belgium, Scandinavia and the UK. Credit card, personal loan and bank fraud is prevalent in terrorism networks in the US and the UK. And not-for-profit organisation fraud and tax fraud are also prevalent in the US, UK and Spain.</p>
<p>The UK government has introduced a series of measures to try to tackle these issues. These include the <a href="https://www.legislation.gov.uk/ukpga/2022/10/contents/enacted">Economic Crime (Transparency and Enforcement) Act 2022</a> and the <a href="https://bills.parliament.uk/bills/3339">economic crime and corporate transparency bill (2022)</a>, which is still going through parliament. Both are intended to extend the UK’s sanctions regime and improve the use of <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-9098/#:%7E:text=Unexplained%20Wealth%20Orders%20allow%20for,reversing%20the%20burden%20of%20proof.">unexplained wealth orders</a> (which allow for the confiscation of property without proving criminality).</p>
<p>However, there are no specific measures to tackle the association between fraud and the financing of terrorism. This means there are still a number of loopholes that terrorists could exploit. And organisations are under no obligation to report fraud to the security services. But terrorists have used fraud to help finance attacks in the UK over the past two decades.</p>
<h2>UK terror attacks</h2>
<p>In July 2005, four suicide bombers killed 52 people and injured more than 770 others after detonating four improvised explosive devices in London. The financing of this terrorist attack and its association with fraud stretch back to 1995. </p>
<p>That is when HMRC connected several suspected frauds with <a href="https://www.bbc.co.uk/news/uk-12621383">Shehzad Tanweer</a>, one of the terrorists. Yet this information <a href="https://bills.parliament.uk/publications/48886/documents/2575">was not disclosed</a> to either the UK’s Financial Intelligence Unit or the security and intelligence services by HMRC.</p>
<p>In May 2017, <a href="https://www.telegraph.co.uk/news/2017/05/26/everything-know-manchester-suicide-bomber-salman-abedi/">Salman Abedi</a> detonated an improvised explosive device in the Manchester Arena, killing 22 people and injuring more than 800 others. Abedi had fraudulently used student loans and his maintenance grant to fund the attack. </p>
<p>He received £7,000 from the Student Loans Company after securing a place at university in October 2015. Higher education institutions are under <a href="https://orca.cardiff.ac.uk/id/eprint/160289/3/Criminal%20Law%20Review%20%281%29.pdf">no legal obligation</a> to report any suspicions of fraud or terrorism financing to the National Crime Agency (NCA).</p>
<p>In June 2017, <a href="https://www.bbc.co.uk/news/uk-48580750">Khuram Butt</a>, <a href="https://www.bbc.co.uk/news/uk-40173157#:%7E:text=Rachid%20Redouane%2C%2030%2C%20claimed%20to,by%20the%20name%20Rachid%20Elkhdar.">Rachid Redouane</a> and <a href="https://www.theguardian.com/uk-news/2017/jun/06/london-bridge-attack-third-attacker-named-in-italy-as-youssef-zaghba">Youssef Zaghba</a> used a van to knock down several pedestrians on London Bridge before continuing their terrorist attack on foot. In total, eight people were killed and 48 others were injured.</p>
<p>Butt had been <a href="https://news.sky.com/story/london-bridge-attack-mi5-accused-of-damning-list-of-failures-11750204">investigated and arrested</a> by Scotland Yard on suspicion of falsely reporting fraudulent activity on three separate bank accounts in October 2016. After his arrest, Butt was granted bail and the fraud charges were eventually dropped due to insufficient evidence. But the banks had been under no legal obligation to submit a report to the NCA.</p>
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Read more:
<a href="https://theconversation.com/dubious-partnerships-new-plans-to-curb-wrongdoing-by-uk-registered-firms-are-riddled-with-loopholes-206010">Dubious partnerships: new plans to curb wrongdoing by UK-registered firms are riddled with loopholes</a>
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<p>What these examples demonstrate is that the current reporting obligations are unable to prevent such terrorism financing threats. In light of these cases, the reporting of fraud should become mandatory for organisations. It would place fraud on the same legislative footing as money laundering, for example, which is already recognised as an important source of terror finance. </p>
<p>The UK government also needs to reconsider its current fraud and counter terrorism strategies. They should include measures that focus on using fraud investigation as a disruptive mechanism to prevent future acts of terrorism.</p><img src="https://counter.theconversation.com/content/208758/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicholas Ryder receives funding from InnovateUK. </span></em></p>
Numerous terrorist attacks in the UK and abroad have been financed by fraud and the government needs to close financial loopholes to prevent future tragedies.
Nicholas Ryder, Professor of Law, Cardiff University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/209658
2023-07-13T13:03:56Z
2023-07-13T13:03:56Z
What is a ‘politically exposed person’ and why do the likes of Jeremy Hunt and Nigel Farage claim the status prevents them getting bank accounts?
<p>Reports <a href="https://www.bbc.co.uk/news/business-66097039">vary</a> as to why the private bank Coutts decided to close the account of former UKIP leader Nigel Farage. He claims he was excluded for his political views, the bank says the problem was a lack of funds. But either way, his case does highlight <a href="https://hansard.parliament.uk/lords/2014-10-14/debates/14101474000519/MoneyLaunderingUKParliamentarians#contribution-14101474000036">a wider and longstanding problem</a> faced by so-called “politically exposed persons” or “PEPs”. Just a few days after the Farage story broke, the chancellor of the exchequer himself, Jeremy Hunt, revealed that he had been <a href="https://www.theguardian.com/business/2023/jul/09/jeremy-hunt-reveals-he-was-refused-monzo-account">denied an account by online bank Monzo</a>. </p>
<p>Hunt said of the incident, which happened before he became chancellor, that he was concerned that the rules around getting a bank account when you are a PEP could prevent people from wanting to take up public office. </p>
<p>Whether that is true or not, it is very much the case that PEPs face difficulties finding banks that are willing to take them on because of the way in which they apply certain banking rules. </p>
<p>When taking on new customers, banks in the UK are required to comply with <a href="https://www.legislation.gov.uk/uksi/2017/692/contents">anti-money laundering regulations</a> that are supposed to deter criminals and help the police to investigate crime. The rules are designed to prevent the banking system from <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015L0849">being used by criminals</a>. They require that banks, building societies and certain other regulated groups undertake due diligence on their customers by verifying their identities and addresses. </p>
<p>Financial service providers usually satisfy this requirement by requesting <a href="https://www.gov.uk/guidance/money-laundering-regulations-your-responsibilities">photo ID and utility bills</a> from new customers. Banks must also monitor customers’ <a href="https://www.legislation.gov.uk/uksi/2017/692/regulation/28">dealings during the lifetime of their accounts</a>, seek proof that the source of large deposits into accounts is legitimate and consistent with a customer’s business activities and <a href="https://nationalcrimeagency.gov.uk/what-we-do/crime-threats/money-laundering-and-illicit-finance/suspicious-activity-reports">report any suspicious transactions</a> to law enforcement authorities.</p>
<p>The theory is that if the proceeds of crime can be linked to specific bank accounts and the ownership of those bank accounts has been properly established, law enforcement authorities can simply “follow the money” to see who is responsible for those crimes.</p>
<h2>What is a PEP?</h2>
<p>Where PEPs are potential customers, a beefed-up version of the due diligence requirements apply. A PEP is anyone who is “entrusted with prominent public functions” either in the UK or in any other country. The question of who is viewed as being “entrusted with a prominent public function” is somewhat opaque, but it <a href="https://www.legislation.gov.uk/uksi/2017/692/regulation/35">includes</a> all MPs and members of the House of Lords, senior judges, and the governing bodies of political parties. </p>
<p>The AML regulations recommend that banks consider <a href="https://www.legislation.gov.uk/uksi/2017/692/part/3/chapter/2">“seeking additional independent, reliable sources to verify”</a> that PEP customers are who they say they are, and require that PEPs’ transactions are subject to additional monitoring and oversight.</p>
<p>PEPs are viewed as <a href="https://www.fca.org.uk/firms/money-laundering-terrorist-financing/high-risk-customers-politically-exposed-persons">“high-risk” clients</a> because <a href="https://www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdf">international lawmakers</a> and <a href="https://www.transparency.org.uk/sites/default/files/pdf/publications/AML_report09.pdf">transparency groups</a> highlight that they may be more susceptible to bribery and other forms of corruption than other customers.</p>
<p>However, on top of the PEPs themselves, their families and their “close known associates” are also made subject to strict anti-money laundering laws too. That’s because their accounts can be used to receive and hold the proceeds of corruption. It is no coincidence that PEP-specific anti-money-laundering rules first emerged in the 2000s at a time when a number of <a href="https://www.hsgac.senate.gov/wp-content/uploads/imo/media/doc/FOREIGNCORRUPTIONREPORTFINAL710.pdf">high-profile international corruption scandals</a> involving senior politicians and their families were unfolding. One legendary case of the time saw the wife of the recently deceased Nigerian dictator Sani Abacha caught trying to leave the country with <a href="https://www.theguardian.com/world/2012/oct/05/nigeria-sani-abacha-jewellery-police">38 suitcases stuffed with cash</a> apparently looted from their state coffers.</p>
<h2>Are banks shutting down the accounts of PEPs?</h2>
<p>In recent years, the Financial Conduct Authority has imposed <a href="https://www.fca.org.uk/news/press-releases/fca-fines-santander-uk-repeated-anti-money-laundering-failures">massive fines</a> on banks in the UK for failing to properly comply with money laundering rules. In 2015, Barclays had to pay <a href="https://www.fca.org.uk/publication/final-notices/barclays-bank-nov-2015.pdf">£72 million</a> in one such case involving PEPs.</p>
<p>Faced with such potential penalties, banks have apparently sought to minimise their own risk of incurring these fines by <a href="https://www.fca.org.uk/publication/research/drivers-impacts-of-derisking.pdf">minimising the number of PEP customers they accept</a>. This is despite the fact that the <a href="https://www.fca.org.uk/publication/finalised-guidance/fg17-06.pdf">FCA has expressly warned</a> that banks should not end their relationships with customers just because they are PEPs.</p>
<p>This enthusiastic application of money-laundering rules by banks and building societies may explain why politicians are claiming that they and their family members risk becoming <a href="https://www.ft.com/content/bed60941-bd7c-4f26-a482-05d84c7650e7">“unbanked”</a>’. And since estimates put the number of customers affected by the PEP-specific rules at <a href="https://hansard.parliament.uk/lords/2014-10-14/debates/14101474000519/MoneyLaunderingUKParliamentarians#contribution-14101474000038">over 150,000 people</a> in the UK, this is not an insignificant problem. What’s more, the rules can continue to apply to PEPs even after they leave office, so the number of people implicated will only continue to grow. </p>
<h2>Changing the guidance</h2>
<p>In response to the grievances raised by UK politicians, Andrew Griffith, the economic secretary to the Treasury has <a href="https://twitter.com/griffitha/status/1676547441942831106?ref_src=twsrc%255Egoogle%257Ctwcamp%255Eserp%257Ctwgr%255Etweet">written to the FCA</a> asking it to fast-track a proposed review of its <a href="https://www.fca.org.uk/publications/finalised-guidance/fg17-6-treatment-politically-exposed-persons-peps-money-laundering">guidance to banks on dealing with PEP customers</a>.</p>
<p>Given the ever-growing number of PEPs and the varying risk profiles presented by them, depending on the types of public function they perform, this is an excellent opportunity for the FCA to remind banks that they are required to take a risk-based approach in applying the money laundering rules. Banks should ensure that they direct their oversight resources towards riskier PEP customers and take a lighter-touch approach to PEPs who, by the nature of their activities, have little or no exposure to corruption risk.</p><img src="https://counter.theconversation.com/content/209658/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Áine Clancy does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Banks in the UK have to conduct extra checks on people more at risk of blackmail – and an easier option is sometimes just to say no to giving them and account.
Áine Clancy, Lecturer in Law, University of Liverpool
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/206606
2023-06-21T20:02:23Z
2023-06-21T20:02:23Z
Australia is awash with dirty money – here’s how to close the money-laundering loopholes
<figure><img src="https://images.theconversation.com/files/530738/original/file-20230608-29-icn0yy.jpg?ixlib=rb-1.1.0&rect=67%2C44%2C4767%2C3278&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Australia’s financial crime laws are unfit for purpose. The problem: there are many professionals currently facilitating money laundering within the country who are exempt from the laws and regulations set up to stop it.</p>
<p>To illustrate the extent of the problem, <a href="https://www.abc.net.au/news/2023-02-02/nine-arrest-after-afp-dismantles-chinese-money-laundering/101920598">nine people were arrested</a> on money laundering charges this year. They were allegedly involved in a Chinese-Australian syndicate that moved around A$10 billion offshore and amassed at least $150 million in luxury assets and properties. </p>
<p>The suspects allegedly relied on lawyers, accountants and real estate professionals to launder such large sums of money. These are the industries currently not regulated by our anti-money laundering and counter-terrorism financing laws.</p>
<p>But there is a ray of hope: the Albanese government recently <a href="https://www.austrac.gov.au/consultation-commences-amlctf-reforms">invited public consultation on proposed reforms of these laws</a>. If the government lives up to its commitments, the draft reforms will go through the legislative process and be passed into law.</p>
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<h2>What is money laundering?</h2>
<p>Australia has seen its <a href="https://www.sbs.com.au/news/podcast-episode/significant-australian-money-laundering-syndicate-smashed/w79rpjjk6">fair share of alleged money laundering cases</a> in recent years. <a href="https://www.afr.com/companies/financial-services/commonwealth-bank-settles-austrac-case-for-700m-20180604-h10wzu">Banks</a>, <a href="https://www.abc.net.au/news/2023-05-30/crown-fined-450-million-money-laundering-breaches-austrac/102410670">casinos</a> and <a href="https://www.sbs.com.au/news/video/experts-urge-australia-to-strengthen-anti-money-laundering-regulations/7zjztyk0y">organised crime groups</a> have all been at the centre of recent allegations. Record fines have been handed down and reputations have been tarnished. </p>
<p>Money laundering is the process of “cleaning” dirty money to give its source a legitimate appearance. The dirty money is generated from illicit activities such as fraud, bribery, corruption and drug trafficking – either within Australia or internationally. </p>
<p>On the surface, money laundering may initially appear to be a victimless financial crime. Large corporations get fined and syndicates are interrupted, and we move on. </p>
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<p>The reality is money laundering results in serious harm: socially, politically and economically. <a href="https://www.mqup.ca/dirty-money-products-9780228019053.php?page_id=46&">Dirty money</a> inflates the cost of housing, fuels gang violence, exacerbates foreign interference in our politics, and enables human and wildlife trafficking. It finances nuclear weapons proliferation and helps countries evade international sanctions, such as those currently imposed against Russia for its war on Ukraine. </p>
<p>Money laundering also results in reduced revenue for the government that could be used for the benefit of Australians. Our tax dollars are also being spent on fighting the organised crime rings that are behind these activities. </p>
<p>In short, money laundering is a global problem and affects all of us. Still, the federal government has long failed to act. For 16 years, it has been shirking the implementation of crucial reforms to strengthen our regulations. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/crown-sydney-casino-opens-another-beacon-for-criminals-looking-to-launder-dirty-money-184253">Crown Sydney casino opens – another beacon for criminals looking to launder dirty money</a>
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</em>
</p>
<hr>
<h2>Key weakness in the current law</h2>
<p>In 2006, the Howard government passed the <a href="https://www.austrac.gov.au/business/legislation/amlctf-act">Anti-Money Laundering and Counter-Terrorism Financing Act</a> in response to the global concern around money laundering and terrorism financing. </p>
<p>The act addressed “high-risk” sectors: financial institutions, cash-carrying services, bullion dealers, casinos, remittance service providers and stored value card providers. However, soon after it passed, numerous weaknesses were identified.</p>
<p>One major weakness was the fact that a wide range of professionals operating outside the traditional financial system were not included under the law. This includes real estate professionals, lawyers, accountants, dealers in precious metals and stones, and trust and company service providers. Collectively, they are known as “designated non-financial businesses and professions”. </p>
<p>These professionals are vulnerable to exploitation for a number of reasons. They may have extensive networks to facilitate high-value, cross-border transactions. They often handle large amounts of cash. They also have insider knowledge on how to conceal or integrate large amounts of funds into the financial system.</p>
<p>Several multi-agency investigations in Australia have <a href="https://www.afp.gov.au/news-media/media-releases/new-money-laundering-taskforce-tackles-lifeblood-organised-crime">revealed</a> the use of such professionals in concealing the source of illicit funds, financing criminal activities and disguising the <a href="https://www.austrac.gov.au/business/how-comply-and-report-guidance-and-resources/customer-identification-and-verification/beneficial-owners">true ownership of companies and trusts</a> through the use of associates or fake identities. </p>
<p>Similarly, <a href="https://www.afp.gov.au/news-media/media-releases/afp-target-italian-organised-crime-and-money-laundering-year-operation">in a joint investigation</a> last year, the Australian Federal Police and the US Federal Bureau of Investigations identified the involvement of lawyers, accountants and other professionals in organised crime activities across Australia and abroad.</p>
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<h2>Australia remains vulnerable to financial crime</h2>
<p>To overcome this problem, the Howard government started to talk about reforming the Anti-Money Laundering and Counter-Terrorism Financing Act in 2007. But these reforms have still not been implemented. </p>
<p>As a result, Australia is currently failing to meet international commitments on cracking down on money laundering and terrorist financing set by the global financial crime watchdog, <a href="https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html">the Financial Action Task Force</a>. The Paris-based task force was established in 1989. It currently has 39 members, including Australia, and 205 jurisdictions committed to meeting its standards. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
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</em>
</p>
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<p>Astonishingly, Australia is one of the only three countries that have not extended or promised to extend its money laundering laws to cover professionals like lawyers and real estate agents. Haiti and Madagascar are the other two.</p>
<p>This regulatory gap opens Australia up to potentially grave consequences. It has made the country an attractive destination for financial crimes and leaves us ill-equipped to deal with <a href="https://www.sciencedirect.com/science/article/pii/S2949791423000064">evolving threats</a>.</p>
<p>Extending the law to include these professionals would give Australia a more robust framework to combat illicit activities in line with international standards. Better reporting, due diligence and oversight of these individuals must be a priority.</p>
<p>The need for implementing these reforms cannot be overstated. By seizing this opportunity, Australia can demonstrate its dedication to safeguarding its financial system. While it may just be the tip of the iceberg, it is a necessary step that can no longer be neglected.</p><img src="https://counter.theconversation.com/content/206606/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
For 16 years, the government has failed to reform our anti-money laundering and counter-terrorism financing laws to include professionals like real estate agents and lawyers.
Jamie Ferrill, Lecturer in Financial Crime Studies, Charles Sturt University
Milind Tiwari, Research Fellow In Financial Crime, Charles Sturt University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/206136
2023-06-18T11:19:56Z
2023-06-18T11:19:56Z
Gold fraud: the Goldenberg scam that cost Kenya billions of dollars in the 1990s – and no one was jailed
<figure><img src="https://images.theconversation.com/files/528027/original/file-20230524-15-ipamm.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>The <a href="https://www.theguardian.com/world/2006/mar/16/kenya.jeevanvasagar">Goldenberg scandal</a> in the early 1990s is Kenya’s largest documented gold fraud. The scheme involved Goldenberg International Limited, which pretended to export gold and diamonds, and in exchange received substantial subsidies from the government for “earning” foreign exchange. Kenyan businessman Kamlesh Pattni – who was at the centre of the scandal and was charged with fraud but <a href="https://www.businessdailyafrica.com/bd/economy/court-formally-terminates-goldenberg-case-2031264">eventually acquitted</a> – was recently <a href="https://www.aljazeera.com/news/2023/3/23/gold-smuggler-pattni-kenya-zimbabwe">named</a> in a new investigation into gold fraud. This time his operation is allegedly being run through Zimbabwe from his base in Dubai. Economists Roman Grynberg and Fwasa Singogo, who have <a href="https://core.ac.uk/download/pdf/304991797.pdf">researched</a> the Goldenberg case, and <a href="https://www.researchgate.net/profile/Fwasa-Singogo-2">the gold mining industry and its role in illicit financial flows in Africa</a>, unpack the issue.</em></p>
<h2>What was the Goldenberg scandal?</h2>
<p>The scandal centred on two companies: Goldenberg International and Exchange Bank Limited. Both were owned and directed by businessman <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=32">Kamlesh Pattni</a> and his partner James Kanyotu, the director of intelligence in the Kenyan police force. The two were licensed by the government to export gold and diamonds from Kenya. But they did not. They just collected an inflated subsidy.</p>
<p>The Goldenberg scandal occurred at a time of <a href="https://www.elibrary.imf.org/view/journals/002/1995/133/article-A001-en.xml">severe economic austerity</a> in Kenya in the early 1990s. The country’s economy was characterised by long periods of macroeconomic instability and dwindling foreign reserves. </p>
<p>Economic policy was inward-looking. It leaned towards the protection of local industries and the retention of foreign exchange. This period also coincided with the <a href="https://www.britannica.com/topic/Kenya-African-National-Union">one-party state that began in 1982</a> and was marked by political oppression. </p>
<p>As a result, donors gradually reduced support and investment evaporated. Foreign debt payments became irregular and the government increasingly fell back on local borrowing. </p>
<p>The Kenyan government turned to international financial institutions for cheaper loans. These were provided, but were conditional on <a href="https://core.ac.uk/download/pdf/304991797.pdf#page=2">economic reforms</a>, such as measures intended to stimulate trade. </p>
<p>Coincidentally, or otherwise, Goldenberg International applied to the Kenyan government in <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=33">July 1990</a> for certain privileges that spoke directly to the economic needs of the country. The company received a monopoly on exports of gold and diamonds from Kenya. </p>
<p>It was also given a subsidy of 35% of the value of these exports – 15% more than the official rate at the time. </p>
<p>Goldenberg managed to defraud the Kenyan state of between <a href="https://core.ac.uk/download/pdf/304991797.pdf#page=1">US$600 million and US$1.5 billion</a> in <a href="https://www.wto.org/english/res_e/booksp_e/anrep_e/wtr06-2b_e.pdf#page=1">subsidies</a>. Subsidies can be direct (such as cash payments) or indirect (such as tax breaks). Goldenberg’s subsidy was in monetary form, on condition that the company proved foreign exchange gains through exporting non-traditional commodities. </p>
<p>The fraud was that Kenya had <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=44">insignificant amounts of known gold deposits and absolutely no diamonds</a>. Government officials authorised payments for fictitious exports.</p>
<p>Goldenberg’s main transactions were recorded between <a href="https://issafrica.s3.amazonaws.com/site/uploads/Paper117.pdf#page=1">1991 and 1993</a>. The <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=312">2003 Judicial Commission of Inquiry</a> into the scandal estimated that Goldenberg pilfered a <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=379">total of KSh158.3 billion</a> (US$2.3 billion at the time). However, the exact amount remains in the area of speculation. </p>
<h2>What institutional gaps enabled the fraud?</h2>
<p>The architects of the Goldenberg scandal abused a number of <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=32">trade policies</a>. These included the <a href="http://kenyalaw.org:8181/exist/kenyalex/actview.xql?actid=CAP.%20482">Export Compensation Act</a>, <a href="http://supplychainfinanceforum.org/techniques/pre-shipment-finance/">Pre-shipment Finance</a> and the Retention Scheme.</p>
<p>There’s inherently nothing wrong with these measures, which are intended to stimulate trade. But they were implemented in the context of a corrupt political system and became <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=364">instruments of fraud</a>.</p>
<p>Another significant aspect of the fraud was Kenya’s exchange rate system. The difference between official and parallel exchange rates, and the depreciating Kenyan shilling, allowed Goldenberg to earn illegal returns on foreign exchange. </p>
<p><a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=135">Cheque kiting</a> is another tool that was used. It’s a form of cheque fraud that utilises the time it takes for a cheque to clear to use non-existent money in an account. </p>
<p>Officials at the highest levels of government were heavily involved in authorising payments to Goldenberg. </p>
<p>Under the rules to obtain subsidies, Goldenberg had to get signatories from the customs department that exports had occurred; from the Central Bank of Kenya that revenue had arrived; from the ministry of minerals that production had occurred; and from the ministry of finance for final authorisation. </p>
<p>As was alleged in a recent <a href="https://www.aljazeera.com/news/2023/4/14/six-secrets-uncovered-by-al-jazeeras-gold-mafia-investigation">Al-Jazeera exposé on gold fraud in Zimbabwe</a>, where Pattni’s name has featured, corrupt and well-paid senior government officials in Kenya played a part in the plunder of the nation during the Goldenberg years. </p>
<p>An audit ordered by the International Monetary Fund and World Bank into cheque kiting and forex fraud <a href="https://issafrica.s3.amazonaws.com/site/uploads/Paper117.pdf#page=9">in April 1993</a> sparked the unravelling of the Goldenberg scandal.</p>
<p>No one ever went to jail for this grand fraud despite <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf">years of inquiry</a> and the <a href="https://www.businessdailyafrica.com/bd/economy/court-formally-terminates-goldenberg-case-2031264">prosecution of some of the parties involved</a>. </p>
<h2>What was the cost to Kenya?</h2>
<p>The government of Kenya received no benefit as there were no official export earnings from the sale of gold and diamonds. </p>
<p>There are no reliable estimates as to the scandal’s effect on Kenyans to date, largely because the payments made and money siphoned <a href="https://www.standardmedia.co.ke/article/2000065911/goldenberg-scandal-still-a-mystery-decades-later">couldn’t be easily accounted for</a>.</p>
<h2>What are the lessons learned?</h2>
<p>The judges in the judicial review of the Goldenberg scandal blamed the International Monetary Fund and World Bank for setting the <a href="https://www.imf.org/external/pubs/ft/esaf/exr/">context</a> that enabled the abuse of subsidies.</p>
<p>In a world where more people and nations are subject to sanctions if they trade in US dollars, <a href="https://www.aljazeera.com/news/2023/4/14/six-secrets-uncovered-by-al-jazeeras-gold-mafia-investigation">gold</a> has become a way to evade economic restrictions. It isn’t easily detected in developed country jurisdictions. For instance, since 2019, trade in gold in <a href="https://ahvalnews-com.cdn.ampproject.org/c/s/ahvalnews.com/node/36566?amp">Venezuela</a> and <a href="https://financialtribune.com/articles/domestic-economy/98593/77-rise-in-irans-non-oil-trade-with-turkey">Iran</a> has increased drastically with Turkey despite US sanctions. </p>
<p>The use of physical gold traded through a country like the United Arab Emirates – Pattni now operates out of Dubai – evades the financial sanctions imposed on nations like Zimbabwe. </p>
<p>Regulatory frameworks governing trade in gold are weaker than the ones governing the entry of US dollars into the global banking system. To address this, the international community must put pressure on <a href="https://taxjustice.net/faq/what-is-a-secrecy-jurisdiction/">secrecy jurisdictions</a> to align their gold trade and anti-money laundering regulatory frameworks with global best practices. </p>
<p>Both Kenya and Zimbabwe have had long reputations of being politically risky, mired in corruption and having unsound policies. Political connections are also important in doing business. </p>
<p>Deliberate and continuous efforts to curb corruption, have stable and sound policies, and establish solid independent institutions are needed for these countries to have some semblance of accountability. If not curbed, the systemic greed of the political elite and those politically connected will continue to lead countries into ruin and citizens to destitution. Competing limited resources will continue to end up in the pockets of a select few and not cater to the public good so often championed in policy pronouncements.</p><img src="https://counter.theconversation.com/content/206136/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
In a world where economic sanctions make trade in US dollars almost impossible, gold has offered a way to evade these restrictions.
Roman Grynberg, Adjunct Professor, Griffith University
Fwasa K Singogo, Research Associate, Indaba Agricultural Policy Research Institute (IAPRI)
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/206010
2023-05-22T15:22:14Z
2023-05-22T15:22:14Z
Dubious partnerships: new plans to curb wrongdoing by UK-registered firms are riddled with loopholes
<figure><img src="https://images.theconversation.com/files/527493/original/file-20230522-17-s8pp7t.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">'Not a problem.'</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/business-men-shaking-hands-finishing-meeting-682622896">A Lot of People</a></span></figcaption></figure><p>What links the UK with <a href="https://en.odfoundation.eu/a/37290,moldovas-theft-of-the-century-ostensible-investigations-or-sincere-lust-for-justice/">the theft</a> of over a billion US dollars from Moldovan banks and the global money laundering schemes operated through the infamous <a href="https://www.financeuncovered.org/stories/english-limited-partnerships-comform-company-formation-agencies">Russian and Azerbaijani “laundromats”</a> that allowed more billions of US dollars of dirty money to be laundered through shell firms overseas into apparently clean money? The answer is UK limited partnerships (LPs) and limited liability partnerships (LLPs).</p>
<p>As anti-corruption watchdog <a href="https://www.transparency.org.uk/publications/offshore-in-the-uk">Transparency International</a> and <a href="https://www.heraldscotland.com/news/15903142.scots-law-giant-burness-paull-link-hundreds-secretive-shell-firms/">others</a> have highlighted, these types of organisation are used for serious wrongdoing, including money laundering, political corruption and worse. </p>
<p>They undermine sanctions against Russia and destabilise other former Soviet countries, since those involved in these arrangements often come from these places. The wrongdoing also includes drugs and people trafficking and tax evasion, all of which have direct consequences in the UK. </p>
<p>Both LPs and LLPs are a sort of hybrid between standard partnerships and companies, and <a href="https://www.gov.uk/government/statistics/companies-register-activities-statistical-release-2021-to-2022/companies-register-activities-2021-to-2022">have become popular</a> in the past couple of decades. </p>
<p>The UK government proposes to tighten their regulation with the <a href="https://bills.parliament.uk/bills/3339">Economic Crime and Corporate Transparency bill</a>, which is currently going through its final stages in the House of Lords. However, the bill’s provisions could be made much more effective, while vital reforms are entirely missing. </p>
<p>As it stands, any reduction in wrongdoing is therefore likely to be minimal. Here is what needs to be addressed:</p>
<h2>1. Corporate partners</h2>
<p>The use of corporate partners, where a company is made a partner of a firm, is common in wrongdoing firms. This enables actual human managers to hide behind a corporate front. Whoever is running the company can also avoid the personal liability for partnership debts that the law imposes on individual partners.</p>
<p>The answer is to ban corporate partners. Failing that, the bill should bring the rules into line with those for corporate directors: companies must already have at least one human director. Meanwhile, the bill is going to prohibit a corporate director from itself having any corporate directors. Legislation banning corporate directors completely was previously enacted but never brought into force.</p>
<h2>2. Overseas partners</h2>
<p>Partners based overseas, particularly in “<a href="https://fsi.taxjustice.net/">tax havens</a>” such as the British Virgin Islands, are common features of wrongdoing firms because they provide a layer of protection from regulation or investigation, as well as facilitating tax avoidance. This is because it is more difficult for UK regulators and enforcement agencies to track down those partners or their assets. </p>
<p>Overseas partners, or at least those based in secrecy jurisdictions, should be banned. As for corporate partners based overseas, these should be required to disclose the same information as those based in the UK, including directors, shareholders and other controllers.</p>
<h2>3. Transparency of ownership and control</h2>
<p>Hidden ownership and control of partnerships are highly <a href="https://fsi.taxjustice.net/fsi2022/KFSI-5.pdf">attractive to wrongdoers</a>. Indeed, when Scottish LPs were legally required in 2018 to disclose all “people with significant control” over their business (PSCs), the number of LP registrations in Scotland decreased and the number in England, Wales and Northern Ireland <a href="https://taxjustice.net/2018/07/31/the-abuse-of-limited-partnerships-in-the-uk-predicting-the-future-with-the-financial-secrecy-index/">increased</a>.</p>
<p>However, the UK bill does not extend this Scottish rule, despite English and Northern Irish LPs being implicated in significant wrongdoing. The international Financial Action Task Force (FATF), a watchdog created by the G7 nations, also <a href="https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Guidance-Beneficial-Ownership-Legal-Persons.html">recommends that</a> that all partnerships disclose their beneficial owners. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/527262/original/file-20230519-29-ir1u7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Opaque windows" src="https://images.theconversation.com/files/527262/original/file-20230519-29-ir1u7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/527262/original/file-20230519-29-ir1u7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/527262/original/file-20230519-29-ir1u7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/527262/original/file-20230519-29-ir1u7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/527262/original/file-20230519-29-ir1u7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/527262/original/file-20230519-29-ir1u7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/527262/original/file-20230519-29-ir1u7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Still opaque?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/glass-wall-empty-marble-floor-night-739541635">Zhu Difeng</a></span>
</figcaption>
</figure>
<p>The bill also fails to <a href="https://www.theguardian.com/commentisfree/2022/mar/09/oligarch-economic-crime-bill-law-uk">close existing loopholes</a>. One is that firms can declare they have no PSCs, even though in practice there will always be at least one person in control. </p>
<p>It’s also possible for the real controllers to avoid disclosure because they fall outside the technical definition of PSCs in the legislation. The definition sets a threshold of 25% of financial shares or voting rights. So, for example, five partners each with a 20% share will avoid disclosure.</p>
<h2>4. Corporate service providers</h2>
<p>These are sometimes set up purely to <a href="https://www.financeuncovered.org/stories/english-limited-partnerships-secrecy-%20formation-agencies-ios-las-lotus-comform-corruption">provide corporate services</a>, such as registering firms on behalf of partners and filing documents at Companies House on their behalf. Because these service providers don’t fall within the ambit of a regulatory body such as the Association of Chartered Certified Accountants, they are overseen only by UK tax authority HMRC. </p>
<p>They are often involved in forming wrongdoing firms, yet the bill does not restrict their activities. It also doesn’t improve on how they are supervised over anti-money laundering. </p>
<p>For example, HMRC is their default anti-money laundering supervisor but is inadequately resourced for this function and <a href="https://questions-statements.parliament.uk/written-questions/detail/2016-11-07/52019">doesn’t even know</a> which service provider formed which firm.</p>
<h2>5. Identity verification</h2>
<p>The bill introduces new rules on identity verification so that some attempt will be made to check that directors and controllers are who they say they are before they are allowed to register a new business, but there are loopholes.</p>
<p>First, this only applies to directors and people with significant control. This is expected to be extended to partners via secondary legislation, but even then, some partners will be exempted. There is also no timescale for this legislation, and secondary legislation receives far less parliamentary scrutiny than a bill.</p>
<p>Equally, details of how identity will be verified will only appear in the secondary legislation. There are also concerns about <a href="https://techmonitor.ai/the-future-of-digital-government/digital-reforms-companies-house-campaigners">how verification will work</a> and whether Companies House will have the resources to verify robustly enough to stamp out fraudulent documentation. The bill also allows corporate service providers to verify identities, which is also a mistake.</p>
<h2>6. Reliable information about businesses</h2>
<p>The public register at Companies House needs to have accurate and complete information about who the partners and PSCs are, where they and the firm are located, what kind of business it is, and so on. This is essential to those doing business with a firm, as well as enforcement agencies and investigative journalists. </p>
<p>Yet the bill will only give Companies House the power, not the duty, to query or reject suspicious information, and does not provide additional resources for this task.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/527263/original/file-20230519-17-ul9mif.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Man between piles of paper holding up two rolls to his eyes" src="https://images.theconversation.com/files/527263/original/file-20230519-17-ul9mif.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/527263/original/file-20230519-17-ul9mif.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/527263/original/file-20230519-17-ul9mif.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/527263/original/file-20230519-17-ul9mif.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/527263/original/file-20230519-17-ul9mif.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/527263/original/file-20230519-17-ul9mif.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/527263/original/file-20230519-17-ul9mif.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Investigative journalists are among those that need accurate information at Companies House.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/man-holding-two-twisted-roll-newspaper-2084794444">Gagarin Lurii</a></span>
</figcaption>
</figure>
<h2>7. LLPs</h2>
<p>The reforms only apply to LPs, even though LLPs are <a href="https://www.transparency.org.uk/partners-in-crime-UK-LLP-Limited-Liability-Partnership-money-laundering">significantly involved</a> in wrongdoing. We are promised secondary legislation to tighten the LLP rules, but again there is no timetable.</p>
<p>The bill is in danger of being a missed opportunity. The closest thing to a crumb of comfort is an unexpected Brexit dividend: since Ireland offers many of the same legal loopholes plus EU access, some <a href="https://www.bellingcat.com/news/2022/06/18/inside-the-secretive-world-of-irish-limited-partnerships/">wrongdoers are migrating</a> from UK to Irish partnerships instead.</p><img src="https://counter.theconversation.com/content/206010/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elspeth Berry does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
The Economic Crime Bill is supposed to be riding to the rescue, but it won’t make much difference in its current form.
Elspeth Berry, Associate Professor in Law, Nottingham Trent University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/200696
2023-02-26T13:19:21Z
2023-02-26T13:19:21Z
South Africa has been grey listed for not stopping money laundering and terrorism funding. What it means
<figure><img src="https://images.theconversation.com/files/512279/original/file-20230225-2133-7jtilj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa provides fertile ground for money laundering and terrorism funding.</span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p><em>The Financial Action Task Force <a href="https://www.treasury.gov.za/comm_media/press/2023/2023022401%20Media%20statement%20-%20Response%20to%20FATF.pdf">has placed South Africa</a> on a list of countries under increased monitoring, commonly known as the <a href="https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-february-2023.html#:%7E:text=When%20the%20FATF%20places%20a,as%20the%20%E2%80%9Cgrey%20list%E2%80%9D.">grey list</a>, after it failed to address all of the shortcomings on money laundering and the <a href="https://www.fatf-gafi.org/en/topics/Terrorist-Financing.html">financing of terrorism </a>that the task force identified in its 2019 evaluation of the country. The decision has serious implications for the country, more specifically its financial services sector as well as its ability to attract investment. The Conversation Africa’s political editor Thabo Leshilo talks to Philippe Burger, an economics professor and the dean of the Faculty of Economic and Management Sciences at the University of the Free State, about what the grey listing means for South Africa.</em> </p>
<h2>What does grey listing mean?</h2>
<p><a href="https://www.fatf-gafi.org/en/topics/high-risk-and-other-monitored-jurisdictions.html">Grey listing</a> refers to a country being placed on a list of countries under increased monitoring by the <a href="https://www.fatf-gafi.org/en/the-fatf/what-we-do.html">Financial Action Task Force (FATF)</a>, the global money laundering and terrorist financing watchdog. The FATF <a href="https://www.fatf-gafi.org/en/topics/mutual-evaluations.html">evaluates </a> each member country’s implementation and effectiveness of measures to combat money laundering and the financing of terrorism.</p>
<p><a href="https://www.fatf-gafi.org/en/countries/detail/South-Africa.html">South Africa </a> has been placed on FATF’s grey list because it does not have sufficient mechanisms in place to monitor and combat money laundering and terrorist financing activities.</p>
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Read more:
<a href="https://theconversation.com/invisible-trillions-review-global-capitalism-operates-beyond-the-rule-of-law-and-threatens-democracy-199311">Invisible Trillions review: global capitalism operates beyond the rule of law and threatens democracy</a>
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<p>The country undertook to work with the FATF to identify strategies and time frames to <a href="https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-february-2023.html">improve its monitoring mechanisms</a>. Specifically, it undertook to work with the FATF on <a href="https://www.gov.za/speeches/treasury-listing-south-africa-financial-action-task-force-24-feb-2023-0000#:%7E:text=Government%20notes%20the%20Financial%20Action,earlier%20today%2C%2024%20February%202023.">eight specific topics</a>. These include increased investigation and prosecution of money laundering and terrorist financing activities. It’ll also enhance its capacity to identify, seize and confiscate the proceeds of such crimes. </p>
<p>South Africa also needs to improve its terrorist financing risk assessment to inform its strategy to counter the financing of terrorism activities. In addition, it needs to ensure the effective implementation of targeted financial sanctions, and create effective mechanism to identify individuals and entities targeted by such sanctions.</p>
<h2>What are the implications?</h2>
<p>Though the FATF does not explicitly require increased due diligence, grey listing will nevertheless in effect require increased due diligence. Banks dealing with cross-border financial flows and companies wanting to invest in South Africa will have to vet their clients and the sources of client income better before they invest. This can be costly and, therefore, discourage investment. <a href="https://www.resbank.co.za/content/dam/sarb/publications/reviews/finstab-review/2022/financial-stability-review/second-edition-2022-financial-stability-review-/Presentation%20%20Second%20Edition%202022%20Financial%20Stability%20Department%20(Dr%20Nicola%20Brink).pdf#page=17">The increased risk</a> associated with South Africa could also result in higher interest rates and cost of capital.</p>
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Read more:
<a href="https://theconversation.com/south-africa-provides-fertile-ground-for-funders-of-terrorism-heres-why-194282">South Africa provides fertile ground for funders of terrorism. Here's why</a>
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<p>The higher costs that domestic and international companies will incur when they trade or invest across South African borders will put upward pressure on the cost of living of ordinary South Africans. However, of probably even more significance to ordinary South Africans is that the grey listing will likely deter foreign investment, which is needed to stimulate economic growth and job creation. </p>
<h2>Which other countries are grey listed?</h2>
<p>In being grey listed South Africa joins a list of countries, none of which are known as paragons of governance. Some, such as the <a href="https://www.investopedia.com/ask/answers/100215/why-cayman-islands-considered-tax-haven.asp#:%7E:text=In%20addition%20to%20having%20no,are%20therefore%20considered%20tax%20neutral.">Cayman Islands</a> and <a href="https://theconversation.com/panama-papers-show-how-easy-it-is-to-finance-terror-using-u-s-shell-companies-57539">Panama</a>, are known <a href="https://theconversation.com/what-are-tax-havens-the-answer-explains-why-the-g-7-effort-to-end-them-is-unlikely-to-succeed-163125">tax havens</a> that potentially attract laundered money. Others are known as war zones or countries with jihadist and Islamist terror groupings operating on their land. These include Syria, Yemen, Mali, Nigeria, and Mozambique. The list also includes countries with very weak governments, such as Haiti and the Democratic Republic of the Congo.</p>
<h2>What needs to happen for the grey listing to be lifted?</h2>
<p>South Africa needs to work with the FATF to identify strategies and time frames to improve its monitoring mechanisms. It must then implement these improvements at the latest by January 2025. This might require improved legislation and better monitoring mechanisms to red-flag potential money laundering and terrorist funding flows. </p>
<p>Although the country recently made a belated effort to <a href="https://www.moneyweb.co.za/news/economy/south-africa-greylisted/">improve its legislation </a> to avert being grey listed, it will need to do more. Doing so will require a dedicated focus from the government to</p>
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<li><p>pass additional relevant legislation, </p></li>
<li><p>fund the investigative authorities to combat money laundering and terrorist financing activities, and </p></li>
<li><p>ensure the effective and speedy prosecution of individuals and institutions undertaking such crimes. </p></li>
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Read more:
<a href="https://theconversation.com/sandton-terror-alert-time-for-south-africa-to-improve-its-intelligence-sharing-channels-with-the-us-194542">Sandton terror alert: time for South Africa to improve its intelligence sharing channels with the US</a>
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<p>With the recent history in South Africa of <a href="https://www.statecapture.org.za/">state capture</a> for private gain by individuals, some of whom are themselves probably guilty of money laundering, the onus will be on the government to show that it is serious about implementing effective legislation and mechanisms to combat money laundering and terrorist funding. Thus, to get out of the rut of grey listing the country will have to fight the rot of money laundering and terrorist funding. The jury, or in this case the Financial Action Task Force, is still out on whether it will succeed in doing so.</p><img src="https://counter.theconversation.com/content/200696/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Opinions disclosed in this article by Philippe Burger are made in his private capacity and do not represent the views of any of the institutions from which he received research funding. Philippe Burger received funding from the National Research Foundation as rated researcher. He is also a Non-Resident Senior Research Fellow, United Nations University World Institute for Development Economics Research (UNU-WIDER), in which capacity he is the lead for the Macro-Fiscal workstream for the SA-TIED II project. He is also a 2016/17 Fulbright Exchange Scholar.</span></em></p>
In being grey listed South Africa joins a list of countries with poor governance. Others are war zones or countries with jihadist terror groupings operating on their land.
Philippe Burger, Dean: Faculty of Economic and Management Sciences, and Professor of Economics, University of the Free State
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/199311
2023-02-15T08:38:29Z
2023-02-15T08:38:29Z
Invisible Trillions review: global capitalism operates beyond the rule of law and threatens democracy
<figure><img src="https://images.theconversation.com/files/508894/original/file-20230208-15-42994g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Achieving greater transparency and accountability in democratic governance and in capitalist economics must occur simultaneously. </span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>Secrecy has become as important for corporations as transparent and taxable profits used to be, according to Raymond W. Baker in his new <a href="https://www.goodreads.com/book/show/60978837-invisible-trillions">book</a> Invisible Trillions. Global capitalism, he argues, operates beyond the rule of law. This contributes to extreme inequality that threatens liberal democracy.</p>
<p>Deals in the financial secrecy system account for half of global economic operations. This is far beyond illicit transfers of funds through corporate under-pricing and overpricing of exports and imports, or the drug and other criminal networks 50 years ago. Tax havens, “shell companies”, anonymous trust accounts, fake foundations and new digitised money laundering technologies have proliferated. Add to that falsified trade. All of this is facilitated by international lawyers, accountants and financial strategists based mostly in rich countries. </p>
<p>The book’s timely contribution is how financial secrecy threatens both free enterprise and political freedoms. Both are critical to dealing with current inequalities afflicting humanity and to meeting challenges in public health, climate, and elsewhere.</p>
<p>Baker indicts the United States as the biggest user of the financial secrecy system, and the biggest recipient of dirty money from around the world. A key indication of the cost of this is that gaps between top and average wages in the US have shot up from 20 to 1 in 1960 to 350 to one today. Had this not occurred, Baker told me he estimates, the middle class would now be better off by US$50 trillion. </p>
<h2>Pioneering work</h2>
<p>A <a href="https://www.amazon.com/Capitalisms-Achilles-Heel-Free-Market-System/dp/1119086612">pioneer</a> in exposing illicit financial flows, Baker is a member of the <a href="https://au.int/sites/default/files/documents/40545-doc-IFFs_REPORT.pdf">High-Level Panel</a> on the subject commissioned by the African Union (AU) and UN Economic Commission for Africa. It was chaired by former South African president Thabo Mbeki from 2011 to 2015. It is suspended pending further funding. Invisible Trillions should spur renewed work by the panel.</p>
<p>The panel’s <a href="https://au.int/sites/default/files/documents/40545-doc-IFFs_REPORT.pdf">2015 report</a> estimated that in the previous half-century, Africa lost over a US$ trillion in illicit money flows. This is about what Africa received in official development assistance over the same period. Baker made a similar finding in his <a href="https://www.amazon.com/Capitalisms-Achilles-Heel-Free-Market-System/dp/1119086612">2005 book</a>, Capitalism’s Achilles Heel. </p>
<p>He began his career as an entrepreneur in Nigeria after independence, applying his 1960 Harvard MBA to launch several successful local businesses in the 1960s and 1970s. After relocating to Washington, DC in the 1980s, he became a guest fellow at the <a href="https://www.brookings.edu/">Brookings Institution</a>. He eventually founded <a href="https://gfintegrity.org/">Global Financial Integrity</a> in 2006. The research institute continues to produce seminal research and policy analysis on all aspects of the secretive world of illicit financial flows.</p>
<h2>Clean up must begin from above</h2>
<p>Baker is cogently critical not only of the complicity of the US and its corporations, but also law firms, auditors and consulting companies that abet tax avoidance, concentration of wealth, and corruption of government officials. He accuses the US and China, which together account <a href="https://statisticstimes.com/economy/united-states-vs-china-economy.php">for over 40% of the world’s nominal GNP</a>, of knowingly exploiting secrecy in global economic relations. </p>
<p>Little wonder that 193 members of the United Nations have pledged to halt illicit financial flows, but with little discernible effect. Meanwhile, the COVID pandemic, the war in Ukraine and climate change worsen inequality within and among nations.</p>
<p>Concise and accessible, Invisible Trillions has three parts:</p>
<ul>
<li><p>Democratic Capitalism at Risk</p></li>
<li><p>Corroding the Commons</p></li>
<li><p>Renewing Democratic Capitalism.</p></li>
</ul>
<h2>Rogue capitalism</h2>
<p>I found Baker’s criticisms of capitalism in the US to be reasonable, his indictments of corruption and authoritarianism illuminating, and his emphasis on fairness, justice, equity and human rights hopeful. America’s leading democracy scholar, <a href="https://politicalscience.stanford.edu/people/larry-diamond">Larry Diamond of Stanford University</a>, wrote the book’s foreword. As he asserts:</p>
<blockquote>
<p>Only radical improvements across the globe in financial transparency and accountability and in regulatory capacity and integrity can break this cycle of political decay and despair. </p>
</blockquote>
<p>Baker, however, carefully avoids analysis of the <a href="https://www.washingtonpost.com/outlook/2018/11/06/united-states-isnt-democracy-and-was-never-intended-be/">structural deficiencies</a> of US democracy. He defers to others to build on his analysis of how secretive concentrations of wealth became possible with the complicity of banks, corporations and “complicit governments” in key chapters of Part II.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=669&fit=crop&dpr=1 600w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=669&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=669&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=840&fit=crop&dpr=1 754w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=840&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=840&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>Although the book is mainly about the “rogue capitalism” of the US, it includes the impact of secrecy on economic behaviour further afield, using seven country case studies. Featured are the two dictatorships – Russia and China – plus a flawed pluralistic democracy, South Africa, an example of <a href="https://theconversation.com/south-africas-state-capture-commission-nears-its-end-after-four-years-was-it-worth-it-182898">state capture</a>. Other examples of where secrecy serves autocrats are Guatemala, Venezuela, Myanmar and Iran.</p>
<p>The South African case shows well the role played by foreign corporations, international lawyers and public relations firms in corruption. Baker concludes Part II with a very short chapter, “Hiding in Silos”. It is critical of western attempts to spread the rule of law while ignoring</p>
<blockquote>
<p>the degree to which the capitalist system (is) operating increasingly beyond the rule of law.</p>
</blockquote>
<p>This sets up Part III, in which he proposes ways and means for “Renewing Democratic Capitalism”.</p>
<h2>Renewing democratic capitalism</h2>
<p>In Baker’s view, democracy is self-correcting, but capitalism is not. His main message is: reform capitalism or forfeit democracy.</p>
<p>His suggestions focus on the US and its potential for either causing disaster or preventing it. This will depend, he argues, on the US government requiring greater transparency, accountability and governance reforms by corporations.</p>
<p>He advocates forcing banks and other financial institutions to once again separate lending and investing. And audit firms should not offer costly financial advice – another conflict of interest.</p>
<p>Baker recommends government action on increasing minimum wages to $15 an hour, ensuring universal healthcare, waiving student debt, and a reckoning with “race”. He also urges a reducing inequality among nations. In sum, an agenda much like that of the Biden administration.</p>
<p>Unless national Democratic majorities continue to grow and press effectively for <a href="https://www.amacad.org/ourcommonpurpose/report">bi-partisan democratic reforms</a>, it is difficult to imagine the country playing the kind of constructive democratic role at home or abroad that Baker calls for.</p><img src="https://counter.theconversation.com/content/199311/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John J Stremlau does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Raymond W. Baker says the estimated hundreds of billions of dollars in hidden wealth a decade ago has skyrocketed to trillions today.
John J Stremlau, Honorary Professor of International Relations, University of the Witwatersrand
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/199382
2023-02-08T00:56:09Z
2023-02-08T00:56:09Z
NSW pokies reforms will do much to limit problem gambling and money laundering
<figure><img src="https://images.theconversation.com/files/508713/original/file-20230207-25-3v9dap.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Bianca de Marchi/AAP</span></span></figcaption></figure><p>The New South Wales government has embraced <a href="https://www.nsw.gov.au/media-releases/pokies-to-be-cashless-2028-under-historic-changes">a sweeping set of reforms</a> to the state’s massive poker machine business. These reforms are centred on a “cashless gaming” system linked to pre-commitment. This system will require those who wish to use pokies in NSW to register for an account, provide high-integrity ID, set a limit for their pokie losses, and link this to a personal bank account. </p>
<h2>Why is this needed?</h2>
<p>NSW is effectively the heartland of Australia’s pokie business. In 2022, the 89,000 poker machines in NSW’s clubs and pubs are <a href="https://www.liquorandgaming.nsw.gov.au/resources/gaming-machine-data">expected to rake in A$7.5 billion</a>. </p>
<p>Much of this money comes from areas of significant disadvantage. In western and south-western Sydney, the local government areas of Fairfield and Canterbury-Bankstown, for example, are <a href="https://www.liquorandgaming.nsw.gov.au/resources/gaming-machine-data">on track</a> to contribute over $1.2 billion of that alone, or an average of $2,785 per adult.</p>
<p>Pokies, or gaming machines, are now clearly recognised as Australia’s most harmful gambling form. <a href="https://akjournals.com/view/journals/2006/aop/article-10.1556-2006.2022.00083/article-10.1556-2006.2022.00083.xml#B62">A recent research paper</a> calculates that pokies are responsible for between 52% and 57% of Australia’s serious gambling harm. Pokies in pubs and clubs are also responsible for 51% of gambling losses overall – $13 billion per year. </p>
<p>Other gambling forms lag far behind this distressing calculus. Wagering on races and on sports, for example, contributes between 20% and 25% of the gambling harm total.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1622530870346416129"}"></div></p>
<h2>What does pre-commitment do?</h2>
<p>Pre-commitment involves a requirement that every person who registers for an account to use pokies in NSW must set a personal limit on their pokie losses, tied to a certain period of time – a day, week, month or year. Limits may be lowered at any time, but only increased once every seven days. </p>
<p>The Tasmanian government <a href="https://www.premier.tas.gov.au/site_resources_2015/additional_releases/nation-leading-card-based-gaming-with-pre-commitment-a-first-in-tasmania">recently announced</a> it would roll out such a system from 2024. In Tasmania, there will be pre-set limits. These are $100 per day, $500 per month, and $5,000 per year. </p>
<p>The NSW proposals do not include any pre-set limits, although this is open to consideration. An expert working group and multi-departmental taskforce will fine-tune multiple aspects of the proposal. </p>
<p>In any event, people need to be supported via the system software and venue staff to set reasonable limits. Staff need training and support to do this, and protection from venue managers pushing for maximum profits. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/governments-new-gambling-taglines-are-a-start-but-go-nowhere-near-far-enough-193716">Government's new gambling taglines are a start, but go nowhere near far enough</a>
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</em>
</p>
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<p>Cashless systems, tied to a single bank account and requiring a high standard of identification, will make money laundering via pokies very difficult. The digital trail will ensure any suspicious activity can be red-flagged by law enforcement authorities. Subject to a warrant, police can identify and investigate data for individuals concerned. </p>
<p>This will be the only way such data can be used. Neither government nor venues will have access. Individuals will be able to see their own records. This of itself is an important harm-minimisation initiative.</p>
<p>A cashless system on its own won’t help people with harmful gambling habits better manage, or stop, their gambling. NSW Opposition Leader <a href="https://thelatch.com.au/cashless-gaming-nsw/">Chris Minns</a> has repeatedly asserted that cashless gaming will lead to more problems. He has referred to Victorian research that he claims demonstrates this. </p>
<p>However, the <a href="https://responsiblegambling.vic.gov.au/resources/publications/what-is-the-impact-of-cashless-gaming-on-gambling-behaviour-and-harm-1021/">research in question</a> was focused on moving to cashless gaming on its own, in the context of Victorian regulators permitting “tokenisation” of gambling credits. It did not consider the merits of linking pre-commitment to such systems. Indeed, the report found: </p>
<blockquote>
<p>Many of the benefits of cashless gaming have been conflated with the benefits of other gambling harm-minimisation tools (e.g. player tracking, pre-commitment effects have been confused with the effects of cashless gaming).</p>
</blockquote>
<p>However, linking pre-commitment and a cashless system will be a major step towards reducing gambling harm and eliminating this form of money laundering.
The system will also require regular breaks in pokie use (for example, a 15-minute break after 90 minutes of use). We know from the first round of tobacco restrictions some years ago that taking a break allows time for reflection. When people are “in the zone” on a poker machine, <a href="https://press.princeton.edu/books/paperback/9780691160887/addiction-by-design">their rationality is suspended</a>. But away from the machine, reality has a chance of intervening.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/508735/original/file-20230207-15-bzyzdq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/508735/original/file-20230207-15-bzyzdq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/508735/original/file-20230207-15-bzyzdq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/508735/original/file-20230207-15-bzyzdq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/508735/original/file-20230207-15-bzyzdq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/508735/original/file-20230207-15-bzyzdq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/508735/original/file-20230207-15-bzyzdq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Being forced to take a break from pokie playing is an important circuit-breaker for problem gambling.</span>
<span class="attribution"><span class="source">Mick Tsikas/AAP</span></span>
</figcaption>
</figure>
<p>Pre-commitment, in effect, <a href="https://apo.org.au/node/105516">gives people a new tool</a> to manage their gambling. It’s important to remember that even those suffering under the influence of a serious gambling addiction have lucid moments – away from the machines. </p>
<p>The new system will allow people to give effect to their best intentions, including includes those who wish to stop gambling. The new system will be linked to a statewide self-exclusion register, meaning those who wish to self-exclude can do so effectively for the first time. This is a major breakthrough in itself.</p>
<p>If the system is “future proofed”, as it should be, it must have capacity to incorporate regular reminders of how much the user has lost over their sessions of pokie use. Where gambling activity demonstrates a likely pattern consistent with increasing harm, that should be flagged, and players should be sent an automated text or email suggesting avenues for assistance. </p>
<p>Regular statements of activity need to be available (as with online gambling) and tailored warning messages may be much more effective than bland requests to “gamble responsibly”. All of these should be available via this system.</p>
<p>There is also $350 million on offer to encourage clubs to diversify their revenue sources and to provide incentives to join the rollout of the new system. <a href="https://sydneyuniversitypress.com.au/products/78656">Large clubs in NSW</a> often rely on poker machines <a href="https://www.smh.com.au/national/nsw/it-fundamentally-changed-the-social-fabric-of-nsw-how-clubs-got-hooked-on-pokies-20221110-p5bx6p.html">for 80% or more</a> of their total revenue. This is a major reason clubs are reluctant to embrace reform.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1622501523317002241"}"></div></p>
<h2>Old machines need to be replaced</h2>
<p>The new system is to be rolled out over a five-year time-frame. This is almost certainly longer than needed. The majority of pokies in NSW can be retrofitted with hardware and software to make the system work as intended. </p>
<p>However, there are 30,000 or so machines that are too old. This will include machines that <a href="https://www.abc.net.au/news/2023-01-16/nsw-labor-gambling-reform-policy-trial-cashless-gambling-/101859262">continue to allow $10,000</a> to be inserted at once – perfect for money laundering. Such machines need to be replaced as a high priority. Unless this is achieved quickly, they will be magnets for money laundering’s last hurrah through pokies.</p>
<p>Pokies in NSW are all linked by a statewide monitoring system. This is used mostly to protect revenue, but can be enhanced as necessary to incorporate the proposed system.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/pubs-and-clubs-your-friendly-neighbourhood-money-laundering-service-thanks-to-86-640-pokies-193312">Pubs and clubs – your friendly neighbourhood money-laundering service, thanks to 86,640 pokies</a>
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<h2>So … will it work?</h2>
<p>The technical issues are serious, but not overly difficult. Victoria has been running a <a href="https://www.justice.vic.gov.au/safer-communities/gambling/evaluation-of-yourplay-final-report">voluntary pre-commitment system</a> for years without technical problems. Unfortunately, because it’s voluntary, it is little used. </p>
<p>A universal system is far preferable. <a href="https://pubmed.ncbi.nlm.nih.gov/26537997/">Strong evidence from Norway</a> indicates it will reduce gambling harm. It is almost certain it will produce a dramatic reduction in pokies-based money laundering.</p>
<p>If implemented (a big if, relying on the Perrottet government’s re-election) these reforms will be highly significant. For the first time in NSW since pokies were introduced in 1956, pokie gamblers will be able to manage their gambling effectively. And <a href="https://theconversation.com/pubs-and-clubs-your-friendly-neighbourhood-money-laundering-service-thanks-to-86-640-pokies-193312">money laundering at the local pub or club</a> will become a thing of the past.</p><img src="https://counter.theconversation.com/content/199382/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Charles Livingstone has received funding from the Victorian Responsible Gambling Foundation, the (former) Victorian Gambling Research Panel, and the South Australian Independent Gambling Authority (the funds for which were derived from hypothecation of gambling tax revenue to research purposes), from the Australian and New Zealand School of Government and the Foundation for Alcohol Research and Education, and from non-government organisations for research into multiple aspects of poker machine gambling, including regulatory reform, existing harm minimisation practices, and technical characteristics of gambling forms. He has received travel and co-operation grants from the Alberta Problem Gambling Research Institute, the Finnish Institute for Public Health, the Finnish Alcohol Research Foundation, the Ontario Problem Gambling Research Committee, the Turkish Red Crescent Society, and the Problem Gambling Foundation of New Zealand. He was a Chief Investigator on an Australian Research Council funded project researching mechanisms of influence on government by the tobacco, alcohol and gambling industries. He has undertaken consultancy research for local governments and non-government organisations in Australia and the UK seeking to restrict or reduce the concentration of poker machines and gambling impacts, and was a member of the Australian government's Ministerial Expert Advisory Group on Gambling in 2010-11. He is a member of the Lancet Public Health Commission into gambling, and of the World Health Organisation expert group on gambling and gambling harm.</span></em></p>
NSW Premier Dominic Perrottet has convinced his cabinet to back major pokie reforms, and they will be a vast improvement on the current situation.
Charles Livingstone, Associate Professor, School of Public Health and Preventive Medicine, Monash University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/198160
2023-02-06T14:58:00Z
2023-02-06T14:58:00Z
Link between crime and politics in South Africa raises concerns about criminal gangs taking over
<figure><img src="https://images.theconversation.com/files/507613/original/file-20230201-8719-bz77s1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African President Cyril Ramaphosa receives reports of the of the state capture commission from Justice Raymond Zondo. The reports found exposed massive state corruption involving private individuals and companies. </span> <span class="attribution"><span class="source">GCIS</span></span></figcaption></figure><p>A <a href="https://globalinitiative.net/wp-content/uploads/2022/09/GI-TOC-Strategic-Organized-Crime-Risk-Assessment-South-Africa.pdf">report</a> by the Global Initiative Against Transnational Organised Crime (Gitoc) released in September 2022 argues that South Africa has increasingly become a centre of organised crime, transcending national boundaries.</p>
<p>The picture emerging from the report is that there are organised networks inside and outside the state that enable, facilitate and exploit opportunities for private gain. Or, they exercise unfair advantage in economic activity in the public and private sectors, using coercive methods. Some actively go about <a href="https://theconversation.com/south-africa-needs-stronger-security-in-place-to-stop-the-sabotage-of-its-power-supply-187889">sabotaging critical infrastructure</a> to benefit from this.</p>
<p>The areas of public life where criminals exploit or intimidate their way into influence are growing. In recent times grand-scale crime has seeped through to <a href="https://www.telegraph.co.uk/global-health/terror-and-security/mystery-murdered-whistleblower-babita-deokaran-who-uncovered/">healthcare</a>, <a href="https://mg.co.za/opinion/2023-01-13-shooting-at-fort-hare-university-highlights-corruption-at-south-african-universities/">education</a> and <a href="https://www.mining.com/eskom-ceo-de-ruyter-survives-alleged-poisoning-attempt/">parastatals</a>. Speaking out against malfeasance comes at a high price.</p>
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Read more:
<a href="https://theconversation.com/crime-covid-and-climate-change-south-african-tourism-faces-many-threats-but-its-resilient-192505">Crime, COVID and climate change - South African tourism faces many threats, but it’s resilient</a>
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<p>This is apart from the scores of <a href="https://www.dailymaverick.co.za/article/2022-06-27-the-underworld-runs-the-anc-assassinations-analysis-shows-stark-reality-of-violence-in-kzn/">political assassinations of local activists</a> and officials, either for political gain or sheer vengeance against those who dare to call out corruption. </p>
<h2>Mafia state</h2>
<p>There is no doubt that there is a growing ecosystem of organised crime overwhelming the state and public life in the country. And, because political actors or state institutions are so often implicated in it, some commentators are even asking if South Africa is becoming a <a href="https://mg.co.za/article/2017-11-10-00-the-mafia-state-is-in-full-swing/">“mafia state”</a>. </p>
<p>The term “mafia state” refers to the interpenetration of governments and organised crime networks. In his influential 2012 article, <a href="https://carnegieendowment.org/2012/04/25/mafia-states-pub-47954">Mafia States</a>, Venezuelan journalist and writer Moises Naim said: </p>
<blockquote>
<p>In a mafia state, high government officials actually become integral players in, if not the leaders of, criminal enterprises, and the defence and promotion of those enterprises’ businesses become official priorities.</p>
</blockquote>
<p>There is no single prototype for when a state can be labelled a mafia state. The concept is best thought of as a spectrum. The most extreme cases involve politicians at the highest levels taking direct control of organised crime operations. Other characteristics are collusion between crime syndicates and powerful political figures, money laundering to hide illicit proceeds, and the use of violence and intimidation to protect those involved.</p>
<p>The <a href="https://globalinitiative.net/wp-content/uploads/2022/09/GI-TOC-Strategic-Organized-Crime-Risk-Assessment-South-Africa.pdf">Gitoc report</a> shies away from using the label “mafia state” to describe South Africa. What it does make clear is that there is a proliferation of crime networks that involves not just criminal “kingpins” and politically connected individuals but also ordinary people. They become part of this “value chain”, for different historical reasons. But South Africa may be reaching a point where the link between crime and politics is sustained because there are role-players who do not want to see it changing. </p>
<h2>Fighting corruption</h2>
<p>The prevalence of criminal elements within the state does not mean that the whole of the state has become a criminal enterprise. But it is true that many state institutions, have been targeted by criminals, with the collusion of people on the inside.</p>
<p>South Africans are not resigned to the criminalisation of the state, and are actively challenging it. Many of the revelations about fraud, corruption and nepotism come from principled whistle-blowers within state structures. Others come from the relatively free media, and voices in civil society and politics. Some of the malfeasance has been revealed by <a href="https://www.dailymaverick.co.za/article/2022-08-15-the-zondo-report-has-clearly-fingered-the-enablers-of-state-capture-now-its-time-for-reparations/">inquiries initiated by the executive</a> itself. This is the case with the Zondo Commission, which <a href="https://www.statecapture.org.za/">probed state capture</a>.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/using-the-south-african-army-to-fight-crime-is-a-bad-idea-heres-why-85627">Using the South African army to fight crime is a bad idea: here's why</a>
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<p>Poor communication strategies make it difficult for ordinary citizens to assess how the state is responding to these challenges. A case in point is the government’s decision to <a href="https://www.news24.com/news24/opinions/columnists/mpumelelo_mkhabela/mpumelelo-mkhabela-when-did-eskom-crisis-become-a-national-security-crisis-requiring-the-army-20230111">deploy the military</a> to beef up security at several electricity generation facilities. It remains to be seen whether the deployment will be able to stop the acts of sabotage that the ESKOM senior management claim to be a major factor in the worsening energy crisis. </p>
<p>As with the <a href="https://theconversation.com/what-lies-behind-social-unrest-in-south-africa-and-what-might-be-done-about-it-166130">July 2021 riots</a>, sparked by the jailing of former president Jacob Zuma for contempt of court, there are <a href="https://mg.co.za/news/2022-12-15-gordhan-calls-out-mantashes-bizarre-accusations-applauds-de-ruyters-efforts-at-eskom/">conflicting public pronouncements</a> from cabinet ministers on critical sectors and services affected by crime.</p>
<h2>The political economy of organised crime</h2>
<p>The South African economy has a formal sector (“first economy”) and an informal sector (“second economy”). Economists call this a <a href="https://www.weforum.org/agenda/2019/05/south-africas-economy-in-5-charts/">dual economy</a>. To this should be added a “third economy” – the illicit economic activities described above, that have seeped into the formal and informal economies. </p>
<p>The overlap between the licit and the illicit economy in South Africa is complex. Even big, multinational companies may also <a href="https://www.pplaaf.org/cases/bain.html">covertly engage in illicit operations</a> in spite of appearances. On the other hand, criminals often exploit vulnerable people where the state has failed to meet basic needs: they offer jobs, opportunities and income, a phenomenon seen not only in South Africa, but <a href="https://www.thebrokeronline.eu/poverty-and-unemployment-encourage-organized-crime-d6/">across the African continent</a>. </p>
<h2>Looking forward</h2>
<p>Part of the <a href="https://theconversation.com/south-africa-needs-stronger-security-in-place-to-stop-the-sabotage-of-its-power-supply-187889">reset</a> South Africa needs to untangle political and crime networks is better policing and security strategies. The state must be able to assert its authority in the interests of the majority, law-abiding citizens who want to live honest lives in a climate of certainty.</p>
<p>If the crime-politics nexus is being deliberately sustained through the collusion of influential actors within the state, then it is going to be much harder to dismantle. </p>
<p>The resources being spent to address crime will be ineffective. The spectre of corrupt, pliable or compromised people in the criminal justice sector will make the future more unstable. Violence and threats against those who stand up against organised crime will become more commonplace. </p>
<p>The reports of the <a href="https://www.statecapture.org.za/site/information/reports">Zondo Commission</a>, the <a href="https://www.siu.org.za/investigation-reports/">Special Investigating Unit</a>, whistle-blower reports, work by <a href="https://theconversation.com/how-investigative-journalists-helped-turn-the-tide-against-corruption-in-south-africa-93434">investigative journalists</a>, research by <a href="https://pari.org.za/betrayal-promise-report/">academics</a>, <a href="https://issafrica.org/research/southern-africa-report/investigating-corruption-in-south-africa-cooperation-or-conflict">think tanks</a> and <a href="https://www.corruptionwatch.org.za/">civil society organisations</a>, all go some way towards showing how the slide towards a criminal state can be halted. The criminal justice system must bring criminals to book, not give way to impunity. </p>
<p>But more important than combating crime is asking the difficult questions about how ordinary people end up involved in organised crime, and why the country’s democracy is becoming <a href="https://theconversation.com/south-africans-hold-contradictory-views-about-their-democracy-159647">more polarised</a>. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/many-kenyans-have-embraced-vigilante-cops-an-ineffective-police-force-is-to-blame-196449">Many Kenyans have embraced vigilante cops – an ineffective police force is to blame</a>
</strong>
</em>
</p>
<hr>
<p>If the dire <a href="https://theconversation.com/south-africa-is-trapped-again-what-kind-of-leaders-can-set-the-country-free-187704">socio-economic conditions</a> persist, there is every likelihood that organised criminals will continue to exploit the contradictions in society, and organised crime markets will expand. </p>
<p>The stakes are high. Stopping South Africa from becoming a “mafia state” ought to be a priority for everyone. This will become a key issue of concern to voters ahead of the 2024 national general elections.</p><img src="https://counter.theconversation.com/content/198160/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sandy Africa is affiliated with the University of Pretoria's Faculty of Humanities, which partnered with the Global Initiative against Transnational Organised Crime (GITOC), the Human Sciences Research Council (HSRC) and the Institute for Security Studies (ISS) to launch GITOC's 'Strategic Organised Crime Risk Assessment: South Africa' in September 2022.</span></em></p>
South Africans are actively challenging the criminalisation of the state. Many of the revelations about fraud, corruption and nepotism come from principled whistle-blowers within the state.
Sandy Africa, Associate Professor, Political Sciences, and Deputy Dean Teaching and Learning (Humanities), University of Pretoria
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/194826
2022-12-02T13:03:04Z
2022-12-02T13:03:04Z
Corruption in South Africa: new book lifts the lid on who profits - and their corporate enablers
<figure><img src="https://images.theconversation.com/files/496463/original/file-20221121-26-3p10v6.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wikimedia Commons</span></span></figcaption></figure><p>The new <a href="https://jacana.co.za/product/the-unaccountables/">book</a> The Unaccountables: The Powerful Politicians and Corporations who Profit from Impunity is welcome for the way it contextualises corruption. It shows how politicians and bureaucrats could not implement corruption without their corporate and professional enablers – the accountants, auditors and advocates who make it all possible.</p>
<p>The book is the result of a decade of research by <a href="https://www.opensecrets.org.za/">Open Secrets</a> and other NGOs. It is edited by Michael Marchant, Mamello Mosiana, Ra’eesa Pather and Hennie van Vuuren (a blend of investigative journalists and activists) and has 11 named contributors. Analytically, it covers four overlapping issues:</p>
<ul>
<li><p>crimes such as stealing public funds and evading tax </p></li>
<li><p>culpable negligence by professionals such as auditors </p></li>
<li><p>serial failure by regulatory authorities </p></li>
<li><p>moral and political issues such as inequality and corporate tax avoidance.</p></li>
</ul>
<h2>Corporate corruption</h2>
<p>Readers who are diligent in taking in the daily media will remember most of the high profile cases summarised in this book. But not all. It reveals that the <a href="https://theconversation.com/the-deaths-of-144-mentally-ill-patients-and-south-africas-constitutional-democracy-91433">Life Esidemeni tragedy</a>, in which 144 patients died after being placed in inadequate facilities run by NGOs in 2015, had one apartheid precedent. During the 1960s the <a href="https://www.britannica.com/topic/National-Party-political-party-South-Africa">National Party</a> regime outsourced the psychiatric care of 11,000 patients (9,000 of them black) to the British company Intrinsic Investments: 207 died (p.50). </p>
<p>The book fills some gaps in media reports. These tend to focus on those who are despised by the plutocratic, wealthy establishment – the ruling African National Congress politicians and their cronies. The media are comparatively reluctant to cover crimes committed by fellow denizens of their plutocratic stratosphere, such as auditors, accountants and advocates. For example, global media coverage of Hong Kong focuses on Chinese repression of freedom of expression – but overlooks its role as a tax shelter and corporate secrecy hideout for front companies and money laundering:</p>
<blockquote>
<p>a long-running failure to hold the powerful and wealthy to account for the crimes that they profit from. Economic crimes and corruption are committed by a small band of the powerful, but they pose fundamental threats to democracy and social justice. They result in the looting of public funds, the destruction of democratic institutions, and ultimately … the human rights of millions of people. (p.12)</p>
</blockquote>
<p>Fear of those with money to bring defamation litigation, or who decide on corporate advertising spending in the media, aggravates this situation.</p>
<p>This book is structured around apartheid profiteers, war profiteers, state capture profiteers, welfare profiteers, failing auditors, conspiring consultants, and bad lawyers.</p>
<p>The authors note how over 500 global corporations negotiated, thanks to their tax accountants, with Luxembourg, a tax haven, paying only 1% tax on their profits (p.254). They seem to have missed the case of Ireland, where such tax is one thousandth of 1% on profits. Such tax shelters pervade the west, especially <a href="https://thecommonwealth.org/our-member-countries">Commonwealth countries</a>.</p>
<p>The book calls for action to end such tax avoidance. But it does not spell out what it would entail. It would require the South African government to negotiate an international coalition to campaign through the United Nations, the Organisation for Economic Cooperation and Development and the African Union, to find enough allies to mitigate such a global power structure – class power in its purest form.</p>
<p>US president Joe Biden’s proposal that globally, corporate tax should have <a href="https://www.reuters.com/business/biden-offers-drop-corporate-tax-hike-proposal-source-2021-06-03/">a floor of 15%</a> provides a good start for such campaigns.</p>
<h2>Regulation failure</h2>
<p>This book gives welcome attention to a long-neglected problem in South Africa. That is the serial failure of regulatory authorities to hold companies or professionals to account. One instance too recent for this book to cover is that the minerals and energy minister, Gwede Mantashe, has fired from the National Nuclear Regulator a civil society representative, on the grounds that he is <a href="https://www.news24.com/fin24/economy/eskom/mantashe-fires-anti-nuclear-activist-from-regulatory-board-20220225">anti-nuclear</a>. </p>
<figure class="align-left ">
<img alt="Book cover with the words 'The Unaccountable' over images of several punidentifiable men walking." src="https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=929&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=929&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=929&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1167&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1167&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1167&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
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</figure>
<p>Since the minister’s portfolio and performance contract require him to promote nuclear power, it is a conflict of interests for him to interfere in the regulator of nuclear safety. The regulator should fall under the environmental affairs department, as in other countries. This is a topical example of the abuse of power, and defanging a regulatory authority.</p>
<p>The book underscores that the Independent Regulatory Board of Auditors (IRBA) refuses to name and shame. It abuses secrecy to protect the names and reputations of auditors guilty of conspiring with their corporate clients to conceal the truth (p.272):</p>
<blockquote>
<p>the IRBA’s desire to protect its members overshadows its responsibility. </p>
</blockquote>
<p>Since at least the first world war, pacifists have denounced the military-industrial complex as the merchants of death. The <a href="https://www.gov.za/national-conventional-arms-control-committee-ncacc-statement-south-african-arms-sales-regulation">National Conventional Arms Control Committee</a> is supposed to oversee South African exports of armaments and munitions. This is to ensure the country does not violate international treaties. It is not known to have refused any permits to export armaments to countries at war, even when they indiscriminately bomb civilians, as in Yemen.</p>
<p>The authors call for its statutory framework to be drastically toughened up.</p>
<h2>Apartheid profiteers</h2>
<p>The historical chapter of the book, on apartheid profiteers, holds no surprises. Of course, <a href="https://www.sanlam.co.za/Pages/default.aspx?gclid=Cj0KCQiA4OybBhCzARIsAIcfn9m5OBZxhgPlZPIjzU68Z0C7CSAqA8Eqkui60NBY7q8qkcX4Hw3vu_UaAlITEALw_wcB&gclsrc=aw.ds">Sanlam</a>, the insurance giant, and <a href="https://www.naspers.com/">Naspers</a>, the media behemoth, were always part of the Afrikaner nationalist movement, led by the secretive <a href="https://www.britannica.com/topic/Afrikaner-Broederbond">Broederbond</a>. Of course, individual Afrikaner businessmen donated to the <a href="https://www.sahistory.org.za/article/national-party-np">Nasionale Party</a>, which formalised apartheid in 1948, as did the military-industrial complex. All those companies manufacturing armaments had only one monopoly buyer – the South African Defence Force:</p>
<blockquote>
<p>a significant portion of the business elite kept the taps open to the party at the height of domestic repression and foreign wars (p.25). </p>
</blockquote>
<p>The authors do a thorough job of exposing all the Swiss, Belgian and Luxembourg bankers who comprised the sanction-busting front companies. It exposes the late <a href="https://www.britannica.com/biography/Mobutu-Sese-Seko">Mobutu Sese Seko</a> of Zaire (now the Democratic Republic of Congo) for providing false end user certificates to enable <a href="https://www.armscor.co.za/">Armscor</a>, the apartheid-era state arms procurement company, to smuggle in weaponry (p.42).</p>
<p>The book revisits the controversial <a href="https://www.corruptionwatch.org.za/the-arms-deal-what-you-need-to-know-2/">1999 arms deal</a>. It explains how bribes were described in corporate paperwork as consultancy fees. The arms deal was the first opportunity of the post-apartheid military to buy big-ticket weapons after a quarter-century of arms sanctions, which the post-apartheid military lacked the budget to maintain in service. </p>
<p>Since then, the amount wasted in the arms deal has been dwarfed by the billions spent by <a href="https://www.transnet.net/Pages/Home.aspx">Transnet</a>, the rail, ports and pipelines parastatal, on corrupt locomotive contracts. The same for <a href="https://www.prasa.com/">Prasa</a>, the passenger rail parastatal, and <a href="https://www.eskom.co.za/">Eskom</a>, the power utility, contracts.</p>
<p>Overall, it is a book that should be on the bookshelf of every thinking South African.</p>
<p><em>Updated to clear confusion created by the absence of an index in the advance proof sent to the author.</em></p><img src="https://counter.theconversation.com/content/194826/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Keith Gottschalk is an ANC member, but writes this review in his professional capacity as a political scientist.</span></em></p>
The new book is structured around apartheid profiteers, war profiteers, state capture profiteers, welfare profiteers, failing auditors, conspiring consultants and bad lawyers.
Keith Gottschalk, Political Scientist, University of the Western Cape
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/195738
2022-12-01T12:22:26Z
2022-12-01T12:22:26Z
South Africa’s President Ramaphosa could be impeached - 3 essential reads on the Phala Phala scandal
<figure><img src="https://images.theconversation.com/files/498464/original/file-20221201-24-bknlao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's President Cyril Ramaphosa.
</span> <span class="attribution"><span class="source">Photo by JUSTIN TALLIS/AFP via Getty Images</span></span></figcaption></figure><p>South Africa’s President Cyril Ramaphosa may have <a href="https://www.dailymaverick.co.za/article/2022-11-30-sa-politics-in-turmoil-as-panel-says-president-ramaphosa-must-face-impeachment/">an impeachment case to answer</a>. This was the finding of the independent parliamentary panel probing the scandal over the theft of thousands of US dollars stashed illegally on his farm, Phala Phala. The three person panel, headed by former chief justice <a href="https://www.concourt.org.za/index.php/judges/former-judges/11-former-judges/66-chief-justice-sandile-ngcobo">Sandile Ngcobo</a>, found that the president might have breached the constitution and engaged in corrupt activities.</p>
<p>The panel handed its report to the speaker of parliament for the National Assembly to debate ahead of the president’s possible impeachment at a special sitting of parliament. </p>
<p>The Phala Phala affair threatens to derail Ramaphosa’s chances of winning a second term as president of the African National Congress (ANC) at its <a href="https://www.anc1912.org.za/#">national conference</a> in December – and then becoming national president again. </p>
<p>Academics writing for The Conversation Africa have explored the issues.</p>
<hr>
<p>Dirk Kotze argues that the Phala Phala scandal has seriously dented Ramaphosa’s credibility. He sets out how Ramaphosa’s business interests are threatening to jeopardise his presidency, with dire consequences for the country given the important economic and political reforms he is pursuing. </p>
<p>Ramaphosa’s first reform agenda is an economic reconstruction and <a href="https://www.gov.za/speeches/president-cyril-ramaphosa-south-africa%E2%80%99s-economic-reconstruction-and-recovery-plan-15-oct">recovery plan</a>. This includes solving persistent power cuts that have devastated the country’s economy. The second task is to unite the highly <a href="https://www.dailymaverick.co.za/article/2018-01-09-ancs-106th-ramaphosas-push-for-unity-continues/">factionalised governing party</a>, the African National Congress, which he leads. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/south-african-president-cyril-ramaphosas-credibility-has-been-dented-putting-his-reform-agenda-in-jeopardy-189802">South African president Cyril Ramaphosa’s credibility has been dented, putting his reform agenda in jeopardy</a>
</strong>
</em>
</p>
<hr>
<p>The Phala Phala scandal is not just a threat for Ramaphosa, but could seriously hurt his party’s prospects as it faces gruelling national and provincial elections in 2024. </p>
<p>Support for the party, which has dominated South Africa’s politics since democracy in 1994, has been sliding steadily in the last two decades. According to Susan Booysen, the ANC contested the last general elections in 2019 with only Ramaphosa as the trump card. “The ANC built its 2019 election campaign around Ramaphosa, after polls showed that he was the only leader who continued to enjoy substantial credibility among voters.” </p>
<p>But his image as anti-corruption champion – and vote winner – is now in doubt because of the Phala Phala scandal. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/ramaphosa-scandal-looks-set-to-intensify-the-ancs-slide-ushering-in-a-new-era-of-politics-185719">Ramaphosa scandal looks set to intensify the ANC's slide, ushering in a new era of politics</a>
</strong>
</em>
</p>
<hr>
<p>Richard Calland says this is a historic moment for the country. It would be the first time a president’s fitness for office was assessed since parliament adopted the rules for impeachment in 2018, following a Constitutional Court judgment. He explains the impeachment process, observing that the way the panel applies the law will set an important precedent. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-to-impeach-a-president-ramaphosa-case-puts-new-rules-to-the-test-in-south-africa-195390">How to impeach a president: Ramaphosa case puts new rules to the test in South Africa</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/195738/count.gif" alt="The Conversation" width="1" height="1" />
The impeachment process could derail Ramaphosa’s political career and seriously hurt the governing ANC’s electoral prospects in 2024.
Thabo Leshilo, Politics + Society
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/194282
2022-11-10T11:53:32Z
2022-11-10T11:53:32Z
South Africa provides fertile ground for funders of terrorism. Here’s why
<figure><img src="https://images.theconversation.com/files/494600/original/file-20221110-18-z9fote.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The country needs to pay closer attention to compliance with anti-money laundering legislation. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The US embassy in South Africa has twice raised the alarm recently about terrorism in the country. On <a href="https://za.usembassy.gov/security-alert-u-s-embassy-possible-attack/">26 October</a> it issued a security alert for a possible terror attack in <a href="https://www.tripadvisor.co.za/Tourism-g312586-Sandton_Greater_Johannesburg_Gauteng-Vacations.html">Sandton</a>, the financial centre of Johannesburg. </p>
<p>Days later it <a href="https://home.treasury.gov/news/press-releases/jy1084">blacklisted four individuals and eight companies</a> as terrorist financiers for Islamic State (ISIS). This followed media reports, most notably by <a href="https://www.economist.com/middle-east-and-africa/2022/04/16/islamic-state-is-using-south-african-money-to-build-its-network">The Economist</a>, showing that ISIS was using South Africa to add to its war chest.</p>
<p>There is a long history of concerns about the country’s deficiencies in dealing with terrorism financing activities within its borders. More than 15 years ago, American terrorism expert <a href="https://jamestown.org/analyst/john-solomon/">John Solomon</a> <a href="https://jamestown.org/program/new-report-of-terrorist-camp-in-south-africa/">warned</a> that lawlessness and government corruption in the country facilitated terrorist financing. </p>
<p>I have been researching terrorist financing within South Africa for many years. In my book <a href="https://books.google.co.za/books?id=15ZdEAAAQBAJ&source=gbs_book_other_versions">Jihad: A South African Perspective</a>, I unpack the state of terrorist financing in the country using open sources.</p>
<p>The latest US action comes as South Africa is <a href="https://www.moneyweb.co.za/news/economy/hasty-law-amendments-to-avoid-sa-greylisting-face-serious-pushback/">rushing to avert “greylisting”</a>: being placed on the list of countries subject to increased monitoring by the <a href="https://www.fatf-gafi.org/about/">Financial Action Task Force</a>. The inter-governmental task force has identified deficiencies in the country’s policies and efforts to combat money laundering and terrorism financing.</p>
<h2>Risk of greylisting</h2>
<p>The issue will also surface in February 2023 when South Africa is due for another review by the <a href="https://www.fatf-gafi.org/">Financial Action Task Force</a>. This body evaluates steps by governments to prevent the financing of terrorism and money laundering.</p>
<p><a href="https://www.fatf-gafi.org/publications/mutualevaluations/documents/mer-south-africa-2021.html">In its last evaluation</a>, published in October 2021, the task force said South Africa had a strong legal framework against money laundering and terrorism financing. But its implementation had significant shortcomings, including a failure to prosecute criminal cases.</p>
<p>The country has either not complied or only partially complied with <a href="https://www.moneyweb.co.za/financial-advisor-views/what-happens-when-south-africa-is-greylisted/#:%7E:text=The%20report%20concluded%20that%20South,laundering%20and%20terrorism%20funding%20risks.">20 of the body’s recommendations</a> to combat money laundering and terrorism financing. There is thus a strong possibility that South Africa will be added to the greylist of countries that are <a href="https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-october-2022.html">monitored closely</a>.</p>
<p>Greylisting is an attempt by the international community to prevent illicit funds being directed towards terrorist groups. </p>
<p>The task force’s concerns about South Africa aren’t new. In 2009, <a href="https://2009-2017.state.gov/j/ct/rls/crt/2009/index.htm">it warned</a> that the country needed to pay closer attention to regulating trusts, monitoring financial transactions, compliance with anti-money laundering legislation, and enhancing the disclosure of trans-border cash transfers. </p>
<p>The <a href="https://www.timeslive.co.za/sunday-times/business/2022-10-02-sa-cannot-escape-greylisting-says-financial-intelligence-centre-chief/">risk of greylisting</a> suggests that the country has not taken the necessary steps to ensure compliance.</p>
<p>This should hardly come as a surprise to those following the growing footprint of terror groups in South Africa. </p>
<h2>A longstanding problem</h2>
<p>In January 2007 <a href="https://www.washingtonexaminer.com/weekly-standard/pretoria-unguarded?_amp=true">Jonathan Schanzer</a>, a security analyst, reported that two South African cousins – Farhad Ahmed Dockrat, the principal of the Darus Salaam Islamic College in Laudium, Pretoria, and Dr Junaid Ismail Dockrat, a dentist – were proposed for consideration on the UN Security Council’s list of terror suspects. They had already been placed on the US treasury department’s <a href="https://home.treasury.gov/news/press-releases/hp230">list</a> of Al Qaeda’s supporters.</p>
<p>According to papers submitted to the Security Council, Farhad was alleged to be an Al Qaeda “facilitator and terrorist financier”. Junaid, it was claimed, was also an Al Qaeda “financier, recruiter and facilitator”. </p>
<p>Since 2007, the South African government has not done much to ensure that the country does not become a terrorist haven. </p>
<p><a href="https://www.gov.za/anti-corruption">Corruption</a>, general <a href="https://theconversation.com/south-africas-deadly-july-2021-riots-may-recur-if-theres-no-change-186397">lawlessness</a> and a security apparatus <a href="https://theconversation.com/zondo-commissions-report-on-south-africas-intelligence-agency-is-important-but-flawed-186582">focused on party factional battles</a> all account for why terrorist financiers thrive in the country. </p>
<h2>Terrorist financing</h2>
<p><a href="https://books.google.co.za/books?id=15ZdEAAAQBAJ&source=gbs_book_other_versions">My book</a> documents the case of <a href="https://www.govinfo.gov/content/pkg/CHRG-107shrg89957/html/CHRG-107shrg89957.htm">Yassin al-Qadi</a>, a US-designated terrorist financier, who invested US$3 million for a 12% stake in <a href="https://www.bloomberg.com/profile/company/GDRS:US">Global Diamond Resources</a>, which mined diamonds in South Africa. He also controlled New Diamond Corporation, an offshore company that had <a href="https://jamestown.org/program/the-danger-of-terrorist-black-holes-in-southern-africa/">mining interests in the country</a>. </p>
<p>Then there was the case of <a href="https://dbpedia.org/page/Abd_al-Muhsin_Al-Libi">Abd al-Muhsin al-Libi</a>, also known as Ibrahim Tantouche, who set up two Al Qaeda financing fronts – the Afghan Support Committee and the Revival of Islamic Heritage Society. Both operated as charities for orphans. In reality, the orphans were either dead or nonexistent. </p>
<p>As I point out in my book, terrorist financing can be simple or sophisticated. An example of the simple occurred on 25 April 2001 when <a href="https://www.wsj.com/articles/SB1039475895846624273">Mohamed Suleman Vaid</a> was arrested with his wife while attempting to smuggle US$130,000 in local currency across the border with Eswatini. The ensuing police investigation found that he had made this trip 150 times in the previous 18 months, and that there may have been connections to Al Qaeda via a Lebanese businessman.</p>
<p>A more sophisticated example came to light <a href="https://books.google.co.za/books?id=15ZdEAAAQBAJ&source=gbs_book_other_versions">in 2010</a> following a forensic investigation by South Africa’s Department of Trade and Industry. This showed the convergence of corruption, criminality and terrorism. It took advantage of the corruption occurring within South Africa’s Companies and Intellectual Properties Registration Office. </p>
<p>The case involved tax fraud, money laundering, racketeering, organised crime, fraud and siphoning off millions of rands to fund international terrorism. One Pakistani suspect who is now in custody, <a href="https://www.timeslive.co.za/news/south-africa/2010-12-01-tax-fraud-syndicate-member-gets-8-years/">Aliraza Syed Naqvi</a>, specialised in cloning legitimate companies by registering a fake company with the same name as a legitimate company and its own bank account. Monies meant for the legitimate businesses were then diverted to the fake one.</p>
<p>The <a href="https://books.google.co.za/books?id=15ZdEAAAQBAJ&source=gbs_book_other_versions">forensic audit</a> estimated that up to 285,000 fake or dubious companies were created in this way. This scheme would never have occurred had it not been for corruption within <a href="https://www.timeslive.co.za/sunday-times/lifestyle/2010-05-09-corruption-at-cipro-funds-global-terror/">the company registration office</a> itself. The report identified 60 of its officials as being involved in such suspicious activities.</p>
<h2>Addressing the problem</h2>
<p>In this context, the US <a href="https://home.treasury.gov/news/press-releases/jy1084">blacklisting</a> of companies and individuals comes as no surprise. What South Africa needs to do is to implement the Financial Action Task Force recommendations completely and ensure compliance. </p>
<p>Given the <a href="https://www.bbc.com/news/world-africa-61912737">high level of corruption</a> within the ruling party, this will be not be easy. But it needs to be done to deter terrorist financiers and ensure the credibility of the government.</p>
<p>The country has signed and ratified the necessary <a href="https://www.saps.gov.za/resource_centre/acts/downloads/juta/terrorism_act.pdf">counter-terrorism legislation</a>. It is now time to walk the talk. Government needs to work with business, especially banks, to ensure early warning systems are in place.</p>
<p>The judicial system needs to be empowered to develop the necessary specialised capacity to ensure speedy convictions. Finally, the country needs to work with global partners to aggressively respond to this threat.</p><img src="https://counter.theconversation.com/content/194282/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hussein Solomon does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
South Africa has long been seen as deficient in dealing with terrorism financing.
Hussein Solomon, Senior Professor and Academic Head of Department: Political Studies and Governance, University of the Free State
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/188117
2022-09-12T12:14:12Z
2022-09-12T12:14:12Z
Donor beware: Pause before you give to any cause
<figure><img src="https://images.theconversation.com/files/483608/original/file-20220908-13-epqbuu.jpg?ixlib=rb-1.1.0&rect=87%2C33%2C1911%2C1129&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Steve Bannon, second from right, was indicted and charged on Sept. 8, 2022, with alleged money laundering, fraud and conspiracy for deceiving donors and misusing their funds for a charity.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/steve-bannon-former-advisor-to-former-president-donald-news-photo/1243048158?adppopup=true">David Dee Delgado/Getty Images</a></span></figcaption></figure><p>The <a href="https://www.philanthropy.com/article/leaders-must-confront-declining-trust-in-the-nonprofit-world-before-its-too-late">public’s trust in nonprofits</a> <a href="https://www.philanthropy.com/article/trust-in-nonprofits-and-philanthropy-continues-to-be-higher-than-in-government-and-the-news-media">declined from 59% in 2020 to 56%</a> in 2022, according to Independent Sector, a coalition of nonprofits, foundations and corporate giving programs that tracks trends in philanthropy.</p>
<p>One likely explanation for this erosion of confidence in organizations that are supposed to do good works: <a href="https://apnews.com/article/government-and-politics-race-ethnicity-philanthropy-black-lives-matter-5bc4772e029da522036f8ad2a02990aa">news of</a> <a href="https://www.washingtonpost.com/dc-md-va/2022/07/17/casa-ruby-programs-close/">nonprofit leaders</a> and <a href="https://www.azfamily.com/2022/08/21/man-accused-running-fake-golf-charity-scam-scottsdale/">fundraisers</a> who <a href="https://www.justice.gov/usao-ndga/pr/utah-man-who-operated-fraudulent-veteran-charities-sentenced-federal-prison">improperly pocket funds</a>. </p>
<p>On Sept. 8, 2022, for example, New York state authorities charged former Trump administration aide Steve Bannon and others involved in a group called <a href="https://www.nbcnews.com/politics/politics-news/former-trump-adviser-steve-bannon-turns-new-york-state-charges-rcna46662">We Build the Wall</a> with allegedly committing money laundering, fraud and conspiracy for deceiving donors and misusing their funds.</p>
<p>And reports surfaced in August that whistleblowers are accusing a nonprofit based in Oklahoma of allegedly <a href="https://oklahomawatch.org/2022/08/30/whistleblowers-allege-embezzlement-fraud-at-tahlequah-nonprofit-that-championed-indigenous-women">diverting money meant to aid Native American women</a> and lining its leaders’ pockets.</p>
<p>As an <a href="https://scholar.google.com/citations?hl=en&user=FJ9Y6QMAAAAJ">expert on nonprofit accounting</a>, I can see why you might be hesitant to donate to charities these days. But I’m confident that taking certain steps before making donations makes it less likely your money will be squandered.</p>
<h2>Online tools</h2>
<p>While the overwhelming majority of charities are legitimate, looking into a charity before supporting it can help you avoid supporting scams and make better-informed decisions. </p>
<p>Often you can quickly do this by visiting a watchdog website that assesses nonprofits. Good options include <a href="https://www.guidestar.org/">Guidestar</a>, <a href="https://www.charitywatch.org/">Charity Watch</a>, <a href="https://www.charitynavigator.org/">Charity Navigator</a> and the <a href="https://give.org/wise-giving-guide-new">Better Business Bureau Wise Giving Alliance</a>. </p>
<p>Some of these monitoring organizations assign ratings or grades to nonprofits. Others, such as the Better Business Bureau, report on national nonprofits <a href="https://www.give.org/charity-inquiry-new">as well as receive complaints about charities acting inappropriately</a>. </p>
<p>You can review what a charity monitor says about a group you want to support to get a sense of its trustworthiness.</p>
<p>If you search those sites for a nonprofit without finding the group you’re looking for, it can be a red flag. But rather than jumping to the conclusion that it isn’t a legitimate charity, consider a few other factors.</p>
<p>It is possible that the group is too new or too small to be monitored.</p>
<p>For example, Charity Navigator only monitors charities with two or more years of at least $1 million in revenue, that amass public support of at least $500,000 annually and have been operating for a minimum of seven years, <a href="https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=32">among other requirements</a>. But when you can’t find a charity on a watchdog database, I believe it’s worth taking the time required to check it out in other ways. </p>
<p>Charities don’t pay income taxes, but most of them do file annual paperwork, <a href="https://theconversation.com/whats-a-990-form-a-charity-accounting-expert-explains-175019">a Form 990</a> with the Internal Revenue Service, in which they have to disclose financial details and information about their leaders. Often it is easy to find those forms with simple search engines because nonprofits are required to make <a href="https://www.irs.gov/charities-non-profits/public-disclosure-and-availability-of-exempt-organization-returns-and-applications-public-disclosure-overview">990 forms available for public inspection</a>. The 990 form will disclose how much is being spent to fulfill the charitable purpose of the organization.</p>
<p>Before you donate to a small nonprofit or a group in your local community, you can contact the charity directly to ask about fundraising goals and day-to-day operations. You can also ask people you know for information.</p>
<p>Additional efforts may include conducting news searches and reading media coverage in a trusted outlet. Charities that have changed their name or have moved to a new state may warrant particular scrutiny.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1312146611145826304"}"></div></p>
<h2>Common pitfalls</h2>
<p>One thing to watch out for is <a href="https://www.cnbc.com/2022/07/07/how-to-avoid-charity-impersonation-scams-in-times-of-crisis.html">organizations with names chosen to deceive donors</a>. These groups have branding that can make you mistakenly believe that you’re giving money to <a href="https://www.wibw.com/content/news/BBB-Beware-of-fake-cancer-charity-482491461.html">more established and legitimate</a> charities. In some cases, these groups <a href="https://www.nytimes.com/2022/07/03/us/politics/irs-fake-charities.html">don’t do much of what they claim to do</a></p>
<p>It’s also best to avoid donating directly to an individual unless it is someone you know personally and can trust to spend your money wisely.</p>
<p>And you should exercise a great deal of caution if someone asking you to donate to a charity behaves in an aggressive manner and is making you feel pressured into <a href="https://consumer.ftc.gov/features/how-donate-wisely-and-avoid-charity-scams">giving cash</a>.</p>
<p>How a nonprofit spends its funds, which is something the charity monitoring groups follow, can offer insight into whether you would like to donate to their cause.</p>
<p>There is <a href="https://calnonprofits.org/programs/overhead/about-the-nonprofit-overhead-project/what-is">debate over how much or what share of its budget</a> a nonprofit should spend on its mission versus fundraising and other kinds of overhead costs. If a nonprofit isn’t devoting most of its funds to advance its mission – such as a homeless shelter’s work with the homeless – it’s probably a reason for concern. </p>
<h2>Downsides to donations through new channels</h2>
<p>Charitable fundraisers conducted through social media are appealing due to their speed and immediacy. For example, country singer Maren Morris sold T-shirts in early September 2022 that <a href="https://www.billboard.com/music/music-news/maren-morris-lunatic-country-music-person-charity-t-shirt-tucker-carlson-1235134700/">raised over $100,000 in one day to support transgender youth</a>.</p>
<p>But you should resist the urge to respond in an instant when you see an appeal to donate to an urgent cause via any social media platform; first do some independent research of the charity or cause. One strategy is to do a <a href="https://consumer.ftc.gov/articles/donating-through-crowdfunding-social-media-fundraising-platforms">reverse image search</a> because scammers often steal photos from other events and individuals that have emotional appeal.</p>
<p>When disaster strikes, there will, unfortunately, be some unscrupulous people who <a href="https://theconversation.com/convenient-but-susceptible-to-fraud-why-it-makes-sense-to-regulate-charitable-crowdfunding-172029">take advantage of the public’s concerns</a>. This problem isn’t new, but it’s become easier to launch scams due to technology and the spread of information on social media.</p>
<p>For example, when Hurricane Harvey hit Texas, a fraudster illegally obtained local residents’ information and <a href="https://www.justice.gov/usao-edva/pr/texas-man-pleads-guilty-defrauding-red-cross-hurricane-relief-funds">filed for relief with the American Red Cross on their behalf</a>. The problem has grown so pervasive that the Justice Department has established a <a href="https://www.justice.gov/disaster-fraud">National Center for Disaster Fraud</a>.</p>
<p><a href="https://theconversation.com/4-new-findings-shed-light-on-crowdfunding-for-charity-161491">Crowdfunding has also become a popular</a> fundraising tool for causes ranging from unexpected personal medical expenses to established nonprofits. </p>
<p>GoFundMe, a popular crowdfunding platform, is a private company and will take a percentage of funds raised. Sometimes the people who set up GoFundMe accounts are surprised to find that the company takes <a href="https://www.gofundme.com/c/blog/help-with-gofundme">2.9% of all donations made, plus a 30-cent fee per transaction</a>. </p>
<p>If your goal is to provide maximum funds to someone in need, giving them money directly instead of through GoFundMe or a similar platform would increase the amount they receive from you. <a href="https://support.gofundme.com/hc/en-au/articles/360039267752-GoFundMe-donations-and-taxes">Unless the GoFundMe is for a registered charity</a>, there’s no way to get a <a href="https://theconversation.com/whats-the-charitable-deduction-an-economist-explains-162647">tax deduction for the donation</a> even if you would otherwise be eligible.</p>
<p>Donors must always be on their toes to avoid <a href="https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=6506">charity scams</a>. If you identify a suspicious charity, you should <a href="https://tips.fbi.gov">report it to local law enforcement and the FBI</a>. If you have been a victim of a charitable scam, you should also report it to your <a href="https://www.usa.gov/state-consumer">state consumer office</a>, as well as to the <a href="https://reportfraud.ftc.gov/#/">Federal Trade Commission</a>.</p><img src="https://counter.theconversation.com/content/188117/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sarah Webber is affiliated with the University of Dayton, a Conversation partner university.</span></em></p>
While the overwhelming majority of charities are legitimate, looking into a charity before supporting it can help you avoid supporting scams and make better-informed decisions.
Sarah Webber, Associate Professor of Accounting, University of Dayton
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/184253
2022-08-07T20:45:02Z
2022-08-07T20:45:02Z
Crown Sydney casino opens – another beacon for criminals looking to launder dirty money
<p>Crown Resorts’ striking new A$2 billion casino on Sydney’s Barangaroo Point opens its doors to gamblers for the first time this week. But only if they are “VIPs”.</p>
<p>Its licence to operate remains conditional, after being found unfit to run a casino by the inquiry headed by former Supreme Court judge Patrica Bergin.</p>
<p>Victorian and Western Australian inquiries into Crown’s Melbourne and Perth casinos reached the same conclusion. Agreements have been made, directors have <a href="https://theconversation.com/gaming-the-board-crown-resorts-shows-you-just-cant-bet-on-independent-directors-148522">resigned</a>, major shareholder James Packer has divested, and US private equity player Blackstone Group has <a href="https://theconversation.com/crown-resorts-has-sunk-so-low-that-private-equity-is-the-best-option-177149">taken over</a>.</p>
<p>But will this be enough to stop the major reason Victoria’s inquiry found Crown had engaged in <a href="https://theconversation.com/illegal-dishonest-unethical-and-exploitative-but-crown-resorts-keeps-its-melbourne-casino-licence-170625">illegal, dishonest, unethical and exploitative</a> practices; its complicity in money-laundering potentially worth billions of dollars?</p>
<p>This is not unique. The NSW inquiry into rival casino Star Sydney has also heard allegations of billions of dollars being <a href="https://www.abc.net.au/news/2022-03-25/star-casino-inquiry-hears-further-evidence-of/13812646">funnelled through the casino</a> in contravention of anti-money-laundering rules. </p>
<p>If Crown’s experience is anything to go by, being found unfit to <a href="https://www.liquorandgaming.nsw.gov.au/__data/assets/pdf_file/0008/1082087/DAY-37-Draft-End-of-day-Public-Final.pdf">hold a casino licence</a> is still not enough for governments to revoke a licence. </p>
<p>This fact appears to be an implicit acceptance that illegality comes with legal casinos. Which is true. Gambling, whether illegal or legitimate, will always attract criminals. </p>
<h2>Why criminals love gambling</h2>
<p>When casinos were illegal they were a lucrative revenue stream for those prepared to take the risk. </p>
<p>A 1974 study of Sydney’s dozen or so illegal casinos estimated they made annual profits of about <a href="https://www.sydneycrimemuseum.com/crime-stories/the-casinos/">A$15 million</a> – equivalent to A$130 million now – even after paying out about A$1.4 million (about A$12 million now) in bribes to police and politicians.</p>
<p>Licensing and regulating casinos was meant to free the industry from criminal associations and protect public institutions from corruption. </p>
<p>But as the revelations of the four casino inquiries in the past two years show, legal casinos remain plagued by associations with crime and criminals because of their value – knowingly or not – as sites for laundering money.</p>
<h2>Have money, need laundering</h2>
<p>Significant proceeds from crime, be it drug trafficking or fraud, have to be “washed” before criminals can spend it. </p>
<p>Why? Because law-abiding citizens are expected to declare their income, and pay tax on it. Any individual with no obvious income source but lots of assets will attract attention. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-sydneys-barangaroo-tower-paved-the-way-for-closed-door-deals-161816">How Sydney's Barangaroo tower paved the way for closed-door deals</a>
</strong>
</em>
</p>
<hr>
<p>Making “dirty money” appear as if it comes from a clean source is a massive global industry. The United Nations’ Office on Drugs and Crime estimates up to US$4.2 trillion (A$6 trillion) is laundered globally each year – <a href="https://www.unodc.org/unodc/en/money-laundering/overview.html">2-5%</a> of global GDP.</p>
<p>In Australia the value of local crime proceeds laundered each year is estimated to be more than <a href="https://www.aic.gov.au/sites/default/files/2022-04/sr38_estimating_the_costs_of_serious_and_organised_crime_v2.pdf">A$13 billion</a>, plus billions more in foreign crime proceeds.</p>
<p>Australia has “become <a href="https://michaelwest.com.au/money-laundering-fuels-house-prices-aml-ctf/">one of the world’s most attractive destinations</a> for money launderers”, according to financial crime expert Nathan Lynch, author of <a href="https://www.harpercollins.com.au/9781460713372/the-lucky-laundry/">The Lucky Laundry</a> (HarperCollins, 2022). </p>
<h2>How to launder dirty money</h2>
<p>There are a variety of ways to launder money. One is to own a legitimate business, such as a car wash, and declare the dirty money as revenue. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/RhsUHDJ0BFM?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Criminal lawyer Saul Goodman explains money laundering in the series Breaking Bad.</span></figcaption>
</figure>
<p>Another is to buy real estate using obfuscatory legal mechanisms. Federal agencies estimate <a href="https://www.smh.com.au/business/the-economy/of-course-there-are-examples-criminals-laundering-billions-through-australian-housing-market-20211110-p597nc.html">tens of billions</a> of dollars are laundered through Australia’s property market each year. </p>
<p>But the easiest is through gambling.</p>
<p>In 2018, an estimated <a href="https://www.aihw.gov.au/reports/australias-welfare/gambling">A$25 billion</a> flowed through Australia’s gambling industry – one of the highest amounts per capita in the world. Of this, almost <a href="https://www.aihw.gov.au/reports/australias-welfare/gambling">A$5 billion</a> was spent in casinos. </p>
<p>Laundering money in a casino is surprisingly simple. Walk in with a bag of “dirty” cash. Convert it into chips. Play for a while – win a bit, lose a bit – then cash out. </p>
<p>Now all that dirty money you walked in with is clean. If anyone asks, say you won it – and who’s to say different? </p>
<h2>Regulations are not enough</h2>
<p>Australia has some of the toughest anti-money-laundering regulations in the world – and those rules are getting tougher. </p>
<p>Since 2020, any transaction greater than A$10,000, and the recipient’s identity, must be recorded and reported to Australia’s anti-money-laundering agency, AUSTRAC. </p>
<p>But this has only narrowed the ability to launder vast sums at a time. With every change, criminals respond.</p>
<p>Even poker machines in the local pub or club can be used to launder money. </p>
<p>The NSW Crime Commission is <a href="https://www.nsw.gov.au/customer-service/media-releases/poker-machine-money-laundering-inquiry">currently inquiring</a> into the nature and extent of money laundering through the state’s poker machines. </p>
<p>Of chief concern is the lack of transparency. Tickets from poker machines are anonymous if less than $5,000 is claimed. Anyone can place up to $4,999 of “dirty cash” into these pokies, place one $5 bet, then redeem the rest as “clean winnings”. </p>
<figure class="align-center ">
<img alt="Cash in, cash out: even poker machines can be used for money-laundering." src="https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Cash in, cash out: even poker machines can be used for money-laundering.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>With more than <a href="https://www.nsw.gov.au/customer-service/media-releases/poker-machine-money-laundering-inquiry">$85 billion</a> pouring into the state’s <a href="https://www.smh.com.au/politics/nsw/nsw-cabinet-to-consider-an-extra-1000-pokies-for-star-casino-20210812-p58icl.html">95,000</a> machines dispersed across 4,000 venues each year, policing them is next to impossible. </p>
<h2>What can be done?</h2>
<p>In her damning report, Commissioner Bergin raised the possibility of a statewide scheme to combat money laundering through mandatory use of a “<a href="https://www.theage.com.au/politics/nsw/gambling-card-a-powerful-mechanism-to-stop-organised-crime-bergin-20210209-p570ym.html">gambling card</a>” that would enable the tracking of cash through a casino.</p>
<p>She made the point that casinos were <a href="https://www.parliament.nsw.gov.au/tp/files/79129/Volume%202%20-%20Inquiry%20under%20section%20143%20of%20the%20Casino%20Control%20Act%201992.pdf">already free</a> to introduce their own mechanisms “of a similar kind for their own patrons”. </p>
<p>NSW appears to have <a href="https://www.canberratimes.com.au/story/7705329/nsw-cools-on-cashless-gambling-card/">cooled on the idea</a>, in yet another sign that Australian governments aren’t serious enough about tackling the collateral damage associated with gambling. </p>
<p>Until things change, the implicit message will remain that if you want to launder dodgy money, head to your most convenient gambling venue.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/responsible-gambling-a-bright-shining-lie-crown-resorts-and-others-can-no-longer-hide-behind-162089">Responsible gambling – a bright shining lie Crown Resorts and others can no longer hide behind</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/184253/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Simpson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Australian governments appear to implicitly accept that illegality comes with the territory of legal casinos.
Alex Simpson, Senior Lecturer in Criminology, Macquarie University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/179386
2022-03-17T11:32:19Z
2022-03-17T11:32:19Z
Unexplained wealth orders: how is the British law changing and will it stop dirty money circulating in London?
<figure><img src="https://images.theconversation.com/files/452640/original/file-20220316-8637-bgcfv9.jpg?ixlib=rb-1.1.0&rect=17%2C35%2C3976%2C2622&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The British government has responded to criticisms of its lassitude in targeting “dirty money” laundered by foreign elites through UK property by introducing the <a href="https://bills.parliament.uk/publications/45570/documents/1551">Economic Crime (Transparency and Enforcement) Act</a>. The act, passed on March 15, was pushed through parliament in response to the Russian invasion of Ukraine. </p>
<p>It aims to <a href="https://www.theguardian.com/commentisfree/2022/mar/09/oligarch-economic-crime-bill-law-uk">improve transparency about ownership of UK properties</a> held through companies registered overseas and includes powers to issue new kinds of sanctions. There are also changes designed to <a href="https://bills.parliament.uk/publications/45570/documents/1551">strengthen</a> unexplained wealth orders – the mechanism that enables UK law enforcement agencies to investigate the origins of property thought to have been obtained through illegal means with a view to ultimately being able to seize that property.</p>
<p>However, while these changes are broadly helpful, they are unlikely to be gamechanging.</p>
<p>The public and members of parliament have expressed disquiet about the lack of action taken against these people for some years now and that has only become <a href="https://hansard.parliament.uk/Commons/2022-02-23/debates/8073B01E-6C2E-4416-9CC0-A109AD8A8E58/CounteringRussianAggressionAndTacklingIllicitFinance">more pronounced</a> because of the conflict. </p>
<p>In truth, the government has had the power to take action via unexplained wealth orders since <a href="https://www.legislation.gov.uk/uksi/2018/78/regulation/3/made">2018</a>. But it’s a power that has rarely been used. </p>
<h2>How an unexplained wealth order works</h2>
<p>An <a href="https://www.legislation.gov.uk/ukpga/2002/29/section/362B">unexplained wealth order</a> comes into play when someone owns a property worth more than £50,000 but does not appear to have the funds to have paid for such a property through their lawful income. If that person is also suspected of being involved in serious crime, or is a senior public official from outside the UK or the European Economic Area, then the High Court can order them to explain how they were able to acquire the property. The same applies to family members or associates of that person. </p>
<p>The significance of these orders is sometimes overstated. They do not give the authorities the right to automatically seize a property. Instead, they are a preliminary step that can help the authorities build evidence to make a further application to the court for the property’s seizure. For the court to grant a seizure application, it must be satisfied on the balance of probabilities that the property represents the proceeds of “unlawful conduct”.</p>
<p>Unexplained wealth orders are generally accompanied by <a href="https://www.legislation.gov.uk/ukpga/2002/29/chapter/2/crossheading/unexplained-wealth-orders-interim-freezing-of-property">an application to freeze the person’s assets</a> so that they can’t offload them during an investigation. If the person can’t prove they obtained the property legally within a given timeframe, the authorities can use this fact in any subsequent legal case seeking the property’s seizure. It can show the court in that case that the property may represent the proceeds of crime.</p>
<p>In deciding whether the property should be seized, the court can take into account the fact that the property owner was not able to give a satisfactory explanation as to how he or she was able to afford the property. </p>
<h2>Rare event</h2>
<p>The National Crime Agency has in fact only deployed unexplained wealth orders four times since they were introduced in 2018.</p>
<p>The first came quickly after the measure’s introduction – against the wife of an <a href="https://www.bailii.org/ew/cases/EWHC/Admin/2018/2534.html">Azerbaijani state banker</a> who had been jailed back home for fraud. Unable to explain how her husband’s public sector income could have paid for expensive London property, the wife’s assets were seized.</p>
<p>There have been only <a href="https://researchbriefings.files.parliament.uk/documents/CBP-9098/CBP-9098.pdf">three further cases</a> since then, however. And one <a href="https://www.judiciary.uk/wp-content/uploads/2020/04/Approved-Judgment-NCA-v-Baker-Ors-1.pdf">ended up falling apart</a>. The property owners in that case – the then-chairperson of Kazakhstan’s senate and her son, who between them, <a href="https://onlinelibrary.wiley.com/doi/pdfdirect/10.1111/1468-2230.12589">own three London mansions</a> – subsequently sought <a href="https://www.thetimes.co.uk/article/1-5m-legal-bill-forces-rethink-over-mcmafia-wealth-orders-x02gc8s23">£1.5m in costs</a>.</p>
<h2>Toughening up?</h2>
<p>With a record like this, it’s perhaps surprising that so much hope is now being placed in unexplained wealth orders as a mechanism for ending London’s reputation as a home for dodgy Russian money.</p>
<p>The latest changes mean that courts can go after the directors of companies that own properties rather than just private individuals – even if those companies are based outside the UK. This will be helpful where the identities of the people who own those companies (and by extension, the relevant properties) are unknown. </p>
<p>And instead of having to show that the purchase of the property is inconsistent with a person’s legal income, enforcement agencies will be able to apply for an order when there are reasonable grounds for suspecting that property has been obtained through “unlawful conduct”. This means that if there is a reasonably clear link between a property and crime, the authorities do not have the often-complicated task of showing the court a mismatch between someone’s “legal” income and the property.</p>
<p>The authorities will also have more time to investigate under the terms of an unexplained wealth order and will no longer be liable for costs if the case falls apart – unless the court is of the view that the authorities acted dishonestly, unreasonably, or improperly.</p>
<p>This amendment may not prove especially useful in practice. As is clear from the tiny number of unexplained wealth orders actually put into action, enforcement agencies are already alive to the financial and reputational implications of failed applications. Unless they can feel absolutely certain that they can withstand accusations of not acting “reasonably” and “properly” in future cases, the authorities are likely to remain reluctant to act. </p>
<h2>Drop in a dirty ocean</h2>
<p>All these changes, while not unhelpful, may have limited impact in practice. It’s clear that the problem in the UK has largely been with <a href="https://www.ft.com/content/7522fe69-f8a7-480c-bd4c-af5f7a266165">enforcement</a> rather than <a href="https://hansard.parliament.uk/Commons/2022-03-07/debates/97B249F2-C666-46EF-B46A-F2FF22DE2264/EconomicCrime(TransparencyAndEnforcement)Bill?highlight=sanctions">the law itself</a>. </p>
<p>After <a href="https://www.ft.com/content/7522fe69-f8a7-480c-bd4c-af5f7a266165">years of cuts</a>, unless extra resources are channelled into the agencies tasked with pursuing unexplained wealth, it’s unlikely much which change. Otherwise they will keep being <a href="https://hansard.parliament.uk/lords/2022-03-09/debates/70AD4617-20E7-4EF6-A69F-50EE4F3F1EF9/EconomicCrime(TransparencyAndEnforcement)Bill">outgunned</a> by deep-pocketed kleptocrats capable of funding expensive litigation.</p>
<p>The Economic Crime Act allows the government to convey the impression that it is “doing something” about the proceeds of kleptocracy being laundered in the UK. As a response to corruption, focusing so heavily on unexplained wealth orders may well prove misdirected. </p>
<p>Far more fundamental and far-reaching reform is needed to meaningfully tackle the tide of dirty money washing through London. The <a href="https://www.transparency.org.uk/publications/at-your-service">City of London’s role in</a> facilitating the UK’s use as a laundromat for corrupt foreign elites must be considered. The government’s laissez-faire approach to transparency (as demonstrated by loopholes <a href="https://www.theguardian.com/commentisfree/2022/mar/09/oligarch-economic-crime-bill-law-uk">already evident in</a> amendments made under the new act) must be addressed.</p>
<p>The government’s own obstructive approach <a href="https://www.theguardian.com/politics/2022/feb/15/no-10-pressure-money-laundering-measures-lord-faulks">to anti-corruption reform</a> and its <a href="https://www.theguardian.com/news/2022/mar/08/gas-powered-kingmaker-uk-welcomed-putin-dmitry-firtash-ukraine">relationships with kleptocrats</a> from around the world must be reassessed. Pending any such developments, dirty money will continue to flood in.</p><img src="https://counter.theconversation.com/content/179386/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Áine Clancy does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
The British courts will now have longer to investigate and can target companies that own properties in questionable arrangements. But key issues remain unresolved.
Áine Clancy, PhD Candidate, School of Law, Queen Mary University of London
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/178461
2022-03-04T13:13:01Z
2022-03-04T13:13:01Z
Interpol red notice: what it means and why South Africa requested it
<figure><img src="https://images.theconversation.com/files/450026/original/file-20220304-19-1yurh80.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ajay, right, and Atul Gupta are on the run from the law in South Africa. Their sibling Rajesh is wanted on fraud and money laundering along with Atul.</span> <span class="attribution"><span class="source">Pic: Martin Rhodes. 02/03/2011. © Business Day</span></span></figcaption></figure><p><em>The brothers Atul and Rajesh Gupta <a href="https://www.bbc.com/news/world-africa-61713832">have been arrested</a> in the United Arab Emirates. They are accused in South Africa of profiting from their close links with former president Jacob Zuma and exerting unfair influence. Their arrests follow the issuing of a <a href="https://www.news24.com/news24/southafrica/news/just-in-interpol-issues-red-notices-for-atul-and-rajesh-gupta-on-cronjes-last-day-as-id-head-20220228">red notice</a> by International Criminal Police Organisation (Interpol) at the beginning of March 2022. This paved the way for their arrest to face fraud and money laundering charges in South Africa. At the height of their activities in South Africa they owned a business empire spanning computer equipment, media, and mining. A judicial commission of inquiry into state capture recently found that the brothers, who are in their 40s, <a href="https://theconversation.com/state-capture-in-south-africa-how-the-rot-set-in-and-how-the-project-was-rumbled-176481">orchestrated massive corruption</a> with Zuma’s help. Thabo Leshilo asked Bernadine Benson to explain.</em></p>
<h2>What is Interpol, and what does it do?</h2>
<p><a href="https://www.interpol.int/">Interpol</a> is an inter-governmental organisation, aiming to help connect police agencies across the globe. It’s <a href="https://www.interpol.int/en/Who-we-are/General-Secretariat/Secretary-General">headquartered </a> in Lyon, France. Its primary purpose is to create a framework that enables policing and other law enforcement agencies across the globe to work together. These agencies can share information on crime, criminals and criminal activities through an advanced secure <a href="https://www.interpol.int/en/How-we-work/Databases">e-communications system</a>. </p>
<p>Currently, the three primary crime programmes considered a global priority are counter terrorism, organised and emerging crime and cybercrime. All Interpol actions are bound by the law of the country it may be assisting and are politically neutral.</p>
<h2>Who belongs to Interpol and what’s its jurisdiction?</h2>
<p>Interpol has <a href="https://www.interpol.int/en/Who-we-are/Member-countries#:%7E:text=INTERPOL%20has%20195%20member%20countries,police%20with%20our%20global%20network.">195 member countries</a>, including South Africa. At the click of a button a country can reach out to the network and get assistance on transnational crime, criminals and other criminal threats from other members countries. The <a href="https://www.interpol.int/en/How-we-work/Command-and-Coordination-Centre">Command and Coordination Centre </a>, its nerve centre, provides a 24-hour support service. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/state-capture-in-south-africa-how-the-rot-set-in-and-how-the-project-was-rumbled-176481">State capture in South Africa: how the rot set in and how the project was rumbled</a>
</strong>
</em>
</p>
<hr>
<p>The four official languages used by Interpol are Arabic, English, French and Spanish.</p>
<p>Each member country has a <a href="https://www.interpol.int/en/Who-we-are/Member-countries/National-Central-Bureaus-NCBs">National Central Bureau</a> which is the point of contact between it and the General Secretariat, in Lyon. These bureaus are staffed by the police officials of that country. They usually fall under the governmental department responsible for policing.</p>
<h2>What is a red notice? Are there others?</h2>
<p>Interpol uses a notice system to facilitate the speedy and effective transfer of time-sensitive information. Their international notices are colour-coded: red, blue, green, yellow, black, orange, and purple.</p>
<p>A red notice is issued when a member country seeks assistance to locate and arrest an individual with the aim of having them extradited to face a criminal charge. The notice will only be issued if a valid warrant of arrest has been issued for the person in the requesting country. The other notices are:</p>
<ul>
<li><p>Blue: to locate, identify, or gather information on a person of interest in a criminal matter.</p></li>
<li><p>Green: warn member countries of possible threats posed by criminal activities.</p></li>
<li><p>Yellow: to seek to either identify a person who is unable to identify themselves (such as a mentally challenged person who appears to be from another country), or to find a missing person.</p></li>
<li><p>Black: when information is sought on unidentified bodies.</p></li>
<li><p>Orange: when an event, person, object or a process could pose a threat to the property or lives of people.</p></li>
<li><p>Purple: when information on hiding places, objects, devices or <em>modus operandi</em> of criminals are to be shared with member countries.</p></li>
</ul>
<p>In addition to these colour notices, Interpol can also issue a <a href="https://www.interpol.int/en/How-we-work/Notices/INTERPOL-United-Nations-Security-Council-Special-Notices">United Nations Security Council Special Notice</a> to inform member countries when the UN has activated sanctions against an individual or an entity. </p>
<p>The last type of notice are the “diffusion notices”. They are like the colour-coded notices, except they are sent directly to a specific country or selection of countries by the member country.</p>
<h2>Has something like this happened before?</h2>
<p>South Africa has previously requested the extradition of wanted fugitives. A well-known example is the extradition of <a href="https://www.bbc.com/news/uk-england-bristol-26931880#:%7E:text=Honeymoon%20murder%20suspect%20Shrien%20Dewani,He%20denies%20murder">Shrien Dewani</a> in April 2014 from Britain to be tried for for his alleged involvement in the 2010 murder of his wife, Anni Dewani while on honeymoon in Cape Town. He was eventually <a href="https://www.bbc.com/news/uk-england-bristol-30375335">tried and acquitted</a> in December of that year. </p>
<p>More recently, South Africa requested the extradition of self-proclaimed prophet <a href="https://ewn.co.za/Topic/Prophet-Shepherd-Bushiri">Shepherd Bushiri</a> and his wife from Malawi to face money laundering and <a href="https://www.news24.com/news24/southafrica/news/just-in-bushiri-extradition-malawi-high-court-to-deliver-judgment-on-tuesday-20220206">other charges in South Africa</a>.</p>
<h2>A red notice has been issued: what now?</h2>
<p>The issuing of an Interpol red notice is a process that can be seen to run parallel with the extradition process. The red notice is not an ‘international warrant of arrest’. But it will make international travel difficult for the person for whom the notice has been issued.</p>
<p>The red notice is a forerunner for initiating a formal request for their extradition to stand trial in South Africa.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/state-capture-report-chronicles-extent-of-corruption-in-south-africa-but-will-action-follow-174441">State capture report chronicles extent of corruption in South Africa. But will action follow?</a>
</strong>
</em>
</p>
<hr>
<p>In June 2021, the <a href="http://www.dcs.gov.za/?page_id=166">Ministry of Justice and Correctional Services</a> announced the</p>
<blockquote>
<p>finalisation and ratification of the treaties on extradition and mutual legal assistance between South Africa and the UAE.</p>
</blockquote>
<p>This paved the way for South Africa to start the extradition request for the two Gupta brothers, who ostensibly fled to the UAE to avoid prosecution in South Africa for massive corruption. </p>
<p>Extradition is often a time consuming and drawn-out process consisting of complicated legal steps. The outcome of such an extradition request, however, will be determined in a court of law.</p>
<p><em>This story was updated following the arrest of Atul and Rajesh Gupta in the United Arab Emirates.</em></p><img src="https://counter.theconversation.com/content/178461/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bernadine Benson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
A judicial commission has found that the Guptas orchestrated massive corruption and the capture of the South African state, with the help of their friend, former president Jacob Zuma.
Bernadine Benson, Associate Professor: Police Practice, University of South Africa
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/170435
2021-10-31T11:56:33Z
2021-10-31T11:56:33Z
The Pandora Papers: How punishing tax cheats can serve as a deterrent
<figure><img src="https://images.theconversation.com/files/429186/original/file-20211028-15-gg3tme.jpg?ixlib=rb-1.1.0&rect=0%2C31%2C5192%2C2958&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Enforcing punishments on proven tax cheats could provide benefits beyond improving compliance to tax laws. Once offenders pay up, billions lost to offshore scandals could be recouped and the tax burden more fairly shared among taxpayers.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Law-abiding taxpayers look on with disappointment and disdain as details about the illicit financial arrangements of the ultra-wealthy surface — again. The latest leak of nearly 12 million offshore financial records — the so-called <a href="https://www.icij.org/investigations/pandora-papers/about-pandora-papers-leak-dataset/">Pandora Papers</a> — provides clues as to <a href="https://www.cbc.ca/news/jacques-villeneuve-pandora-papers-offshore-accounts-1.6226467">how the rich avoid paying their fair share of taxes</a>. </p>
<p>Sports stars Jacques Villeneuve, a former Formula One racer, and figure skating legend Elvis Stojko <a href="https://www.cbc.ca/news/pandora-papers-offshore-tax-avoidance-1.6197303">are among the Canadians who have been named in the Pandora Papers</a>. </p>
<p>This is not the first time the public has learned about how the wealthy evade taxes and shield their riches. The <a href="https://www.cbc.ca/news/world/panama-leak-offshore-records-putin-messi-money-1.3518951">Panama Papers</a>, <a href="https://globalnews.ca/news/3845716/the-paradise-papers-canada/">Paradise Papers</a> and <a href="https://www.cbc.ca/news/business/leaked-luxembourg-files-expose-global-companies-secret-deals-to-avoid-tax-1.2825627">Luxembourg Leaks</a> uncovered <a href="https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/tax-alert/aggressive-tax-planning.html">aggressive tax planning</a> and <a href="https://www.taxfairness.ca/en/news/tax-avoidance-or-tax-evasion-whats-difference-0">tax evasion</a> undertaken by the global elite.</p>
<p>When the rich, famous and infamous don’t pay their fair share of taxes, the public looks to authorities to enforce tax laws and punish the offenders. Punishment creates a sense of <a href="https://www.britannica.com/topic/retributive-justice">retributive justice</a> and serves as a reminder that tax compliance laws should be obeyed for the collective good of society. However, authorities often <a href="https://www.cbc.ca/news/business/cra-kmpg-settlement-taxes-1.5154610">fail to deliver</a>, perpetuating the cycle of injustice. </p>
<h2>Does punishment deter tax evasion?</h2>
<p>What we don’t know for sure is whether punishing the offenders involved in global tax scandals benefits the reported income compliance of observers and deters tax cheats. My <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3826736">preliminary research</a> suggests that the answer is “yes,” but only if observers perceive that the tax offender is fully blameworthy or responsible. </p>
<p>If the punishment of blameworthy offenders can improve compliance, it would seem logical for tax authorities to actively prosecute all suspected offenders. But this is hardly the case. </p>
<p>With <a href="https://www.cbc.ca/news/politics/offshore-tax-avoidance-evasion-1.6017316">limited resources</a> and the risk of losing costly legal battles, <a href="https://www.cbc.ca/news/politics/kpmg-isle-of-man-taxes-house-commons-finance-committee-1.6047111">not everyone</a> who evades taxes and shields wealth gets punished. Even worse, if prosecutors’ cases don’t stand up in court, it can encourage aggressive tax planning or tax evasion because a precedent is set that undermines tax authorities.</p>
<figure class="align-right ">
<img alt="A Canadian tax form" src="https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Does punishing tax evaders serve as a deterrent?</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Why does compliance increase when tax cheats are punished? My research findings reveal that compliance improves when wrongdoers appear more deserving of prosecution and are ultimately punished. Observers experience satisfaction when authorities uphold justice, especially for the wealthy. </p>
<p>When justice is applied equally, authorities reinforce their requirement to be obeyed, which signals both their competence and that tax evaders will be found and held accountable. </p>
<h2>Pointing the finger at advisers</h2>
<p>Being perceived as guilty increases perceptions of an offender deserving a punishment. As such, a strategic course of action for those exposed in global tax scandals is to deny responsibility. Ultra-wealthy individuals named in the Pandora Papers and other tax scandals often blame lawyers or advisers. </p>
<figure class="align-left ">
<img alt="Elvis Stojko shoots T-shirts into a crowd from a plastic tube." src="https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=439&fit=crop&dpr=1 600w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=439&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=439&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=552&fit=crop&dpr=1 754w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=552&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=552&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Canadian figure skating legend Elvis Stojko shoots T-shirts into the crowd during a break at the 2019 National Skating Championships at Harbour Station in Saint John, N.B., in 2019.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Andrew Vaughan</span></span>
</figcaption>
</figure>
<p>Stojko <a href="https://www.cbc.ca/news/canada/elvis-stojko-offshore-trust-belize-anthony-malcolm-1.6199821">has denied responsibility</a> and said he trusted his lawyer to manage his financial details.</p>
<p>Similarly, <a href="https://www.timescolonist.com/local-news/victoria-family-cited-in-cra-crackdown-on-tax-evasion-4626724">the wealthy Cooper family of British Columbia</a> — named in the Panama Papers — denied responsibility. Marshall Cooper, who grew up in South Africa, <a href="https://www.cbc.ca/news/business/kpmg-offshore-sham-deceived-tax-authorities-cra-alleges-1.3209838">stated that he was unaware of Canadian tax laws</a> and simply hired the best advisers to manage the family’s finances. </p>
<p>With blame being tossed back and forth, perhaps authorities should <a href="https://theconversation.com/pandora-papers-its-time-to-pursue-lawyers-and-accountants-who-enable-tax-evasion-offshore-tax-expert-qanda-169192">pursue the lawyers and advisers</a> of the wealthy rather than simply punishing tax evaders. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/paid-millions-to-hide-trillions-pandora-papers-expose-financial-crime-enablers-too-169326">Paid millions to hide trillions: Pandora Papers expose financial crime enablers, too</a>
</strong>
</em>
</p>
<hr>
<p>The media may <a href="https://www.cbc.ca/news/pandora-papers-offshore-tax-avoidance-1.6197303">shame the wealthy,</a> but lawyers, accountants and other advisers act as enablers who facilitate aggressive tax planning, and likely in some cases tax evasion. If enablers share responsibility, they too should be punished. It’s possible that punishing enablers could also compel taxpayers to comply with tax laws.</p>
<h2>Billions recouped?</h2>
<p>Enforcing punishments on proven tax cheats could provide added benefits beyond improving compliance to tax laws. Once offenders pay up, <a href="https://www.cbc.ca/news/business/cra-tax-gap-foreign-holdings-1.4726983">billions lost to offshore scandals</a> could be recouped and the tax burden more fairly shared among taxpayers. </p>
<p>Still, in the aftermath of the Pandora Papers, taxpayers are likely wondering what the authorities will do this time and whether tax offenders will get the punishments they deserve. <a href="https://www.oecd.org/tax/crime/oecd-calls-on-countries-to-crack-down-on-the-professionals-enabling-tax-and-white-collar-crimes.htm">Global tax transparency efforts</a> are ratcheting up, possibly offering a glimmer of hope that justice will prevail. But even with this silver lining, <a href="https://theconversation.com/the-next-pandora-papers-expose-is-inevitable-unless-governments-do-more-on-two-key-reforms-169357">some remain pessimistic</a>. </p>
<p>With evidence that punishment can re-establish a sense of justice, authorities should use their resources to ensure culpable offenders are held accountable. Upholding justice, especially for the wealthy and privileged, serves the collective good of society.</p><img src="https://counter.theconversation.com/content/170435/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tisha King does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Research suggests punishing tax cheats can re-establish a sense of justice among the general public, so authorities should use their resources to ensure culpable offenders are held accountable.
Tisha King, Assistant Professor, Accounting, Dalhousie University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/170625
2021-10-26T06:42:18Z
2021-10-26T06:42:18Z
‘Illegal, dishonest, unethical and exploitative’ – but Crown Resorts keeps its Melbourne casino licence
<figure><img src="https://images.theconversation.com/files/428421/original/file-20211026-15-2sc4rz.jpg?ixlib=rb-1.1.0&rect=44%2C528%2C4899%2C2273&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The report of Victoria’s Royal Commission into Melbourne’s casino has been <a href="https://content.royalcommission.vic.gov.au/sites/default/files/2021-10/The%20Report%20-%20RCCOL%20-%2015%20October%202021.pdf">made public</a>. It has found the behaviour of the casino’s operator, Crown Resorts to be “disgraceful”, with practices that have been “variously illegal, dishonest, unethical and exploitative”. </p>
<p>But royal commissioner Ray Finkelstein has also decided the <a href="https://theconversation.com/crown-resorts-is-not-too-big-to-fail-it-has-failed-already-165659">economic effects</a> of Crown losing its licence, the impact on innocent parties, and the company’s belated attempts at rehabilitation mean it should keep its casino licence – at least for now.</p>
<p>The Victorian government has <a href="https://www.parliament.vic.gov.au/file_uploads/Government_response_to_Crown_Royal_Commission_report_QYfCym70.pdf">accepted this recommendation</a>. It will appoint a “special manager” – <a href="https://www.vicbar.com.au/profile/6231">Stephen O'Bryan QC</a>, a former commissioner with the state’s anti-corruption commission – to oversee the casino’s operations over the next two years.</p>
<p>After two years O'Bryan will prepare a report for the new gambling regulator the Victorian government will establish in response to the deficiencies identified with the Victorian Commission for Gambling and Liquor Regulation. The new beefed-up regulator, to be known as the <a href="https://www.premier.vic.gov.au/new-regulator-strengthen-casino-oversight">Victorian Gambling and Casino Control Commission</a>, will then decide if Crown keeps its licence. </p>
<p>The government has also announced it will repeal provisions enabling Crown to be compensated for any regulatory changes affecting its business. It will also increase the maximum penalty for breaches of the Casino Control Act from A$1 million to A$100 million. </p>
<p>This is all good. But all these things should, of course, have been in place far earlier. </p>
<p>It is the failure of regulation, and the politics that sit behind it, that made the Crown Melbourne debacle possible, and perhaps inevitable. </p>
<p>As with other gambling businesses, Crown’s <a href="https://theconversation.com/gambling-lobby-gives-big-to-political-parties-and-names-names-73131">political influence</a> has been significant, and a key feature of its business model. </p>
<p>Politically and socially <a href="https://theconversation.com/gambling-industry-finds-plenty-of-political-guns-for-hire-to-defend-the-status-quo-70124">well connected directors and staff</a> were recruited, clearly with an eye to their ability to influence governments. Their aim, it seems, was to make Crown too big to be regulated. They seem to have succeeded.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/crown-resorts-is-not-too-big-to-fail-it-has-failed-already-165659">Crown Resorts is not too big to fail. It has failed already</a>
</strong>
</em>
</p>
<hr>
<h2>Recommendations kicked down the road</h2>
<p>Beyond the government’s headline announcements, some of Commissioner Finkelstein’s key recommendations have been kicked down the road – until next year, at least. These include those addressing money laundering, and changes to the operator’s structure. The latter relate to reductions in maximum shareholdings, and the independence of the board and senior management. </p>
<p>Also deferred is any response to the recommendations focused on gambling harm prevention and minimisation. Many in favour of gambling reform will be encouraged by Finkelstein’s focus on these. The government says it accepts all his recommendations, but exactly how it will act on them requires “further detailed analysis and consultation”.</p>
<p>Finkelstein focused on the harms of gambling, finding that:</p>
<blockquote>
<p>Crown Melbourne had for years held itself out as having a world’s best approach to problem gambling. Nothing can be further from the truth.</p>
</blockquote>
<p>His recommendations to improve Crown’s paltry “responsible gambling” program are far reaching and significant. They include implementing a comprehensive pre-commitment system, requiring gamblers to establish accounts and set limits of time and money. This would establish an effective self-exclusion system for the first time, in which those struggling with gambling would be able to ban themselves from gambling without the possibility of easily revoking that arrangement.</p>
<p>Australia’s Productivity Commission recommended a pre-commitment system in its 2010 <a href="https://www.pc.gov.au/inquiries/completed/gambling-2010/report">report</a> on gambling. The Gillard government was set to implement that recommendation, but ClubsNSW spearheaded <a href="https://insidestory.org.au/the-lobby-group-that-got-much-more-bang-for-its-buck/">a successful campaign</a> to sink the plan. </p>
<p>The gambling lobby will no doubt be keenly interested in how the Victorian government responds to Finkelstein’s recommendation, which goes further than the Productivity Commission by recommending a default loss limit and regulated breaks in use. </p>
<h2>Reversing the ‘responsible gambling’ discourse</h2>
<p>Finkelstein’s report recommends the casino also have “a duty to take all reasonable steps to prevent and minimise harm from gambling”. This effectively reverses the “responsible gambling” discourse which puts the onus on gamblers – and arguably blames them for harming themselves. Such a change, if well implemented, has the potential to finally make harm prevention a high priority in gaming regulation.</p>
<p>The report also recommends that casino data be made available for proper research purposes. It points out the importance, and difficulty, of obtaining such data. Without it, evaluating the casino’s personal and social impacts is virtually impossible. This too would be a big step forward in harm prevention and reduction efforts. It could also help with anti money-laundering endeavours.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/responsible-gambling-a-bright-shining-lie-crown-resorts-and-others-can-no-longer-hide-behind-162089">Responsible gambling – a bright shining lie Crown Resorts and others can no longer hide behind</a>
</strong>
</em>
</p>
<hr>
<h2>A blueprint for wider regulation</h2>
<p>Assuming its board and executives have the nous to clean up the business to the necessary standard, Crown Resorts will get to keep its Melbourne casino. This will shock many, given what has transpired.</p>
<p>Political will is needed. The outcome may be that a powerful and harmful gambling business is cleaned up. Or the situation may revert to <a href="https://www.tandfonline.com/doi/abs/10.1080/14459790701601810">business as usual</a> – the default position for gambling regulation. This depends on what the Victorian government does with the recommendations on which it has postponed action. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/casino-operator-crown-plays-an-old-business-trick-using-workers-as-human-shields-165815">Casino operator Crown plays an old business trick: using workers as human shields</a>
</strong>
</em>
</p>
<hr>
<p>Most of the money <a href="https://responsiblegambling.vic.gov.au/resources/gambling-victoria/expenditure-on-gambling-victoria-and-australia/">Victorians</a> (and <a href="https://responsiblegambling.vic.gov.au/about-us/news-and-media/latest-edition-australian-gambling-statistics-2019/">Australians</a>) gamble away is through poker machines in local clubs and pubs. The Finkelstein royal commission has provided an important blueprint to tackle that gambling harm, too. The Victorian government could lead the way by extending Finkelstein’s recommendations to all gambling businesses. No business, or sector, should be too big to be regulated.</p><img src="https://counter.theconversation.com/content/170625/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Charles Livingstone has received funding from the Victorian Responsible Gambling Foundation, the (former) Victorian Gambling Research Panel, and the South Australian Independent Gambling Authority (the funds for which were derived from hypothecation of gambling tax revenue to research purposes), from the Australian and New Zealand School of Government and the Foundation for Alcohol Research and Education, and from non-government organisations for research into multiple aspects of poker machine gambling, including regulatory reform, existing harm minimisation practices, and technical characteristics of gambling forms. He has received travel and co-operation grants from the Alberta Problem Gambling Research Institute, the Finnish Institute for Public Health, the Finnish Alcohol Research Foundation, the Ontario Problem Gambling Research Committee, and the Problem Gambling Foundation of New Zealand. He was a Chief Investigator on an Australian Research Council funded project researching mechanisms of influence on government by the tobacco, alcohol and gambling industries. He has undertaken consultancy research for local governments and non-government organisations in Australia and the UK seeking to restrict or reduce the concentration of poker machines and gambling impacts, and was a member of the Australian government's Ministerial Expert Advisory Group on Gambling in 2010-11. He is a member of the Australian Greens.</span></em></p>
Whether the Victorian royal commission leads to a more responsible gambling industry depends on the recommendations the state government has kicked down the road.
Charles Livingstone, Associate Professor, School of Public Health and Preventive Medicine, Monash University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/169353
2021-10-10T19:08:56Z
2021-10-10T19:08:56Z
The Pandora Papers show the line between tax avoidance and tax evasion has become so blurred we need to act against both
<figure><img src="https://images.theconversation.com/files/425400/original/file-20211008-15-qg06rl.jpg?ixlib=rb-1.1.0&rect=221%2C329%2C3215%2C1628&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Aekawit Rammaket/Shutterstock</span></span></figcaption></figure><p>What’s the difference between tax avoidance and tax evasion? </p>
<p>The difference used to matter. Evasion was illegal. It meant not paying tax that was due. Avoidance meant arranging your affairs so tax wasn’t due.</p>
<p>Australian media mogul Kerry Packer used the distinction as a complete defence when he told a <a href="https://youtu.be/LnwYoOeWZGA?t=312">parliamentary committee</a> in 1991 he was</p>
<blockquote>
<p>not evading tax in any way, shape or form. Of course, I am minimising my tax. Anybody in this country who does not minimise his tax wants his head read.</p>
</blockquote>
<p>The Pandora Papers — the biggest-ever leak of records showing how the rich and powerful use the financial system to maximise their wealth — shows the distinction has lost its meaning.</p>
<p>The dump of almost <a href="https://www.icij.org/investigations/pandora-papers/">12 million documents</a> lays bare the ways in which 35 current or former leaders and 300 high-level public officials in more than 90 countries have used offshore companies and accounts to protect their wealth.</p>
<p>Only in some of the cases could their activities be categorically declared illegal.</p>
<h2>Tax havens are legal</h2>
<p>Here’s how tax havens are used. Trusts and companies are set up in places with low tax rates and secrecy laws such as the Bahamas, Cayman Islands, Hong Kong, Singapore, Switzerland, the US state of Delaware and the Republic or Ireland.</p>
<p>If, for example, a wealthy celebrity or a politician wants to buy a new yacht or a luxury villa but doesn’t want to pay tax or stamp duty or expose their wealth to scrutiny they can get their lawyer or accountant to do it through such a trust.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-pandora-papers-why-does-south-dakota-feature-so-heavily-169291">The Pandora Papers: why does South Dakota feature so heavily?</a>
</strong>
</em>
</p>
<hr>
<p>For somewhere between <a href="https://www.icij.org/investigations/pandora-papers/global-investigation-tax-havens-offshore/">US$2,000 and US$20,000</a> to set up the trust, the name of the real owner or beneficiary can be hidden.</p>
<p>It isn’t illegal for the celebrity or a politician to move their money (so long as it is theirs to begin with). Assets within the trust are subject to local tax laws (sometimes zero tax) and local secrecy laws (sometimes complete secrecy).</p>
<h2>Legal, but used by criminals</h2>
<p>These legal means of using complex networks of secret entities to move around money are the same as those used by criminals.</p>
<p>Alongside the likes of India’s cricket superstar Sachin Tendulkar, Colombian pop singer Shakira and Elton John in the Panama Papers are Italian crime boss <a href="https://www.icij.org/investigations/pandora-papers/global-investigation-tax-havens-offshore/">Raffaele Amato</a>, serving a 20-year jail sentence for weapons and drugs trafficking, and the deceased British art dealer <a href="https://www.theguardian.com/news/2021/oct/05/offshore-trusts-used-pass-on-looted-khmer-treasures-leak-shows-douglas-latchford">Douglas Latchford</a>, suspected of smuggling looted treasures and money laundering.</p>
<figure class="align-center ">
<img alt="Colombian singer Shakira is one of the celebrities named in the Pandora Papers as using offshore companies. Others are Elton John, Ringo Starr, Julio Iglesias and Claudia Schiffer." src="https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Colombian singer Shakira is one of the celebrities named in the Pandora Papers as using
offshore companies. Others are Elton John, Ringo Starr, Julio Iglesias and Claudia Schiffer.</span>
<span class="attribution"><span class="source">Gregory Payan/AP</span></span>
</figcaption>
</figure>
<h2>It’s far from clear these arrangements should be legal</h2>
<p>The big question raised by the Pandora Papers is why any hiding of private wealth from tax authorities ought to be legal.</p>
<p>The International Monetary Fund estimated in 2019 that tax haven deprived governments globally of <a href="https://www.imf.org/external/pubs/ft/fandd/2019/09/tackling-global-tax-havens-shaxon.htm">US$500 billion to US$600 billion</a> per year. </p>
<p>To put that into perspective, the estimated cost of vaccinating the world against COVID-19 is <a href="https://www.nytimes.com/2021/06/11/briefing/biden-g7-vaccine-donations.html">US$50-70 billion</a>. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=968&fit=crop&dpr=1 600w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=968&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=968&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1216&fit=crop&dpr=1 754w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1216&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1216&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">OECD chief Mathias Cormann has brokered a deal for a global minimum corporate tax rate.</span>
<span class="attribution"><span class="source">OECD (CC BY-NC 3.0 IGO)</span></span>
</figcaption>
</figure>
<p>Some of what’s been uncovered in the Pandora Papers is illegal (“evasion”) but much might not be (“avoidance”, aided by anonimity).</p>
<p>The effect is the same. Dollars that ought to have been paid in tax are withheld and used for the benefit of people who aren’t keen to admit to owning them.</p>
<p>Over the weekend the Organisation for Economic Co-operation and Development, now led by Australian Mathias Cormann, brokered a deal under which 136 countries agreed to charge multinational corporations a tax rate of at least <a href="https://www.oecd.org/tax/international-community-strikes-a-ground-breaking-tax-deal-for-the-digital-age.htm">15%</a>, making tax havens harder to find.</p>
<p>Ireland, previously used as tax haven, signed up.</p>
<p>The nations concerned did this because because, even where legal, the use of tax havens costs billions.</p>
<p>We’ll soon have to consider removing a distinction in law that vanished in practice some time ago.</p><img src="https://counter.theconversation.com/content/169353/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Simpson has received funding from Economic and Social Research Council, UK. </span></em></p>
It’s become hard to tell where avoidance stops and evasion starts. Tax havens enable both.
Alex Simpson, Senior Lecturer in Criminology, Macquarie University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/169326
2021-10-06T16:30:18Z
2021-10-06T16:30:18Z
Paid millions to hide trillions: Pandora Papers expose financial crime enablers, too
<figure><img src="https://images.theconversation.com/files/424838/original/file-20211005-25-gfjrt7.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3072%2C1825&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The world's wealthiest people wouldn't be able to shield their riches from tax authorities without enablers.</span> <span class="attribution"><span class="source">(Piqsels)</span></span></figcaption></figure><p>The <a href="https://www.icij.org/investigations/pandora-papers/about-pandora-papers-investigation/">Pandora Papers investigation</a> by the International Consortium of Investigative Journalists (ICIJ), a non-profit newsroom and network of journalists based in Washington, D.C., has revealed there are still some go-to havens for those looking to hide illicit wealth.</p>
<p>The people who don’t get mentioned as much in the media coverage of the Pandora Papers, however, are the enablers devoted to helping the richest people in the world get richer and to pass on their wealth while avoiding or evading taxes. These enablers help criminals and kleptocrats launder their ill-gotten gains.</p>
<p>They may not be as wealthy as their clients, but they are paid millions to hide trillions.</p>
<h2>The wealth defence industry</h2>
<p>For many years there has been a well-established “<a href="https://www.tandfonline.com/doi/full/10.1080/13563467.2020.1816947">wealth defence industry</a>” made up of a coalition of professionals — ranging from advisers and bankers to lawyers, accountants, notaries and estate agents — who use anonymous shell companies, family offices, offshore accounts and trusts to help the world’s richest people shield their wealth from tax collectors.</p>
<p>These highly compensated “enablers” are assisting oligarchs, dictators and criminals around the world. </p>
<p>There’s been <a href="https://www.bbc.com/news/world-58780561">a lot of mainstream reporting</a> on the actual crimes, abuses and financial misdeeds of malicious foreign states and wealthy individuals. But what about the intermediaries to the financial system who handle the details and provide the get-away mechanisms for the criminals?</p>
<figure class="align-center ">
<img alt="A group of men gather around a selection of newspapers, one of them reading one." src="https://images.theconversation.com/files/424852/original/file-20211005-25-44kucm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/424852/original/file-20211005-25-44kucm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=412&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424852/original/file-20211005-25-44kucm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=412&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424852/original/file-20211005-25-44kucm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=412&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424852/original/file-20211005-25-44kucm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=517&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424852/original/file-20211005-25-44kucm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=517&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424852/original/file-20211005-25-44kucm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=517&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Kenyans read the morning newspapers reporting a statement issued by President Uhuru Kenyatta following reports that he’s among more than 330 current and former politicians identified as beneficiaries of secret financial accounts in the Pandora Papers.</span>
<span class="attribution"><span class="source">(AP Photo/Brian Inganga)</span></span>
</figcaption>
</figure>
<p>Some elites pay respected professionals and businesses to open political doors, to lobby against sanctions, to fight legal battles and to launder money and reputations. In doing so, these institutions and individuals push the boundaries of the law and degrade the principles of our democracy.</p>
<p>According to the <a href="https://www2.deloitte.com/content/dam/Deloitte/in/Documents/finance/Forensic/in-forensic-AML-Survey-report-2020-noexp.pdf">Deloitte Anti-Money Laundering Preparedness Survey Report 2020</a>, the amount of money laundered in one year is estimated to be between two per cent and five per cent of global GDP, or from US$800 billion to US$2 trillion annually.</p>
<p>The ICIJ’s <a href="https://www.icij.org/investigations/fincen-files/">FinCEN Files</a> offer unprecedented insights into a secret world of international banking, anonymous clients and, in many cases, financial crime.</p>
<p>They show how banks blindly move cash through their accounts for people they can’t identify, failing to report transactions with all the hallmarks of money laundering until years after the fact, and even do business with clients enmeshed in financial frauds and public corruption scandals.</p>
<h2>The insidiousness of ‘dark money’</h2>
<p>Corruption and financial wrongdoing are by their nature secretive and often deeply complex. <a href="https://www.opensecrets.org/dark-money/basics">Dark money</a> — essentially spending meant to sway political outcomes with no information about the source of the money — buys <a href="https://www.opensecrets.org/news/2020/01/dark-money-10years-citizens-united/">access to courts and politicians</a>, consequently making society less fair and more inequitable.</p>
<p>What often distinguishes ordinary rich people <a href="https://www.nationalgeographic.org/encyclopedia/oligarchy/">from the oligarchy</a> is that all oligarchs invest in wealth defence. They use their power and wealth to amass more power and wealth, to lobby and to rig the rules around them.</p>
<p>One of the challenges in cracking down on financial crime is the global race to the bottom among tax havens that are trying to entice customers by offering more lucrative incentives and a higher degree of secrecy for companies. Enablers who are part of the wealth defence industry develop and market strategies, structures and schemes to avoid tax liabilities and regulatory scrutiny.</p>
<p><a href="https://www.openownership.org/blogs/modelling-beneficial-ownership-data/">Beneficial ownership databases</a> aimed at combating money-laundering have become an <a href="https://www.osler.com/en/blogs/risk/april-2021/canada-s-budget-introduces-long-awaited-beneficial-ownership-registry-to-combat-money-laundering">increasingly popular reform</a> around the world <a href="https://www.icij.org/investigations/panama-papers/five-years-later-panama-papers-still-having-a-big-impact/">in the aftermath of the Panama Papers</a>, which focused international attention on how corporate anonymity can enable a range of social ills. </p>
<p>As this trend continues, there’s hope that as more jurisdictions institute greater beneficial ownership initiatives and tax transparency, remaining “outlier” offshore destinations like Bermuda, <a href="https://www.caymancompass.com/2021/10/01/government-extends-beneficial-ownership-consultation/">the Cayman Islands</a> and Malta will be sanctioned into compliance by the threat of exclusion from the global financial system.</p>
<figure class="align-center ">
<img alt="Two tourists walk along a white-sand beach lined with trees and shrubs." src="https://images.theconversation.com/files/424855/original/file-20211005-20911-y7w6j9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/424855/original/file-20211005-20911-y7w6j9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424855/original/file-20211005-20911-y7w6j9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424855/original/file-20211005-20911-y7w6j9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424855/original/file-20211005-20911-y7w6j9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424855/original/file-20211005-20911-y7w6j9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424855/original/file-20211005-20911-y7w6j9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tourists walk along the shore of Seven Mile Beach in Grand Cayman Island.</span>
<span class="attribution"><span class="source">(AP Photo/David McFadden)</span></span>
</figcaption>
</figure>
<h2>Promising signs</h2>
<p>In the meantime, many jurisdictions continue to evade law enforcement agencies that chase the secret money trails of tax dodgers and criminals.</p>
<p>Due to all the obvious regulatory and enforcement gaps, and to the seeming lack of political will to address those gaps actively and practically, there are some encouraging signs suggesting governments around the world are being forced to act. </p>
<p>There’s now a growing global demand for greater transparency and accountability, combined with <a href="https://www.aljazeera.com/economy/2021/3/19/bb-radicalchangeleaders-call-for-measures-to-tackle-inequality">calls to address the widening wealth inequity</a> as well <a href="https://hbr.org/2019/05/the-investor-revolution">as demands from investors for the adoption of ESG (environmental, social and governance) principles</a>. </p>
<p>While those factors play a role in getting the attention of senior political leaders, the cynical reality is that the probable primary motivation of these leaders is the serious and alarming trend of a <a href="https://www.oecd.org/tax/oecd-tax-revenues-fall-slightly-before-the-covid-19-pandemic-but-countries-face-much-larger-decreases-ahead-particularly-from-consumption-taxes.htm">reduction in tax revenues</a>. The endorsement of the concept of a <a href="https://www.reuters.com/business/countries-backs-global-minimum-corporate-tax-least-15-2021-07-01/">15 per cent minimum global tax rate</a> by G7 leaders at their June 2021 summit is a clear indication that the winds of change are coming.</p>
<figure class="align-center ">
<img alt="Boris Johnson stands with his arms raised in front of other G7 leaders on a beach." src="https://images.theconversation.com/files/424849/original/file-20211005-30173-ycuwu5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/424849/original/file-20211005-30173-ycuwu5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424849/original/file-20211005-30173-ycuwu5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424849/original/file-20211005-30173-ycuwu5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424849/original/file-20211005-30173-ycuwu5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424849/original/file-20211005-30173-ycuwu5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424849/original/file-20211005-30173-ycuwu5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Leaders of the G7 nations pose for a photo in Cornwall, England in June 2021.</span>
<span class="attribution"><span class="source">(Leon Neal/Pool Photo via AP)</span></span>
</figcaption>
</figure>
<p>The current model is not sustainable. Fiscal realities, along with political pressure and necessity, will force political leaders to act. They’ll soon have to do much more than pay lip service to wealth inequality and power imbalance, which allows the wealth defence industry and their clients to subvert the system and avoid paying their fair share. </p>
<p>Greater transparency and accountability are needed to expose the enablers and to reduce the loopholes that enable wealthy individuals and criminals, along with corporate entities, to operate with impunity.</p><img src="https://counter.theconversation.com/content/169326/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marc Tassé does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Highly compensated ‘enablers’ such as financial experts, lawyers, accountants, notaries, estate agents and company service providers are assisting oligarchs, dictators and criminals around the world.
Marc Tassé, Professor, Accounting, L’Université d’Ottawa/University of Ottawa
Licensed as Creative Commons – attribution, no derivatives.