Money Laundering for Beginners


The other day I posted a short piece about my adventure at the bank and the topic of money laundering came up and it was pretty obvious that this is a mysterious subject that’s not well understood.

If you’re one of those people who don’t understand money laundering (in Romanian it’s called “spalare” or “washing” of money), don’t feel bad. There’s a famous scene in the movie Office Space where the protagonists urgently need to launder money and are reduced to looking in a dictionary under the heading “money laundering” for guidance. Likewise, here in Romania, Adrian Duicu, the “governor” of Mehedinti County, clearly doesn’t understand money laundering either.

What differentiates “clean” money from “dirty” money is its source. If I grow potatoes or sell fries at McDonald’s, my income is “clean” because I am participating in a legal business. But if I sell drugs or bootleg tuica out behind the piata, that form of commerce is illegal and therefore my income is “dirty”.

Mind you, the only arbiter that matters when it comes to “clean” versus “dirty” money is the government. If I sell some tuica to my neighbor, neither of us may consider that to be a “dirty” business but according to the government, all non-reported income is “dirty”. But I can sell bombs and land mines to brutal dictators that kill and maim children because as long as my government approves it’s “clean” money.

Therefore money laundering is the (illegal) practice of convincing the government that my “dirty” income is actually “clean”.

Debts

In my post from last week, I wrote about paying a credit card debt to a bank, which is completely different from an asset. A debt is an obligation, a sort of “promise” that a person has agreed to fulfill at some time in the future.

Credit card debts are not the only kind of debts that exist. There are other banking debts such as loans and mortgages and they all function roughly the same way – a person signs a piece of paper to receive something now from the bank in exchange for a future promise of paying the bank back (usually with interest).

Other debts are incurred by people on a regular basis. If you go into a coffee shop and order two coffees and sit at a table and talk with your girlfriend, you technically are in debt to the coffee shop. You’ve ordered (and consumed) two coffees and have agreed to an unspoken promise to pay your bill when you leave.

Likewise, it’s perfectly normal to have utility connections in your apartment or house where you use electricity, gas and water and then are in debt to the company to pay for the resources that you’ve used. Cable television, internet and mobile telephone services are the same – you promise to pay them a certain rate for the services that they provide.

All of these are debts, which are not assets and are not income, so they cannot be “dirty” or “clean” and there’s absolutely no way to “launder” a debt. This is why you don’t need to show ID to pay your gas bill or your Orange bill or for your drinks at a coffee shop.

This is also why you don’t need to show ID or provide any other form of justification to pay someone’s else’s debts, as I’ve done hundreds of times over the years in one form or another. I’ve seen landlords down at the Electrica paying the bills on dozens of properties all at the same time. You can walk into any Orange (or Vodafone, etc) shop and pay anyone’s bill you like, as millions of people do in this country every year.

A debt to a bank is exactly the same – you cannot “launder” it and it cannot be “dirty” and there’s no way to defraud the government. Therefore there is absolutely no chance in hell that me paying for someone else’s credit card debt falls under “money laundering” rules.

Debt is a “minus”, a “negative asset” and returning it back to “zero” has nothing to do with income.

Assets

Assets, on the other hand, are all forms of “income” and thus the government has an interest in whether these are acquired from “clean” or “dirty” sources.

It doesn’t matter what form these assets take – they could be cash money, gold, diamonds, artwork, automobiles, real estate or hundreds of other forms – these are what must be deemed “clean” or “dirty” in the eyes of the government.

If I’m a moderately successful drug dealer, with a steady profit of 100 lei a week, I really have no need to launder money at all. I can spend that cash on my debts and live my life in peace and harmony.

It’s only when my drug empire begins to expand and I’m raking in 10,000 lei a week that I need to start thinking about money laundering. Why? Because I’m now faced with the problem of turning that cash into some kind of declared asset.

A declared asset is just an asset that the government knows about. If I bury the cash in a box in my garden, it remains an undeclared asset. If I swap it for a case of tuica from my neighbor, it remains undeclared. But if I deposit it into a bank, buy a car or a house with it or convert it into gold at a licensed dealer, now it’s a declared asset because the government can find out about it.

The government knows nothing about the cash in your pocket. But they do know about the cash in your bank account because the bank is obligated to tell them about it. If I buy a car, that has to be registered with the government, so they then find out that I own it. If I buy a house, likewise they will discover that I own it. There’s almost nothing of significant value that I can buy (legally) and not have the government learn about it. These are then declared assets.

Money laundering isn’t about hiding my assets from the government, such as a house or car that I own or money in my bank account, but tricking the government into thinking that I acquired those assets from a “clean” (legal) source instead of a dirty one.

Practice makes perfect

I’m a successful drug dealer, making 10,000 lei a week. I can’t just deposit that money in the bank or else the government is (eventually) going to ask where it came from.

I decide to “launder” the money by opening up a business that handles a lot of cash, such as a coffee shop. I use false papers and receipts to make it look like the coffee shop is earning me 10,000 lei a week. Since selling coffee is a “clean” source of income, I can declare that my “dirty” assets (from selling drugs) are actually from my coffee shop and thus I have successfully laundered that money.

But let’s imagine that instead I decide to try to launder my drug income by depositing that money into a friend’s bank account. Will that work? Of course not! Because that friend now officially has that asset (the cash in the account) and is responsible for proving to the government that he acquired it legally from a “clean” source.

Therefore someone walking into a bank and anonymously or surreptitiously depositing money into someone else’s account is never going to “launder” anything.

Likewise, I can’t use my “dirty” money (from selling drugs) to buy cars and have them be registered in other people’s names or buy houses and list them under other people’s names or anything else involving another person. It certainly works to protect me, since the government knows nothing about my assets, but it does nothing to protect my friend. If the assets (cash, houses, cars, etc) are in their name then they’re fully responsible for proving that they got them from a “clean” source.

But let’s imagine that I’m a particularly crafty (and hard-working) individual and I decide that I want to launder my dirty drug money by… paying off other people’s debts. They owe 100 lei on their credit card so I contact them and offer to pay the debt for them (with 100 lei of my drug money) and they give me cash later. Since their cash is “clean” (money earned from a legitimate job), didn’t I just launder 100 lei?

Of course not! Because as soon as I convert that cash into an asset, such as depositing it into my bank account, I am in exactly the same position as I started – I have to justify my income as being “clean” to the government.

Me switching debts with someone does nothing for me whatsoever to help me launder my money.

The case of Adrian Duicu

Last week the media was enjoying the humiliation of Mehedinti “governor” Adrian Duicu after he was arrested by the DNA (anti-corruption agency).

According to his declared assets (the ones the government knows about), he and his family made 40,696 lei in 2013. And yet we also know that he donated 36,000 lei to the PSD party in 2013. Therefore, according to his declared assets (what the government knows about), he gave away 88% of his entire income to the PSD party and was (officially) surviving on 392 lei a month (less than 100 euros).

Clearly the Duicu family was generating a lot more income than that. But they obviously knew nothing about how to launder the money. I don’t know the details on what his “dirty” sources of income were (which is why the DNA arrested him) but if he had been a little more sophisticated he would’ve laundered the money via seemingly legitimate (“clean”) channels and thus been able to openly declare his assets without fear of government prosecution (assuming they didn’t find out that he was laundering money).

But when Mr. Duicu was giving away 88% of his declared assets to the PSD party and was living in a luxurious house and had a good life, it was pretty obvious that he had some kind of income from a “dirty” source (apparently from gas stations, in his case). Even the retards down at the DNA could figure out that something was amiss and that’s why Duicu was arrested with such fanfare last week.

Showing ID at the bank

It’s pretty obvious why a customer needs to show ID to withdraw money – obviously you don’t want a random stranger walking in and taking all of the money out of your account.

Likewise if contracts are going to be signed to bind someone to a debt (such as taking out a loan), it’s pretty obvious that you want to verify who is signing the contract. You’re definitely going to need to show ID in order to get a loan from a bank.

But what about depositing money into someone’s account? Is there any way to hurt them if you do this?

Certainly I know most people wouldn’t mind if an anonymous stranger (or maybe your generous grandmother) suddenly walked into the bank and deposited 100 lei into your account. But since that deposit counts as a declared asset, there is a chance that it came from a dirty source (your drug-dealing granny) and now you’re required to prove to the government that you acquired it legitimately so you might be harmed.

But if someone pays off your debt anonymously, how can you be harmed? You can’t. Paying off a debt does nothing to increase your assets. At most (assuming the debt is completely paid off), it returns you to zero. If a kindly drug dealer pays off your credit cards you’re still left with absolutely nothing “extra”. You haven’t made one cent in profit (or acquired an asset that you didn’t already have).

But let’s imagine that you have an enormous debt at the bank, like a mortgage on your house, and you still owe them 50,000 euros. And in comes a generous (and anonymous) drug dealer and they pay it all off. It’s true you don’t have one extra cent in cash but now you own a valuable piece of property that you could sell or do other things with.

Is it possible to launder money that way? No. But why not?

Because you still have a declared asset (the house) and you are still responsible for explaining to the government how you acquired it. Previously, the bank was the owner of the house (and it was their asset, even though you lived in it) but as soon as it becomes your asset now you are responsible for proving you acquired it via “clean” income.

Paper trails

Real money launderers (the “professionals”) know that the best way to launder money is by making the “trail” of money complicated and difficult to follow.

Instead of my example above, where a drug dealer opens a coffee shop and makes it look like they’re making 10,000 lei a week selling coffee, real money launderers use a long and complicated chain of “shell” corporations to hide money. Company A owns a coffee shop but Company A is partly owned by Company B and Company C, and Company B is partly owned by Company D and E, and Company C is partly owned by Company F and G, and Company F is registered offshore and is partly owned by Company H, which is registered in yet another country and yet is secretly owned and controlled by me.

Smurfing the government for smurfs and giggles

Smurfing the government for smurfs and profit, mostly profit

This makes it very difficult for the government to follow all these convoluted paths. So it’s a hell of a lot easier for them to simply require people to show ID any time they interact with the bank in any kind of way. They can then (theoretically LOL) look at the records later and see who deposited money where and when and in what amount and then (hopefully) reconstruct how the money moved around.

This is also Romania, where people are stuck in a Communist-era mindset, where you need to have an “official residence”, where you can get arrested simply for not showing police an ID and where the (easily forged) buletin is king. Therefore it’s just easier for banks to make up bullshit rules that say you need to show ID (and god help you if you’ve updated your buletin and it’s got a different number, even though it’s still your name, photograph and birthdate on there!) or else you can’t pay off a fucking 10 lei credit card debt.

But you can’t launder money via debts, no matter how hard you try. All you can do is make paper trails a little harder to follow. I can no more launder money by paying off someone’s credit card debt than I can launder money by going down to the Electrica or local Orange office and paying off people’s debts there.

In fact, I can walk all over this town, paying off debts at the gas company, the telephone company, the internet provider, restaurants, hair salons, bars, doctor’s offices, hospitals, furniture shops, department stores, dry cleaners and coffee shops anonymously but the second I try to hand over some cash for a credit card debt, suddenly I’ve got to prove who I am with a government-issued ID or else I’m potentially engaging in money laundering?

Bullshit.

2 Responses »

  1. You can’t launder money via payment of a debt, that much is true; however, you CAN bribe someone by paying off their debt. You are forgetting that bribery/corruption exists at a much lower level here than in North America, (e.g. paying police officers to avoid tickets etc) mainly due to low public servant salaries.

    • The concept of legal residence has nothing to do with communism. It appeared well before communism and it exists in countries which were never under communist regime.
      It’s a form of state control, yes, but not necessarily communism.

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