Capitalism’s Achilles Heel
True or false? Legal & illegal businesses use the same banking system.
True
Criminals (ex: drug dealers) may need to handle large volumes of cash. They will have regular-looking people deposit a few thousand dollars at a time into variously named accounts at different banks, keeping the amount under $10,000 so as to not raise attention. This practice is known as what?
Smurfing
This British-American investor founded Hermitage Capital Management and became one of the largest foreign investors in Russia before being expelled.
Bill Browder
This massive 2016 data leak exposed offshore financial dealings of politicians, business leaders, and celebrities worldwide.
the Panama Papers
What was the focus of this article?
How corporations challenge the law and how they routinize [normalize] crime.
What were the CEO's accounts of what happened, and why the companies did what they did?
A basic principle of laundering money is that it's easier to hide illegally-earned money by doing what?
Moving it around.
Burying it under layers of ‘companies’ that don’t have the real owner’s name on most of the documents.
To hide millions of dollars in illegal cash, what might a criminal do (with the physical cash)?
Hide the cash in items being shipped abroad, e.g., appliances, overstuffed furniture, machinery, coffins, industrial products, corpses.
This Russian lawyer working for Bill Browder uncovered the fraud and later died in custody under controversial circumstances.
Sergei Magnitsky
This Panamanian law firm was at the center of the massive data, specializing in creating offshore shell companies for rich people, politicians, and criminals alike.
Mossack Fonseca
What criminological (theory) framework did Evertsson use to explain the companies' actions?
Sykes and Matza’s techniques of neutralization
Denial of victim, denial of responsibility, denial of injury, condemn the condemners, etc.
Mispricing is a technique for hiding dirty money. Example: A Venezuelan businessman calls on a U.S. machinery manufacturer to negotiate purchase of up-to-date equipment for his factory in Caracas. After hard bargaining, they settle on a price of $1 million.
What will the seller ask the buyer to do regarding the invoice?
Have the invoice reflect a purchase price of $1,200,000. That way, the extra $200,000 will go into his bank account.
Clue that something isn’t right – the listed price for something is TOO HIGH.
Having a bank (ex: Deutsche Bank) set up off-shore accounts and other vessels to hide your (illegal) money so you can avoid paying taxes -- what is this treatment known as, for you as a bank's very special client?
White-glove treatment
This was the main allegation uncovered by Browder’s lawyer involving a $230 million tax fraud scheme carried out by Russian officials.
Massive tax refund fraud
The massive data breach revealed that 90% of shell corporations set up by the law firm in question are incorporated in just four tax havens. Name one (1) of those tax havens.
British Virgin Islands (114,000 firms)
Panama (48,000)
the Bahamas (16,000)
the Seychelles (15,000)
What was the source of the data used in the article?
Reports by investigative journalists published in Latin American newspapers about the Panama Papers scandal.
How can you tell that a company is a 'dummy corporation' rather than real company?
A dummy corporation will have, for example, a computer, a letterhead, and a bank account. No real people work there. There will be no office.
Raul Salinas received clandestine services from Citibank beginning in 1992. Citibank set up a string of anonymous trusts, int’l business companies, and secret bank accounts for him. This came to light in 1995 when he was arrested on suspicion of murdering his brother-in-law. What politician was Mr. Salinas connected to?
He's the brother of Mexico’s former president.
Browder has accused this Russian leader of ultimately benefiting from or being connected to large-scale corruption schemes.
Vladimir Putin
Avoiding paying taxes is one reason people/companies use secret offshore accounts. What is another reason?
To facilitate bribery of corrupt government officials
To siphon off (steal) corporate assets into shareholder bank accounts
One of Mossack Fonseca's clients, Rafael Caro Quintero, was the one-time head of a Guadalajara drug cartel. He wound up on the FBI's 'most wanted fugitives' list. What Netflix series featured him as a character?
Narcos Mexico
What is a good location to set up a dummy corporation?
Anguilla, Antigua, Aruba, Bahamas, Belize, Bermuda, the British Virgin Islands, Barbados, Cayman Islands, Dominica, Grenada, Montserrat, the Netherlands Antilles, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, and the Turks and Caicos Islands. Or there are Panama and Costa Rica in Central America and Uruguay in South America. In the Pacific Ocean, the Cook Islands, the Marshall Islands, Tonga, the Maldives, the Marianas, Nauru, Niue, Vanuatu, and Western Samoa. Hong Kong, Macau, Singapore, Labuan off the coast of Malaysia, Bahrain, Dubai, and Lebanon. In Africa, Mauritius, the Seychelles, South Africa, Liberia, São Tomé and Principe and the little enclave of Melilla, one of two parts of Spanish Morocco.
In addition to fake goods, what types of services could be faked (fake businesses offering services) to facilitate money laundering & hiding money?
Fake consulting services, public relations, advertising, legal advice, financial planning.
This U.S. law, passed in 2012, was named after Magnitsky and targets human rights violators with sanctions.
Magnitsky Act; or the Sergei Magnitsky Rule of Law Accountability Act
According to the O’Donovan et al. (2018) article "The Value of Offshore Secrets: Evidence from the Panama Papers" published in the Review of Financial Studies, the social cost of corruption (ex: bribing gov't officials) is in the trillions, billions, or millions?
Trillions
Estimated at $2.6 trillion, or 5% of global GDP per year
This former Prime Minister of England was exposed as being a Mossack Fonseca client who had secret offshore accounts
David Cameron