Criminal Capital

Risk is synonymous with banking. Every loan and refinancing arrangement is an exercise in risk management undertaken by banks in the knowledge that without risk there can be no reward and that there are as many dangers in not taking enough risk as there are in taking too much.

In May 2013, the Costa Rican currency business Liberty Reserve was shut down after an investigation, spanning 17 countries, found that the company had laundered an alleged $6 billion of proceeds from an array of criminal activities, including drug trafficking, child pornography, credit card fraud, identity theft, computer hacking, and identity theft. One of Liberty Reserve’s founders, Vladimir Kats, pleaded guilty to charges which carry a combined maximum sentence of 75 years. It is thought to be one of the largest ever cases of money laundering.¹

Because jurisdictions colloquially referred to as offshore centres are frequently accused of attracting more criminal capital than onshore centres, the similarities and differences between them requires some consideration. Is the criticism that offshore centres are essentially Treasure Islands controlled by modern day pirates with or without foundation?

In 2010, 3,111 murders were reported in Ciudad Juárez, the Mexican border city to the south of El Paso, Texas. To put this into perspective, London’s population is eight times the size of that of Ciudad Juárez, but in the same year the city’s Metropolitan Police handled 124 murder cases.¹ It is estimated that in the whole of Mexico, around 25,000 people are murdered each year, and there are regular group killings. The bodies of the victims are frequently dismembered or disfigured in some way, and groups of corpses left on display in public places are not unusual; an indicator of the power of the drug cartels and the consequences for those who oppose or betray them.

One white, crystal-covered ‘Bad Tour’ glove; a fedora worn by Michael Jackson onstage; a Ferrari 599 GTO; two Cape Town properties; three Piaget baguette diamond-studded watches; an André Charles Boulle antique cabinet; works by Degas, Renoir, Gauguin, Matisse and Bonnard; 1,403 bottles of high-end wine; 109 items acquired at the auction of the Yves Saint Laurent estate; a 12-acre Malibu estate; a six-storey luxury property in Paris; and a Gulfstream G-V private jet. These are among the assets listed in official documents as belonging to Teodoro Nguema Obiang Mangue, the 40-something international jet setting son of Equatorial Guinea’s longstanding president, Teodoro Nguema Obiang Mbasogo, who wrestled power from a family member in a coup d’état in 1979.¹ Teodoro Nguema Obiang Mangue’s penchant for the high life coincides with a career as Equatorial Guinea’s minister of forestry and agriculture for 14 years, and his subsequent appointment to the post of second vice president May 2012.

In October 2009, in a well-publicised incident, retired British couple Paul and Rachel Chandler were hijacked by pirates as they took a sailing holiday near the Seychelles on their yacht the Lynn Rival. Their boat was boarded by a group of pirates from Somalia who forced them to board a nearby ship, the Kota Wajar, leaving the Lynn Rival adrift. The Kota Wajar herself had been hijacked less than a fortnight earlier, and the pirates had set her to use as a ‘mother ship’ from which they could launch attacks, extending their operational range by many hundreds of miles from the Somali coastline where they had originated from. The crew of the Kota Wajar, a cargo ship originally sailing from Singapore to Kenya, had been captured, and a ransom payment had been demanded from the ship’s owners.

In June 2000, customs officials in Dover opened the back of a lorry which had just crossed the North Sea and was apparently carrying a cargo of tomatoes. However, in the darkness they found two barely conscious Chinese men along with the corpses of 58 others who were asphyxiated when the driver had closed the only air vent in order to prevent anyone from spotting them. It is believed that the smuggled migrants had each paid around £20,000 for the journey from their home province to the UK in search of work; a journey organised by Chinese snakehead gang members who had supplied false documentation and plotted the transit through several countries by sea, air, and land, and who stood to make a substantial, almost risk-free profit.

In February 2013, three men were convicted at Woolwich Crown Court in London of preparing an act of terrorism. The trio, Islamic extremists from Birmingham, had begun planning and organising an attack which they had hoped would be ‘another 9/11’; two of them had attended terrorist training camps in Pakistan, before starting to concoct homemade explosives. They and three others had also managed to raise over 13,500 which they intended to put towards their effort. This money was not obtained by requesting donations from sympathetic allies who wished to support them in planning the atrocity, but through bogus charity collections which exploited the goodwill of ordinary Muslims who believed they were donating to bona fide humanitarian causes. With the group wearing clothing and carrying collection buckets emblazoned with the logo of a genuine charity, Muslim Aid, which had been legitimately obtained when one of their number registered as a fundraiser, the donations were solicited from the local population door-to-door.

In the past few years, fines and settlements totalling around $11.5 billion have been paid out by a number of global banks for skirting sanctions regimes. Whilst this activity does not earn the label of money laundering or facilitate crime in the same way that, say, bribery and tax evasion do, the extent of this practice in major financial institutions has been uncovered in a number of large-scale investigations over recent years. As is the case with excessive risk taking and mis-selling of financial products, the sorts of failures in mechanisms to prevent and deter this kind of activity are also common to both money laundering and the facilitation of crime.

In 1998, Starbucks opened its first outlet in the UK. Since then, it has opened over 750 coffee shops across the British Isles. To anybody with even a basic grasp of economics, it may come as a surprise that, despite such growth, Starbucks claims that it has ‘found making a profit in the UK difficult’.¹ It is a wonder that a business would continue to operate hundreds of outlets if it were failing to make any money, least of all in a recession. The turnover may suggest differently: in 2012 it was reported that since 1998, Starbucks had recorded sales of over £3 billion in the UK. Tax paid in the same timeframe amounted to £8.6 million, or 0.3% of its turnover. After significant public pressure, not to mention a grilling by MPs, Starbucks has since congratulated itself on deciding not to claim tax deductions for royalties or payments related to intercompany charges for interest and mark-up on the coffee it buys.² From beneath the warm glow of its halo, it says that the move is ‘unprecedented’, but will allow the chain to ‘contribute more’. Whilst it has chosen to pay around £10 million in corporation tax in 2013 and 2014, its example seriously undermines the clout of revenues collectors and lawmakers.

A new chapter in social and economic history was opened on 15 September 2008 when Lehman Brothers Holding Inc. collapsed under debts of $613 billion in the US’s largest ever bankruptcy. Ripples swelled to waves and one by one the major names in international finance became engulfed by the threat of total ruin. Governments across the globe pumped trillions into the global financial system to calm the waters and halt contagion. Six years after the crisis started and the dominos are still falling: job seekers, evicted homeowners, and users of public health and education systems worldwide continue to experience the daily effects of cuts and austerity. As the spotlight has remained on the industry other harmful and abusive practices have been revealed, with new scandals emerging with monotonous regularity. Despite this, the discourse around preventing a repeat of the events of 2008 appears to be sliding down the agenda, especially with recent figures indicating that economies are in recovery and the World Bank proposing that the global economy had reached a ‘turning point’ in 2014.