The phrase “money laundering” encompasses a variety of methods adopted by individuals and institutions to bring into the domain of respectable “white money” such assets as they have acquired by unlawful means. Basically, there are four routes that are followed in the white-washing of “black money”. These are –
Route 1 – Making and investing black money locally;
Route 2 – Making black money locally and transferring it overseas;
Route 3 – Making black money overseas and investing it there;
Route 4 – Making black money overseas and exploiting government incentives to invest it locally whilst maintaining control from overseas.
It is amazing how inventive a surprising number of our fellow citizens can be in acquiring black assets and making them look clean. From the very outset, we ask those who are normally quite honest in their conduct but who have no compunction about cheating on taxes, customs duties, stamp duties and so on to get back to the straight and narrow path because that is not only the correct thing to do but it will have the added benefit of giving them restful sleep, undisturbed by fearful nightmares! This appeal is not addressed to incorrigible crooked politicians and their accomplices, who can only be dealt with by getting a greater number of honest People’s representatives into Parliament, improving our anti-corruption legislation and machinery, and making the penalties so severe (long prison sentences and confiscation of property) that even the most reckless malefactors would hesitate to go down the wrong road with total impunity, as they do now.
It would take more than a newspaper article to describe the many techniques that are applied to the laundering of unlawful earnings and we, therefore, touch here only the outlines of the subterfuges employed.
Probably the most frequent resort to money alchemy is in the selling of land, with part of the transaction being in undeclared money. The primary object of offering or accepting such money is the wish of the parties to avoid disclosing that they possess funds they cannot account for. The buyer thinks that it is no sin (even though it is a crime) to cheat the State of the stamp duty that is payable and gets the seller to accept a part of the consideration outside the amounts recorded in the deed of transfer. In the next stage, the seller will probably buy some other undervalued asset utilizing the illicit money he receives. These would comprise investments such as real estate, jewellery, coins, stamps, works of art etc that could be sold for much higher prices later on without detection.
Following Route 2 would enable the conversion of black money into a more internationally transactable form. Here, the accumulator of black money would buy gemstones or gold locally, have them smuggled out, and sold in the receiving countries for hard currencies. Not many decades ago, when X-raying of baggage was not the rule, even well-placed persons hid gems in cakes or other cooked foods and took these along with them on their foreign trips! There is much less need at present for smuggling of this genre but operations to sneak out high-value parcels undoubtedly continue, as evidenced by the number of stratagems that are employed to dodge Customs’ surveillance. The worrying certainty is that the number of interceptions made by the authorities is only “the tip of the iceberg”.
Professional smugglers of gems, jewellery and foreign currency often secure the help of certain frequent travellers with diplomatic immunity whose luggage is not subject to examination by Customs. Even the sanctity of the diplomatic pouch is violated. These contemptible procedures were frequently adopted in the past and continue without diminution. Sometimes, it is not only the contraband goods that are carried through but powerful politicians are known to help their underworld accomplices past Customs and Immigration so that they could spend the illicit foreign exchange earned on buying real estate and living the high life overseas.
Procurement contracts are a rich source of income for those who already have enough but want even more outside the Country. They follow Route 3. We must not delude ourselves into thinking that it is only politicians who resort to getting foreign goods and services over-invoiced. Top businessmen also participate when suitable opportunities present themselves. The supplier is paid a price that includes an unconscionably high “agent’s commission” or “management fee”. Although there are laws to limit such commissions and fees, it does not require a great deal of ingenuity to get around them. The commission or fee is paid to the person who influences the awarding of the contract and is credited to a bank account in the supplier’s country. A particularly fruitful area for this kind of transaction is in the buying or leasing of aircraft and ships, and purchasing arms. Lockheed, Boeing and Airbus are a few of the companies have been implicated (as suppliers) in such deals in the past. In one Arab country, the commission alone on one transaction involving certain aircraft purchases was found to be over US$450 Million!
This kind of money may be kept overseas (Route 3) or returned to the home country as a “foreign” investment (Route 4).
A convenient way to handle the “hot” money received overseas is to invest it in a private company there, utilizing the services of a firm that specialises in this kind of facilitation, while protecting the identity of the principal investor. The new company will invest its accumulated foreign currency, with advantageously negotiated investment protection and generous tax breaks back in the home country, in, say, a high class tourist hotel. The ill-gotten bribe collected overseas is thus transformed into a legitimate business enterprise operating locally with far more incentives than local companies could obtain. In the process, the facilitating firm would arrange for one or more secret bank accounts to be opened on behalf of his client in the Canary Islands, Bermuda, Luxembourg, the Seychelles, Switzerland or somewhere else, and keep transferring the principal investor’s funds from one tax haven to another until the trail becomes too complicated to be traced back to the original procurement contract.
Running gambling businesses, including casinos, is a complex task but it is a powerful tool for money-laundering along Route 2. The tax authorities in countries where casinos have been operating for a long time have generally worked out systems for collecting substantial percentages of the turnover or profits (upto 40%, it has been reported) and to monitor their foreign exchange remittances. Singapore has done this exercise more recently. On the other hand, how precisely the profits and foreign exchange earnings of Sri Lanka’s existing casinos are monitored by the tax authorities is a mystery which we do not have the means to probe. All we know is that, for local casinos (all of which operate illegally, without a license), only a flat tax of Rs5-25 Million per annum per casino is levied by the Department of Inland Revenue. However, unconfirmed reports indicate that new, large-scale foreign investors in casinos may not be charged any tax at all! One is tempted to guess that the diversions they provide may not even be called “gambling” by our hyper-patriotric legislators but “ancillary tourism activities”.
How much of the bets will be in foreign currency and how much in local currency is anyone’s guess. Whether there is a mechanism available for ensuring that the foreign currency income of a casino will be processed through the Central Bank to help to boost our foreign currency position is also not known, the likelihood being that there is none. It would be no surprise if it is revealed one day that a good part of the foreign exchange surrendered to the casino for betting was being funneled out to some tax haven so that neither Sri Lanka nor the country of the casino-operator would benefit.
A repetitive resort to Route 2 is probably the one adopted by the drug trade. The operatives sell their drugs locally for rupees and obviously exchange these for gold or undeclared foreign currency, which is then taken out to pay for the next consignment of drugs, after retaining the profits overseas. As for how the drugs are brought in, our Customs authorities do keep the public informed from time to time about the more spectacular modalities employed. However, there is no little misgiving about how many more tins of grease or other containers get through at close intervals of time without being detected.
To bring the crime of money laundering under reasonable control has to be achieved by implementing a better method of selecting candidates for election as the People’s representatives. We also need to change our Constitution drastically to achieve a far, far better separation of legislative, executive and judicial powers than we have with the 1978 Constitution, especially after it was made immeasurably worse by the egregious passing of the 18th Amendment.