Foundations of the #MoneyLaundry – A Twitter Seminar

Originally a Twitter thread. January 4, 2020

I note here: there will be homework, because seriously, you’ve gotta have basics.
Do the reading. I’m not sending you at books, just articles. I’ll screenshot if it comes from a high word count source.

Money laundering is the process of
evading taxation
legal obligations such as payroll taxes
Obscuring the documentation of income from illegal actions or sources. It’s a crime of its own, but money laundering is what makes crime pay.

Truly: if we were serious about crime, we’d take most of the cops off the streets and replace them with accountants. Taking down the financial underpinnings of a criminal enterprise is way more effective than busting their entry level contractors.

Money laundering can be incredibly simple — Joe sells weed, Bill has a sandwich shop. Joe needs pay stubs so he can buy a house, Bill’s shop isn’t making quite enough money yet. Joe hands Bill $500 in cash a day, Bill puts Joe on payroll. Bill rings the $500 through the cash register as 10 extra orders, pays Joe (including payroll taxes) $250 a day of legal money, and keeps the rest as profit. Assuming Joe doesn’t get busted, this can continue indefinitely as long as they keep trusting each other.

Money laundering always loses money. It’s the opposite of profit.

From Joe’s perspective, it’s better to have half of his weed income look 100% legit than to have no legitimate income & a lot of cash he can’t use to buy anything big. From Bill’s perspective, he’s providing Joe a service. They’re both taking a risk, they would both go to prison for it, but if they’re careful, it’ll keep working.

This is kindergarten level money laundering, but it works if neither one gets greedy, stupid, or paranoid.
But we’re talking criminals, so yeah, these arrangements tend to break up.

The small businesses most likely to be involved in this retail level of money laundering are similar: high turnover, low inventory, mostly cash based, service industries.

Corporate owned shops usually have better auditing, so think indie small business — vending machines, bars, small hotels, restaurants, salons & spas, tattoo shops, gyms, car washes, convenience stores, cleaning services, car repair/customization/used parts.

Pawn shops, payday loans, casinos, & gun retailers are also involved, usually above ground level, retail laundering.

Above that, there’s business service laundries – trash haulers, accounts receivable financing (think payday loan for business), construction, contracting.

Above that, there’s shell corps & various property schemes like Real Estate Investment Trusts (REITs), because the ultimate goal of money laundering is to turn Joe’s weed money into real property he can either sell at a profit or rent out, so he’s not a 65 year old drug dealer.

But money laundering always loses money at every level. Money launderers are service providers, so they always pay themselves first.

The clean money is the product; it’s just dirty paper when it enters the laundry, because it cannot be spent for real property.

Let’s say Joe has a clever daughter who wants to study botany. Joe can’t send Northwestern a wad of bills for her tuition and she needs his income for her FAFSA. Joe needs a laundry so he can stand up to audit, even if he sends her weed bucks for living expenses.

Gold, shell corps, and real estate trusts are what enable money laundering.

Gold because it’s fungible – it’s hard to trace & pretty compact.
Oil, diamonds, 500€ notes & US $100s too, for same reason.

First reading assignment: Gold Worth Billions Smuggled Out Of Africa — Reuters

Shell corps hide identity.
You can use this primer on the Panama Papers as a start point, but Wyoming & South Dakota LLCs are also part of the shell process, too. Often US shells are quite effective end-stage laundries.
2nd reading: What Are The Panama Papers? — The Guardian

Shell corporations evolved as a way to limit liability, first for shipping, then for anything with risk.

For an investor, it makes sense to isolate a project in its own corp, because if the project goes bust, those injured can only get that project’s assets, not everything.

(Don’t assume I approve of any of this.)

Set up enough nested shells in various jurisdictions? Anyone trying to sue is going to have to contend with the courts in multiple states/nations, and probably won’t have the money to keep going.

The Trumps use this frequently.

Shells are most useful for limiting civil litigation; they’re not proof against criminal indictment.

Alas, most of the developed world treats financial crime as a civil matter. It’s rare to see execs go to prison for wage theft, malfeasance or selling junk products.

Why do financial crimes tend to be treated as civil?
Because the people who wrote the laws didn’t want their own profitable behavior criminalized.
I present lobbying at work. See: the NRA got legislation that makes it illegal to sue gun manufacturers for selling deadly products.

Real estate is the 3rd leg of the #MoneyLaundry.
It’s the long-term holding instrument. Proceeds from real estate (rent, capital gains when sold) are clean — that money can be traced to people with alibis.
Full text of the image below here

A screenshot of a briefing from the European Parliament on understanding money laundering through real estate transactions.

Further, real estate is legit capital — it’s collateral for a loan, which is a big wad of legit cash with a paper trail.
Half-laundered cash can pay that loan back. As long as you can fake a paper trail, the bank will probably take it.

See Manafort, Paul

Why does this matter right now, given this Iran attack, and who knew what was happening first?

Because Iran, Turkey, Russia & Trump are what happens when the #MoneyLaundry goes multinational.

There’s been a GIGANTIC gold smuggling op running through Turkey, United Arab Emirates and Iran for as long as Iran’s assets have been frozen.

This has been about survival for Iran — there’s some stuff every nation must import and Iran has been barred from most legitimate trade.

Here: Imprisoned Iranian businessman confesses to gold trade through Turkey
And How a ‘Turkish crime ring’ helped Iran get gold, supplies
And How 7.4 Tons of Venezuela’s Gold Landed in Africa—and Vanished (paywall)
(Also see the Kingstons. There’s gold in them thar polygamists and their biodiesel scam & their We Buy Gold storefronts…)

Part of the Iranian peace deal was to get Iran access to their OWN $10 Billion that’s been frozen since 1979, to reduce their reliance on smuggled gold & the mobsters who thrive off the crimes of smuggling, money laundering & exploitation.…

Text from about the Iranian peace deal

Because Iran is full of people, who need luxuries like vaccines, antibiotics, dialysis, tires, bananas, autoclaves, computers, civilian aircraft parts, etc.

(The history of the US conflict with Iran is goes back to the 50s, but the regional history? Start in the Roman Empire.)

Is Iran innocent? No. Nor anyone else in the region, nor in the world.

Here’s the important part.
Western Europe gets about half its oil & most of its natural gas through the Black Sea, Turkey & the Mediterranean.
It’s always cheaper to ship by water than over land.

Map of Central-Eastern Europe and Western Asia

Why did Russia invade Crimea?

Because it gives Moscow access to the Black Sea via the Sea of Azov. 👉 (The Don river flows into Azov, is navigable to within 100 miles of Moscow; there’s rail & road already built.)
And it cuts eastern Ukraine off from that same tiny passage 👈.

Detail map of Ukraine with specifics pointed out

Why did Russia want that? Because getting oil & gas to Western Europe through the Bosporus (in Turkey) is cheaper than overland/new pipes. Look at the web of pipelines and refineries. Note they don’t go to the Arctic.
Russian oil/gas is expensive to produce, still using old tech.

Map of Russian oil Pipelines, refineries and oil producing regions

Russian Oligarchs (not the state) have most of this money. Part of the sanctions against them for invading Crimea means nobody is supposed to do any financial business with those specific people. The oligarchs (including Putin) have been shut out of western banking.

Which doesn’t mean they aren’t getting money. They are. They just can’t use it to buy anything they really want, like a Miami skyscraper or a Mercedes for their teenager.

It’s like Joe’s problem above of paying his daughter’s tuition, except on a nation-state level.

Oligarchs used to use banks in Cyprus to convert their crime money into more stable EU based investments. Billions were stashed there, used to pay for everything outside of Russia — including to Paul Manafort for fucking with Ukraine.

But eventually, everybody realized what was going on (criminals not being good at subtlety, restraint, or discretion).

The EU forced Cyprus to fix it, and Cyprus is now on their way to being less crime-y.

Homework: Sources: Cypriot Police Raid Bank in Money Laundering Probe

So that’s Russia’s dog in this fight.

Now Russia & Turkey didn’t used to get along. Long running bicker with occasional fist fights is the best characterization. (Russo-Turkish wars)

But they’ve now got financial interests in common, called Cyprus.

Not only did Cyprus launder Russian money, they laundered Russian citizenship – Russians with money could buy Cypriot citizenship, and then into the EU. (2022 note: search “golden passports” because it was never just Cyprus.)

Homework: New life in Limassol: If you can’t launder Russian money, then launder the Russian

(Please don’t forget, Trump’s Commerce Secretary, Wilbur Ross, used to run a Cypriot bank.)

Homework: Trump’s commerce secretary oversaw Russia deal while at Bank of Cyprus

Turkey thinks Cyrpus is theirs.
Greece and Cyprus disagree.
They’ve been fighting over it since… at least 1571, but you could go back to Athens, Sparta & Peloponnesian Wars and few people would object.

(Arid climates — lots of war over water & the products of water.)

So: Russia wants Turkey to let them ship oil & natural gas through Turkey’s Mediterranean access (red arrow, Bosporus) and in return, I suspect Russia will support Turkey’s claim to Cyprus, because if Turkey controls Cypriot banking, they’ll restart the Russian money laundry.

Map of the Black Sea, with the Bosporus Strait highlighted with a red arrow

Turkey would get A GIGANTIC CUT and Erdogan could resurrect the Ottoman Empire in his own image, kill the Yazidi (whom he considers heathens) & the Kurds (whom he considers worse) and both Putin & Erdo get to spit in the eye of all of northwestern Europe.

Dictators dream big.

2022 note: the long-simmering bicker between Russia and Turkey is back to a warm-to-hot bicker now; Turkey has already closed the Bosporus to new Russian war ships. Any ships based at Sochi or Novorossiysk may return to base, but nothing that’s based in the Baltic or the Pacific will be permitted. No new toys allowed in the bathtub of the Black Sea. And given EU sanctions, since Turkey is an EU member, oil tankers should not or will not be leaving the Black Sea. Watch that space.

Iran and Russia historically didn’t always get along, but they could tolerate each other.

They’ve become allies now mostly because of sanctions — USSR wasn’t a fan of religious extremists; Russia isn’t a fan of Islam; Iran doesn’t like state atheism or Russian Orthodoxy.

However, BECAUSE they’re both sanctioned, they mostly can’t trade with the rest of the world. They both have advanced industrial capacity, nobody’s policing the Caspian/Azerbaijan, and their needs mostly compliment each other.

They’ve found a trade alliance they can make work.

Map of the Caspian Sea region, showing Iran, Azerbaijan, Russia, Kazakstan, Uzbekistan, and Turkmenistan

And common enemies. I’m not the person to go into the Shia-Sunni divide. Just accept it’s real & causes strife.

Russia and Iran both have reasons for resenting Saudi Arabia that are mostly about oil and/or water, but the religious divide is a huge issue.

Turkey’s role is complex, and again, it’s not my area. I barely have a grasp on why Erdogan is like this, but Erdogan seems to embody some incredibly long-simmering resentments and conflicts Turkey has had with both Europe and the Mideast.

Now? I think Turkey is moving towards alliance with Putin, Iran’s sanctions-evasion support structure, and US based money laundering infrastructure because Turkey needs the money. (2022 note: a lot changed in 2 years, but alliances of convenience characterize many of the relationships in the region.)

Germany, in control of EU funds, can be shitty towards Turkey. 2 years ago: Homework: Turkey: Angela Merkel calls for reduced EU funds

Money is maybe part of Turkey’s resentment towards UAE & Saudi Arabia. Erdogan seems to think the Gulf States should still be part of the Ottoman Empire thus Gulf States’ money rightfully belongs to Turkey (except the English, French & Germans screwed it all up in WWI).

Map of the Ottoman Empire in 1862

Iran disagrees with Turkey on the point of which empire — they were the even older Persian Empire and they were there before those upstart Ottomans could even read, thank you very much — but they do agree that the Gulf States are rightfully part of an Empire.

UAE and Saudi Arabia obviously disagree with both of these reads on the situation (can’t blame them), plus there’s that religious conflict that has been simmering for over 1000 years, and I’m not the person to explain that.
But they fight over it.

This is an over simplification, but it’s like an HOA conflict. This is old neighborhood stuff that just keeps compounding with new slights. Everyone says everyone else started it.

Right now? It’s also water rights, which climate change is exacerbating, and oil, which is ending.

Now, the Trumps come into this because they’ve been a money laundry for decades. The Trumps started out laundering their own money to avoid paying taxes on it. (Theirs is a classic method.)

Homework: New York Times: Trump Engaged in Suspect Tax Schemes as He Reaped Riches From His Father

Then there’s the Trump Casino and the real estate.

When a family launders their own money, there’s a real good chance they’re also laundering someone else’s money. They’ve got the tools and skills, so why not? It doesn’t change their risk of prison. It just increases their profits.

See: Kingstons

So: how does one launder money through a casino? It’s actually pretty easy if you’ve got the management on your side.

You send some mooks in to lose money at the tables – they play stupid blackjack/craps/roulette. Their job is to lose to the house.

The casino keeps about half of that and issues a win to the boss/boss’ wife/kid. All that matters is the boss gets an IRS certificate and a legit check. The check goes in the bank, the certificate to the accountant, it looks clean as long as nobody looks too close. (2022 note: this access is NOT easy to get.)

My suspicion? A normal casino takes a BIG cut, but Trump was already involved with the mob. They flattered/blackmailed him into keeping a MUCH smaller cut of the dirty money.
See: Poles, concrete

See: Trump’s resume is rife with mob connections

(I can’t prove that, but it fits with the way Trump does business and how easy he is to manipulate.) (2022 note: this is part of what caused NYC DAs to quit in protest in February, 2022, when Cy Vance decided not to move forward with prosecution.)

Of course, it’s illegal for casinos to do that kind of laundering, but it’s never stopped anyone in Atlantic City gambling.

Which is also how you get people like Sheldon Adelson & Steve Wynn in the Trump orbit — they’ve all got laundry interests to protect.

Oil money is a major revenue source.

It’s important to recall that a lot of these relationships are also old — the players have been a web of allies for many years in many cases.

They’re like Joe and Bill keeping Joe’s mortgage paid and the sandwich shop open by cooperating to mutual profit.

You find the roots as far back as the 70s oil crisis, and definitely in the 80s & 90s during the simultaneous chaos of the collapsed Soviet Union, and the destruction of the Italian mob. The Russians (& others) moved into the NYC mob scene, with a lot of strange money to wash.

(You thought junk bonds just poofed into existence? That’s ALSO a form of money laundering. 1981 article. The more things change…MUNICIPAL BOND MARKET: MEANS TO LAUNDER FUNDS )

The Trumps were regional players then, but Fred & Donnie caught the scent of money and that’s when their real estate end of the laundry started. You can see it in Trump’s inflated/deflated income statements
Here are the documents Michael Cohen brought to Congress

And in the $95 million tear down (this one was also the Russian guy sheltering a HELL of a lot of dirty money from his soon-to-be-ex-wife in the divorce)
Why did a Russian Pay $95M for Trump’s Palm Beach beach mansion?

And the empty buildings …

And the weird side gigs… (Vodka, water, steaks, MLMs, scam “education”… )

What all these things have in common?
Untraceable income
Minimal accountability
Concealed debt
Puffery about actual financial status.

So YES, this is complex & convoluted. It’s how you get away with money laundering. Baffle with bullshit.
But the complexity is also the massive amounts of money — hundreds of billions, if not trillions. While it’s mostly securitized debt, it also represents power & score keeping.

We are talking about the bulk of the wealth of 20% of the landmass of the planet — when the Soviet Union fell apart, a fuck of a lot of people called dibs on the wealth that the people of the Soviet Union had built for 80 years.
Plus a metric shit-ton of foreign aid & investment.

There’s drugs -from cocaine & heroin to oil itself.
We’re all fossil fuel addicts.
Count how many things are made of plastic just within your line of vision. Don’t forget upholstery, carpet, laminate floors, elastic clothes, keyboards, your corrective lenses.
Yer a junkie, Harry.

Hagrid: You’re a wizard, Harry

To an extent, this criminality is unimaginable, in part because most of the money is more or less imaginary. Debt, starting with nation level bonds, is money that’s imagined into extistence by group consensus. Wealth in bonds & stocks is commodified debt, not actually an asset.

If we, globally, made everyone lay all their debts on the table? We’d see how little actual wealth actually exists. (But rich people whine and throw tantrums when we do that, and more importantly, have written the law codes to prevent it.)
It’s outside of functional scope.

And because the scale of the fraud is so enormous, journalists are having a problem integrating and explaining how it all connects without sounding like they’re ranting about Bilderberg and Bohemian Grove.

Gif: Man With murder board, ranting and smoking a cigarette

It took me all afternoon to give this oversimplified Twitter version. This isn’t easy.
But there is a simple way to frame it: people with lots of money tend to get a lot of access to political power. They use that access to encourage legislation that benefits themselves. They push the boundaries of the law on the principle that they’re unlikely to be caught.

For the most part, they are not caught, because they’ve ensured the law enforcement apparatus is weak. They know there’s a lot of profit at the margins, where their actions won’t be sanctioned, and if they are caught, they’ll likely avoid much penalty.

People with lots of money tend to know each other, and to use the same tools & connections to protect their money and assets.

The tools of money laundering are also the tools of business.

Money laundering exists when the financial laws are written to be weak.

These networks of alliance & commerce enable and fund turf wars. Which are themselves a major source of profit.

Sometimes the turf war is over an acre of Las Vegas. Sometimes it’s over the entire Tigris-Euphrates watershed.

Mostly it’s fought with lawyers, but also guns.

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