As for where the funds generated by money laundering reside, I suggest that the best place to start is offshore. Conservative estimates place the funds controlled by offshore centers at $5 trillion - which increases by $500 billion each year

From Bloomberg
Mar 31, 2013 6:30 PM EDT
By Simon Johnson

Money laundering by large international banks has reached epidemic proportions, and U.S. authorities are supposedly looking into Citigroup Inc. and JPMorgan Chase & Co.

Governor Jerome Powell, on behalf of the Board of Governors of the Federal Reserve System, recently testified to Congress on the issue, and he sounded serious. But international criminals and terrorists needn’t worry. This is window dressing: Complicit bankers have nothing to fear from the U.S. justice system.

To be on the safe side, though, miscreants should be sure to use a really large global bank for all their money-laundering needs.

There may be fines, but the largest financial companies are unlikely to face criminal actions or meaningful sanctions. The Department of Justice has decided that these banks are too big to prosecute to the full extent of the law, though why this also gets employees and executives off the hook remains a mystery. And the Federal Reserve refuses to rescind bank licenses, undermining the credibility, legitimacy and stability of the financial system.

To see this perverse incentive program in action, consider the recent case of a big money-laundering bank that violated a deferred prosecution agreement with the Justice Department, openly broke U.S. securities law and stuck its finger in the eye of the Fed. This is what John Peace, the chairman of Standard Chartered Plc, and his colleagues managed to get away with March 5. The meaningful consequences for him or his company are precisely zero.
Chairman’s Statement

At one level, this is farce. Standard Chartered has long conceded that it broke U.S. money-laundering laws in spectacular and prolonged fashion. In late 2012, it entered into a deferred prosecution agreement with the Justice Department, agreeing to pay a fine that amounts to little more than a slap on the wrist (in any case, such penalties are paid by shareholders, not management).

Then, on a March 5 conference call with investors, Peace denied that his bank and its employees had willfully broken U.S. law with their money-laundering activities. This statement was a clear breach of the deferred prosecution agreement (see paragraph 12 on page 10, where the bank agreed that none of its officers should make “any public statement contradicting the acceptance of responsibility by SCB set forth above or the facts described in the Factual Statement”). Any such statement constitutes a willful and material breach of the agreement.

This is where the theater of the absurd begins. For some reason, it took the bank 11 business days, not the required five, to issue a retraction. No doubt a number of people, in the private and public sectors, were asleep at the switch. (The Justice Department and Standard Chartered rebuffed my requests for details on the timeline.)

The implications of the affair are twofold. First, with his eventual retraction, Peace admitted that he misled investors. It also was an implicit admission that he had failed to issue a timely correction. Waiting 11 days to correct a material factual error is a serious breach of U.S. securities law for any nonfinancial company. Wake me when the Securities and Exchange Commission brings a case against Standard Chartered.

Of course, it’s possible that Peace didn’t deliberately violate the deferred prosecution agreement because he hadn’t read it, or at least not all the way to page 10. Peace is an accomplished professional with a long and distinguished track record. Everyone can have a forgetful moment. That still doesn’t explain why the bank took so long to correct the facts.
Leadership Matters

Tone at the top matters, as reporting around JPMorgan Chase and its relationship with regulators makes clear. Will Chief Executive Officer Jamie Dimon be more cooperative than he was, for example, in August 2011 when he refused to provide detailed information on the goings-on in his investment bank?

Why hasn’t Standard Chartered’s board, which is made up of talented and experienced individuals, forced out Peace as a result of this bungling? (I called for his resignation on my blog last week.)

The only possible explanation is that the board thinks Peace did nothing wrong. They may even regard U.S. laws as onerous and the Department of Justice as heavy-handed.

They would be entitled to their opinions, of course. But if they would like their bank to do business in the U.S., the rules are (supposedly) the rules. If used appropriately, permission to operate a bank in the U.S. grants the opportunity to earn a great deal of profit.

At a recent congressional hearing, Senator Elizabeth Warren of Massachusetts asked what it would take for a company to lose its U.S. banking license. Specifically, “How many billions of dollars do you have to launder for drug lords?”

Powell, the Fed governor, replied that pulling a bank’s license may be “appropriate when there’s a criminal conviction.”

I have failed to find any cases of the Fed ordering the termination of banking activities in the U.S. for a foreign bank after a criminal conviction for money laundering. Nor, for that matter, has the Fed taken action to shut down a bank that signed a deferred prosecution agreement, which, in the case of Standard Chartered, was an acknowledgment of criminal wrongdoing. Nor has it taken action when such an agreement was violated.

To see what the Fed is empowered to do under the International Banking Act, and working with state authorities, look at the case of Daiwa Bank, which received an Order to Terminate United States Banking Activities in 1995. Note to big banks: Don’t allow illegal trading in the U.S. Treasury market; on this, we may still have standards. By the way, in the case of Daiwa, there was no criminal conviction.
Cleaning House

Last summer, when Barclays’s Chief Executive Officer Robert Diamond was less than fully cooperative with the Bank of England in providing details of the Libor scandal, he was gone within 24 hours. Any bank supervisor has the right and the obligation to force out a manager who impedes the proper functioning of the financial system.

The new CEO of Barclays is trying to clean house. The obstreperous approach of the previous management set the tone for the entire organization, creating a mess of macroeconomic proportions.

Will any senior executives at Standard Chartered be forced out? Could the bank lose its ability to operate in the U.S.? Based on what we have seen so far, neither seems plausible.

If Standard Chartered violates its cease-and-desist order with the Fed, would it then lose its license? Not according to what Powell said in his congressional testimony. The Fed has no teeth whatsoever, at least when it comes to global megabanks, hence the continuing pattern of defiance from JPMorgan and Dimon.

If you or I tried to launder money, even on a small scale, we would probably go to jail. But when the employees of a very big bank do so -- on a grand scale and over many years -- there are no meaningful consequences.

From Dirty Dealing

Money Laundering Statistics

At an individual country level….

In 2000, illegal narcotics sales in the United States were estimated by the White House Office of National Drug Control Policy (ONDCP) Drug Policy Information clearinghouse as being: $36 billion spent on cocaine, $11 billion on marijuana, $10 billion on heroin, $5.4 billion on methamphetamine and $2.4 billion on other illegal substances. In total, the overall spend in 2000 reached $160.7 billion – with Americans consuming approximately 260 metric tons of cocaine and 13.3 metric tons of heroin.

The use of illegal substances has some strange but telling after effects. Research has shown that 90 per cent of banknotes in circulation in the United States are contaminated by narcotics; a similar analysis in London in 1999 showed that 99 per cent of all banknotes circulating in the city are tainted with cocaine, with 1 in 20 exhibiting high levels of the drug, suggesting that they have been handled by dealers or have been used to snort the drug.

The black market peso exchange system in Colombia is estimated to launder $6 billion per annum in drug profits.

It has been estimated that each year $15 billion flows our of Russia – and it is almost impossible to determine how much of this figure is capital flight and how much is money laundering. Government figures in the mid 1990’s calculated that 25 per cent of the country’s gross national income was derived from organized criminal activities.

The NCIS ‘ United Kingdom Threat Assessment of Serious and Organized Crime’ in 2003 stated that the overall size of criminal proceeds in the country – and the amount that is laundered is unknown. However, customs authorities had estimated that the annual proceeds from crime in the UK were anywhere between £19 billion and £48 billion – with £25 billion being a realistic figure for the amount that is laundered each year.

A 1996 report published by Chulalongkom University in Bangkok estimated that a figure equal to 15% of the country’s GDP ($28.5 billion) was laundered criminal money.

Mexican drug cartels (now more powerful than their contemporaries in Colombia ) are conservatively estimated to generate profits of more than $9 billion per year - that is approximately 5% of Mexico ’s GDP.

The Canadian Solicitor General commented in 1998 that the illicit funds generated and laundered in Canada each year was between $5 and $17 billion.

Also in 1998 the Swiss Finance Ministry confirmed that the country was implicated in $500 billion of money laundering each year. Although no official figure exists it has been reliably estimated that between $40 to $50 billion of Russian Money resides in Swiss Banks - with realistically little way of knowing whether it is flight capital or laundered money.

In Indonesia, which has a rapidly escalating money laundering problem, one US law enforcement agency states that $500,000 is washed on a weekly basis by West Africans and Southeast Asians using West African Couriers.

The Republic of Ireland with its growing financial centre of Dublin estimates that in 1998 $126 million was suspected of being laundered through the country.
Informal estimates voiced in 1997 were that yearly money laundering activity in Italy totalled over $50 billion.



And then at a global level……

The United Nations Human Development Report of 1999 commented that organized crime syndicates grossed $1.5 trillion per annum - which is more than many developed economies and multinational corporations. Recent figures from the International Monetary Fund suggest that the amount is now nearer $2 trillion.

In March 1998 Dow Jones News reported that money laundering amounted to between 2-5% of world GDP: in other words between $1 and 3 trillion.

It is estimated that there are in excess of 200 million drug users in the world and in 1995 the world’s illegal narcotics trade was calculated at $400 billion. This total is equivalent to 8 per cent of the world’s trade- that is more than motor vehicles, iron and steel and about the same as the gas and oil industry. In 1999 a Congressional hearing was told that up to $48 billion per year in profits were generated by illegal drug sales, which was laundered.

If you accept - and I think you should - that the scale of global money laundering each year is at least $1.5 trillion then either the staggering, horrifying scale of the whole problem suddenly snaps into place or you are so bemused that you still don’t really believe it. To put that $1.5 trillion figure into context, in real and comparative terms: $1.5 trillion is $1,500,000,000,000 - which when put like that is even more astounding.

The estimated GDP of the United States in 1998 was $8.511 trillion - thus the annual money laundering figure is 17% of this. Or to put it another way the GDP of the United States is only just five times that of Global Organized Crime Inc. In fact the figure of $1.5 trillion is only dwarfed by three individual country’s economies.

The largest corporation quoted in the Fortune 500 as at February 2000 is General Motors with a turnover of $161,315,000,000 which is about a tenth of the amount laundered each year (or Money laundering per annum is ten times the annual turnover of General Motors).

The GDP of Switzerland is $191,000,000,000 - just an eighth of the annual money laundering figure.

One could just go on - and the comparisons would become even more overwhelming. Normally when such a staggering financial value is placed on Money Laundering the normal reaction is one of incredulity and extreme scepticism. Combined with this is the claim that all such figures have no basis in actuality - that essentially they have been plucked out of thin air. The Australian, John Walker has addressed these problems in his work on ‘Modelling Global Money Laundering Flows’. The bad news for the sceptics is that output from the research and modelling process has produced a global money laundering total of $2.85 trillion per year. Rare for someone who introduces a new economic model, Walker actually admits that he is not claiming that the model is yet producing accurate estimates of money laundering flows. That being said, the critical fact is that the total produced is almost twice as much as official estimates or calculations. The basis of Walker ’s model is as follows:

(It) uses a range of publicly available crime statistics to estimate the amount of money generated by crime in each country around the world, and then uses various socio-economic indices to estimate the proportions of these funds that will be laundered, and to which countries these funds will be attracted for laundering. By aggregating these estimates, an assessment can be made of the likely extent of global money laundering...

For simple folk like me, this means taking the national crime figures and estimating what of this is laundered and where. Thus we have estimates which place the value of global money laundering between $1.5 and $2.85 trillion each year. Such staggering totals raise a variety of issues, but surely the two fundamental questions are:

Where on earth (literally) is all of this money?

Why do the reports of suspicions of money laundering filed by financial institutions and professionals to relevant official bodies across the world represent merely a minuscule percentage of this estimated total?

And once again, at the risk of stating the obvious, these total figures relate to one year alone. Presumably this is newly generated criminal wealth to be added to the amounts produced in previous years. Thus, even basing it on the lower estimate, the last five years of the 20th century must have produced a figure in excess of $7.5 trillion. Because even if the figures for previous years in that time span were lower than $1.5 trillion per year, we must not forget the interest which would be generated.

So prior to the anti-money laundering initiatives that followed 9/11, why were the suspicious transaction reports filed by civilised countries across the world so pitifully short of anything approaching this total?

In Switzerland in 1998 there were 160 suspicious transaction reports with a financial value of 330 million Swiss francs (roughly equivalent to $210 million). This compares with about 30 to 40 previously. With typical Swiss understatement, Daniel Thelesklaf, the director of the office responsible for tracking money laundering commented that “the number of reports is still low, given Switzerland’s importance as a financial centre”.

In Belgium between December 1993 and June 1998 there were 1416 cases of money laundering sent to the judicial system with a value of $3.92 billion. In 1997 there were 476 suspicious reports filed with a value of 42.5 million Belgium francs (approximately $1.1 billion).

In most other countries the financial value of reported suspicious transactions relating to money laundering is hard to come by. Nevertheless the number of reports does not inspire confidence that across the world we are doing nothing more than scratching the surface. In the United Kingdom in 1998 there were 18,000 suspicious transactions reported. In the Netherlands in the first half of 1997 there were 5,683 reports: but in the previous year only 0.5 per cent of such reports led to arrests and prosecution. Hong Kong appears to be particularly vigilant: in 1996 there were 4,124 reports and from January to Mid November 1998 there were 4,700 reports of suspicious activity. In Cyprus between 1997 and late 1998 there were 125 referrals - but half of them were from other governments. In the first nine months of 1998 Greece had approximately 200 cases of suspicious activity. And finally in Hungary between 1994 and 1998 there were about 2,000 relevant reports

If this is just scratching the surface, it is not the law enforcement agencies that are at fault: these reports are generated by banks, professionals and business. In the United Kingdom in 1997 NCIS (National Criminal Intelligence Service), the relevant law enforcement body that receives notification of suspicious transactions, dealt with 14,000 such tip-offs. Legal and regulatory obligations mean that banks, other financial institutions and various professionals have to report suspicions. Of these, 7,000 came from banks; 3,000 from building societies. But, here is the rub: 44 came from accountants - and there are 100,000 such professionals in the country; 236 came from solicitors - of which there are over 40,000 practising in the UK. Insurance Companies (3.7 per cent of total reports), financial advisers (3.8%) and bureau de change (17.5 per cent, that is 2000 reports, double that of the previous year) all succeeded where accountants and solicitors so patently failed.

It could of course be argued that solicitors and accountants reported large value cases (because that is what they predominantly deal with) and thus the number will be lower than volume markets such as those inhabited by banks and building societies. Such a case could be argued - but I’m not going to. I suggest that almost the opposite is true: the sums involved in money laundering are so huge that you cannot miss them (unless of course you want to). How can anybody ignore:

The $500 million stashed away in Swiss banks by Ferdinand Marcos.

The various Russian money laundering stories where figures of $15 billion washed through accounts have surfaced.

The former dictator of the Congo, Joseph Mobutu, is believed to have transferred up to $5,000 million from the country.

As for where the funds generated by money laundering reside, I suggest that the best place to start is offshore. Conservative estimates place the funds controlled by offshore centers at $5 trillion - which increases by $500 billion each year.....

How about going back to Adam and Eves's Moneylaundering!

Might as well,since you are already twenty years behind,and counting!
Now you see what happens when honest Profits are being penalized!

how is fast and furious, and drug running proceeds honest,,, or constitutional?