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Foundations of the #MoneyLaundry - A Twitter Seminar thread

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. Joe gets 50%, all legal money.
Bill rings the $500 through the cash register as 10 extra orders, pays Joe (including payroll taxes), 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:
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:

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.
europarl.europa.eu/thinktank/en/d… Text of Briefing to European Parliament: Understanding money laundering through real estate transactions. Summary: Money laundering through real estate transactions integrates black funds into the legal economy while providing a safe investment. It allows criminals to enjoy assets and derived funds having camouflaged the origin of the money used for payment.
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: hurriyetdailynews.com/imprisoned-ira…
And nypost.com/2014/04/29/how…
And wsj.com/articles/how-7… (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.
nti.org/learn/countrie… Text box from NTI.org regarding the Iranian peace deal: In return, the [treaty] offered some relief from “sanctions on trade in gold and precious metals and petrochemical sales”, as well as licensing US repairs of Iran’s civilian aircraft.
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 Southeastern Europe and northwestern Asia, showing Bulgaria, Romania & Ukraine in the upper left corner, Egypt and Sudan in the lower left, India in the lower right, and Kazakhstan & China in the upper right. Centered are the Black and Caspian Sea, showing the relative positions of Turkey, Iran, Russia, Iraq, Ukraine.
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 👈.
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 Major Oil Producing regions, showing the major pipelines (mostly in NE Russia) and refineries (same). No pipelines go to the Arctic nor to the Sea of Ohhotsk (north of Japan)<br />
Oil regions are in SE Russia and central Russia, not eastern Russia.
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. occrp.org/en/daily/9851-…
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 - en.wikipedia.org/wiki/Russo-Tur… )

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. independent.co.uk/news/world/eur…
(Please don’t forget, Trump’s Commerce Secretary, Wilbur Ross, used to run a Cypriot bank.) theguardian.com/us-news/2017/m…
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.
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.
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.
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.

Germany, in control of EU funds, can be shitty towards Turkey. 2 years ago: dw.com/en/turkey-ange…
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. Covers most of SE Europe except Greece, all of the northern Middle East, coastal North Africa, both sides of the Red Sea.
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.

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.
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


(I can’t prove that, but it fits with the way Trump does business and how easy he is to manipulate.)
Of course, it’s illegal for casinos to do that, 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...

nytimes.com/1981/03/27/bus… )
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
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)
the empty buildings ...


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

— the things they all have in common are:
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 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.
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.

It took me all afternoon to give the 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.
That’s it. This has been the #MoneyLaundry 101

Previous episodes of the Money Laundry can be found here:
Money Laundering with Jason Mendoza
Real Estate Scams: Mitt Romney vs Veronica Mars
And under the hashtag, #MoneyLaundry
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And I accept coffee (though let’s be honest, I spend it on fabric.)

(Should probably clarify this: *publicly held* corporate shops usually have better auditing. With enough capital it’s not impossible to rent 200 storefronts, set up 200 different LLCs and make them a giant circular front loader for cash. But that assumes a big chunk o’ capital.)
Oh, a PS.
Erdogan wanting a new Ottoman Empire?
Well, what we call Libya was part of that Empire.
From WSJ, since they paywall & I only get to see it through my news reader... Image of text article: The Wall Street Journal Middle East Turkey Lays Legal Ground for Deploying Troops to Libya. Move raises concerns in Washington that oil-rich country could become stage for deepening proxy war. By David Gauthier-Villars in Istanbul and Thomas Grove in Moscow. January 2, 2020, 4:48 pm EST<br />
Picture of Recep Erdogan speaking in Ankara. Light-skinned man stands at podium, backed by 6 red flags.Text: Turkey’s parliament has authorized the government to dispatch troops to Libya, highlighting Ankara’s increasingly assertive policy in the Mediterranean region.<br />
A resolution approved during the emergency parliamentary session on Thursday gives Turkish president Recep Tayyip Erdogan full authority over the coming 12 months to decide on the scope and exact assignments of any deployment to Libya.
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