Dirty Money #2
OnlyFans, Presidential corruption, and is crypto ruining everything?
Dirty Money #2
Hello! Thank you so much for coming back to Dirty Money, a newsletter on financial crime, corruption, and how it affects us normal people in our daily lives.
I’ve changed things up a bit compared to last week thanks to some feedback, so I’ll be adding in a bit more crime content.
Also if you haven’t subscribed you should definitely do that.
News:
I realised that money laundering news breaks down into two categories, those that affect institutions and the elite, and those that affect normal people.
Of course, these two things are interconnected, but it can be difficult to feel the impact of money laundering when it involves far-flung businesses and corruption in the halls of power. So going forwards I’ll be adding in stories from both worlds.
Stories of the Elite
So Kozy in Corruption
Former French President, Nicolas Sarkozy has been sentenced to three years in jail for corruption. Unfortunately, two of the years are suspended sentences and it’s likely that the one-term former president will never see the inside of a jail cell.
Sarkozy was found guilty of bribing a judge, Gilbert Azibert, offering him a prestigious position in Monaco in exchange for information on an ongoing investigation into the former president. The details of this bribe were uncovered through a police wiretap on a secret phone line that was set up under a fake name and that Sarkozy used to call his lawyer.
Nicolas Sarkozy was under investigation having allegedly received illicit payments from Liliane Bettencourt, the now-deceased heiress of L’Oreal, during his 2007 presidential campaign.
That he’s been sentenced for an entirely separate corruption crime 11 years after the Bettencourt Affair, a scandal that connected illicit payments from Bettencourt with several members of Sarkozy’s government, shows how swiftly justice moves in these cases of political corruption. Especially after the Bettencourt case was initially dropped in 2013. Providing Sarkozy with a clear run for a second presidential campaign in 2017, one he did not win.
Sarkozy may be exonerated as the evidence in the case hinged on a conversation between the man and his lawyer. A conversation which by all rights should have been privileged information.
The issue of Sarkozy’s crime raises a wider concern, the man is guilty of corruption that is clear, but how often is a corrupt official only corrupt in one instance of their life?
Should this require law enforcement to scrutinise his entire transactional history with persons of power and issue fines for corruption, much like how a business has to pay fines when they fail their AML requirements. Surely someone who wielded as much power as Sarkozy should be held to a higher standard and suffer serious consequences as a result.
Either way, one year in prison - that will likely not be served, is hard to swallow when corruption often facilitates so much crime.
McAfee’s Crypto Social Media Misconduct
John McAfee, no longer affiliated with the anti-virus company he started, has been charged with fraud and money laundering conspiracy charges due to promoting various cryptocurrencies using social media.
McAfee’s Twitter account can be quite entertaining. But he has been accused of leveraging his social media notoriety to encourage his followers to invest in cryptocurrencies where he stood to make a gain without informing them of his position.
The troubled multimillionaire, whose net worth is now $4 million, though it is thought to have peaked at $100 million before evaporating in the financial crash of 2007-2008, has been accused of making over $13 million with his co-conspirators by tricking followers into investing into the crypto market. The issue is difficult as crypto is still an ill-defined area of financial instrument and there is no consensus on whether they are securities, commodities, or something new entirely.
McAfee is frequently paranoid and erratic on his social media, having previously stated that he was going to run for the 2020 American Presidency while living in exile. He was arrested in October 2020 in Spain over tax evasion charges and is currently fighting an extradition battle against being moved to the US. McAfee has repeatedly argued that he refuses to participate in taxation as he considers it theft. Sadly it appears that declaring this so in the press is not a sufficient defence from taxation.
The iconoclast (his description) has lived a strange life and this is certain to be yet another twist in the sordid tale of John McAfee, as this story unravels there are sure to be further intriguing tidbits that pop up along the way.
Money Laundering Free For All with Freeports
60,000 new jobs are rarely a cause for concern, but the plans for the UK’s 8 new freeports should set alarm bells ringing in every AML professional’s mind. Freeports are special zones where ordinary tax and customs rules do not apply, making them especially attractive to money launderers.
Freeports are not a new phenomenon, and they’re certainly not new to the UK. Between 1984 and 2012 there were 7 freeports across the country that operated without issue until their renewal was prohibited by legislation. However, the lack of issue is exactly the reason why these ports are so dangerous. There are precious few checks carried out in free ports and they can easily act as a waypoint for disbursing stolen and trafficked goods, making them impossible to trace.
In 2019, the EU delivered an extensive report into why freeports are so damaging and the money laundering risk they pose as well as tax evasion and avoidance facilitation.
Freeports act as semi-permanent storage for high-value goods allowing individuals, businesses, and organised crime to hide their net worth and keep assets both near and readily moveable for liquidation. It’s also very difficult to identify the ultimate beneficial owner (UBO) of any such goods making it almost no work at all to evade inheritance tax from items stored in free ports.
If the UBO registers mandated in the Fifth Anti-Money Laundering Directive come to fruition and are accurately applied to freeports then there may be some future for the project. But as it stands there’s no reason to believe that the whole thing won’t dissolve into another infrastructure nightmare that costs billions, sees government contracts paid out to friends of ministers with no tangible return, and renders no real aid to the nation.
Freeports will cycle in a lot more money into the areas where they open up, but without strict AML and financial crime prevention strategies in place, there’s no chance that the money won’t be tainted with the proceeds of crime. It will be vital to know who is using the ports and more importantly, who is benefitting from them to prevent them from being a haven for crime.
Crimes Closer to Home
UK Raids See 20 Arrested for Human Trafficking and Drugs
Police have arrested 20 people connected to West Balkan gangs that have committed human and drug trafficking offences, modern slavery, and money laundering. The operation took place on a national scale, focused on Reading but with raids taking place in various other areas across the country, including Birmingham, London, Blackburn, and Sunderland.
“Today’s activity highlights just how seriously we are taking the threat from Western Balkan organised crime groups.” - Andrea Wilson, Deputy Director of the NCA
It’s a pleasant example of how effective enforcement actions are when they’re given the resources to make these kinds of arrests. It takes months of police work to track down these individuals, identify how they work, and ensnare the entire ring. 18 addresses in Reading were raided along with 7 others across the country, cash, drugs, and weapons were seized during the raids.
These gangs often operate using county lines, exploiting young people that they discover in one area and moving them across county lines to a small property where the youths don’t know anyone and have no family. These young people will then be used to run drugs and other illicit dealings into towns and cities that they’re unfamiliar with and unsure of how to escape.
Often these young people are groomed into criminality and are often runaways or vulnerable in other ways. Some have been convinced into a life of crime for nothing more than a few meals from a chicken shop - if they refuse then they’ll be beaten or stabbed until they comply.
We fail our teenagers when we don’t provide safe spaces for them to escape and share their issues. Ironically, if tax was applied as it should be and we were rid of corruption, there would be far more money to direct to policing and providing areas with youth outreach programmes that could intervene before gang recruitment was a possibility.
3500 Fall for Wire Fraud Scam
A 47-year old Swedish conman, Roger Nils-Jonas Karlsson, managed to trick 3500 people into investing into his gold scheme. In a variation on a very old con, wire fraud, the conman was able to defraud victims of over $16 million - working out to approximately $4571 per victim.
He convinced his victims to invest in his company, Eastern Metal Securities by transferring their money via a virtual currency exchange. Perhaps this was in the hope that the money would be untraceable in some way or to avoid flagging any transaction monitoring rules from banks. Either way, it’s clear financial institutions need to pay close attention to what’s happening with money movement from crypto exchanges.
Karlsson had at least 6 different alias and promised investors that they would keep at least 97% of their investment but had no way to pay them off, he also promised investors a significant amount of gold. Neither of which did he have any means of guaranteeing or paying. One questionably brilliant method he had of delaying payment to his investors was telling them that if he paid them all at once then it would upset the global economic system. As if he were Mansa Musa of Mali about to accidentally destabilise the Egyptian economy for 12 years.
The Swedish conman is now facing 20 years in prison after having been extradited to the US from Thailand. He predictably spent all the money once it had transferred into his personal accounts, using it to buy properties in Thailand. He probably should have bought properties in a nation with no extradition treaty with the US.
Crypto has been touted as a major player in the scam in the press. But that seems to simply be a technology that was abused in specific circumstances. On the face of it there was nothing done with crypto that hasn’t ordinarily been done with the fiat financial system.
People should remain aware of potential scams and frauds no matter what technology is being used to part them from their money. Crypto is at risk of becoming the fall guy for any dodgy scam, but outside of a few grand manipulations that few saw coming (Bitconnect, Onecoin, Tether) most crimes involving crypto are criminals taking advantage of ignorance around the latest technology than the technology itself.
OnlyFans Owner Flagged for Money Laundering
I’m going to start by saying I hate everything about this story. Why is it that everything in the adult entertainment industry seems to be men acting like pimps and exploiting the women who do the actual work? I will probably write a very long rant on this once the Mindgeek case comes to a close and the grim relationship between online sex work and sex trafficking. But I digress.
Leonid Radvinsky, acquirer of OnlyFans and owner of MFCXY Inc, who operate popular webcam adult community, MyFreeCams, has had his businesses flagged in Suspicious Activity Reports (SARs) by multiple US banks as a potential money launderer and potentially providing a platform to “underage children, and other vulnerable individuals [who] might be forced to provide services.”
The typologies (techniques used to launder money) associated with adult work can be complex and legitimate workers can often find themselves with closed bank accounts without notice. However, that is because the erratic payments and cash-in-hand aspect can easily mirror exploitative behaviours. So OnlyFans, a subscription-access model for pornography allowed adult workers to obtain cash in a more regular format and has greater appeal as a result.
That the business has been flagged by so many SARs is unnerving as being cut-off from the financial system could destabilise the lives of the 1 million plus content creators on OnlyFans and to a lesser extent the 50 million registered users. This is exceptional growth for the company, as it had only 60,000 content creators and 7 million registered users in 2019.
However, SARs are not conclusive evidence on their own and US banks in particular are prone to over-submitting SARs in a defensive gesture to protect themselves from being taken to court should a business be revealed to have been committing wrongdoings.
But that doesn’t mean that there are no concerns with OnlyFans. Significant sums of money are being sent to performers who live in high-risk areas for child sexual abuse material, Colombia, Romania, Poland, Bulgaria, Ukraine, Lithuania, the Philippines, and Russia. And a BBC investigation in July 2020 revealed that OnlyFans had failed to adequately prevent minors from setting up accounts, with a 16-year old managing to produce and sell adult content on the platform.
OnlyFans has apparently improved the onboarding process for content creators to prevent circumventing proof of age verification but perhaps they, and every other business like theirs, should not be the ones in charge of deciding who passes verification and who doesn’t.
Things Worth Reading:
Speech at the Chatham House Illicit Financial Flows Conference, 1-2 March 2021 - This is a great speech from FATF Executive Secretary, David Lewis on why no-one really cares about protecting the integrity of the global financial system, why financial crimes are far too complex to lump together, and why we probably don’t need any new AML laws and should focus on the practical challenges of hunting down financial criminals. It’s refreshing to hear someone entrenched in the AML world express these views and I’m sure it’ll ring true to many who work in the industry.
DOJ Fraud Section 2020 Year in Review: Money Laundering Statute Remains an Overseas Enforcement Tool - From Ballard Spahr LLP this is an interesting dive into how the US uses AML laws to exercise power overseas. A trend that’s evident in two of the stories I covered this week but relies significantly on dollar hegemony to derive power. How the US will respond to losing that power as crypto takes hold, China’s economy continues to soar, and the world economy continues to suffer under Covid-19 is anyone’s guess. But on the other hand, dollar hegemony isn’t going anywhere fast.
White Hot Rage:
Unfortunately, I feel as though I ranted quite a bit about the crappiness of the adult work industry this week so I’m tapped out of indignant rage for the moment. But I have a few rants gathering steam in the back of my mind. Besides, you got double the news this week! That has to count for something.
I hope you found Dirty Money #2 useful, please feel free to let me know your thoughts, wishes, dreams, and opinions.
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