How to Launder Money - Swiss Style
An interesting crime story has come out in France and Switzerland. It may prove to be the nail in the coffin for bank secrecy in Switzerland.
The Swiss and French police arrested seventeen individuals a week ago (including an assistant Mayor in Paris). A woman (known only as “M”) is the center of attention of a drug smuggling ring. Apparently she ran a very big operation smuggling marijuana from Morocco into France.
Authorities followed the money from the drug operation from France to Geneva, Switzerland, where the loot was laundered through HSBC and GPF SA (never heard of them). This was a family affair; M’s brothers were working for the Geneva based banks.
The money laundering operation is an interesting part of the story. The sequence of events:
A) The drug operation generated big amounts of small denomination Euro bills.
B) The cash from drug sales all over France were brought back to Paris.
C) M’s brothers in Geneva knew wealthy individuals in France (and presumably Germany too) who had “Black Accounts” in Switzerland. (Nothing to do with the drug smuggling)
D) Individuals who have Black Accounts in Switzerland have a noose around their neck. Switzerland (with a gun to its head) is negotiating tax treaties with all of its neighbors that would result in divulging the “names” of the account holders.
E) European Black Account holders know the clock is ticking. They know the result will be that they will lose all, or a big part, of the money they have stashed in Swiss banks. (That’s what happened to the US “names”)
F) Black Account holders want their money back, but they can’t transfer the money to another bank, as bank wire transfers are completely transparent to authorities.
G) The only solution for Black Accounts is to get access to cash. This is very hard to do, as there are guards on Swiss borders, and one can’t really trust the Swiss bankers any longer.
H) Enter M and her brothers. They provided the following services:
- M (and her agents) covertly delivered cash money to wealthy individuals in France.
- In return, the Black Accounts were debited (or closed) in Switzerland.
- The money from the Black Accounts was transferred to a separate account controlled by M’s brothers.
- M’s brothers are Swiss citizens, and as a result have banking secrecy laws that protect them. When the money finally got into the brother’s accounts, the laundering has been completed.
- M charged a fee of 8% for the laundering. The drug money was transferred to the black account holders. Everyone was happy with this solution.
According to news reports (Link) the amounts involved are in excess of $100Mn. In the scheme of things this is not such a large amount, but is sure makes the Swiss banking industry look bad. The head of the Geneva Financial Center, Bernard Droux, had this to say:
“We were surprised that it should still be possible to do this today. This is a practice that has been forbidden by law for more than 20 years,”
"Shocked" you say? Sorry Bernard, this type of scam has been going on for the past sixty years!
The Swiss don’t condone this type of activity. The Swiss police contributed to the investigation that led to the arrests. That doesn’t matter, the damage has been done. The fact is that the Swiss banks are still a conduit for laundering drug (and other illegal) money; the Swiss banks are continuing to facilitate capital flight and tax evasion from Switzerland's direct neighbors.
Any bargaining position that the Swiss had with the EU countries regarding tax treaties that would have maintained the essence of banking secrecy has been shot to hell over the revelations. Switzerland will have to fold its cards, end banking secrecy and give up the “names” of European black account holders.
There are an awful lot of people who are crapping in their pants over this development. The list of pant shitters includes any European with a black Swiss account, it most certainly includes a bunch of bankers in Geneva, Chiasso, Lugano, and Zurich.
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