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On Laundering Black Money - And Gold?

Bruce Krasting's picture




 

 

Switzerland started off the money laundering year with a bang. Three big cases in just a month:

 

- The Swiss accounts of Sergei Magnitsky have been frozen as a result of an ongoing corruption case in Moscow. This case is interesting as Magnisky died in 2009 (He died in prison - supposedly of natural causes - but he was only 37...)

The Russian's have made this claim:

 

Prosecutors accuse Magnitsky and his former client, London-based investor William Browder, of a $230 million tax fraud carried out through subsidiaries of Browder’s company, Hermitage Capital Management.

 

I have no idea what this case is really about (it looks political) but whatever it is, it stinks to high heaven.

 

 

-The accounts of Malaysia's Taib clan were frozen after a criminal complaint was filed in Kuala Lumpur. The filing read:

 

"Taib abused his public office in a spectacular way.”

 

Of interest (to me) is that the revelations about the Swiss accounts came as the result of a divorce proceeding - an angry ex-wife blew the whistle. The talk is that this mess may top $20B! (link)

 

 

- The most embarrassing revelation for the month was the release of information that Luis Barcenas, a Spanish politician implicated in a corruption scandal, had 22m Euros ($30m) stashed in a private Swiss account.

 

 

I'm sure that there were many other examples of busted money launderers in Switzerland for the month. They just didn't make the papers. In 2011, 1,500 separate cases were pursued by Swiss authorities. That "bumper year" was due to the Arab Spring, and all the hot money from N. Africa that got exposed. Things have probably slowed down in 2013 - So now what is it down to? 50 a month??

 

This business of black accounts, crooked money and crooked bankers fascinates me. How big a problem is this? I don't think anyone really knows the answer to that. The fact is, it's huge, and it's growing. The following data is from 2010. Even if it is only partially correct, the implications are staggering:

 

Screen Shot 2013-02-02 at 6.18.36 AM

 

What? $700B in one year! From only 10 countries! China is how big in this dirt pile?

 

$700B is a very big number, it is larger than the GDP of Saudi Arabia (or Switzerland), it is equal to the GDP of Indonesia (Pop =240,000,000), it is twice the size of the GDP of Michigan. And this is only from a small group of countries. The industrial countries must be adding huge bucks to the dirty-money list.

 

I got some input on this topic that might be of interest to gold bugs. I'm not certain of this info, so be guided accordingly. The email reads (in part):

 

There is a trend developing in the last two years where those with flight capital are trying to launder gold. For example gold is being smuggled out of Venezuela sent to Curacao where the exporter will create documents that he bought it from a country like Peru. It then goes on to a refinery in Switzerland or Dubai and those proceeds or sometimes the refined product are then deposited for the client.

Another example is Dominican Republic which has an usually large outbound flow of mined gold. The reason is similar, raw gold from Venezuela as well as from Africa comes to DR gets washed through a legitimate mining operation and then sent on to a refinery.

 

Again, I can't confirm any of that, but on the broader question of whether gold is now playing an increasing role in money laundering, I'm certain that it is.

 

Another comparison on the magnitude of global money laundering is that $700B is 3Xs the value of all of the gold in Ft Knox (valued at 1650).

 

On one hand you might conclude that the effort to snuff out dirty money in banks is going to be a constant source of new demand for gold. And you would be right in that conclusion. But on the other hand, if gold is going to be where hot money goes, how far away can it be where private ownership is restricted?

 

There is another side to this. Assume that there is already a large ownership of physical gold by the dirty money crowd (There is). Assume further that this ownership trend is increasing as global banks get squeezed by money laundering investigations and fines (think HSBC). Do the "deciders" in the globe want to enrich those that are now parking hot money in gold? "No" is the answer. This set-up is another reason why suppressing the price of gold would be "helpful". It certainly argues against gold backed money. That would make the bad guys rich.

 

Black Money

Screen Shot 2013-02-02 at 8.38.17 AM

 

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Sun, 02/03/2013 - 06:07 | 3210616 Supernova Born
Supernova Born's picture

double

Sun, 02/03/2013 - 06:07 | 3210615 Supernova Born
Supernova Born's picture

Only small fry criminals use gold

Big time crooks print their own mountains of baseless fiat.

Sat, 02/02/2013 - 12:21 | 3209077 Pemaquid
Pemaquid's picture

Good one Bruce!

Sat, 02/02/2013 - 12:14 | 3209064 gmrpeabody
gmrpeabody's picture

ROTFLMAO.....  +1

Sat, 02/02/2013 - 12:18 | 3209070 fonzannoon
fonzannoon's picture

funny stuff Bruce.

Sat, 02/02/2013 - 12:48 | 3209116 Orly
Orly's picture

Don't laugh at this guy.  He's a "Banster."

Sat, 02/02/2013 - 13:57 | 3209209 Midas
Midas's picture

I think he was trying to spell "Hamsters"

Sat, 02/02/2013 - 11:46 | 3209031 fonzannoon
fonzannoon's picture

Bruce ZH has been putting a lot of articles on here lately showing billions upon billions in laundered money has been flowing into US housing. That is where the real hot money is going and has already gone. So do we ban home ownership as well?

It's all about picking winners and losers these days I guess.

P.S I am not saying you are advocating banning gold. I realize you are just making an observation.

http://www.zerohedge.com/news/2012-09-30/money-laundering-driven-real-estate-boom-ending

http://www.zerohedge.com/news/2013-01-22/chinese-politicians-are-buying-billions-us-real-estate

Sat, 02/02/2013 - 12:28 | 3209090 Whiteshadowmovement
Whiteshadowmovement's picture

Fonz, wanna hear a funny story. Have you heard of Investec? Theyre listed in London and are in a way the premier fund/wealth manager here in South Africa. This "bank" is about as legit as all those Colombian banks nobodys ever heard of which have their offices on Brickell Ave in Miami. Investec makes 99.99% of its money laundering money for African dictators and the like.

Heres where it gets funny, their headquarters are this impressive steel and granite building right in the middle of Cape Town:

http://www.marbleclassic.co.za/media/163152/img_4489-p.jpg

But their "real" headquarters where the bank is actually domiciled and legally headquartered is the island of Mauritius.

Mauritius today is what the Cayman Islands were in the 80's. You can still fly there with a suitcase of cash.

http://www.investigativedashboard.org/tag/money-laundering/

Let me tell you this is the first stop for virtually ALL African dictator and other corruption skimmed funds. Cash gets wired to Mauritius and then transferred to Dubai, from where its sent to Switzerland or Singapore or Hong Kong where these guys can actually spend it.

I know a guy in Cape Town who has an account with Investec and had a big amount of cash lying around in his safe here (round about $100k usd) and so he asked them if it would be a problem if on his next vacation (very popular vacation destination for South Africans) he could pay the money in at the Mauritius branch of Investec.

When he gets there with $100k in his bag, he enters a shoebox office where two guys are sitting around pciking their noses and these "employees" were totally stunned to see this guy walking in as nobody had told them to expect anybody. So he drops the money there, they put it in a wall safe, and then thats it. He asked "dont I even get a receipt?" The employees looked at each other confused and then one of them took out a piece of loose leaf paper and wrote him out a handwritten receipt for the deposit of $100k.

Upon returning to Cape Town he found that his account had been credited to the full amount.

Thats the state of money laundering today...

Sat, 02/02/2013 - 13:07 | 3209139 dark pools of soros
dark pools of soros's picture

The real question is... so how much of that 100k is yours??  :)

 

 

Sat, 02/02/2013 - 12:42 | 3209111 fonzannoon
fonzannoon's picture

funny story whiteshodow. really interesting. thanks for the reply Bruce. 

Sat, 02/02/2013 - 12:18 | 3209072 Bruce Krasting
Bruce Krasting's picture

I wrote about the RE thing and China recently.

http://brucekrasting.com/stocks-and-capital-flight-old-and-new/

 

The thing with US RE, there is no guarantee that it can be used. A non-resident is allowed only 6 months in the country on a tourist visa.

As of today, no one cares about those rules. If you have bucks and buy a home, no one will bother you, screw visas. But that could change. Without a permanent visa, some of these "buys" will have to turn into "sells".

Now, if the USA got into the visa selling business, then there would be a very big boom in high end properties. NY Senator Chuck Schumer has proposed that we do just that.

Sat, 02/02/2013 - 15:21 | 3209365 BigJim
BigJim's picture

Hey Bruce,

One thing that keeps me doubtful that private ownership of gold will be made illegal is that the elites themselves hold quite a lot of it... and the fact that our 'leaders' themselves probably want an untraceable way of moving ill-gotten wealth around too.

Whereas they had to go after the banking havens; everyone knew about these, so our 'eaders' had to be seen doing something about it.

Sat, 02/02/2013 - 16:07 | 3209457 tip e. canoe
tip e. canoe's picture

this is where dave's thesis on gold & the SDR dancing in Basel comes in:

http://tradewithdave.com/?p=14279

Sat, 02/02/2013 - 14:41 | 3209272 swmnguy
swmnguy's picture

Interestingly, I know a Chinese businessman, resident of Hong Kong.  He's tops in his (very specialized) field in China.  By my standards he's rich.  Not rich by Chinese kleptocracy standards, of course, but he's got a lot of money.  I know he has luxury condos in Hong Kong, Shanghai, Beijing and Shenzhen.  I've been working with him once a year for about 6 years. 

Over the past 3 or 4 years, he expressed a great deal of interest in getting a partnership with an American company working in the US.  Within the past 18 months, he bought a Green Card, selected his US partner, and set up his partnership.  He's now got a bunch of his equipment in the US, working with and through this US company.  He's got condos in Toronto and Chicago.  His Chicago Lexus is parked at his partner company's headquarters.

One trick he's used is to buy the lowest-priced item in a globally recognized company's product line of professional electronic equipment.  Then he opens up the box, goes to the manufacturers who produce the components, and gets the upgrade items at a very low cost.  Presto!  He's now got the highest-priced item in the product line, with an internationally-recognized brand name, at just above the cost of the lowest-price-point item.  He can rent/resell the item at the price premium of the highest-price-point-item.  The premium is not inconsequential; the spread is between $50,000 at the low end to $125,000 at the high end, with rental schedules that make up the cost in 20 rentals.  Over a few decades, as he's gotten big enough to leverage the scale of his operation, he's doing mighty well for himself.  It's not just trickery though.  He's also the best in his field, with the best people and the best eqipment, and he "gets" how to do business with Westerners.

He's a small fish.  But he's moving his money not just out of China and Hong Kong, but diversifying it into Canada and the US that I know of, and probably other places that I don't.  He's bought permanent residency in the US, and perhaps elsewhere.  The US IS in the visa-selling business.  My understanding is that the cost was about $500,000 USD.

Sat, 02/02/2013 - 15:06 | 3209329 BigJim
BigJim's picture

thanks, interesting post

Sat, 02/02/2013 - 13:42 | 3209190 Orly
Orly's picture

Bruce, if I may ask a favour.  Can you have a look at the post I made on your earlier thread and get your opinion, please?

Thanks.

3209010

Sat, 02/02/2013 - 14:50 | 3209298 Bruce Krasting
Bruce Krasting's picture

You gotta love Orly. She asks hard questions tho.... Her's and mine:

 

  • With the rise in the 10-year yield, doesn't that make Chinese
    holdings of US notes worth billions less every day?  I am not familiar
    with the Chinese durations of their holdings but it makes sense that it
    has to be costing them money.

China's CB is no different from any other central bank. They don't mark to market. So there are no recognized losses. Nor were gains booked as the bond market rose. Different rule apply.....

  • With the USD and the EUR rising precipitously against the yen,
    doesn't that effectively make Chinese products much more expensive in
    the West?

 

It makes Japanese products cheaper. It does not make China's more expensive. On the TERMS of TRADE, Japan has picked up a big advantage over China as a result.

  • With the vast holdings of Chinese gold, who have bought tonnes of it
    over the past several months, and given the renewed "confidence" in the
    US economy, wouldn't that make the price of gold susceptible to a
    similar correction as we are seeing in the Japanese yen, thus massively
    reducing Chinese spending power, as the value of their holdings plummet?

If any big asset class plummets in value in a short period of time there are ripples. You ask a question about if gold falls, if it did, it would reduce "wealth" and reduce consumption. The talk of "gold is going to collapse" is like in September when the same "smart folks" were saying "Apple's going to 1000 for sure!"

  • In short, couldn't this all be a knife directed at the back of the
    Chinese that could eventually topple the fragile economy?  Does it look
    to you that TPTB are going to dig it in and give it a twist?

Topple? No, I don't see a topple (What exactly is a "topple" anyway - sounds pretty bad). I do see sub 7% growth however. I think China is already at stall speed. It can't survive on 50% fixed investment any longer - that plan just makes toxic smog.

 

BK

Sat, 02/02/2013 - 23:40 | 3210319 the grateful un...
the grateful unemployed's picture

just curious, isn't japan outsourcing most of its needs to china, aren't they like the swiss and the germans? though of course the chinese remember what the japanese army did, despite all this talk about japans fragile economy, aren't they on top of the hill in asia? one gets the feeling the chinese are what they always were [and unable to control north korea] a big second rate economy?

Sat, 02/02/2013 - 16:44 | 3209505 Orly
Orly's picture

So you see the tremendous rise in yen pairs not as part of a vast right-wing conspiracy aimed at China.

Thanks so much, Bruce.  I am just trying to figure out how to play the next three months in 4X.  I still have to believe that EJ goes much, much higher from here, even though there is no real reason I can put my finger on to account for such a tremendous move.

I appreciate it very much.

:D

Sat, 02/02/2013 - 18:12 | 3209648 Orly
Orly's picture

Oh, and by the by, it looks like Cable is in some real trouble.  It bounced off the bottom trendline of the wedge pattern on the Weekly and barely crawled back to the Fibo-level inside the wedge.

This looks bad.  Now it has retraced (plunged, really..) within 30-pips of the trendline again with big, fat candles and I don't see the trendline holding it back this time.

There is major support at 1.534 and if that doesn't hold, the pair could be on to 1.45!  A bottom at 1.42 is definitely within the realm of technical possibility.

Oops!

:0

Sat, 02/02/2013 - 15:09 | 3209335 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

I think you have to differentiate between "Chinese" and "Chinese". The real power money is now already globally diversified after many years of outflows. Used to be if you were Chinese you had to show an invoice payable to an overseas company in order to buy any currency other than yuan. So lots of fake invoices were created. The money flowed to apartments in Paris, Vancouver etc, bank accounts in Singapore and Dubai, and into stocks globally. Many just got their money as far as Hong Kong, and that was far enough. Our company had generals from the Red Army, worth > $1 billion, ask us to create a fund that lost money for them.

Sat, 02/02/2013 - 12:04 | 3209025 dark pools of soros
dark pools of soros's picture

So does that mean the prices of hookers and blow are suppressed??

And aren't the 'bad guys' in power anyway everywhere while they out lesser bad guys, in a forever cycle?

Sat, 02/02/2013 - 13:33 | 3209173 Marco
Marco's picture

They are running out of stuff to steal, we are getting to the point where the only way for them to get relatively more wealthy is simply for us to get poorer.

Sat, 02/02/2013 - 11:06 | 3208989 Water Is Wet
Water Is Wet's picture

"Assume that there is already a large ownership of physical gold by the dirty money crowd (There is).... That would make the bad guys rich."

See how easy it was for Bruce to label a broad group of people criminals?  You are playing right into the statist claptrap.  Hey Bruce, in your very narrow wisdom, how much do you think U.S. dollars play into the "dirty money" clubs' wealth?  We should probably restrict private ownership of U.S. dollars then too.

P.S. the bad guys are already rich.

Sat, 02/02/2013 - 13:39 | 3209175 JOYFUL
JOYFUL's picture

Would you consider reading the post again...or at least, the last paragraph - which seems to have been badly misinterpreted...

There is another side to this. Assume that there is already a large ownership of physical gold by the dirty money crowd (There is). Assume further that this ownership trend is increasing as global banks get squeezed by money laundering investigations and fines (think HSBC). Do the "deciders" in the globe want to enrich those that are now parking hot money in gold? "No" is the answer. This set-up is another reason why suppressing the price of gold would be "helpful". It certainly argues against gold backed money. That would make the bad guys rich.

Bruce is just wetting a line here...though little does he realize just how big be the lunker lurkin close to his lure. And since nobody else seems to ever dare to take the hike overland to this little jewel of a pond, it's all his if he dares to snag n reel...

The reason is similar, raw gold from Venezuela as well as from Africa comes to DR gets washed through a legitimate mining operation and then sent on to a refinery.

Veryily tidily, perhaps unwittingly(wink wink?@?@!), Brucie has spelled out the modus operandi of "the world's largest gold miner"....which, since 1984 has brought 'black' gold into the market by laundering it through the legit mining operations it purchased with the start up capital produced by 41's CIA drug ops and Khashoggis' arms deals...bars end up in a Swiss refinery(entered on the books as unrefined mine gold)get a new look, find a new nest, credits get entered somewhere, and another mess of lucre joins the stream of wealth which flows in from the afghan\golden triangle tributaries of Merkica's biggest overseas industry.

Funny thing, about that chosen quote Bruce, bein that Barrick just ever so recently announced new production from a Dominican Republic property!>!>>!!! As for the rest of the feelers\nightcrawlers you put out in that short piece, therés not enough room here to touch them!

Leapin lizards Bruce, I sure hope you put a strong leader onto that line, and tied yourself to a tree or something! That sucker gonna bite hard!

Sun, 02/03/2013 - 04:10 | 3210566 Western
Western's picture

I heard the gold is flowing to the vatican.

Sat, 02/02/2013 - 14:08 | 3209222 tip e. canoe
tip e. canoe's picture

j, that's exactly what i thought when reading it -- this sounds like some flim-flam-skim-scam the Barrick Boyz would pull off.   2 possibilities:

a) either BK has, like you said, just sketched the migration pattern of the Big Fish.

b) some other smaller "bad" fish have figured out the patterns and are copying them.

if (a), one must not forget who the BB's partner in the laundry biz is.

if (b), then anyone holding yellow shinys should seriously consider BK's thesis, as it would make perfect sense in order to accomplish 4 objectives in one fell swoop: (1) eliminate the competition, (2) confiscate the spoils (cheaper than invasion of gold-rich african "nations"), (3) make it appear to the frothing mob that the "Good Guys" are going after "Bad Guys", (4) stick it to the "bad" bugs on the lunatic fringe.

stay sleuthy, my friends.

Sun, 02/03/2013 - 01:18 | 3210242 JOYFUL
JOYFUL's picture

Outstanding summation of where we stand at the moment Tipster...

the heart of talmudist tactics is to always leave the goy agape...when up is down, right is wrong, evil is good and nothing is what it seems, you know you're being played by the pharisees!

If anyone wants a serious discussion of why&how gold\silver have stayed under suppression for so long now, Bruce has brought all(well, almost all!!??) the chickens home to the same roost here.

Do the "deciders" in the globe want to enrich those that are now parking hot money in gold? "No" is the answer.

Here Krasting is wrong, but for all the right reasons! Fun House Rulz!

"Deputy chancellor of the Reich, Rudolf Hess, was born in Egypt to a Jewish mother. Julius Streicher, editor of Der Sturmer, was a Jew. During the Nuremburg trials he said, "Our model was the Jewish law." At these trials, his real name (Abraham Goldberg) was also publicized. Labour Minister Robert Ley was Jewish. Reinhard Heydrich had Jewish ancestry on his mother's family. Albrecht Haushofer was a Jew in the German foreign ministry. Hitler's wife, Eva Braun was half Jewish and had been introduced to Hitler by the half Jew Heinrich Hoffman. SS officer Adolf Eichmann had Jewish ancestry. SS generals Odilo Globocnik and Erich von dem Bach-Zelewski were also. What is interesting is not that the NSDAP was occupied by many Jews, but that anti semitism became a tool of Zionism."

Learning to watch the world whilst standing on one's head...the only way to keep things straight anymore!

Sat, 02/02/2013 - 13:40 | 3209184 Muppet Pimp
Muppet Pimp's picture

Concur with wetting a line. The quality of Bruce's work has gone into the gutter.

Sat, 02/02/2013 - 13:53 | 3209202 JOYFUL
JOYFUL's picture

Strongly urge your reconsideration of that judgement...

strange as it may seem this is one of his best ever...through what has not been directly said, but merely implied, he's stepped closer to the Beast than anybody else here has dared to go.

Cojones on board...

the rest is up to us.

 

Sat, 02/02/2013 - 20:38 | 3209972 Muppet Pimp
Muppet Pimp's picture

Point taken.  I always enjoy Bruce's work but it came off to me as a weak attempt to shake out weak hands in service of the present masters.  A wise man once said we all speak from ignorance and I am certainly no exception, thanks for the note to rethink the piece.

Sat, 02/02/2013 - 11:04 | 3208986 Manipulism
Manipulism's picture

They ARE rich.

Propably make them even richer.

 

Sat, 02/02/2013 - 21:39 | 3210112 AngryGerman
AngryGerman's picture

It's the swiss business model. take money from all the dirties of the world, and when they are gone, hope you dont have to repay.

 

i wonder what where all the nazi fortunes went...

 

or of any of the fallen arabic leaders...

 

switzerland is the biggest, most filthy money laundering country in Europe, and thus for all of the Eastern hemisphere. I wonder what strings they pull to evade the shitsorm coming from France and Germany. Even it's not rhough yet with the tougher tax evasion schemes, Swiss banks certainly going to bleed.

Sat, 02/02/2013 - 14:59 | 3209316 BigJim
BigJim's picture

 ...It certainly argues against gold backed money. That would make the bad guys rich.

Whereas unbacked fiat makes the badder guys rich.

Sat, 02/02/2013 - 16:50 | 3209518 booboo
booboo's picture

"That would make the bad guys rich."

Two sets of laws require two sets of dictionaries. In this case "bad guys" are defined as...what? What makes a russian spiriting ill got gains out of the country different then say John Corzine? and a question, if Corzine brought you 1 billion to invest for him would you Bruce? See, in our dictionary that makes you an accessory to a crime. See how that works, perspective baby. In the world that they have made the bad guy is the one staring down the end of the gun and you cannot control who that will be. Sometimes it will be the bad guy and at other times it will be the bad guy, The law of force, might makes right and all that. Right now the bad guys are in control, soon the bad guys will be in control. This is why anarcho capitalism is the only solution because without FREE markets, FREE of FORCE the "bad guys" are ALWAYS in control. 

They can drive the price of gold into the dirt for all I care, come and take it and someone is going to need to explain to their kids how they lost their ear, but I would still be the "bad guy" in their eyes cause "some bad guy bit my daddy's ear off"

Sat, 02/02/2013 - 17:25 | 3209583 BigJim
BigJim's picture

Have you considered taking up boating? No ear-eating required.

Sat, 02/02/2013 - 17:55 | 3209626 booboo
booboo's picture

I am afraid of holes in the water that requires money to be thrown in it. I already have a pool which is a hole in the ground that you throw money in

Sat, 02/02/2013 - 20:02 | 3209671 Enslavethechild...
EnslavethechildrenforBen's picture

KITCO major accomplice in global Precious Metals price supression scam

Sat, 02/02/2013 - 21:05 | 3210048 DoChenRollingBearing
DoChenRollingBearing's picture

I would have guessed the USA would have been on that list of top 10 exporters of illegal capital...

Re Kitco, I just read that infamous Jon Nadler has just been let go up there...

Sat, 02/02/2013 - 22:59 | 3210248 JOYFUL
JOYFUL's picture

Negotiating with the Tylers for a top banner slot as we speak....

guaranteed eyeball puller!

Sun, 02/03/2013 - 05:59 | 3210613 Supernova Born
Supernova Born's picture

This article is tongue in cheek, right?

Calling someone other than banksters the "real" crooks?

Baseless fiat is the greatest trick the devil (and his bankster minions) ever played on the world.

Do NOT follow this link or you will be banned from the site!