On Laundering Black Money - And Gold?


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:


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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

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