Saturday, February 2, 2013

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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  1. It does seem like the powers-that-be would not want a convenient way for value to be transferred outside the monetary system. And gold provides a (unique?) way of moving a lot of value in a relatively small package.

    But couldn’t the same be said of any valuable item that is portable?

    Or if only fungible items would work (because moving rare art leaves a trail that a fungible like gold doesn’t) then couldn’t the same be done with platinum, diamonds, and other rare commodities?

    One argument against the governments restricting private ownership is the massive amounts of gold held by very “old money” and Saudi oil sheiks and such. If it becomes difficult or impossible to buy and sell gold freely, the value of gold drops and these peoples’ wealth is affected. To the extent they pull strings behind the scenes, they may not want to make it impossible for private citizens to hold gold.

    And beyond those arguments are the FOFOA arguments that when faith in fiat currencies is shaken (and it will be, sooner or later) the only way to restore that faith is for people to know they can readily buy gold with the currency in question. One way for that to happen is for the government to make the currency redeemable in gold. But that results in runs on the government’s gold. Another way is for the government to freely allow private gold purchases and sales by citizens, which makes gold available for purchase in the fiat currency (with a floating price) without the government having to pony up much or any of its own gold.

    I think gold may be more powerful than governments, in the long term anyway. I suspect that any interference with the right of citizens to trade gold ends up doing more harm than good and in the long run has to abandoned by meddling governments.

  2. Am I missing something here., authorities are worried about $700 billion while Wall Street was made whole with $16 trillion for starters? This was found in the AUDIT THE FED , pushed by Dr Ron Pauls efforts.Gold is moving towards the system and CB’s of the world need that market to flourish in a legal way for all. It is moving towards the system of banking and Gold will settle the debt’s of foriegn nations soon enough.Maybe it’s time the real crooks, tax evaders etc. pay the price instead of hard working people who have chosen to save in an investment vehicle that protects them from all of them.

  3. BK: “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.”

    You are omitting a big piece of the dirty money puzzle. In China, the dirty money is from politically connected — the so-called regulators, communist party officials, etc — are the source of a lot of the dirty money. They are not going to harm themselves, and outside of some theatrical money laundering arrests for the PR benefits, they are not serious about stopping money laundering because they are the money launderers.

    In Europe, check out what Mario Draghi did with Monte Paschi when he was running Bank of Italy. The guy is dirty. In the USA, check out the shenanigans pulled by Henry Paulson and Tim Geithner re AIG and Goldman (and their crony John Thain running Merril at the time) — dirty money controls the US regulators. The SEC’s top prosecutor Khazumi could not go after Deutche Bank for mortgage violations, because he was chief counsel at Deutche when the shenanigans was happening — the regulators do not prosecute themselves.

    Members of US Congress have been caught red handed with blocks of cash in their freezers (part of an FBI sting). Others (Barney Frank) gave absurd speeches on the floor of Congress that FNMA and FHLMC were perfectly solvent, and taxpayers would never get hit with the losses even if something happened. Chris Dodd (the other half of the Dodd-Frank legislation) was busy getting favorable below market rates on mortgages from Countrywide and running interference for AIG financial products.

    Beneath all the propaganda and bullshit, the political class and the dirty money crowd are the same people. They will put on a nice show for the TV cameras, but they are not going to really go after dirty money. Ever.

    • Okay, okay – you’re right. Fuck it – just buy some gold and hope for the best.

      And I thought I was a cynic…..

      • Its not cynicism, it is willingness to look in the mirror and realize we have a big cultural problem in today’s so-called leadership. There is a reason the USA is losing its position as the single global power. There is reason why most (all?) the big G7 banks failed and needed bailouts. There is a reason every nightly news-cast features a baseball player / golfer / bicyclist / etc who has made an ass of himself. And yes, there is a reason why multiple successive Congresses (controlled by both parties) have had disastrous ratings. There is a reason why shareholders are demanding a say on CEO pay.

        It is not the end of the world, but the current crop of “leaders” are not up to the task. Playing along with their ass covering tactics is weak. They need to go.

        • Barry Goldwater says:

          Bubba it’s even worse thatn you think: the youth vote went to Obama in both elections, the Daily Show gets more viewers than the entire Fox News channel, and the RINOs and neo-cons in office are too busy kissing the ass of AIPAC to give two craps about the future of the GOP.

          • None of that partisanship would explain the failed leadership in bank c-suites, in Fortune 500 c-suites (Kodak most recently). None of that would explain the failed leadership all over the EU. None of that would explain the Japanese government’s mishandling of Fukashima reactor.

            Not defending the crooks in DC (both parties) — just saying that leadership has broken down, and silly nonsense about the crooks getting tough on crime makes Bruce look foolish. I think he is smarter than that, or else I wouldn’t read his blog.

            We need leaders selected by meritocracy, not by politics. That pretty much rules out every current G7 leader, both political and corporate. Its a sad state, but its why we are *STILL* in the mess we are in

            • One man, one vote: a really foolish experiment that has NEVER succeeded in human history. The Romans finally let everybody be citizens in the 3rd century, the greatest mistake they ever made. The Empire was destroyed in 50 years. That was about all it took.

              • Why work when you can vote? Use demographics to then use the mechanism of government to redistribute wealth. I listened to a minority woman recently bragg about her 49 grand children. These were children her children could identify. Do the math. Exponential. Does not take long. This one example replicated her horrible genetics as much as an entire classroom of responsible middle class mothers, within the span of two generations. Does not take long, and it is here. The beauty of mathematics.

              • Let us follow it one more generation: If she really has 55 grand children, which is probably realistic, and each of these generates a much reduced 3.5 kids, we get 192 children. In a destroyed economy which will never return to the last century, I ball park 2/3rds of these eventual children as benefit people,near life long of some way shape or form, and government benefits and freebies now are almost too numerous to list (including being housed in prison, which costs about 60 grand per year). If Spain has 50% youth unemployment, my figure, for her replicant residue, is quite realistic. This is 128 people she is depositing on the “system. ” These jobless people will and must be supported by government feebies via the mechanism of one man, one vote. Here is the kicker: they will be supported by a small minority working in the private sector who themselves have dependents and are being crushed financially already.

  4. Assualt Scissors says:


  5. Plain and simple, there’s only 2 types of politicians/leaders… ones that have been caught doing something unethical and the ones that haven’t been caught… yet. And, if caught red-handed, they usually get off, unpunished.

  6. When the Maria Bartiromos of the world deny owning gold (except for the odd earing of course) you know it is the new underground economy.

    • Ah yes… The Money Honey. I remember her when she had long hair, a cuter face, and hadn’t taken that private jet ride with “the other GE executive”. She had more credibility then

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