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Criminal Capital: How the Finance Industry Facilitates Crime
Criminal Capital is an engaging but authoritative account of how financial structures and products can and are being used to evade proper scrutiny and enable criminal activity and what can be done about it. Based on the analysis of the financial methods that are frequently used by criminals, it deals with the widespread abuse of financial systems.
249 pages, Hardcover
First published January 12, 2015
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191 people want to read
About the author
Stephen Platt
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Displaying 1 - 6 of 6 reviews
March 23, 2022
“Criminal Capital” – you assume the book is cheap pulp fiction peopled with low-life crooks and cunning shysters. That’s an easy assumption to make since those are the type of people that make up so much of the financial services industry today.
Placing, layering and other assorted nonsense
This isn’t pulp fiction but a serious and enlightened academic work on money laundering as it is really practiced, written by an expert.
Maybe you thought the classic placing, layering and incorporation money laundering model was so much bullshit? Turns out you were right. The typical prime minister of a small South East Asian country would run out of bank branches before he could place the half billion odd he might embezzle in an average year.
It just doesn’t work like that. Here's how it does work:
David, Boris and George
David, a banker, has retired to Chelsea with millions in bonuses earned from arranging IPOs of fraudulent Chinese shell companies on the New York Stock Exchange. The money is in offshore accounts but he needs cash in Chelsea to slip to the builders working on the new swimming pool in his basement.
Boris runs Plastic Person in Fulham, with a side business selling drugs to the sons and daughters of his old University buddies. Controlled substances gets stuck up well- appointed noses in his chi-chi night club toilets, turning small packages of white powder into alarmingly large bundles of pink fifty pound notes. Boris stares at these every evening as they pile up in his club office wondering what the hell to do with them all.
George is financial adviser to both David and Boris, holding David’s money in his client account invested in a hedge fund.
All George needs to do is have a courier take Boris’s cash round from the nightclub to David’s builders. As simple as that. George updates his own Moleskin notebook, remembering to put the money in Boris’ name instead of David’s. No records in any external financial institution need be updated and no cash placed, layered or the rest of it.
Once David’s swimming pool is finished and George’s Moleskin is brought up to date with the money now in Boris’s name, George can arrange to use the client account as collateral for a loan from the Vaticanial Bank for that Tuscan villa Boris has always had his eye on.
And in this whole process there is no cash or wire movement of funds into or out of the UK. Practically nothing is visible to the authorities. Do you see how the traditional money laundering model is flawed?
Unicorns and the Loch Ness Monster
This book would be a great reference work for regulators and prosecutors who want to hold financial institutions accountable for money laundering, and the facilitation of financial crime. Similar to Unicorns and the Loch Ness Monster, there is now plenty of evidence that such regulators exist.
There is also plenty of evidence that our democratically elected representatives, consciously or unconsciously, collude with the criminals. The book has many great examples, here is one:
Did you know Luxembourg is the only European country where the definition of money laundering does not include the handling of funds derived from tax evasion?
Crafty, those Luxembourgoise. Reflect that this re-definition of what is criminal and what is not did not happen by accident.
Some Luxembourg government lawyer had to finish digesting a heavy lunch, pick up his pen and chose to strike out tax evasion from the definition of criminal activity before starting his commute home, a good days work done with the full approval of this superiors.
With this type of soporific detail Luxembourg have undermined every attempt by the rest of Europe to tackle tax evasion, giving Luxembourg the highest per capita GDP in the EU based entirely on the crumbs falling from the rich tax-evader's table.
Luxembourg should go back to pirating trade on the Moselle. It would be more honest.
Placing, layering and other assorted nonsense
This isn’t pulp fiction but a serious and enlightened academic work on money laundering as it is really practiced, written by an expert.
Maybe you thought the classic placing, layering and incorporation money laundering model was so much bullshit? Turns out you were right. The typical prime minister of a small South East Asian country would run out of bank branches before he could place the half billion odd he might embezzle in an average year.
It just doesn’t work like that. Here's how it does work:
David, Boris and George
David, a banker, has retired to Chelsea with millions in bonuses earned from arranging IPOs of fraudulent Chinese shell companies on the New York Stock Exchange. The money is in offshore accounts but he needs cash in Chelsea to slip to the builders working on the new swimming pool in his basement.
Boris runs Plastic Person in Fulham, with a side business selling drugs to the sons and daughters of his old University buddies. Controlled substances gets stuck up well- appointed noses in his chi-chi night club toilets, turning small packages of white powder into alarmingly large bundles of pink fifty pound notes. Boris stares at these every evening as they pile up in his club office wondering what the hell to do with them all.
George is financial adviser to both David and Boris, holding David’s money in his client account invested in a hedge fund.
All George needs to do is have a courier take Boris’s cash round from the nightclub to David’s builders. As simple as that. George updates his own Moleskin notebook, remembering to put the money in Boris’ name instead of David’s. No records in any external financial institution need be updated and no cash placed, layered or the rest of it.
Once David’s swimming pool is finished and George’s Moleskin is brought up to date with the money now in Boris’s name, George can arrange to use the client account as collateral for a loan from the Vaticanial Bank for that Tuscan villa Boris has always had his eye on.
And in this whole process there is no cash or wire movement of funds into or out of the UK. Practically nothing is visible to the authorities. Do you see how the traditional money laundering model is flawed?
Unicorns and the Loch Ness Monster
This book would be a great reference work for regulators and prosecutors who want to hold financial institutions accountable for money laundering, and the facilitation of financial crime. Similar to Unicorns and the Loch Ness Monster, there is now plenty of evidence that such regulators exist.
There is also plenty of evidence that our democratically elected representatives, consciously or unconsciously, collude with the criminals. The book has many great examples, here is one:
Did you know Luxembourg is the only European country where the definition of money laundering does not include the handling of funds derived from tax evasion?
Crafty, those Luxembourgoise. Reflect that this re-definition of what is criminal and what is not did not happen by accident.
Some Luxembourg government lawyer had to finish digesting a heavy lunch, pick up his pen and chose to strike out tax evasion from the definition of criminal activity before starting his commute home, a good days work done with the full approval of this superiors.
With this type of soporific detail Luxembourg have undermined every attempt by the rest of Europe to tackle tax evasion, giving Luxembourg the highest per capita GDP in the EU based entirely on the crumbs falling from the rich tax-evader's table.
Luxembourg should go back to pirating trade on the Moselle. It would be more honest.
June 14, 2015
It's in a helluva parlous state, is global finance, according to Stephen Platt's Criminal Capital: How the Finance Industry Facilitates Crime.
A profound sense of uncertainty was generated in 2008 when the banks' extensive gambles failed and had to be underwritten by the taxpayer. What's occurred since hasn't fully restored faith in what might happen next time around – especially worrying as the government is so up to its neck in debt that any future propping-up bill could be unaffordable. That the conventional money sector has failed to fully regroup has allowed alternative – not least electronic – finance to blossom, bringing with it a host of new dangers that may leave us worse off than if an attempt was made to properly fix the conventional model. Any systemic prevarication allows criminality to prosper at the expense of the hard-working tax payer.
The fixing process, Platt suggests, involves addressing the embedded criminality that has enriched itself via creative pathways which turn ill-gotten gains into tidy investment portfolios. This criminality isn't actively permitted, of course, it's (mostly) the outcome of negligence by the industry - though negligence is another form of facilitation, and achieves the same result of laundering dirty money white. If you own a fig leaf-producing company there's a fortune to be made in the financial services sector.
The sums involved are staggering. Here's a few:
- One bank, HBUS (HSBC in the States) "assigned Mexico its lowest risk rating" between 2002 and 2009 until, under pressure, it went up three grades to its highest level. "One of the consequences of its prior risk rating was that $670 billion in wire transfers from Mexico were found to be excluded from the bank's monitoring system."
- The annual cost of piracy to the global economy is $18 billion, boosted by the fact that "the average ransom payment in 2005 was $150,000: in 2010 it had risen to $5.2 million".
- The annual retail market for illicit drugs was estimated at $320 billion by the UN's Office of Drugs & Crime (UNODC) in a 2005 'World Drug' report.
- Global cocaine sales in 2009 were $84 billion, but the "farmers of the coca leaves from which the drug is derived only earned about $1 billion that year".
- "The UNODC has rated people trafficking as the third most profitable type of organised crime (after the trafficking of drugs and arms), and the profits are estimated by the ILO to amount to $32 billion of which $28 billion is generated by sexual exploitation."
- Re the PPI (Payment Protection Insurance) mis-selling: "The banks have together paid $13.3 billion in compensation since January 2011, with the figure set to double."
Notice anything different about that last example? That's right, the PPI scandal was "only" a badly flawed and aggressively sold scheme, but it is the same moral laxity and ethical barrenness that allows vast sums of money to merrily dance around the world tax ecosystem, enabled by a culture of excessive risk-taking which ensures that negligence and lack of oversight will continue as long as possible.
Criminal Capital brilliantly audits the main crime-sponsored financial webs. Each chapter contains "scenarios" which illustrate how money is channelled - laundered - through the system via an international web of trusts, securities, "foundations", opaque cross-international ownership arrangements and the rest.
But there have been efforts to ensure accountability and these are gradually working through the system. The anti-corruption drive has both legal and regulatory powers which, "while distinct, also share characteristics and aims". The legal side targets bribes and corrupt payments from industries, companies and "potentially" corrupt institutions. The regulatory arm provides due diligence guidance and the regulator fines transgressors. But "there are still significant deficiencies in the manner in which these are applied".
These "deficiencies" include both lack of collective international willpower and the sheer sophistication of a network which ensures that people with lots of money become less accountable for it as their wealth expands. "Each offshore centre has a reputation for specialising in a particular product or service type: Luxembourg for funds, Bermuda for captive insurance, the British Virgin Islands for company registration, the Marshall Islands for ship registration, the Cayman Islands for funds and securitisations, Jersey for banking and structured finance, and increasingly Mauritius for company management and administration. And so it goes on."
The process of obfuscation is also noticeable in "offshore" and "onshore" descriptions. The City of London is actually operating as an offshore facility, as do US states such as Delaware, Nevada and Wyoming, which have "successful offshore industries largely because of the opaqueness of the companies that can be incorporated within their borders". US Senator Carl Levin says these arrangements "in our own back yard . . . undermine our credibility to go after offshore tax havens that help rob honest US taxpayers".
After digesting the frankly harrowing litany of financial criminality which inflicts "misery and suffering on countless millions of people", Platt quotes Bank of England governor Mark Carney's pronouncement that "a meaningful change in the culture of banking will require a true commitment from the industry" but the author asks why the culprits invariably fail to face criminal charges - not just the industry's customers, but the sector's executives too. PPI, the Libor price-fixing scandal, sanctions evasion, the forex scandal (fines of banks for rigging the forex market stand at $6.3 billion to date)... Platt calls for the "narrow applicability" of the UK Banking Reform Act of 2013 to be widened to include not just "making a decision causing a financial institution to fail " but also "egregious conduct with less calamitous consequences such as mis-selling or rate rigging".
That is a sound, albeit relatively modest, goal which would start to make the sector more accountable. Perhaps warnings of another crash will encourage a sharpening of minds on the matter, and Criminal Capital certainly encourages that process. However the immensity and complexity of the issues must have weighed heavily on the author, who says in chapter one that the global finance industry must recognise that "a new model is needed, which this book proposes."
So does he make good on this promise?
Let me get back to you on that one. Let's leave the last word comes to a trader in the forex market via an electronic chat with a fellow trader: "If you aint cheating, you aint trying."
A profound sense of uncertainty was generated in 2008 when the banks' extensive gambles failed and had to be underwritten by the taxpayer. What's occurred since hasn't fully restored faith in what might happen next time around – especially worrying as the government is so up to its neck in debt that any future propping-up bill could be unaffordable. That the conventional money sector has failed to fully regroup has allowed alternative – not least electronic – finance to blossom, bringing with it a host of new dangers that may leave us worse off than if an attempt was made to properly fix the conventional model. Any systemic prevarication allows criminality to prosper at the expense of the hard-working tax payer.
The fixing process, Platt suggests, involves addressing the embedded criminality that has enriched itself via creative pathways which turn ill-gotten gains into tidy investment portfolios. This criminality isn't actively permitted, of course, it's (mostly) the outcome of negligence by the industry - though negligence is another form of facilitation, and achieves the same result of laundering dirty money white. If you own a fig leaf-producing company there's a fortune to be made in the financial services sector.
The sums involved are staggering. Here's a few:
- One bank, HBUS (HSBC in the States) "assigned Mexico its lowest risk rating" between 2002 and 2009 until, under pressure, it went up three grades to its highest level. "One of the consequences of its prior risk rating was that $670 billion in wire transfers from Mexico were found to be excluded from the bank's monitoring system."
- The annual cost of piracy to the global economy is $18 billion, boosted by the fact that "the average ransom payment in 2005 was $150,000: in 2010 it had risen to $5.2 million".
- The annual retail market for illicit drugs was estimated at $320 billion by the UN's Office of Drugs & Crime (UNODC) in a 2005 'World Drug' report.
- Global cocaine sales in 2009 were $84 billion, but the "farmers of the coca leaves from which the drug is derived only earned about $1 billion that year".
- "The UNODC has rated people trafficking as the third most profitable type of organised crime (after the trafficking of drugs and arms), and the profits are estimated by the ILO to amount to $32 billion of which $28 billion is generated by sexual exploitation."
- Re the PPI (Payment Protection Insurance) mis-selling: "The banks have together paid $13.3 billion in compensation since January 2011, with the figure set to double."
Notice anything different about that last example? That's right, the PPI scandal was "only" a badly flawed and aggressively sold scheme, but it is the same moral laxity and ethical barrenness that allows vast sums of money to merrily dance around the world tax ecosystem, enabled by a culture of excessive risk-taking which ensures that negligence and lack of oversight will continue as long as possible.
Criminal Capital brilliantly audits the main crime-sponsored financial webs. Each chapter contains "scenarios" which illustrate how money is channelled - laundered - through the system via an international web of trusts, securities, "foundations", opaque cross-international ownership arrangements and the rest.
But there have been efforts to ensure accountability and these are gradually working through the system. The anti-corruption drive has both legal and regulatory powers which, "while distinct, also share characteristics and aims". The legal side targets bribes and corrupt payments from industries, companies and "potentially" corrupt institutions. The regulatory arm provides due diligence guidance and the regulator fines transgressors. But "there are still significant deficiencies in the manner in which these are applied".
These "deficiencies" include both lack of collective international willpower and the sheer sophistication of a network which ensures that people with lots of money become less accountable for it as their wealth expands. "Each offshore centre has a reputation for specialising in a particular product or service type: Luxembourg for funds, Bermuda for captive insurance, the British Virgin Islands for company registration, the Marshall Islands for ship registration, the Cayman Islands for funds and securitisations, Jersey for banking and structured finance, and increasingly Mauritius for company management and administration. And so it goes on."
The process of obfuscation is also noticeable in "offshore" and "onshore" descriptions. The City of London is actually operating as an offshore facility, as do US states such as Delaware, Nevada and Wyoming, which have "successful offshore industries largely because of the opaqueness of the companies that can be incorporated within their borders". US Senator Carl Levin says these arrangements "in our own back yard . . . undermine our credibility to go after offshore tax havens that help rob honest US taxpayers".
After digesting the frankly harrowing litany of financial criminality which inflicts "misery and suffering on countless millions of people", Platt quotes Bank of England governor Mark Carney's pronouncement that "a meaningful change in the culture of banking will require a true commitment from the industry" but the author asks why the culprits invariably fail to face criminal charges - not just the industry's customers, but the sector's executives too. PPI, the Libor price-fixing scandal, sanctions evasion, the forex scandal (fines of banks for rigging the forex market stand at $6.3 billion to date)... Platt calls for the "narrow applicability" of the UK Banking Reform Act of 2013 to be widened to include not just "making a decision causing a financial institution to fail " but also "egregious conduct with less calamitous consequences such as mis-selling or rate rigging".
That is a sound, albeit relatively modest, goal which would start to make the sector more accountable. Perhaps warnings of another crash will encourage a sharpening of minds on the matter, and Criminal Capital certainly encourages that process. However the immensity and complexity of the issues must have weighed heavily on the author, who says in chapter one that the global finance industry must recognise that "a new model is needed, which this book proposes."
So does he make good on this promise?
Let me get back to you on that one. Let's leave the last word comes to a trader in the forex market via an electronic chat with a fellow trader: "If you aint cheating, you aint trying."
September 26, 2016
I thought I had a reasonable idea about how money laundering was done, but... wow. It is unbelievably complicated, the money travels through a labyrinth and if you've been scammed, it is no wonder that the banks can't retrieve it as it has more or less vanished into thin air. It's a lot more complicated these days than Walter White in Breaking Bad slipping the odd $20 into a business's takings.
A lot of this information was new to me and it is very informative. Platt covers how banks are used to launder money from criminals, people traffickers, bribe recipients, tax evaders, terrorists and sanctions evaders. It was helpful that he ended each chapter with a scenario of how money is laundered as it makes it easier to understand. The banks are sometimes implicit but also can do this unwittingly as the way money is laundered is so complicated and their model of money laundering is outdated. Platt puts forward proposals for banking reform, but this needs to happen on a global scale and it is unlikely that would be overwhelming support worldwide.
A lot of this information was new to me and it is very informative. Platt covers how banks are used to launder money from criminals, people traffickers, bribe recipients, tax evaders, terrorists and sanctions evaders. It was helpful that he ended each chapter with a scenario of how money is laundered as it makes it easier to understand. The banks are sometimes implicit but also can do this unwittingly as the way money is laundered is so complicated and their model of money laundering is outdated. Platt puts forward proposals for banking reform, but this needs to happen on a global scale and it is unlikely that would be overwhelming support worldwide.
June 29, 2017
El major libro que existe sobre lavado de activos
January 2, 2023
Good book, very in-depth and informative but starting to become a little dated as it was published in 2015.
June 1, 2024
3.5 stars. Very dense and technical for someone not intimate with financial terms and structures; diagrams very much NOT helpful; fantastic concluding chapter on action that needs to be taken
Displaying 1 - 6 of 6 reviews