Legislation does little to soak up criminals' dirty money

MONEY laundering opportunities abound in Ireland and across Europe, despite EU backed legislation introduced, in 1992 aimed at making life, impossible for the launderers. No one has been prosecuted in Ireland or Britain under the regulations.

The legislation only served to make it slightly harder for the launderers to get the money into the global financial system in the first place. However, it is still remarkably easy.

Under the regulations banks are obliged to ask questions when someone lodges £10,000 or more. But it is fairly easy for a criminal to lodge much larger amounts and avoid most questions.

One of the easiest methods of laundering small amounts of cash is to save, say, £20,000 with a bank. The launderer then brings the £20,000 to another bank to lodge. He has the receipt so there is no problem if any questions are asked. He can do this a number of times.

It recently emerged that the convicted heroin dealer, Tony Felloni, used several bank accounts, mostly in his own name. Gardai have frozen many of his accounts and other assets worth around £100,000, ready for eventual seizure.

His daughter, Regina Felloni, had £50,000 in one bank account which has also been frozen, Dublin Circuit Criminal Court was told on Thursday.

Judge Cyril Kelly said financial institutions had an obligation to society when young unemployed people like Ms Felloni could lodge such large sums of money and a blind eye appeared to have been turned. He said this facilitated the wrong.

The bookie is another favourite means of laundering funds. The launderer will approach a big winner of, say, £8,000 and will offer him £10,000 for the winning ticket. He then has documentary proof that the money was won legitimately at the races.

But these are simple steps and can be uncovered by an investigation. To properly launder money most criminals use three basic steps.

First they must get the money into the legitimate banking system, a method which is called "placement"; this is as far as Felloni seems to have gone. Then the money must be moved around - "layering" - which confuses the audit trail so that the police cannot find it or the courts freeze it. Finally the money is "integrated" into the legitimate system, ready to be used and masquerading as legitimate money.

International experience suggests three popular ways to place the money are to pay a bank manager, pay a legitimate businessman or set up a business yourself.

Several years ago a branch manager at an Irish bank in London was prosecuted for handling money from a major gold fraud ring.

According to Mr Nigel Morris Cotterill, a British solicitor specialising in money laundering compliance who has written a book on the subject, every business is vulnerable.

TRAVEL agents are favourite targets. The criminal simply pays full price first class round the world air ticket. This can cost up to £10,000. He then cancels the holiday, and the travel agent writes him a cheque for the full amount. The money is now clean. Newspapers can also be targets, Mr Morris Cotterill points out. A full page advertisement in a newspaper may cost up to £12,000, he says.

The drugs baron or other criminal simply pays for the advertisement up front and then a couple of weeks before publication changes his mind. The newspaper will return the money by cheque with only a small cancellation fee taken out.

In England, casinos are a favourite haunt for the criminal fraternity. The idea is simple. They buy a load of chips, wander around the casino without spending much and then cash in the chips, getting a cheque in return. The money then looks as if it was legitimately won.

However, for many "big league" drugs barons it is far simpler to set up a business themselves. The most popular businesses are bookies, night clubs and bars, in fact, any business which is cash dominated.

By acquiring a bookie stand at a racecourse, a launderer can put through substantial amounts of ill gotten cash, which becomes untraceable. It is almost impossible for the authorities to prove how much racecourse bookies make from punters and how much is siphoned through from less legitimate sources.

According to popular legend many London clubs operate on the same basis. The authorities have some hope of examining the amount of drink bought but fake invoices and payments to non existent customers can make this an almost impossible trail.

Another favourite way for criminals to launder money is using second hand car businesses. The car dealer makes out an invoice pretending he has bought a car from another dealer.

He then makes out a second invoice which shows he has sold the car. According to Mr Morris Cotterill, in some areas of London you can watch the same cars move up and down a stretch of road where there are a number of second hand car dealers.

This means some of the money is subject to tax, but for many criminals this is a small price to pay. Life is easier for Irish criminals. The tax amnesty in 1993 is thought to have been used by several drugs barons and other criminals.

However, the possibility of having assets frozen will make Irish criminals move much of their assets overseas and away from the watchful eye of the Revenue Commissioners and other authorities.

The most popular way to do this is to move money overseas using a Swift transaction. Anonymous accounts in Austria are proving popular with criminals across Europe, now Swiss rules have become stricter.

MONEY can also be lodged directly into the subsidiary of a British high street bank in the Caribbean. All they do is check the existence of the company, not who owns it.

Antigua is a particular favourite as it has international business corporations, where the beneficial owner is completely hidden. The launderer can them simply get a credit card and use it to spend anonymously worldwide.

A more sophisticated method which even the most dedicated fraud squads find practically impossible to follow is to buy a life assurance policy. The criminal changes his mind about the policy after one month.

The penalty charges are a small price to pay. The money can then be sent, say, to a German money broker. Again after a month or two the broker is instructed to send the money to a lawyer in Guernsey. He puts the money into a client account in the British Virgin Islands.

It costs only $500 to set up a company in the British Virgin Islands, says Mr Adam Courtenay, editor of the Money Laundering Bulletin, in London. "The money is then completely shielded as the beneficiaries or shareholder in such accounts do not need to be revealed. The lawyer can also plead client confidentiality and refuse to name the owner," he says.

Once the money is returned to the home jurisdiction the criminal then has the veneer of a lawyer to cover where the money came from. Once investigators come up against an account in the BVI they are usually stumped, he adds.