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How to Launder Money
1.8k Plays1 year ago
Today, we discuss money laundering in the modern and everchanging world. Yaya is an Adjunct Senior Fellow at the Center for a New American Security where his research focuses on crypto, blockchain, and central bank digital currencies. Earlier in his career, he spent seven years as both an economic and counterterrorism analyst in the CIA, where he regularly briefed federal law enforcement, U.S. military personnel, and White House-level policy makers—including President George W. Bush whom he personally briefed on terrorism threats. In 2009, he spent three months in Afghanistan providing analytic support to senior military officials. After leaving government service, Yaya worked for a small consulting firm on a global financial asset recovery investigation of a kleptocratic regime. Later, he joined the think tank world and as Director of Analysis at the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance, Yaya led research on sanctions evasion and terrorist financing threats.
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Transcript
Introduction to the Podcast
00:00:02
Speaker
Welcome to How to Get on a Watchlist, the new podcast series from Encyclopedia Geopolitica. In each episode, we'll sit down with leading experts to discuss dangerous activities. From assassinations and airliner shootdowns through to kidnappings and coups, we'll examine each of these threats through the lenses of both the Dangerous Act to seek and to conduct these operations, and the agencies around the world seeking to stop them. In the interest of operational security, certain tactical details will be omitted from these discussions.
00:00:33
Speaker
However, the cases and threats which we discuss here are very real.
Meet the Hosts and Guest
00:01:02
Speaker
911, what's your emergency? I'm Louis H. Prisant, the founder and co-editor of Encyclopedia Geopolitica. I'm a researcher in the field of intelligence and espionage with a PhD in intelligence studies from Loughborough University. I'm an adjunct professor in intelligence at Science Pro Paris. And in my day job, I provide geopolitical analysis and security focused intelligence to private sector corporations. I'm Alexandra Shokiewicz, a co-editor of Encyclopedia Geopolitica.
00:01:30
Speaker
I'm a multilingual security and intelligence professional with a master's in international security from Sciences-Popari. I have served in both consulting and in-house roles, focusing on threat monitoring, geopolitical intelligence, and security support to various public and private audiences. So today we're discussing how to launder money. Joining us is Yaya Fanuzzi. Yaya is an adjunct senior fellow at the Center for New American Security, where his research focuses on crypto, blockchain, and the central bank digital currencies.
00:01:58
Speaker
Earlier in his career, he sent seven years as both an economic and counterterrorism analyst in the CIA, where he regularly briefed federal law enforcement, US military personnel, and White House-level policymakers, including President George W. Bush. In 2009, he spent three months in Afghanistan providing analytic support to senior military officials. After leaving government service, Yaya worked for a small consulting firm on global financial asset recovery investigations around the kleptocratic regime.
00:02:28
Speaker
Later, he joined the think tank world and as Director of Analysis at the Foundation for Defense of Democracy's Center on Sanctions and Illicit Finance, Yaya led research on sanctions evasion and terrorist financing threats. As part of this work in 2016, he began tracking the illicit use of crypto and wrote some of the first public analysis on terrorist crypto crowdfunding campaigns. He later published a major study on efforts backed by Russia, Iran, Venezuela and China to build national blockchain infrastructure.
00:02:57
Speaker
Yaya is also the director of policy for anti-money laundering and cyber risk at the Crypto Council for Innovation, a global alliance advancing crypto innovation. He's testified before Congress multiple times on illicit financing issues, and he's a leading expert on China's central bank digital currency.
00:03:15
Speaker
He's appeared in numerous media outlets and is a frequent contributor to lawfare and other sites. He's certified with the Association of Financial Crime Specialists, and he also teaches an introduction to blockchain technology course at Morgan State University in Baltimore. He received an MA in international affairs from Columbia University School of International and Public Affairs and a BA in economics from UC Berkeley. Yaya also wrote and hosts a fantastic fictional intelligence thriller podcast, The Jupyri Lincoln Files.
Yaya Fanuzzi's Career Journey
00:03:42
Speaker
Yaya, thank you very much for being here with us.
00:03:45
Speaker
With a career like that, I've got to ask, how did you get into your line of work? It was unplanned and it was me dealing with, I guess, the adversity of having a mandate on my job with no government tools. Let me explain exactly what I mean.
00:04:06
Speaker
So you mentioned my background. I worked in the intelligence community for a while. That was sort of like the anchor to my career. I didn't focus on money laundering back then. I mean, I was hired as an economic analyst. So I did deal with economic, sort of political economic issues at first, but then I became a counter-terrorism analyst. And people often think, oh, was I doing terrorist finance analysis at that time? No, it was just general counter-terrorism. This was during the heyday of al-Qaeda.
00:04:34
Speaker
So, dealing with plots towards the US homeland, plots in Europe, et cetera, and the rest of the world. But what had happened was I left government and I was working with a consulting firm on this issue called financial asset recovery. Sounds very sort of boring, you know, financial asset recovery. What is it?
00:04:54
Speaker
Well, we were working on a project to recover the funds of the national assets in a country that had a dictator that was deposed. This is Arab Spring period. As you know,
00:05:13
Speaker
many governments, autocratic governments have this habit of moving the money that belongs to the people and it ends up around the world. It's Swiss bank accounts, mansions, luxury cars and yachts, friends, mistresses, front companies, et cetera. And so we were tasked with trying to uncover those funds and bring them back to the people that deserve them.
Understanding Money Laundering
00:05:38
Speaker
But here's the thing,
00:05:40
Speaker
This was not a government operation. So for the first time, I had to do research and work on this project where I had no government intelligence. I had no badge that would allow me to collect data or get documents. Everything we had to do was on our own using open sources. And I had to figure out how can we use the open source environment to figure out how people may be laundering money.
00:06:09
Speaker
and that led to a unique set of skills, if I could say, around looking at businesses, looking at incorporation documents, looking at open source media to try to determine when someone is hiding something, the business of laundering money,
00:06:28
Speaker
All of that came from that financial asset recovery, and then it just grew as I started working in the think tank space and covering issues like national security and FinTech, national security and crypto. Basically, how does technology fit into this whole illicit finance world? That's what I've been doing, I think, for the past 12 years or so. That is absolutely fascinating. It's a perfect transition as well. You already mentioned hiding elements to all of this. We hear this term money laundering a lot in films and media.
00:06:57
Speaker
What does it actually mean? There are plenty of textbook definitions, and maybe I could give that, but I think the key thing to think about is money laundering is deception. Deception in the management, in the movement, in the origin of funds.
00:07:16
Speaker
That's one way to think about it. Just think about deception and what you're doing financially. You can also think about it laundering. You could think about taking dirty funds, usually from illicit origins and trying to move them into the financial system, trying to make them seem clean.
00:07:31
Speaker
And so, that's the general idea. Now, again, textbook definition is similar, right? Sort of deceiving, concealing the origin of illicit activity and moving it through the financial system. It could be that you have bad funds and you want to hide
00:07:47
Speaker
where those funds came from for obvious reasons because if they came from illegal drug sales, if they came from political corruption and graft, obviously you don't label that when you deposit it in the bank, right? So you are trying to take something that's illicit that you know you could get arrested for and take those proceeds and then use them. You want to be able to use them. So to use them, you have to launder them. You have to disguise their true origin
00:08:12
Speaker
and make it seem as though they're part of some legitimate business or legitimate activity, and it can be a very convoluted process. So that's in a nutshell. I will add, if you don't mind, I mean, I'll give you a couple of nuggets, because again, I don't want to dwell on the textbook definition, but this might help. Typically, when people talk about money laundering, they talk about three different stages or components.
00:08:35
Speaker
The first is just placement. You're placing funds somewhere. If you think about illicit cash, you're putting it in a bank. Then the second stage is layering. You have that illicit transaction, those illicit funds, but then you're going to mix them up with other, maybe legitimate funds. Then after you've layered it because that obfuscates the origins a little bit,
00:08:59
Speaker
and then you integrate it. You integrate it maybe in a new form into another business maybe or another piece of property. These stages of placement, layering, and integration are what people typically talk about. We can talk about plenty examples. I'll give you a couple of examples, but sometimes I like to talk about Hollywood because let's zoom out a little bit because I think in 2023,
00:09:26
Speaker
Money laundering is a very fine-tuned affair. It's very sophisticated, lots of different forms. But I like to zoom out and think about what you would imagine in the 1980s. If we talk about how to fight money laundering, let's think about this example.
00:09:42
Speaker
In the 80s, actually before you had a lot of real sophisticated regulations and rules around anti-money laundering, you used to have a situation where a guy walks into a bank in Miami. His name is Tony Montana. I don't know if that name rings a bell, but his name is Tony Montana. He walks in and he has a huge briefcase.
00:10:04
Speaker
And two briefcases, actually. So he walks in, new customer, asked to speak to the teller. He says, I want to open up an account. I'd like to deposit some funds. He comes with a briefcase, opens them up. It's a bunch of cash. I'd like to open up this account. Can I? Oh, he counted up. It's $250,000 in cold, hard cash. And the teller would say, oh, well, this is great. You'd be a great customer. And what's your name, sir?
00:10:27
Speaker
Oh, my name is John Smith. Oh, okay. John Smith will write that down and open up your account in the name of John Smith. And we'll enter, you know, we'll go ahead and do it. And then, you know, a week later, he deposits some of that and sends it around, uh, to his Patriots or to his, to his, to his colleagues. You could do that decades ago. That is a transaction that actually could happen. You can't do it today. That's that's clearly, uh, if you read between the lines, you would detect that as money laundering. And there are a whole bunch of rules to keep that from happening today.
00:10:57
Speaker
So other than legitimate businessmen, of course, like Tony Montana, why would someone want to launder money? What other sorts of groups, individuals would do something like this?
00:11:08
Speaker
Yeah, you can find your illicit actor or name your illicit actor and you will find a money laundering component to their work or to their activity. Again, I worked on counter terrorism in my government career, terrorist financing is a huge money laundering for the financing of terrorism is a well known sort of typology. Things like
00:11:32
Speaker
you know, this was big in the early 2000s, mid 2000s, after 9-11, the 9-11 attacks, using fronts, using even charities, right, to raise funds.
Methods and Typologies of Money Laundering
00:11:42
Speaker
So even this is money laundering, right? If you raise funds through a charity, so you're getting really illicit funds because they're funds, if they're specifically for, it's not like you're robbing a charity and then, you know, stealing it and using it. No, the idea of raising funds ostensibly through a charity, but where there is the charity as a front, or individuals within the charity are a front.
00:12:02
Speaker
so that you can raise that money that's in their pool of donated funds and then a portion of it goes to the terrorist group to support for operations. It's interesting because terrorist financing, people say for plotting, it's really not very expensive. Maybe that's a whole other issue. It doesn't cost a lot to do terrorist attacks, especially nowadays. But you name it, drug money. Like you mentioned, the illegal
00:12:29
Speaker
drug organization or drug trafficker. Political corruption is actually probably one of the biggest, and political corruption meaning people using state funds or using bribes, right? If you are, and I mean, this is what I think I saw a lot of.
00:12:46
Speaker
in some of my work, which is you have a government that let's say has oil money and is getting billions of dollars worth of money, lots of different contracts, kickbacks, et cetera, middlemen that are getting kickbacks for let's say an energy contract. Those funds come from maybe they're
00:13:01
Speaker
Maybe they're coming from the corporation. Maybe they're coming from an oil company. Maybe they're coming from someone connected to that person, right? Or to a business. That money has to be deposited into a bank somewhere typically. And the laundering is how you can make it seem like those are legitimate funds.
00:13:18
Speaker
And so you enter it into the system, but then you're going to have to come up with other ways, other reasons, you know, plausible reasons for you to have that money. A lot of times what you would find is someone who is a criminal would have a relationship with someone that has a clean background, that someone that is not seen, that's not on the radar or not on a watch list, right?
00:13:39
Speaker
Because having a relationship with a sort of clean profile, a person who's a cutout, a middleman, et cetera, middleman or middlewoman potentially, right, that allows you to work with that person and leverage them. Yeah. Well, let me pause there because we could, I don't want to go off too much into detail. You let me know what's interesting. So you've already given a few examples of how people would be laundering money. What are some of the traditional ways that money is laundered
00:14:07
Speaker
And you also mentioned different groups and activities. Do different groups do it differently or are there some common trends that we can see?
00:14:14
Speaker
Yes, there are definitely common trends in the anti-money laundering space. People talk about different typologies for money laundering, but there are definitely certain, I'd say, tools in the toolkit. Now, actually, the toolkit is probably getting more sophisticated, more technical, and it's growing. But if you think about things like front companies, for one, right?
00:14:38
Speaker
So front companies, this is pretty obvious, right? A company that pretends to be something that it's not, you know, and especially if that company is a cash intensive business, right? So if you're, so it depends on the illicit activity. So if you're doing an illicit activity that is cash intensive, let's say the drug game, right? Often dealing in cash, right?
00:14:56
Speaker
A front company would be a company, maybe like a money service business, an exchange, a bar, right? Where a lot of cash is coming in, a gambling, a casino, right? Very cash intensive. So it's common to see companies like that working, individuals associated with those companies, working with an illicit actor because that illicit actor can easily infuse hundreds of thousands of dollars, millions of dollars even in cash into their system.
00:15:22
Speaker
You have things like money mules, so thinking about clean background, dirty background. A money mule, like it sounds, someone that is carrying money. It doesn't have to just be carrying cross border like most people would think about on a plane or something like that.
00:15:39
Speaker
It could just be someone that allows you to use your bank, allowing someone to use
Valuable Asset Laundering
00:15:44
Speaker
an illicit person to use your bank account. You're a clean person. That's one way because we're going to talk about what are the safeguards to present money laundering in the banking system. One of the things is
00:15:54
Speaker
something called KYC, know your customer. So when someone's, I mean, we've all been through this, right? Every time we open up an account, whether it is with a huge bank or a FinTech company, a mobile, you know, mobile FinTech company, a crypto exchange, right? We have to provide proof of who we are. So think about it. If you're the bad guy, if you're the bad guy, you obviously can operate in your illicit name. Maybe you're on a watch list, maybe you're on the sanctions list, et cetera.
00:16:21
Speaker
you're going to want to use someone who seems clean and maybe they're someone who's elderly, who just has very simple basic life, no flags, right? That person, if you give them money, they can deposit it and then operate with less suspicion. So, you know, the key is obfuscation and it really depends. I mean, if we're talking about cyber actors, so cyber actors as well, the hacking, hacking of money, ransomware. So ransomware is actually a good example because
00:16:50
Speaker
If you think about ransomware where a cyber attack happens and your computer, let's say a hospital, a hospital, its databases all get locked up. The hacker locks them up and says, hey, pay me in Bitcoin or crypto if you want them released. That money, those are illicit proceeds. If you pay that
00:17:09
Speaker
hacker, right? Basically that person has your money or if they've hacked and they've stolen your money or let's say they stole crypto, they take that money and they want to mix it up somewhere. So the process of even using a mixer and this I guess gets more into crypto but it's sort of one of the things I'm thinking a lot about.
00:17:28
Speaker
If you can mix those funds in a way where now you can exchange them for cash at a website that doesn't do know your customer very well, that you can allow, you can use a front person, you can use a money mule to operate and take that money out and then just send it to you via crypto or through cash. And is it always about money or are there other valuable items that are used? I'm thinking, you know, gold bullion, art, suitcases full of diamonds.
00:17:57
Speaker
It's all about the objective of the laundry, right? You want value and you want value in a way that's not going to be taken away from you or that's not going to be easily detected as illicit. The things that you named, I mean, so again, you want to change forms.
Hezbollah's Money Laundering Operations
00:18:12
Speaker
Money launderers, they're interested in using the funds that they have gotten from illicit deeds or illicit activity.
00:18:20
Speaker
It doesn't have to be today. They might want to use it next month. They might want to use it next year. They want to be able to do something with it. So yes, it's very common. I mean, we can start with property that's easily moved gold in some way, right? Or easily transported jewelry even, right? You could have something that is very small, a necklace that's worth thousands and hundreds of thousands of dollars, right? So here you go. You have $100,000 worth of illicit cash, but then you put it in.
00:18:49
Speaker
a painting, right? You put it in some jewelry, gold jewelry or diamonds, right, that are much easier to transport. You've laundered that money and now you're going to, you've integrated it, you know, maybe you have it as a safe deposit box and it's there in the bank in a safe deposit box if it's, let's say, gold or diamonds and it's there for you to transfer to another person and fund in your operations. I mean, I can even mention an example from a few years ago where
00:19:17
Speaker
Lebanese Hezbollah. There are articles out on this. This is, I'm sharing from my time outside of government when this case became really popular. There was reporting again. Actually, there's a really interesting Wall Street Journal article if people want to check. The title is something around Mrs. Murray's Toyota because it's the story. It's really an interesting story. It's about this
00:19:41
Speaker
international money laundering operation where Hezbollah financiers and again Hezbollah Lebanon based sanctioned group in the US sanctioned as a designated terrorist group so it's illegal right for any you know anyone in the US to do business with Hezbollah and so Hezbollah had in a very international sort of this network set up that had it cooperating with drug money launderers well with drug
00:20:07
Speaker
drug cartels in Latin America, in Mexico and in South America as well, who would, because they're involved in this cash, basically a cash crop of drugs, had a lot of money, and they worked with them reportedly to purchase cars, to purchase used cars. So basically, money was funneled to Mexican cartels from drug sales, and those cars were then used
00:20:34
Speaker
to buy used cars in the US. Those used cars were then sold to West Africa and would end up on these car lots in Benin and other places. The proceeds from those cars were then funneled back through, you know, sometimes using, well, in this case, they use this Lebanese Canadian bank. But basically you had, without getting too much into the detail, you have this operation, this symbiotic relationship between Hezbollah, which is receiving funds and having financiers that would work with
00:21:03
Speaker
drug dealers in Latin America who would then use some of the proceeds from the drugs to purchase cars. And then when the cars back in Benin would get sold, some of that money would go back. A certain cut would go back to Hezbollah, would go back to the drug dealers. So the money sort of would feed itself through all these different players
00:21:24
Speaker
all in a program to move money seemingly legit. And so the article talks about this woman whose car she just happened to, I think she actually got her car repossessed, but they were able to check her car when it was sold later in Africa. She was like, I have no idea my car got there. And the article looks at this whole international operation.
00:21:45
Speaker
And you know, I should mention one thing because when you hear about these operations, some members in terms of typologies, there are waiting and unwitting members of a laundering operation. So obviously if Hezbollah or if drug dealer X comes to me and says, Hey, you know, Hey, I'll give you, you know, I'll give you $1,000 and you get to keep, you know, you get to keep $300 worth of it if you do this transaction for me.
00:22:10
Speaker
So that's a situation where I'm winning. I know, maybe I don't know exactly what's going on, but I know something's going on, right? Cause someone is asking me to do something I shouldn't, which is to represent, you know, they're giving me cash and I'm, you know, you're part of a money laundering scheme potentially, you know, if you do that. But in, in some of these,
00:22:28
Speaker
these schemes, you're going to have people sometimes that may be involved, may not realize where they're getting the goods from. Maybe they do have a business. Art is good. You mentioned art. The art sector has had a money laundering problem for years, for decades. Authorities have been trying to crack down on it. Most governments say they're trying to crack down on it.
00:22:51
Speaker
But what has happened in the art industry? In the art industry, you've had illicit actors who would, one, go and purchase art with bad money in order to hold value. You have things called free ports, which are in different cities around the world, which are maybe part of these zones where you can have items stored. You can just store it in a free port maybe without paying taxes or paying less taxes or tariffs on it.
00:23:18
Speaker
But the idea is that you may have someone in the art field that is dealing with a front person. So often money launderers have people working on their behalf. So there may be a high net worth individual who has an agent working on his or her behalf and that individual, the agent
00:23:35
Speaker
is going to then go to the art dealer and say, oh, can you help us with an auction? I'd like to auction off these goods or I'd like to provide some goods for the auction. So maybe this person is trying to sell goods that are stolen or sell art that has been funded with illicit means, all as part of the scheme. Does the art show director know necessarily
00:23:55
Speaker
Maybe, maybe not. But it just goes to show, you know, there are opportunities. So the illicit actor is looking for ways to use people wittingly and unwittingly to place bad money in the system, to mix it up and layer it and then to put it in some other form. And that's why we have, I mean, so many rules today when people are in these types of fields like the art market and even in real estate to try to counter this. Sounds like there's a lot of moving parts to this.
00:24:22
Speaker
How many people are typically involved in an operation like this? So you mentioned a lot of opportunity. Is there some kind of number or maybe a dedicated person within the criminal organization that would be in charge of doing that or different people from different sectors coming together? How big is that network?
00:24:36
Speaker
Yeah, it does depend on how sophisticated that criminal network is. Because money laundering can be something which is simple, like here's a real case that happened a few years ago here, stateside in the US. Well, it was international, but there was a woman, going back to a terrorism example, there was a woman, New York-based
00:24:58
Speaker
who simply, I say simply, right, but simply wanted to send money to ISIS. That's what, you know, she got caught up in according to the indictments that we saw against her. And so she wanted to send money to ISIS and she obviously had some contacts. She was involved in a network, but she was here in the US. She just wanted to send money.
00:25:17
Speaker
She just did a few things. She donated, I think she had some of her own money and she put it in the banking system. She actually bought some cryptocurrencies. She did some things with some prepaid cards and put the money in the bank and then sent some bank wires to, I forget where it was, but somewhere overseas, maybe to Europe, maybe to the Middle East, but eventually the aim was to get the money to ISIS.
00:25:41
Speaker
So that's a very simple operation. Now, if you have a network that is making millions and millions, if not billions of dollars, like a drug cartel, you're going to have individuals who know the ins and the outs of the financial system and that are much more sophisticated because again,
00:26:01
Speaker
You have the simple just, oh, just get some prepaid cards and then convert it to cash and put it in your bank account. That's like very simple rudimentary laundering. But then you have people who are coming up with lots of different shell companies. Here's a profession that could be used in such a way. So business.
00:26:23
Speaker
To have a business, you have to incorporate somewhere in a jurisdiction. That's the thing. I don't think people realize, why when you start a business, you have to always incorporate? Well, because every jurisdiction wants taxes. Every jurisdiction wants to know who you are. If you're earning money, you've got to register. You can't just have a business and not register. A bank will not allow you to do that. What that means is if you start a company, you've got to register your name and who you are.
00:26:52
Speaker
There are now laws about trying to make sure the person who's starting the company is truly, you know, is who they say they are or that there's, if there's another person, that that person is the true, if they're the true beneficial ownership, that needs to be registered. Why? Because of this problem. So here's a profession where you actually have a lot of money laundering, which is
00:27:12
Speaker
corporate secretaries, people who simply register companies, which is a legit business because to register a company, it's an administrative procedure, right? But people have businesses to register companies. If you go, I mean, you could go to company's UK, company's house.
00:27:29
Speaker
great resource. I used that a lot back when I was doing financial asset recovery, Companies House. I don't know if they've changed their website, but I like the UK registry system because it was very user friendly. For someone who was looking into money laundering, using open source tools, Companies House, the website, it basically gives you all the details of when companies are registered, who the secretaries are, when they change secretaries or directors,
00:27:55
Speaker
you would find lawyers who register hundreds or thousands of companies. Why? Because that's their business. But guess what? What if you're a bad guy and you want to register a fake company and you find a lawyer who does all that and they put their name on the registration of the company, not knowing, not showing exactly that you're the one behind the company. Now, before we get to like, you know,
00:28:18
Speaker
Before we accuse folks like this of doing bad things, there are lots of reasons why you would want to do this. What if you're a high profile person that wants to purchase a home? You want to own a home? Maybe you want to own a mansion, but you don't want your name to be easily discovered. You're a famous person. Your last name is, I don't know,
00:28:37
Speaker
Biden or Trump, or Swift, first name Taylor. When you buy property, that's all in a public record in most jurisdictions.
00:28:54
Speaker
So do you want your name to be there? Maybe you want such and such LLC to be there. Maybe you want your lawyer to handle that paperwork because you don't want people showing up on your lawn or the front door of your gate, giving you problems. So yeah, there should be privacy in those sorts of things, but that can be abused by people who are fronts. And you already mentioned some of Hezbollah's international networks.
Geographic Trends in Money Laundering
00:29:20
Speaker
Are there any geographic trends with this? So are there any countries where it's more
00:29:24
Speaker
prevalent maybe than in others, or as we're seeing these transnational organized crime groups and international terrorist groups operating globally, is money laundering something that's becoming a little bit more transnational now?
00:29:37
Speaker
It's so funny. That's a good, not funny, but that's a good question because, you know, I won't say, you know, more regions more than others because everything, it's not that it's relative, but it kind of depends on what you look at because I could point to some country in the Horn of Africa or in the Middle East.
00:29:55
Speaker
Or in Southeast Asia, where I could say, you know, there's a lot of corruption there. They don't have a lot of good controls, etc, etc. And there's going to be a lot of money laundering. Maybe they deal in cash a lot. They don't have anti money laundering regulations that are being followed. And I could point to that as a lot of criminal activity, I could point to Russia,
00:30:12
Speaker
a lot of cyber activity that that's actually a place I think in Russia, there's a lot of focus now, at least in the US because of the Russian invasion of Ukraine and, and how people are moving money in Russia when there are sanctions. But here's the other thing though, if you really look back at, if you, if again, if you zoom out some of the centers of money laundering in terms of where these things are ending up, New York City.
00:30:37
Speaker
London, Switzerland. These are actually your places where if you want to say, because what do money launderers want? Money launderers want their money to be accessible or tied up in a good, which can be protected and there are good laws for. So mansions in places like New York or in Miami,
00:31:00
Speaker
I mean, I know in the U.S., I mean, the U.S. authorities have put out bulletins about how New York real estate, Miami real estate, our places are like high money laundering destinations. I mean, people know this, you know. So it's funny looking at whether you're talking about north, south, south, east or west. They're just different dimensions, right, of money laundering activity. So it's hard to say which region is doing it the most. It's showing up in different ways.
00:31:27
Speaker
Here's another great anecdote, and I'll mention because people could look this up. There was a great 60 Minutes investigation, maybe about five, six years ago, which I thought was so good. Some of these investigations, I get it, sometimes it's gotcha journalism, but it's good gotcha journalism when you're going after some money launderers. Here's a good case that exemplifies what I'm talking about. The journalist
00:31:53
Speaker
went to New York City and they went with a premise that they realized, because this is true, that a lot of corrupt dictators have property in New York City, right? High destination for money laundered goods. And so what they did is they went and they interviewed a whole bunch of lawyers.
00:32:12
Speaker
They said they were from a certain country in West Africa that's known for having, not very democratic. They filmed these meetings. They met with a bunch of lawyers and they basically said to these guys, my client is from the family of such and such and we've got some extra money. He's got some money and he doesn't want his name on it, but he wants to just, you had people, you had some of the lawyers say, oh,
00:32:39
Speaker
Yes, we know exactly how to do that. And it's so funny because they went through about five or six of them and they all had the same reaction. And it was just like one guy. I mean, you never know what it was in the cutting room floor, but they had one guy who said, no, I'm not comfortable with that. I'm sorry. I'm not interested. I don't do that. I don't do that. Everyone else was like, oh yeah, we can do that. It was good.
00:33:05
Speaker
Great example. So what does that show you? I mean, that's just a test case. That's journalism. But it shows you that, yeah, it's pretty common for people with ill gotten gains for them to go to a high, you know, resident residents district and purchase real estate and purchase companies.
Low-tech and Traditional Methods
00:33:20
Speaker
It's something that happens quite often.
00:33:22
Speaker
Your comments on New York and London there make me think about the fantastic series Succession and one character in it refers to the UK as a laundry for turning evil into hard currency. And on that theme, I've got Oliver Bollow's Butler to the World on my desk as part of my prep for this.
00:33:39
Speaker
this interview and it has a very similar message. So let's go away from the kind of high tech world, given that there's so many controls on modern banking, although as you note, they are a little bit leaky if you find the right lawyer that will work with you. What is
00:33:54
Speaker
Are some of the methods bad actors use to avoid detection at the lower tech end? I'm thinking about traditional Islamic remittance system, the Hawala system, for example. There's a lot of discussion during the global war on terror that that was providing a low tech cover for moving funds. Are there those lower tech alternatives available if you don't have access to, say, a New York City lawyer?
00:34:17
Speaker
Yeah. There are certain what I would call methods, typologies, methodologies. One is something very basic called just structuring. This can be in a cash environment or in an online finance bank account environment.
00:34:32
Speaker
Structuring is when you know that there's detection around the levels of a transaction. For example, here in the US, there's a $10,000 cash limit on deposits. Well, it's not a limit, but a threshold in terms of if you deposit $10,000 or more, a report is made.
00:34:51
Speaker
The bank actually makes a report of that to the government, to regulators here in the United States and elsewhere around the world. They have similar things. What does a money launderer do in a very low tech way is you simply try to keep transactions just right below the limit. Instead of 10,000, you just deposit 5,000. Then guess what? You do another deposit of 5,000.
00:35:13
Speaker
So that's a very rudimentary way in the, or even different people. Like if you have money mules, keeping the balances, the amounts that they're moving well, well below that to, because they know that there are these alerts that go these alerts and thresholds around the size of transactions.
00:35:29
Speaker
the Hawala system as well. It's interesting because people think that Hawalas are an unregulated business, but Hawalas are regulated. They are money service businesses. I think in the 2000s, there was probably more focus on abuses of the Hawala system because the informal nature of it made it
00:35:48
Speaker
vulnerable to abuse and exploitation, right? You had this sort of traditional system, just common in Asia, Middle East, Africa, of, you know, you're not really sending money per se, but, you know, doing credits and, you know, having sort of a credit system where because people have relationships with the old country, they would be able to say, oh, someone came into my office here in, I don't know, you know, Boston or whatever, and they deposited money, okay, to their relative, okay, you have a bunch of cash there, allow them to get it and we'll settle up later.
00:36:18
Speaker
It's a great way to tap into informal network. A lot of people use it. That industry has faced scrutiny and is more regulated now, but definitely has been used to transit illicit proceeds.
00:36:33
Speaker
So that's an example. Anytime where you have, again, a cash business, and that gets into maybe what we can get into towards the end of this, which is this direction where we're going, where cash is being seen as a money laundering risk.
00:36:49
Speaker
So this leads to an issue now that most jurisdictions are dealing with, which is the issue of high denomination bills and cash and the fact that more people, more regulators and law enforcement, they're seeing the risk that comes, the money laundering risks. When you have a high denomination bill, like a thousand, a thousand euro, right, or a thousand dollars or 10,000, you know, it's easier for it to be used for money laundering because you can carry more money. So areas where you have,
00:37:17
Speaker
cash, a lot of cash tend to be or activities where you have a lot of cash are just risky for money laundering. Now, I would say that there's actually a need to have cash, physical cash, but the challenge I think we're going to be dealing with in our age is that cash is becoming less prominent. Some people say, good, why do you need cash? It's bulky, it's this, Kerry's turn, blah, blah, blah.
00:37:42
Speaker
But then you're getting to transactions being more digital, more online. You're getting towards less anonymity, which for maybe law enforcement, hey, they like that it's not anonymous because when you transact in cash,
Cryptocurrency's Role in Money Laundering
00:37:59
Speaker
nobody knows. If I give you all a hundred dollars right now or a hundred euro, the government does not know about that transaction.
00:38:07
Speaker
but the government will have access to all other types of transactions. For write a check, there's a record. You do something online, there's a record. This is where we get into some of the technological shifts that are happening right now. But yes, to really answer your broader question, cash is king still amongst illicit actors and any areas where you find dominating just cash business, there's going to be the risk of money laundering.
00:38:36
Speaker
Let's drill down on that point about the kind of evolution here. When we're thinking about things like cryptocurrency, you talk about high denomination bills being great because you can move so much money around, it doesn't weigh much. I'm thinking about a ledger wallet or something like that weighs almost nothing, almost a limited how much money you can put on there. What are some of those new trends that's introducing here into this problem?
00:38:58
Speaker
Well, you hit the nail right on the head in terms of new technologies, which is now money is not in coins and bills and the weight of coins and bills, but it's in bytes and bits or bits. I forget if it's bits or bytes, but it's digital.
00:39:16
Speaker
and because of the evolution of computer science software and the idea of digital currency or cryptocurrency, not the idea, the actual development of Bitcoin back in 2008, 9, 10 becoming something that people are now used to receiving and it's easy to get and it's easy to transmit.
00:39:38
Speaker
cryptocurrencies, that's actually what I focused on the most the past five, six, seven years. It's funny because you asked the question before about how did I get started with this. That was the overall, how did I get started with this illicit finance money laundering world or anti-money laundering world.
00:39:56
Speaker
Here's another story about how I got involved in the crypto side of things. It's so interesting. 2015, I remember I started working at this think tank, the Center on Sanctions and Illicit Finance. Remember before I mentioned the adversity of having a task where you're not sure how you can accomplish it.
00:40:17
Speaker
I was in a new situation where even though I had worked on illicit finance, I was not a, I had never worked in the US treasury. So I'm dealing with sanctions in a way that, you know, I'm dealing with sanctions at this time, 2015, 2016. And I remember in 2015, I saw a movie.
00:40:35
Speaker
And this was a movie. It was a it was sort of an indie film. Many people probably never heard of it. But this was the first movie that made me think about Bitcoin as a national security and illicit finance issue. This movie was called Dope, D O P E.
00:40:49
Speaker
It's not underground, but it's an independent movie. It's really good. And I liked it because the main character, he was a high schooler who was really into 90s nostalgia, even though it was present day. And so as this kid, he's wearing a flat top and he's wearing these cross colors jeans and all these things. So anyway, I like the idea of this movie. So part of the plot was
00:41:10
Speaker
this high schooler who was like a computer whiz, he basically gets wrapped up in this plan and he uses Bitcoin and he does money laundering through Bitcoin. This is in the film. It's a subplot of the film. I guess maybe I had heard of Bitcoin, I don't remember, but when I first saw that, I said, oh, this Bitcoin is interesting because 2015 was, we're talking about the height of ISIS in Syria, right? 2014, 2015. There were a lot of press reports that were
00:41:39
Speaker
you know, that we're asserting that or opining in some cases that ISIS would be using this new thing called Bitcoin. As an analyst, I was intrigued. I was like, really, is that so? And I never found much evidence. I mean, I would look at these press reports, but I could never confirm it. It was just something that people were saying. You didn't have this case of this one guy who was actually here in Virginia
00:41:59
Speaker
who was a young guy, maybe you think he might've been in community college, just out of high school. And he posted a big thing online about how to support ISIS through Bitcoin. So he posted it. He was basically trying to tell people how to fund ISIS. So this again is a part of money, would be a part of money laundering. He was arrested.
00:42:18
Speaker
But at this point, I started to just ask the question, how might this crypto stuff fit into US national security? And so after seeing all these press reports and never really finding much factual basis for me to have an analytic line about it, I remember one day, 2016, summer of 2016, and I saw one of these media reports.
00:42:38
Speaker
And it was a media report that said, oh, terrorists are going to use Bitcoin or using Bitcoin. And I'll never forget. I said, no, this is probably just one of these other speculative articles, no evidence here. And so I turned to my interns and I said, you know, I'm going to go to lunch, check out this news report, see if there's anything to it, probably nothing, but, you know, I'll see you after lunch. So I come back from lunch and my interns, they did a little bit more digging and they saw the news report referenced a social media post, a Twitter post.
00:43:07
Speaker
and that a designated terrorist group that was in the Middle East had posted an infographic and it had a QR code. The infographic was basically a campaign. They were trying to raise funds for weapons. It was a graphic. It had all these pictures of all this artillery, all this stuff, mortars.
00:43:28
Speaker
and there was a QR code. So they scanned the QR code and it popped up a website which was, it went to blockchain.info, which is a browser, we call that a blockchain browser. Basically it opened up a site which was the wallet associated with the QR code that they were soliciting funds to. So this was a moment, this was a seminal moment for me because what they were showing me
00:43:51
Speaker
is they were showing me the destination of a terrorist group's fundraising campaign. And because of this browser, what it does, it's just basically blockchain info on a website. It shows you how much is in there and it shows you the transactions that have gone into this wallet address. So what we were looking at was a real live terrorist crowdfunding campaign with visibility. It wasn't like this was a bank account where back in the old days of Al Qaeda fundraising,
00:44:20
Speaker
it would be, oh, well, how would you get that information? You have to go to the bank. Like if they were working through a charity, it wouldn't be a public ledger. So this was, a light bulb went off for me because I said, so wait a second, I'm actually seeing their fundraising campaign and now this means I can like track it. Like I can see if they get anything I can see. And because I can look at this wallet and I can see where its transactions go, now I can see where it goes.
00:44:45
Speaker
This was totally new. So this is an evolution, not only in the technology of sending funding, but terrorist financing, potentially money laundering. But also on the flip side, this is an evolution in the analyzing of terrorist financing and money laundering.
00:45:02
Speaker
and even law enforcement and Intel, because you have this public record that now you can bring all your computer science expertise to the fore and algorithms to try to analyze those transactions and figure out what's going where and who's doing what. So that for me was a huge shift. And since then, that was 2016. Since then, we've been in this world where cryptocurrencies have played a part in money laundering. It doesn't mean that they are
00:45:30
Speaker
that crypto is just for money laundering, right? It just means that, like before what I said, the toolkit of money laundering has many tools. There are many tools. One tool is just is crypto. That incident I mentioned about the New York woman who had sent some money, interestingly, who had sent money to ISIS, she
00:45:48
Speaker
Again, I think she'd had credit cards, she had money, she had cash, she bought crypto and then she exchanged the crypto and then she sent it. That was just crypto being part of the layering process that she just had different transactions. She disguised it, she bought crypto and then she sold the crypto
00:46:04
Speaker
crypto is just one part of the different things she did to mix up the money. So now crypto is simply, it's here as part of a method that criminals can exploit if they want to. Now, of course, this means that the restrictions against or the alerts and the monitoring
00:46:20
Speaker
of money laundering now includes crypto. Crypto is just a part of the anti-money laundering game as the technology has evolved. That's become real important because one of the categories of people that maybe we didn't talk much about when you asked is people trying to evade sanctions, people and or states trying to evade sanctions, state actors, North Korea. North Korea interestingly has had a ... This is a perfect example of how money laundering is evolving.
00:46:49
Speaker
So for decades, North Korea became really proficient at money laundering and sanctions evasion. So it's sort of like money laundering, you know, sanctions evasion and money laundering sort of overlap because if you're a sanction actor and you're trying to evade those sanctions, you have to disguise the origin or the destination of the money that you want. So North Korea, which has all these restrictions on its banking access, has had a long time developing shipping companies.
00:47:19
Speaker
to move goods over across borders, to sort of get across sanctions, and then to move into the banking system through, again, through middlemen, businesses on different, you know, boarding with China sometimes. But a lot of that has been cash and moving goods, moving stolen goods, etc. Luxury goods,
00:47:39
Speaker
But North Korea also has a cyber arm. North Korea has the Lazarus Group, which is a hacking group connected to North Korea, acting on behalf of it. Part of their cyber operations is the hacking of cryptocurrency exchanges. So they can basically steal crypto and then launder it, move it around to another exchange, and then maybe cash it out by these over-the-counter brokers that might be in China. That's one of their methods.
00:48:07
Speaker
So money laundering, again, it doesn't discriminate. It uses whatever technology is available to fulfill the aims of what we said at the beginning, deception. Deception in the movement of funds, the origin of funds, the destination of funds.
Anti-Money Laundering Frameworks
00:48:22
Speaker
We're talking to Jaif Nusi about how to launder money. After the break, we'll talk more about how governments and law enforcement agencies can counter this.
00:48:38
Speaker
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00:49:02
Speaker
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00:49:30
Speaker
In the first half of the show, we've been talking about how to launder money, how to get away with it. Now, let's talk a little bit about how to counter this. How do law enforcement agencies around the world detect money laundering? What are the clues they look for that suggest someone is engaged in this?
00:49:47
Speaker
Well, it all goes to how the financial system has evolved in the past maybe 30 years, really 30 years ago, and then there was a boost 20 years ago after 9-11. But the first evolution happened, I think, if you think about what happened in the 80s, so the description of the Tony Montana guy, the reason why that doesn't work anymore
00:50:13
Speaker
is because of the problem of drug money laundering back in the really in the 80s, actually the international community got together and created something called the Financial Action Task Force. This is a global intergovernmental body, different governments make up the members that
00:50:33
Speaker
sets standards for anti-money laundering and counter-terrorist financing for all countries. Basically, it's a standard-setting body. What it does is it has a whole set of, basically, recommendations that every country should follow in its financial sector. Recommendations, things, practices, rules, laws,
00:50:55
Speaker
that regulators in each country need to enforce. And so this is, you know, I don't like to do the alphabet suit, but I mean, since we're doing a money laundering episode, I gotta at least give you this, this money laundering. I mean, we've already said AML. Well, I don't know if we said AML, but anti-money laundering. FATF has set standards on AML and CFT, combating the financing of terrorism. Sometimes people say counter terrorist financing, but CFT, countering the financing of terrorism,
00:51:23
Speaker
AML-CFT rules around the world. And these rules basically tell what a bank, what a finance company, a money service business, money exchange, Hawala, what they need to be required to do. And there are probably sort of four main components of anti-money law and AML-CFT law.
00:51:46
Speaker
rules in each country. The first part of it is having KYC, know your customer. Rules. There are laws. Every financial institution, financial service institution has to know who its customer is. That means there are a set of rules. You need ID, like a government ID, official ID. You need to know who that customer is that's using your bank. Again, that gets at the Tony Montana thing.
00:52:10
Speaker
Tony Montana can't say, oh, my name is Donald P. Duck. He can't do that. He can't give that as his name. He can't say, oh, I live on 1313 Mockingbird Lane. No, you have to verify your user's address. And so you have to know your customer and also do diligence about the customer.
00:52:29
Speaker
So not just taking things at face value. So that's like the first pillar of AML, of anti-money laundering for all financial institutions. It's really the foundation and it's the reason why if you remember this kind of change after 9-11 because there was almost like not a reboot, there was an enhancement after 9-11.
00:52:48
Speaker
because of the problem of terrorist financing. Remember, the 9-11 attacks were funded, I don't remember the figure, but it was in the thousands of dollars, right? I forget how much those attacks were financed, but the hijackers were operating, sending money across borders using bank accounts. So after the 9-11 attacks,
00:53:08
Speaker
there was a huge overhaul. There was the Patriot Act here in the United States, a whole set of laws which went into how banks needed to do due diligence over their customers. So just the identification of the customer due diligence on the customer is one. But the second part, transaction monitoring.
00:53:24
Speaker
And many people don't realize this is what's going on. Banks, they monitor transactions. They have alerts. They do an analysis so they can see patterns of money laundering. Because what's a pattern? I mean, these are just like rudimentary examples, right? But hey, you get your paycheck every week. Boom, it's whatever. Thousands of dollars every two weeks or every month. All of a sudden,
00:53:42
Speaker
You get $100,000 of deposit. I think there should be an alert, maybe, or maybe there's an excuse. I mean, it's an anomaly, right? So maybe it's not illicit. Maybe you can't come into an inheritance. Maybe you sold a home, right? But there should be some record of that. But if it's just, you know, out of nowhere, maybe, you know, especially your age, you are retired, you're 72 years old and all of a sudden you're getting these weird transactions and they're getting, you're doing wire transfers to Bulgaria.
00:54:10
Speaker
right? And you're in the United States, right? There may be some some alerts that go on. So that's baked into the financial system. And then there's some other sort of not mundane things, but like risk management, you know, you have to have like a risk management, like you have to be basically assessing risk.
00:54:25
Speaker
if you're a financial institution. So now financial institutions are doing all these things, assessing the riskiness of their customers, the riskiness of their business relationships. All this has come about really to counter money laundering. And then the last part I would say of the AML, CFT regime is reporting, reporting suspicious activity and having a relationship with law enforcement in order to. So here's something again, here are the little facts that are in the background that you don't know that's happened with your account or with your credit card, et cetera.
00:54:55
Speaker
Institutions have to submit suspicious activity reports when they feel some activity is suspicious. It doesn't mean that they've encountered something that is illegal. Financial institutions are tasked or mandated if they see suspicious activity, and it could be a lot of different things. I'll give you a funny example of one, but it could be a bunch of cash transactions.
00:55:19
Speaker
it could be awkward or weird cash transactions, not just cash. Just cash does not mean suspicious. But what happens with these suspicious activity reports is they go to a government's financial authority, usually a financial intelligence unit, and that authority looks at these suspicious activity reports, passes them to law enforcement, and may act on them. So if a bank X files what they call a SAR, suspicious activity report, then
00:55:45
Speaker
they may get a knock at their door a week later from law enforcement, maybe it's local, maybe it's federal law enforcement, saying, hey, we'd like to get more information. That provides leads for law enforcement to go after criminal activity. That's how sometimes the criminals get messed up because they're using the banking system, there are all these alerts, there's this monitoring, they don't realize they haven't dotted all their I's and crossed all their T's and then, boom, law enforcement is investigating, getting more data, flagging the accounts. Now here's the thing, the bank is not supposed to tell the customer.
00:56:13
Speaker
The bank can't, because this is suspicious activity, the bank can't block the account just because it's suspicious. Now, if it was a sanctions violation, they might blank the account, but they're not supposed to. So you have this really, the private sector doing things to support a law enforcement investigation potentially.
00:56:32
Speaker
And then the law enforcement may then take action, not wanting the person to see it. Now, this, I mean, we're getting to this error. I won't go into depth, but this is where people are raising questions about privacy, et cetera, because there's all this monitoring happening in the background. But again, this is part of anti-money learning. This is part of the world that we live in, and it has come in for good reason, right? Because of how much bad actors are using and abusing the system.
00:57:00
Speaker
Here's a funny thing. I hope it's okay for me to share. I mean, I'll mention this. This was totally nothing. I don't think this is sensitive, but it was raised to me where one suspicious activity that was remarked about was a person using what's called a crypto kiosk.
00:57:20
Speaker
Bitcoin ATM. What was noticed was that they were trying the hardest to avoid the camera. When I heard this, the joker in me said, well, maybe they just had a bad hair day.
00:57:40
Speaker
I'm just sort of saying that, but it's not that that was illicit, that the person was illicit, but this shows you how, if you are a financial institution, you are taking data in and you are reporting when something seems to be suspicious. Now, it doesn't mean that that person was doing something illicit. It doesn't mean something will come from that. But just to let you know, this is what is in the landscape, these types of things that the financial sector does to try to counter the laundering of money underneath its nose.
00:58:08
Speaker
And in addition to money laundering than being detected because, you know, some really strange ways of trying to avoid the camera, giving it away or any other clues like that, is it common that someone would actually be tipping off authorities of potential case and that the authorities then kind of follow a lead like that?
00:58:25
Speaker
Yeah. I mean, so the process of suspicious activity reports or reporting, turning in SARS, I mean, it is a big part of law enforcement leads. I mean, so here in the US, the Financial Intelligence Unit is called FinCEN. That's a name people use. It's under Treasury and it stands for the Financial Crime Enforcement Network. So FinCEN is the USFIU, Financial Intelligence Unit.
00:58:49
Speaker
And FinCEN actually puts out reports, which explain how SARS, how these activity reports have led to helping law enforcement like crackdown, stop crime. I mean, it's aggregate, right? It's not like they're giving a whole lot of detail.
00:59:05
Speaker
Although that financial action task force, when they put out reports, sometimes they will put out reports and they'll show how this reporting has led to uncovering a specific illicit activity. And there are so many examples of that type of reporting providing leads or tips, as you call them, to law enforcement. Because there may be something that, so maybe they don't know about that particular activity. Maybe it's something that's not on their radar,
00:59:34
Speaker
Or maybe it's something they're following, but they didn't have that financial piece because, hey, they don't know everyone in the network. They don't know what banks they're using. They don't know about this activity. So when the new financial institution reported, all of a sudden now that's another piece of them that could go to a whole new operation.
00:59:50
Speaker
Maybe it's something brand new that they didn't know about at all and now it's on their radar. So there's this symbiotic relationship between the reporting of illicit activity and then actual financial sort of law enforcement cases where money laundering, and this is the thing I didn't mention about money laundering. Money laundering itself is a crime.
01:00:09
Speaker
I don't want to scare listeners, but you know, when you get in, when you learn about AML, you get actually very sensitive, very sensitive, you know, because it's like, you know, you think of things like, you know, how your bank, you know, you know, if you do a transfer, like, you know, transfer funds to someone or whatever, even PayPal or something, right? If you're transferring money and you put something different on that, you know, sometimes there's the optional, like, what is this for?
01:00:39
Speaker
Don't put something that's not true. Even if you might think like, oh, I'm just going to have fun and say, oh, this is for a birthday gift and it's not a birthday gift. Maybe someone would consider that money laundering. Again, not saying that that's going to happen to you, but I'm just saying the actual act of trying to cover up the source of funds is something you don't want to be involved with based on the laws against money laundering in our jurisdictions.
International Cooperation and Law Enforcement
01:01:06
Speaker
He talks about international cooperation around finance. The point you made there, I think my little brother, anytime he's ever had to do a bank transfer to me, he always puts something a little bit ridiculous in the tagline. I'm always very nervous around that. I always wonder if some sort of international interpol or someone like that's coming after me. Let's talk a little bit about that. I hope he doesn't joke and say bad stuff. For the bomb, I hope he doesn't have that sort of sense of humor because
01:01:38
Speaker
He's never been quite that bad, but I do always worry. He talked about international cooperation around finance. When we're thinking about this, what are the differences between how law enforcement would respond to money laundering internationally versus when it's solely domestic?
01:01:56
Speaker
Yeah. I mean, that becomes a law enforce sort of, you know, depending on the jurisdiction, what sort of relationships there are in legal, you know, what sort of illegal agreements there are between the countries. You know, is there a MLAT? And I may be blanking out mutual legal assist. Oh my goodness. I'm blanking on what an MLAT stands for. Mutual something treaty.
01:02:21
Speaker
Maybe you all will find that for me later. It's not important. It's just an example of the relationship that a country, sort of the legal arrangement that countries may have to work together on a legal case involving a crime. But then you also have other interactions, especially in Europe. You have Europol, which is a
01:02:40
Speaker
law enforcement body from different countries working on investigations, right? So there's a lot of cooperation. You have a lot of law enforcement cooperation. So typically, you know, but it always depends on the case and it depends on, you know, well, which country maybe has a law, like what extradition laws are in place, you know, who should be working on it, who has, who has jurisdiction over or who has maybe an emphasis on a particular type of case in their country. And maybe how does it relate to other investigations. So it's kind of hard to say, like,
01:03:09
Speaker
There's one way, but just think about whatever arrangements there are for legal cooperation that usually determines which agencies work together and how they work together. Is anyone exempt from the legislation applicable to financial institutions that you mentioned earlier? What if there's, for example, a bank in a country that doesn't have that type of legislation?
01:03:33
Speaker
So this is the big global policy challenge that financial regulators in the US, in Europe in particular, face.
01:03:45
Speaker
So the Financial Action Task Force, it's remit is to try to get all jurisdictions on board because you have the problem of regulatory arbitrage, which is the bad actors, hey, they know that banks in country X don't apply all these rules or at least don't check them, you know, don't enforce them in the best way. So they're going to try to operate there. So you have that problem happening throughout the world. But here's the thing, and here's where in the U.S. there's a lot of leverage because
01:04:13
Speaker
If you're fat of the Financial Action Task Force has a blacklist, which doesn't have that many countries on it, but it also has a gray list. And if you're on the gray list, it's a sign that your jurisdiction isn't enforcing these laws. Your institution can be seen as a risky place to do business or for a bank to transact with. So you may have
01:04:32
Speaker
um, less relationships with, let's say US banks or European banks because you're not seen as having, you know, really good AML regulations in place. So those countries, those banks, they're going to be more cut off. They're going to, they're going to be challenged. They're going to have challenges in working with other banks or getting access to let's say dollars and euros at times because of that. So it's, uh,
01:04:56
Speaker
There's this two-way effect that if you're one of those banks, yeah, you can probably operate, but then you're going to have a high risk in the eyes of other banks. You spoke a lot in the first half about how the threat's evolving. I suppose that invites the question, what about the methods used by law enforcement and government agencies? Are they evolving? Then a related question, I think probably the more important part of that is, are they keeping up with the pace of this evolution?
01:05:22
Speaker
They are evolving technologically because now there are more tools and we could actually talk about artificial intelligence. I would say they're not keeping up that they're behind because, you know, often the criminals are our head when there's a new take crypto, for example, right? Illicit actors were early adopters of crypto because of how new it was and the ease with which it could be moved.
01:05:42
Speaker
And with regulators not really catching up, it took a few years for regulators to figure out, okay, how should we regulate the trading of this new thing called cryptocurrency? And they have, and actually in Europe, you have sort of landmark regulation which is now in place or being put in place.
01:05:59
Speaker
But it takes time. The law enforcement has been helped by the tools in the crypto space, analytic tools that analyze the blockchain, some of the things we talked about before. Now, it's not odd for a law enforcement agency to have a blockchain analysis, you know, suite of blockchain analysis software, you know, that they use to analyze transactions because when they deal with ransomware, you know, when they dealing with hacking and people's crypto means stolen, they have to follow it.
01:06:25
Speaker
they have to figure out how to follow it and track it. So that is happening. And even AI, I mean, there are entrepreneurial efforts to use artificial intelligence for detecting illicit activity so that you don't just have, you know, so if you have all this data, it should be made easier with AI. I would say all these things are sort of on the frontier being used, but I would say that they're still behind because the data advancement, the technologies are way ahead that the criminals have access to.
Concerns and Closing Remarks
01:06:52
Speaker
So I would say they're not keeping up
01:06:54
Speaker
you know, just objectively, I think that there's a lot more that could be done. That brings me on to the final question we like to ask our guests, and that is what keeps you up at night? What is it that truly worries you about this field? So I'm going to say something which may be a shock, I mean, because this whole conversation I've been talking about
01:07:13
Speaker
the problem of money laundering, how it's done, and the reason why we have so many rules in place to counter it. But right now, what is keeping me up at night is what does the world look like when we have a total digital financial existence and we're doing money laundering in that world? What keeps me up about that?
01:07:38
Speaker
the privacy concerns. It's funny because for so long, I'm a national security watcher. For a long time, I've really articulated and I understand the need for AML. What's happening now, what I'm seeing evolve is that
01:07:56
Speaker
I'm looking at other countries like China, which is a country that I look at a lot with its central bank digital currency. And I'm seeing the Chinese vision of a total digital existence and a digital economy is one where all the data is kept by the state. And part of that is for productive reasons, for data innovation, et cetera, and also against crime.
01:08:20
Speaker
And so I'm seeing this model, which could be escorted elsewhere, which is really the state has all control of data at all times, or at least has access to be able to get it. And there are some benefits there for competition, maybe in its eyes, but there's also, you know, and against crime. And I'm, I'm wondering a lot about what is our vision of a digital future that does not become totalitarian. Maybe that's a strong word doesn't have to be totalitarian, but does not become one where
01:08:49
Speaker
We have no autonomy because the data is always with the state. We have to really think this through. Privacy has been for a long time such a bad word in the national security space. I won't say a bad word, but privacy is a hindrance in many ways. Maybe not privacy. Privacy is good, but anonymity. Anonymity is bad in national security because anonymity means you can do bad things.
01:09:16
Speaker
Privacy is something that has always been something in the context of our constitutions and the underpinning of our state, privacy is something that has to be enforced. I mean in Europe, GDPR, et cetera. But now as finance is getting so digitally, so comprehensive a part of our lives and we're getting connected to the internet,
01:09:37
Speaker
I'm concerned that we have to have, take a step back and figure out how do we have digital financial privacy? And I don't think we figured that out. I think we're just moving along trying to fight the bad stuff, but we need to be thinking about how to have privacy and fight the bad stuff together. This was an incredibly insightful conversation. So thank you very much for joining us.
01:09:59
Speaker
Thank you both for the conversation. As you can see, I love talking about this stuff, happy to do it and happy to be on this show and I hope it helps people not launder money or get caught in any money laundering schemes.
01:10:13
Speaker
Yeah, I think we need a stronger disclaimer at the start of all of our episodes. We've been listening to How to Get on a Watchlist. Our guest for this episode was Yaya Afanuzzi, who's been talking to us about how to launder money and how to not morn launder money. A link to his fantastic podcast, The Jabari Lincoln Files, can be found in the show notes for this episode. Our producer for the episode was Edwin Tran. Our researcher was Alex Smith. And to our audience, as always, thank you very much for listening.
01:10:38
Speaker
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