2 – Professional launderers

Bjørn B. Meland: Welcome to episode 2 of Økrimpodden, a podcast about financial crime. My name is Bjørn Mæland, and I am sitting here with Erling Grimstad and Fredrik Grimstad. In the previous episode we talked a bit about what money laundering is, and the topic of today's episode is how people who want to launder money use intermediaries and other professional money launderers. So, first of all, Erling, can you say something about who assists criminals in laundering the proceeds of a criminal trial? 

Erling Grimstad: Yes, first of all I would like to say that much of what we are going through now is actually dealt with in a report from FATF in July 2018 on professional money launderers. And this is also information that is widely available and known, also in open sources. It turns out that there are a number of actors, i.e. companies, businesses, and also individuals who have made it a living to be professional money launderers. The people who carry out these tasks, they can be, for example, former bank employees. So there may be people who have a good knowledge of the money laundering regulations in a bank, how it works and how to get past the obstructive alarms that have been set up in a bank. It can be auditors, it can be accountants, it can be advisers, consultants, and it can also be lawyers. So there are several groups of professional actors that make up these professional launderers.

Bjørn B. Meland: So professional money launderers are people with particular expertise in legal or financial matters. Can you say something about what these people do to assist criminals in laundering money? 

Erling Grimstad: Yes, the truly professional launderers who have tailor-made solutions for those who want to launder money, they have a full range of services that they offer to those who want to launder money. So these are businesses that have established different solutions that they only implement when the customer wants it. They don't care so much, for example, whether the customer deals with terrorist financing, or human trafficking, or drug trafficking, or any other type of crime or primary offence, for them the customer is a customer, and the customer needs to move money from A to B without anyone discovers their connection to the criminal act. So the professional money launderers can both receive profits directly from criminal acts in different ways. They can also carry out the concealment itself, and that is the main task of a professional money launderer, to conceal the origin of the funds or the contact the perpetrator has with the criminal relationship. And furthermore, they can also offer solutions to their clients, where they are able to place proceeds from criminal offenses in various assets, be it gems, expensive watches, real estate, companies and other assets that the money can be invested in without raising any suspicion .

Bjørn B. Meland: How do the professional launderers proceed when they launder money? Is it possible to say something about whether they use a type of methodology? 

Erling Grimstad: Yes, what we know, among other things, from the report from FATF that I referred to, is that they have a bunch of tools that they use. Some of what is relatively common is what is known in the technical language as trade-based money laundering, which involves you allegedly moving an item from one place in the world to another place in the world, and this triggers an invoice which in turn triggers a payment. It's just that the item doesn't exist, it doesn't exist, or the item has a much poorer quality and a lower price than what is invoiced, and this means that goods apparently change hands with completely fictitious invoicing in order to cover up the transfer of value from one person to another with a background in money laundering. There are many examples of how to create fictitious invoices. There are also examples of how to create fictitious customs declarations, so that everything looks completely watertight. It is obvious that those who give advice on this to those who want to launder, they know what the authorities are looking for, they know what the banks are looking for, and other reporting authorities are looking for, and they bypass all the obstacles that exist. Some professional money launderers also have their own setup where they buy and sell businesses, so what appears to others to be a real transfer of a business, from one owner to a new owner, is in reality just a camouflage of a transaction aimed at concealing the origin of the funds derived from criminal offences. Another way they do it is that they establish completely fictitious loan arrangements or loan relationships, so that the person who launders money tells others, for example a bank, that you must repay previous loans. That loan is completely fictitious. It has never existed, but a number of documents are made to make it look like it is a real debt obligation or a real loan. There may also be other fictitious claims. There may be contracts that are completely false, i.e. completely devoid of content, which lawyers are even asked to set up without the lawyer necessarily knowing that they are being deceived by their client. There may be fictitious dividends from commercial activities to which one is not in reality entitled, and there may also be smuggling of cash. There are actually examples of people whose mission it is to smuggle cash across national borders. One of the most famous corruption cases we have in Europe, which is connected to Siemens, was actually first discovered when one of the money couriers who smuggled money on the body of a tax haven in Europe was caught at the border and told that he was employed as a money courier for Siemens, and it opened the way for the investigation of a so-called slush fund, i.e. a secret bank account with Siemens money that was used for bribes around the world. So the methods are many, they are creative and complicated.

Bjørn B. Meland: What about the use of straw men? 

Fredrik B. Grimstad: Straw men can be relevant for professional launderers in all the examples Erling gave. It can either be that an intermediary or straw man is used as the owner of a bank account, or as the manager or owner of a company. But that this has the purpose of then hiding the real rights holder behind a company or owner of the money in a bank account. And these intermediaries, or straw men, can both be Norwegian, or they can be foreign, or be part of an international network. There have been, for example, several cases where a known straw man or proxy is used for several shell companies or several account relationships in different parts of the world. It will often be an indication that it hides real ownership. We have done a survey on this. We did that last year, where we used Oponion and asked Norwegians questions. The first question they were asked was, if you were offered a well-paid assignment from a company that involved transferring money from one person to another, or from one company to another, would you accept it. Of those asked, one in five showed an inclination to assist with the money transfer. And after a series of questions, you wanted to see how far people were willing to go. The last question they were asked was, if you learned that the money you were to transfer from dividends were illegal actions, would you accept the assignment. And then there were still 18 percent of those asked who showed an inclination to assist with such a transfer. And overall, this would represent 4 percent of the Norwegian population. Seen in isolation from a Norwegian perspective, there are quite a few people who could have had a role as a straw man. And we can assume that this problem internationally will be much bigger, and that is also what we have seen in cases internationally. 

Bjørn B. Meland: Does the survey show anything about who is most inclined to act as straw men? 

Fredrik B. Grimstad: Yes, in the survey we had in Norway, it was probably men who were most inclined, aged 30-39, and these then lived in the Eastland area. 

Bjørn B. Meland: What about professional whitewashers Erling? Where are they located? 

Erling Grimstad: They can be in several places. If we start with Norway, there have been examples which can be interpreted as examples of lawyers who have assisted criminals in laundering profits, and in a few cases they have also lost their lawyer's license, because they have committed fraud against the money laundering regulations or committed other actions that can be linked to it. But internationally, we see that it is particularly linked to tax havens, where we find some of these environments. It can be part of an environment connected to a larger advisory environment, which also fully or partially performs other tasks, where this being a professional money launderer is part of the service offering. But they are located, at least most that I know of and have heard of, they are located in tax havens. From the tax havens, they enjoy confidentiality provisions which mean that there is no access to accounts, there is no access to any accounting information, etc. They can live in secret, they can operate in secret and in that sense they can also protect their clients in it hidden from view by the tax authorities, from the police, from other supervisory authorities and so on. So setting up this type of service in a tax haven of course makes sense for those who want to get the protection that these confidentiality provisions provide. 

Fredrik B. Grimstad: Professional launderers are adept at abusing the infrastructure that has been set up. After all, there are also examples of banks, for example in Eastern Europe in the Balkans, which have been established with one purpose, and that is only to launder money for rich citizens and politicians. And then you can see how banks can be a central piece in such a complicated money laundering operation. And in some cases, these banks have also lost their license to conduct banking activities in that country.

Bjørn B. Meland: That is very interesting, and then I have a question. If I had been required to report, how would I go about discovering that my client is in reality either a professional money launderer or a straw man? 

Erling Grimstad: I believe that this is one of the things that makes combating money laundering so incredibly demanding for banks. Because these are customers of the bank and their assistants who are doing everything they can to conceal the truth about where the funds originate, where the funds are going, who is involved with the funds. So these are actors who even charge in some cases for providing the service of hiding these funds, and that is the risk that banks and other reporting entities are also against. And the only way to prevent that type of customer is actually to make sure that you have good customer control, especially during onboarding, i.e. in that situation, the case where the customer comes as a new customer or the customer changes character, then perhaps a private customer who suddenly establishes a company, and then is to be established as a new customer with his company, that you do a really good customer check, are on guard against those who say they represent the customer, but who cannot answer questions about the last year turnover, how many employees they have, who are their most important customers, etc. All such type of questions should be answered by the owner of a business customer. And where you meet a customer who has to go back and investigate such simple questions, you should exercise caution and be restrained in establishing the customer relationship without further ado. So it is especially during the onboarding, the start when you take the customer on board, that you have to be aware. Secondly, I would like to say that we also see international examples of customers changing their character. Let's say you have a business customer that you have known for a long time, who has a regular turnover, perhaps a seasonal variation in their turnover, and it is connected to the fact that they sell, for example, Christmas trees or other seasonal goods. Then you can easily follow a trend, but then something happens in the handling of customer funds that causes that trend to change. For example, they get a much higher turnover without more employees. They begin to sell to customers outside of geographic areas to which they have typically sold goods. They start producing something for which one cannot understand that they have production premises, and so on. There is something that does not match what is known about the customer's usual behaviour. What can actually be the answer to that is that the customer has become a proxy or a running boy for other criminal actors who have taken over the business, who may have bought the business from the original customer, and then that person is just a straw man and a formal manager of an account, but knows nothing about what is going on, so the business completely changes character. We see that in a number of cases, and it is something the banks must be aware of. So also in the ongoing follow-up, i.e. the ongoing customer measures, the banks must have enough knowledge that they can react when the behavior of the customer changes. These are perhaps the most important measures to expose professional money launderers. 

Bjørn B. Meland: Yes, then you see the importance of KYC and the know-your-customer principle. And it is quite clear that there are not only completely regulatory requirements. It is also a completely clear function.