-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Today's Lesson from The 1998-9 Report on Money Laundering Typologies by The Financial Action Task Force (iv) Potential use of the gold market in money laundering operations a. General 35. Following last year's introduction to the issue of money laundering through the gold market, the FATF experts were asked to provide specific examples of such cases from their national experience. A number of members did provide example of cases in which gold transactions were an integral aspect of the investigated money laundering scheme. These cases involved the purchase of gold with illegally obtained funds. The gold was then exported to other locations where it was sold, these funds thus being legitimised as the proceeds of gold sales. Existing reporting requirements for gold purchases were circumvented by structuring the purchases to amounts below the reporting threshold. 36. Several members reported that the vulnerability to money laundering within their countries has increasingly centred on specialised gold bullion sellers. This is due in part to the fact that anti-money laundering legislation targeting traditional financial institutions has generally caused those customers desiring to purchase bullion anonymously to turn to other sources. In many FATF member countries, there is no suspicious transaction reporting requirement directed toward bullion dealers or other non-financial banking institutions dealing in gold. Additionally, even though the import or export of gold bullion seems to be a key part of money laundering schemes involving the material, members reported that the lack of import / export reporting requirements appears to hamper detection of illegal operations. 37. Members were in some cases able to identify cities or regions within their jurisdictions that specialise in legitimate gold business (for example, Cordob in Spain and Arezzo and Vicenza in Italy) or in which significant business takes place (Paris region and Marseilles in France). Gold purchases in these areas are often conducted in cash and frequently in non-indigenous currency (especially US dollars). Gold serves as both a commodity and, to a lesser extent, a medium of exchange in money laundering conducted between Latin America, the United States and Europe. In this cycle, gold bullion makes its way to Italy via Swiss brokers. There, it is made into jewellery, much of which is then shipped to Latin America. In Latin America, this jewellery (or the raw gold from which it was made) then becomes one of, if not the most important commodities (others include various consumer goods and electronic equipment) in the black market peso exchange money laundering scheme. 38. Several FATF members also mentioned having received suspicious transaction reports involving gold transactions. In some instances, these transactions appeared to reflect attempts to avoid high VAT rates by making large purchases of gold in countries with low VAT rates and then exporting the bullion back to the country of origin where it could then be resold at a profit. b. Hawala / Hundi alternative remittance system and gold 39. The question of laundering through the use of gold as a commodity and as a medium of exchange was discussed by the experts in the context of the hawala / hundi alternative remittance system. The word `hawala' means `trust' or `exchange'; `hundi' means `bill of exchange'. It is an alternative remittance system that enables the transfer of funds without their actual physical movement (often without the use of a traditional financial institution). Very often, using hawala is more cost effective and less bureaucratic than moving funds through officially recognised banking systems. Built on a system of trust and close business contacts, hawala originated in South Asia; however, it is now used as an alternate remittance system throughout the world. 40. In the laundering associated with this system, gold often plays the role of the primary medium of exchange in certain transactions. Although many hawala transactions may take place without gold, many of these transactions involving the movement of money to South Asia often do involve the metal. There are two reasons for this: the first is the combined historical, religious and cultural importance that gold enjoys in the region, and the second is the increasing distrust in the value of local currencies (many South Asian nations prohibit speculation on their currencies, and exchange rates are fixed by the central banks). World-wide, gold is often used as a hedge against inflation; in South Asia, gold is often the primary means of preserving and protecting wea lth. 41. In one scenario, a gold dealer operating in one country also operates as the `banker' for various jewellery shops in his region. These jewellery shops give him the cheques and cash they receive for purchases; he processes these through his own bank accounts. In return, he furnishes them with scrap gold and gold jewellery for use in their businesses. He retains a few percentage points of the money he receives from them for his `services' (as well as for the legal risk he is incurring). The owners of the jewellery shops do not have to deal with the bureaucracy of banking, and, since there is almost no paper trail of their sales, they enjoy a greatly reduced tax liability. 42. In another scenario, money may be moved from one country to another through the hawala system. A `hawaladar' (hawala broker) based in one country facilitates this movement by receiving payments in the local currency. He then makes contact with a hawaladar in South Asia and instructs him to make the necessary payment to a specified beneficiary in that local currency. In order to settle his accounts with the South Asian hawaladars, the hawaladar in the first country might send postal money orders or some other financial instruments to a precious metals house in the Persian Gulf. This precious metals house then effects payment to the South Asian hawaladar in gold (either into a safe-keeping account under his name or by direct export of the gold to the South As ian location). ===== Russian Follies Russia Shrugs Off State Dept Y2K Report Who cares about Y2K when you've got Chechnya? MOSCOW, Sep 15, 1999 -- (Reuters) Russian officials shrugged off suggestions on Wednesday that the Y2K computer bug could plunge the vast country into a darker, colder winter than usual, saying their hard work to stop a computer meltdown should pay off. Russian officials played down a U.S. State Department report which said Y2K disruptions were "likely to occur in the key sectors of electrical power, heat, telecommunications, transportation and financial and emergency services". They said computers which support nuclear power plants, Russia's vast telecommunications network and energy supplies were being checked, sometimes changed and worked on to prevent the computer glitch hitting key sectors. "In Russia, organizations of the highest level are working on this problem... Every region has its own internal plan to prepare for the problem," said Adrian Makeshin, deputy head of the parliamentary committee for telecommunications. Makeshin said he believed regional leaders would comply with a government order to take measures by mid-October to prevent a computer crash. Some challenged other countries, many of which have criticized Moscow for its slow response in waking up to the threat of the millennium bug, to state with confidence that they would not face problems when the clock strikes midnight. "As I understand it, no one can guarantee, not one country can guarantee that they will be successful in avoiding this problem, not even us," Makeshin said by telephone. He added that the Y2K glitch was less of a problem for Russia as the country had fewer computers. RUSSIANS WILL KEEP WARM Company officials were confident Russians across 11 time zones would have light and heat when the clock ticks to midnight in the depth of winter - traditionally very cold in Russia. Russia's national power utility UES has said it was increasingly confident that Russians would not be without light. Yuri Bespalko, spokesman for Russia's Atomic Energy Ministry, said he did not envisage any problems with the millennium computer bug, which may scramble systems that have not been programmed to recognize the date change to 2000. "We think that there will be no failures across Russia, we think our specific computer systems are pretty safe, they are good quality systems most of which are from the West," he said. "Work is going well, there do not seem to be any major problems for the Atomic Energy Ministry." Even the central bank was upbeat about the continued work of Russia's banking system, which was shattered in a crippling financial crisis last year. "An analysis of the information...shows that in the banking system there has been certain progress in undertaking the measures to prevent the year 2000 problem," the bank said on its website. It said 80 percent of the credit organizations had taken "necessary measures". Steps have also been taken to stop Moscow's military launching missiles against the United States. U.S. Defense Secretary William Cohen and Russian Defense Minister Igor Sergeyev signed a landmark agreement for officers of both countries to staff a "Y2K" joint missile launch warning center in the United States as the new year dawns. "The greatest Y2K danger comes not from the threat of an accidental launch, but from the threat of Y2K glitches being misinterpreted by personnel on either side of the Atlantic," said Senator Robert Bennett, a Utah Republican. Russia Today, Sept. 15, 1999 Chinese Missiles China Develops Missile Decoys to Defeat US Defense Viagra isn't the only penetration aid The warhead in China's new long-range missile carries multiple decoys designed to defeat missile defenses like those being developed by the Pentagon, according to an Air Force intelligence report. This is the missile recently tested by China. The Air Force's National Air Intelligence Center (NAIC) revealed in a classified Aug. 17 report that the flight test of China's first road-mobile DF-31 missile used several "penetration aids" -- decoys -- designed to look like warheads. The DF-31 flight test took place Aug. 2 from the Wuzhai missile and space testing center in central China. It flew to an impact area in a remote part of China, according to U.S. intelligence officials. The CIA said in a report made public last week that the Aug. 2 test was a test of the China's first road-mobile intercontinental ballistic missile (ICBM) with a range of about 5,000 miles -- enough to hit parts of the Western United States. The report said the DF-31 will be targeted against Russia and Asia. A longer-range version of the mobile missile will be built in the next several years that "will be primarily targeted against the United States," the report said. The test last month was closely monitored by an array of U.S. electronic-spying systems, including infrared satellites, electronic eavesdropping stations in Japan and U.S. Navy and Japanese intelligence ships. The data was analyzed by the NAIC, the Pentagon's premier missile intelligence center located at Wright-Patterson Air Force Base, Ohio. Defense officials familiar with the NAIC report said the use of penetration aids on the DF-31 is significant because of the recent U.S. intelligence community assessment. The estimate on missile threats made public by the CIA last week said the use of decoy warheads is one expected response of developing nations to U.S. missile defenses, and that China and Russia are likely to share such know-how with rogue states. "We assess that countries developing missiles . . . will respond to U.S. theater and national missile defenses by deploying larger forces, penetration aids, and countermeasures," a public summary of the estimate said. "Russia and China have each developed numerous countermeasures and probably will sell some related technologies." Officials are worried, in particular, about China's ongoing missile-development cooperation with North Korea and Iran. Secretary of State Madeleine K. Albright said in July that she was concerned about China's sale of missile components and technology to North Korea. North Korea is on the verge of flight testing a new missile that U.S. intelligence agencies believe will have enough range to reach the United States. A Pentagon spokesman had no immediate comment on the report. Other intelligence reports have shown that China has increased its missile cooperation with Iran in recent weeks. The U.S. national missile defense system being worked on by the Pentagon is very limited in the number of interceptors and the capability of those interceptors to knock down incoming warheads. It probably would be unable to counter a small number of long-range missiles equipped with decoys, according to defense experts. The NAIC report said the dummy warheads tracked during the Aug. 2 DF-31 test "decoupled" from the primary warhead -- also a test module -- and spread out in different directions when the payload reached space. The penetration aids were intended to "distract" the tracking radar of regional and long-range ballistic missile-defense systems, it said. Missile-defense radar use high-technology computers and sensors to "discriminate" between nuclear warheads to be hit with high-speed anti-missile interceptors, and inert dummy warheads that can be ignored. The penetration aids are released from a re-entry vehicle along with the actual warhead with the goal of thwarting identification of actual warheads or causing interceptors to be wasted on hitting them. It could not be learned how many decoys were used in the DF-31 test. But previous Chinese missile flight tests used two decoys along with a single warhead, according to defense officials. The decoys are designed to survive the harsh conditions of passing from space into the atmosphere and to appear similar to actual nuclear warheads, the officials said. China also may use metallic particles called chaff in its warheads to distract missile-defense tracking sensors, the officials said. An earlier National Air Intelligence Center report on the DF-31 stated that Chinese mobile missiles were being designed with increased accuracy and penetration as a result of U.S. anti-missile efforts against Iraqi Scud missiles in the 1991 Persian Gulf war. "The DF-31 ICBM will give China a major-strike capability that will be difficult to counterattack at any stage of its operation," the 1996 report said. "It will be a significant threat not only to U.S. forces deployed in the Pacific theater, but to portions of the continental United States and to many of our allies." The Washington Times, Sept. 16, 1999 China's Financial Markets China Plans to Make CITIC a Financial Supermarket Why not? All the mom-and-pop ITICS have gone broke. China International Trust and Investment Company, the country's leading state-owned conglomerate, plans to group its expanding financial services under one holding company, creating a financial services "supermarket" which might eventually be listed in Hong Kong. The new structure, which would group activities ranging from commercial banking to securities broking, leasing, insurance and fund management, would be unique in China, said Qin Xiao, Citic president. It would give the group a competitive edge in a wide variety of financial services products. "We have already started the homework," he said in an interview. The plan was part of a wider restructuring of group activities in the wake of the Asian economic crisis and China's growth slowdown, but there was no timetable and the group still had to complete regulatory discussions with China's central bank. The aim was to create a Chinese domestic version of a diversified financial group such as ING of the Netherlands or Citigroup of the US. Although there were no plans for Citic to enter the international market in financial services, a listing in Hong Kong would give it another vehicle for raising international capital, alongside Citic Pacific, its erstwhile high-flying subsidiary. The move would not conflict with Citic Pacific's activities because these are focused on infrastructure. Citic's intensified focus on financial services comes amid signs that this is one part of the group that has performed relatively well during the downturn, thanks partly to the strength of the local stock market this year. This has helped offset some of the decline in profits at Citic Pacific where interim earnings fell 16 per cent in the first half of this year. Citic is seeking an insurance licence from the Chinese government which would enable it to team up with one of the foreign companies recently allowed to enter the local market and add insurance products to its range, Mr Qin said. It has also recently boosted the capital of its Citic Securities unit to Rmb2.1bn ($258m) from Rmb300m, making it the second largest securities house in China in terms of net assets, he added. It was looking at a possible merger with other local partners in the Chinese capital market. Citic Industrial Bank, the group's commercial banking subsidiary, is expanding rapidly in terms of assets and has fewer problem loans than the large state commercial banks. When the expansion is complete, financial services will be one of three core areas of activity for Citic, the others being infrastructure, including telecoms and power, and a consultancy and trading division. Citic would also retain interests in important manufacturing activities such as aluminium and wood processing, but would continue to shed non-core interests, he said. The economic downturn had sparked a trend towards consolidation which might last another two years, he added. During the next three years Citic aimed to cut its long-term foreign debt to around $1.4bn from $2bn before the crisis hit, while doubling its long-term local currency debt to around Rmb4bn. In the next two years Citic Pacific "would perform much better than it has in the past two", he added. Funds generated by the recent disposal infrastructure projects in China had not all been used to pay down debt. A substantial amount had been reserved to take advantage of new opportunities in mainland China and Hong Kong, he said. The Financial Times, Sept. 16, 1999 Human Endurance Susie Moroney Swims from Jamaica to Cuba Battered by a shark cage in hurricane waters NEITHER Hurricane Floyd nor sharks deterred 24-year-old Susie Moroney from completing a 119-mile record swim from Jamaica to Cuba early yesterday to become the first person ever to make the crossing. Miss Moroney, an Australian, limped battered and bruised from the Caribbean on to a remote Cuban beach early yesterday after surviving more than 38 hours swimming in a shark cage designed by her most prominent admirer, Fidel Castro. Unfortunately, the Maximum Leader had provided the cage imagining the normally tranquil waters around his island, and did not take Hurricane Floyd into account. Miss Moroney said only: "I'm very happy that it's over" as she emerged into torrential rain on the beach before about 300 Cubans chanting "Viva Susie". Her ordeal was the longest continuous swim in history. Later, she revealed that she had sung Madonna songs in her head to keep herself going while she was bumped heavily against the bars of the cage, which eventually broke near the end of the 119-mile crossing. She suffered severe sea-sickness in 5ft waves and could not keep down the high-energy foods needed to keep her going. She is now looking forward to dinner with President Castro. The London Telegraph, Sept. 16, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance�not soapboxing! 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