Follow The Money: Then & Now. How the World of Money Laundering has Changed.

Laundering money is the backbone of any criminal enterprise. It takes the ill-gotten gains from criminals and turns them into clean usable money. Making criminal funds look normal to the Government and tax authorities. In this article, we are going to look at money laundering at the peak of narcoterrorism and what money laundering looks like now, with the growing use of cryptocurrency. 

Robert Musella

As an example of a more complex money laundering operation, we will examine the most famous case of it, that being Robert Musella's operations with the Medellin cartel. Robert Musella was a businessman in the United States who was involved in an air charter business, a chain of jewellery stores, a brokerage firm, and an investment firm. Musella then spent two years slowly infiltrating the ranks of the Medellin Cartel. The first person he would meet from the cartel was a man named Gonzalo Mura, a low-level launderer for the cartel. The vast wealth of the cartel meant that low-level launderers still dealt with tens of thousands of dollars. Through an associate, Mura was directed toward Musella with the promise of easy money laundering businesses. Mura himself owned a small import-export business, which could only feasibly launder around $50,000. This may sound like a lot, but in reality, this was petty cash for the cartel. Musella allowed them to increase laundering operations to the millions.

With the connection to the cartel being made, Musella was now part of the 'Black Money Market.' The network is set up by various criminal enterprises to send and clean their cash around the world. Launderers would be given money by their superiors and then would have to find businesses or people who needed that cash. Then, once this cash was run through businesses, it could then be sent back to their superiors as clean money that could be pulled from an ATM without raising the eyebrows of any tax authorities or law enforcement body. This is a very simple and dumbed-down explanation of such a process, but fundamentally, this is what Musella had to do for the cartels. Before he could think of where to launder the money, he would have to collect it.

All 'dirty' cartel money comes in the form of physical cash. That dirty money is usually in larger denominations, normally in stacks of 50 or 100 dollar bills. Carrying around these amounts of physical money already raises suspicion. So imagine the difficulty of moving thousands of dollars in $50 stacks. Moving them around would be nearly impossible. This is where we find another crucial actor in the money laundering chain: the money movers. The movers' main job is collecting and moving money. They smuggle cash, not narcotics. In fact, cartels are very specific about keeping money movers and drug smugglers separate, as not to draw too much attention if they are caught. Being caught moving massive amounts of cash by authorities is a red flag. Being caught smuggling massive amounts of drugs by authorities is a red flag. Being caught doing both at the same time is the biggest red flag there can be. For Musella, movers would smuggle the money into New York, usually one or two million at a time. Gonzalo Mura would then tell Musella the location of the money and how much was being transported. Then, his own runners would go collect the money for him from a cartel contact who protected the transported money. Usually, they were hidden inside suitcases or cardboard boxes. Musella's runners would then collect the money and bring it to him. Sometimes, instead of recruiting money movers, they would use smurfs. These smurfs would meet a cartel money contact and be given thousands of dollars. They would then be given orders to change those thousands of dollars into MoneyGram, traveler's checks, and cashier checks. They would do this in precise amounts, not flat thousands, to make it look like they were paying for something. For example, a smurf could obtain a traveler's check of $745.45. They would never go over $3,000, as this would flag up in the system. There would be tens of smurfs working at a time, to quickly change the 'dirty' cartel money into these different checks. These checks could then be sent in the mail to Musella, streamlining the money-moving process. It may seem overly complicated with so many people involved in a process that could be so simple. But that is the point. Important cartel operatives would never deliver the money themselves, to avoid getting caught. Movers and runners would usually be the lowest of the low of the cartel's pecking order. They were expendable and held no value within the criminal pecking order. If they were caught, they could give no information to the authorities. The whole process is intended to create separation between cartel members and launderers.

With the money obtained, he had to find a way to inject businesses with this dirty money. He needed businesses that were cash-intensive and used physical money. The fundamentals of laundering money are integration. You merge the cartel money into the clean money of the business. Then on paper, it looks like normal business profit. Import-export businesses were perfect for this kind of process. These businesses wanted physical money they could use and send around the world. Normally, these packages of money would be purchased through a country's central banking system, though this was documented and expensive. (Central Banks usually charge an additional 25% of the money's value) Money launderers could undercut central banks and offer shipments for much less (Around 10%). For Musella, his two main currencies were American Dollars and Colombian Pesos. His dealings with various importers and exporters around the world would all be layered and then deposited into cartel-controlled bank accounts in Panama. So what's layering? Layering is a process of muddying the paper trail. If Musella took the money from the import-export deals and just sent it into the bank accounts in Panama, the authorities could easily track down where the money came from. Layering is the process of moving the money around so much that following it would become nearly impossible, like a magician using misdirection in a trick but on a global scale in the international banking system.

Musella would take the money from the import/export earnings and send it to Corporations he had established all over the world. These are known as Off-Shore Corporations. It would then be put into a Certificate of Deposit in a bank in Luxembourg under the name of one of these off-shore corporations. They would then use this money as collateral for a loan in another part of the world. That loan would then be given to another off-shore corporation, for Musella one of his off-shore corporations was in Gibraltar. This Gibraltar corporation would then send the funds to a Panama bank account, and then those funds could be transferred to any bank across the world. As many of the leading members of the Medellin Cartel were in Colombia, funds from the Panama bank accounts were sent there. Once again, this was done to create ultimate separation from launderer to cartel. Actually tracking the money was an incredibly difficult task. To trace the money, first authorities would have to get information from the banks in Panama (something that will be explained at length later), and then the corporation in Gibraltar would have to be investigated. Then the banks who issued the loan would have to be investigated and the one in Luxembourg. Due to bank secrecy laws around the world, investigating financial institutions is an incredibly long and tedious process. So, layering like this really hampers the authorities' efforts to track down the source of criminal money.

Once all of this had been done, the money was clean. The money wasn't ill-gotten gains from drug trafficking but instead profit from legitimate business transactions.

So, why Panama? Well, Panama, in the 1980s, was a safe haven for money laundering due to their loose bank laws. For example, in most countries, foreign businesses would need a business license to start up a business banking account; this is not the case in Panama. Even foreign businesses overseas could set up a bank account in Panama without proof of proper documentation. This lack of documentation also created a layer of anonymity that allowed criminals and launderers to operate without fear of identification from authorities. Business owners and financial officers in said companies don't even need to register with Panama's Public Registry. Panama is also a tax haven with low taxes, allowing for money moved there to not be hit with huge fees. In fact, the only tax needed to be paid on business accounts in Panama is a $300-a-year franchise tax. The other major upside of Panama's banking system is that there are no audits or need to file tax returns. Once the money from Musella's import/export business dealings was deposited into those Panama accounts, cartel bosses would have their clean, laundered money that they could do with as they pleased. The biggest reason the cartels laundered in Panama was the fact that they had a close relationship with the country's leader, Manuel Noriega. All cartel accounts would be protected by him personally. The cartel was untouchable in Panama.

These accounts didn't just belong to the bosses of the cartels; running a massive criminal enterprise was costly, and equipment was needed for smuggling operations. One example Musella himself has spoken about is that most of the money he laundered initially went to the cartel's plane broker. His main role in the cartel was to purchase planes for drug smuggling operations. Once Musella had made the deposit, the plane broker could then purchase light aircraft for further drug smuggling operations. Some of this money is even smuggled back down to Colombia to be used as bribes for the Government, Judicial, and law enforcement officials, who turn a blind eye to the cartel's activities.

These basic methods of money laundering worked for Musella as he worked with the cartel's lower levels. Musella quickly climbed the ranks and began doing business with some of the highest-ranking members of the cartel. His laundering ramped up. He was receiving shipments of $1 million in the morning and $2 million in the afternoon. The cartel higher-ups wanted money laundered and sent to Europe so they could set up an emergency fund. So, if they ever had to flee South America, they had wealth waiting for them in Europe. Musella went to the Bank of Credit and Commerce International (BCCI), a commercial, normal bank that thousands of average people used every day. Musella went there to further bolster his accounts in Panama. He was a credible client with millions of dollars in the bank and in assets. Once they had verified he was trustworthy and could be a lucrative client. They let him in on the biggest secret in global banking. They told him how they laundered money for criminal organizations across the world. All of Musella's layering, corporate accounts, and his own finances would be overseen by the BCCI, which also helped establish him in Panama. The man in charge of all of Musella's business dealings was an esteemed banker, Amjad Awan. Awan ran business accounts for Noriega and other world leaders. His dealings in the 'Black Money Market' had now extended to Musella and the Medellin Cartel. It wasn't just one man; most of the BCCI's senior management was involved in laundering criminal money. This opened up Musella to a new laundering support group. Tens of middlemen who assisted in the laundering of cartel capital. From lawyers in Switzerland who helped set up the shell and off-shore corporations, to bankers who sent the money to Panama, to Financial Servicemen in Panama, whose sole job it was to form corporations to layer laundered money. Musella's operation became massive and international. They provided nominee directors for Musella's corporations, who hid the true ownership of a corporation and hid financial records. Why would the BCCI do it if it was a normal reputable bank? Because they earned from the process and would turn a blind eye to lawlessness if it meant they got to have another lucrative account. Musella alone was bringing in millions to the BCCI, with their other criminal clients, they were likely making billions of dollars.

How do we know all of this? Robert Musella wasn't a real person. He was a fictitious identity created by the US Customs Service. Musella was an undercover Customs agent. Robert Musella's work for the Medellin Cartel led to the arrests of 85 people, all crucial in the laundering of the cartel's money. Musella didn't just uncover a cartel laundering operation but the role of conventional banks in the entire operation. His work led to BCCI closing down, almost overnight due to their sleazy business practices. Musella's work decades ago did have an effect on drug trafficking. Today, however, it is estimated that drug trafficking creates over $400 billion a year globally.

Modern Problems & Modern Solutions

Across the world, countries have been passing anti-money laundering laws to stop criminal and terror organizations from operating with ease. With money becoming more and more digital, newer legislation is needed to get ahead of modern money laundering. Surprisingly, the United States lags behind Europe when it comes to monitoring financial crime. In 2020, the US House of Representatives passed the biggest anti-money laundering legislation. $740 million from the defence budget would be used to fight money launderers in the United States. The lack of transparency in the United States was highlighted that year when two Russian oligarchs used shell corporations to avoid international sanctions imposed after the invasion of Ukraine. The legislation passed is the first step in the right direction. The US lacks the regulations that are commonplace in the EU and UK. The US remains on the EU's blacklist of countries that lack proper financial regulation. EU Member states have to abide by organization-wide anti-money laundering laws that require each country to have its own central regulating authority. In the UK, there is a beneficial ownership register that creates full transparency when it comes to company ownership.

Even though legislation and regulatory bodies are in place, the constantly evolving economic world poses new laundering threats. Chiefly, cryptocurrency and NFTs. These new, unregulated, anonymous online currencies already make it difficult for authorities to track payments. Private coins use third-party services to increase their anonymity, hiding things like wallets, amounts, and sources of the coins. The most common, and easy, way to launder through cryptocurrency is by the use of a Crypto-Mixer service. As we saw Musella worked diligently, shifting and moving money to muddy the paper trail. Crypto-mixers make this process extremely easy. Not only are the coins anonymous to begin with, but Crypto-Mixing services will take coins from multiple different wallets and then send them into one account. Then, from this one account, all of the funds will be mixed and swapped around, then sent to different addresses. The process essentially makes finding the original source of funds impossible. These Crypto-Mixing services basically launder 'dirty' cryptocurrency, usually for a 10% fee.

Much like cryptocurrency, NFTs are something that has exploded onto the scene and have become highly controversial for a number of reasons. One reason that is the concern of many anti-money laundering authorities is that NFTs are ideal for laundering dirty money. The art and antiquities world is already a prime place for money laundering but NFTs take that and offer new anonymity. They are virtual antiquities bought with cryptocurrency. The process is called Wash Trading, where different, normally anonymous, bitcoin wallets sell their NFTs to one another, gradually raising the price each time. These false speculation and sales inflate the perceived value of the NFT. This is no new thing in the crypto world; numerous cryptocurrency exchanges have been caught wash trading, sending money to various accounts to make it look like they are doing more business than they actually are. Let's look at an example of wash-trading in the NFT world and how these fake transactions can skyrocket the perceived value of an NFT.

Crypto Punk 9998 is your typical run-of-the-mill NFT. It looks pretty low energy and doesn't look like it should cost a lot, right? Well, this NFT cost, at one point, over $500 million. This ridiculous valuation is because of wash-trading. The transaction that caused everyone's attention to focus on this NFT was when a transaction occurred between two wallets. One paid 124,457 ETH for Punk 998, around $535 Million. Someone paying half a billion dollars for this NFT was suspicious, to say the least. When experts looked into the transaction, they found that the buyer took out multiple loans to obtain 124,457 Ethereum. Then after the transaction, the seller sent the Ethereum straight back to the buyer who repaid their loans. The whole transaction was a farce, just done to raise the value of Punk 9998. Crypto Punks themselves revealed that the wallets were both owned by the same person. The transaction was just one guy inflating the value of his own NFTs. After all of this wash trading, Punk 9998 was then listed for 250,000 Ethereum, nearly $1 Billion. Much like BCCI, Crypto Exchanges are often seen fostering this behavior. As long as they are receiving more business and more activity, then they often turn a blind eye to wash trading, something which has been illegal in the US since the 1930s.

There is still a long way to go when it comes to properly fighting money laundering. With the world of crypto and banking the way it is, change will be slow. The undercover operative who played Robert Musella has an ingenious way of tackling money laundering. He sees banking as two sides. Sales and compliance. The sales teams just try to bring on accounts, without doing the due diligence to see if the accounts are criminal. Then compliance has to do the legwork to verify if they are legitimate or not. For sales, their main goal is boosting bank activity and increasing the cash flow. This is the same for the Crypto Exchanges. The sales teams ignore compliance to increase business. Musella believes that sales and compliance should be one entity, not separate. Checks and due diligence should be administered to potential clients before they start working with a bank. Then, a bank representative should have to sign a sworn statement that such checks were carried out properly. In the eyes of Musella, this would stop much of the laundering going on around the world. For now, Governments need to continue fighting this activity that aids criminal behaviors. Without financing, terrorists and narco-terrorists would cease to operate effectively.

Islamic State's Terror Threat to the Religious Political Parties of Pakistan

On July 31st of this year, a suicide bomber attacked the party convention of Jamiat Ulema-e-Islam (JU)), a conservative religious party in Pakistan. The brutal bombing killed 63 people, including 23 children, and left more than 100 others injured. Islamic State in the Khorasan Province (ISKP) claimed responsibility for the attack. This attack marked the deadliest yet on Pakistan's religious political parties, raising questions about the reasons behind IS's intensified campaign against them. In this video, we will explore how the Islamic State is targeting the religious far-right in Pakistan and why their efforts are being focused on the JUI.

First, let's examine the party history of the JUI and how it offers a unique religious approach to politics in Pakistan and the wider Middle East. The party originated as a political group for Deobandis in British India in 1919. Deobandis adhere to the Deobandi school of thought in Sunni Islam. The party, initially known as Jamiat Ulema-e-Hind (JUH), consisted of politically active, anti-colonialist Deobandis. Within the party, a significant faction supported the idea of a separate state for Indian Muslims, leading to a split in 1945. This faction joined the All-India Muslim League, which aimed to establish the Muslim state of Pakistan and became known as Jamiat Ulema-e-Islam Pakistan.

A few years after joining the All-Indian Muslim League, the JUI parted ways with the group and formed the Markazi Ulema-e-Islam, contributing to the religious foundations of Pakistan. Under new leadership in the early 1960s, the JUI became more politically active. However, it wasn't until the 1970s and 1980s that the JUI played a significant role in the Middle East. This period was marked by the Soviet invasion of Afghanistan, which deeply affected Pakistan. President General Zia ul Haq declared a jihad against the Soviets in Afghanistan, a move that divided the JUI. Some members disagreed with these policies, while others supported the president. The JUI received substantial financial support during this time, which enabled them to establish madrassas in the North West Frontier Province of Pakistan. These institutions played a crucial role in educating and assisting Taliban members, who would go on to fight against the Soviets in Afghanistan. The internal divide within the JUI during the Zia administration eventually led to a split after the death of the longtime party leader Mufti Mehmood, resulting in the formation of the Zia-supporting JUI-S and the non-Zia JUI-F. 

The JUI-F proved to be more influential than its breakaway faction. Today, it is a minority party in Pakistan, with four members in the country's senate. Despite its minority status, the party is highly religious and actively advocates for the implementation of Sharia law. The JUI-F also has a unique role in Pakistani politics, controlling numerous mosques and madrassas across the country, which serve as hubs for activism and campaigns. It is estimated that both JUI factions collectively oversee 65% of all madrassas in Pakistan. These madrassas have also served as centres for Afghan students sympathetic to the Taliban, with around 30,000 Afghan students who attended JUI-affiliated madrassas later becoming Taliban members. The JUI's connections to scholars mean that highly educated individuals teach at these institutions. Notably, while the JUI-F has educated numerous Taliban members, it does not endorse militarism and instead promotes democracy. In contrast, the JUI-S openly supports militarism and operates madrassas that have openly taught Taliban leadership. After the death of Osama Bin Laden in 2011, both JUI factions united in campaigning for the Pakistani Government to cease its support for NATO, specifically condemning the use of drones by the U.S. in tribal areas of Pakistan. Following the assassination of JUI-S' leader Samiul Haq in 2018, the splinter party ceased its operations. After obtaining approval from Pakistan's Electoral Commission, the JUI-F was officially renamed the JUI. Today, the JUI continues to play a significant role in religious education in Pakistan, though it holds only four seats in Pakistan's Senate.

Given their extensive links and religious prominence, it's no surprise that the JUI has become a target for the Islamic State. Since 2019, Islamic State has escalated its attacks on the JUI. In that year, ISKP initiated an assassination campaign against JUI activists in the Bajaur District. Alongside these targeted assassinations, ISKP intensified its propaganda against the political party. In their newsletters, IS criticized the JUI for its support of democracy, a stance at odds with the core doctrine of the terror group. Both physical and media attacks against the party surged. By 2022, ISKP issued a fatwa, an Islamic religious declaration, calling for the killing of all scholars associated with the JUI, citing their close ties to the Taliban. This fatwa came following the death of a JUI-affiliated teacher named Mufti Shafiullah. Intelligence experts believe that this fatwa was issued in response to the JUI's efforts to secure international recognition for the Taliban Government in Afghanistan. Subsequent months saw further killings and attacks against educators linked to the JUI. The recent attack on the party's convention underscores that ISKP continues to actively target the religious far-right in Pakistan, especially those with connections to the Taliban.

Several key reasons explain why the JUI has become a prime target for the Islamic State's brutal attacks. Many may question why such a devastating campaign is waged against a relatively small political party in Pakistan. However, when considering the party's history and religious significance, the motivations behind the relentless attacks become clearer. IS is dedicated to establishing an Islamic Caliphate without a functioning democracy. The mere presence of a religious political party actively participating in democracy challenges this vision, making the JUI a target. While the attacks may be viewed as a means to discourage democratic engagement, the JUI's affiliations with the Taliban make it a primary target for IS. Since the Taliban assumed power in Afghanistan, the JUI has increased its diplomatic and educational support for the Taliban. The attacks on JUI scholars can be seen as a direct threat to those assisting the Taliban in gaining international recognition. Additionally, the JUI's long history of aiding the Taliban further makes it susceptible to attacks. IS's assaults serve as both a deterrent to the madrassas educating Taliban members across the country and a disruptive method, eliminating affiliated teachers for said madrassas. The JUI's role as a religious party puts it at odds with IS's interpretation of Islam, leading to disagreements on core religious principles and creating further animosity. The JUI's interpretation of Islam is something they widely platform through their controlled madrassas and mosques, spreading the JUI's ideas of Islam to thousands of students. The JUI's active role in promoting this view through religious education makes it a prime target for attack from IS. 

These three main characteristics of the JUI place it at the forefront of the Islamic State's terror campaign in Pakistan. The presence of a religious political party engaging in democracy, its alliances with the Taliban, and its role in promoting a differing view of Islam compared to IS make it a direct adversary to the terror organization. The recent attack on the party's convention was one of the most audacious and deadly assaults by IS against the JUI. Despite this, Pakistan remains committed to combating IS. Its recent alliances with Iran and China in countering terrorism are expected to deal a significant blow to terror organizations across the Middle East.