Money laundering is the support industry for terrorists, fraudsters, kleptocrats, cartels, people traffickers, all the things that are undermining civilization, democracy, everything that we like. All of those things are supported by money laundering.
That's Oliver Bullough and his conclusion.
And the important thing to recognize is that what we have right now has failed. The system that we have has failed and is failing and will continue to fail unless we radically change it or replace it with something better.
I spent 30 years inside that system. First as a DIA intelligence officer, then as a DEA special agent. Oliver Bullough has spent his career writing about it. We agree on the diagnosis. This is Cease and Desist.
Oliver Bullough is the author of Moneyland: The True Story of the Crooks, Kleptocrats and Killers Who Rule the World, Butler to the World, and his newest, Everybody Loves Our Dollars. He's one of the few journalists writing about financial crime who genuinely understands the operational reality behind it, not just the politics. When I read his work, I recognize cases I've worked. I recognize frustrations I've lived with for decades. From tracking Hawala networks in Dubai to following Bitcoin trails on the streets of South Carolina and Italy. What I didn't expect going into this conversation was where he'd land on the question of solutions. His single biggest prescription isn't more enforcement, isn't better crypto regulation. It's something so low-tech it almost sounds like a joke until you hear him make the case. One thing we should say, this is a podcast about chasing dirty money, not about managing clean money. Nothing here is financial advice. Now, here's Oliver Bullough.
Thanks. Really good to be back on the show and really good to be talking to you, who I'm actually quite hoping you're going to be sharing a few of your own stories from particularly tackling the Hawala trade-based money laundering networks in the Middle East and elsewhere, I suppose, because I do think that that is a really underexplored, underexamined aspect of money laundering. I worry that often our understanding of money laundering is stuck sort of in the 1980s. You know, it's almost like we watched Miami Vice and just thought that's how money laundering is and how money laundering always will be. And we didn't realize that this is a global and intensely entrepreneurial and dynamic industry and it is an industry which adjusts like any other industry to the regulations and the constraints put upon it. It's constantly looking for new markets, new ways to be more efficient in the service of its clients. And those clients are, you know, the worst people in the world. Money laundering is, you know, it's a sort of odd crime because it's a crime that only exists because of other crimes. It's a sort of almost a kind of meta crime, but it is the support industry for terrorists, fraudsters, kleptocrats, cartels, people traffickers, all the things that are undermining civilization, democracy, everything that we like, all of those things are supported by money laundering. So our government's failure to, I mean, even constrain money laundering and the ability of money launderers to do their work quickly and cheaply is something that is making lives miserable everywhere and it's something that deserves to get a lot more attention than it does. So yeah, really looking forward to our chat and looking forward to hearing from you as well.
Well, you know, let's just hop right into it then, Oliver. You know, one of the key issues, and I think you talk about it across all your books, is the gap between money laundering and the public's perception of the urgency in addressing money laundering. I oftentimes when I'm out speaking now and can speak a little more honestly than I could when I was in active service use the comparative point of as a DEA agent focused on global drug flows. We used to often get criticism for, oh, how effective is DEA or any drug investigative agency? You know, international entities barely seize 20% of the global drug flows. Then I learned once I really became involved in money laundering cases and asset recovery that international entities barely seize 1% of illicit assets and proceeds. So do you think that the public's perception and the inability of politics globally to address that 1% is largely because people don't understand money laundering at its core?
Yes. I mean, I think it's important to put that 1% figure into perspective before getting stuck into the meat of the question. I mean, we don't actually even know it's as much as that. I mean, the amount of money that is laundered globally is sort of something of a mystery. You know, the estimates that have been made since the 1990s and that continue to be made now tend to place the volume or the size of the global illicit economy at somewhere between 2 and 5% of global GDP. That's a huge range. You know, I mean, the global GDP is about a hundred trillion dollars, give or take a bit more than that, but you know, so that's between two and five trillion being laundered globally. You know, that is a massive amount of money to not be sure about. And so, if it's at the top end of the range, maybe it's significantly less than 1%. But whether it's 1% or 0.1%, in a way, it doesn't matter. That is a failure of a huge scale considering the amount of time and effort and money that is being spent on compliance on attempting to comply with the laws being put in place to tackle financial crime. It is, you know, the cost of global compliance is according to LexisNexis something around $200 billion annually. Just to say, is that a big number? You know, with $200 billion, you could solve world hunger. You could provide clean water and sanitation to everyone on Earth and have about $50 billion left over. It is a colossal amount of money. It is totally failing to solve the problem that we're trying to solve. And that is a huge failure. Governments are demanding that private sector companies spend a lot of money to tackle this problem and they are failing essentially to give the right directions to those private companies to do the job. It is a little bit, I mean, I use the example in my book, it's a little bit like expecting an army to march into war without knowing where the enemy is, who the enemy are or really what the enemy are doing. That's what it feels like. We are completely ignorant about the nature of the problem. And so what I was trying to do with this book is just to map out, I suppose, the boundaries of that ignorance to say here's what we know. Here's what we don't know. Why don't we know it? Here's look at all the things we should be looking at that we're not looking at. And it is easy in a way to say that it's a problem that the government fails to do this. But you know, then in a way, why does the government fail to do this? Well, the government doesn't do it because the people, voters aren't demanding they do it. And why do the voters not demand it? Because journalists and others have failed to make the case that this is important. So that's what I'm trying to do. I'm trying to make the case that it's important and hopefully persuade a few people to write to their representatives and say, 'Come on, let's do a better job.'
You brought it up, so I'll just dig right into this because this was a topic that truly intrigued me as I studied and researched your themes that you touch upon in all your writings. You called the AML compliance world an army that doesn't know who it's fighting, where it's fighting, when it's fighting. Most of the time I'm AML certified. I've got my CAMS anti-money laundering certification. So I'll own your critique from the inside. And why I say that is something that drove me completely crazy during my career was this tendency of governments and agencies to separate illicit finance into its own discipline, its own category where separate actors and actions were performed in order to investigate the same criminals, the same transnational criminals that traditional investigators were investigating. And that caused a lot of siloed action. What would it actually look like in your opinion to know who you're fighting when you're fighting them and doing it together in a concerted effort with an idea of mission in mind?
Yeah, I mean, it's a really good question and I think that framing of mission is the really important one and it's a thing I want to come back to, but I think it's important just before getting to that to briefly address the question of why this is happening. Why is it that unusually for, you know, what is essentially often a national security challenge, particularly around illicit finance coming out of places like China or places like Russia, is not just a criminal challenge but a national security challenge. Why do we not have a proper coordinated response to it? And in a way, you could trace this all the way back to the foundation of the Financial Action Task Force and the decisions that were made, you know, in a really short period of time, just a few months at the end of 1989 when, you know, a few representatives of a few members of the G7, it wasn't even all the members of the G7, made some very rushed decisions about what action against money laundering was going to look like. And the decision was made then largely at the instigation of the British delegation that they were going to rely on private sector companies to report suspicions to the authorities. That you would essentially be outsourcing the intelligence work to bankers at that time and later bankers and other professionals to spot suspicious transactions, to report those suspicious transactions. And then having done so, the authorities would look at the suspicious transaction reports that came in. And essentially what they were doing, although they didn't call it this, was outsourcing the law enforcement response. They didn't want to have to go through the mountain of paperwork themselves. They didn't want their law enforcement agencies to be snowed under. So they thought, we'll just get someone else to do that. And that hasn't worked. Outsourcing law enforcement, particularly to the private sector, never works because the incentives are all wrong. You know, if you are a profit-making company, you're not particularly interested at a deepest level of whether you stop crime or not. You're just interested in whether your profits are harmed or not harmed. And that is the core problem and I think the core flaw in all of our efforts on which everything essentially that we've built subsequently has foundered because you cannot build a decent structure on weak foundations. And so with that in mind, if you bring it forward all the way to now, why are we failing to tackle these issues with a sort of mission? Because these are not joined-up bodies. You do not have law enforcement agencies, intelligence agencies, parliament, investigative bodies, whatever, all of them working together because quite a lot of these bodies are just fundamentally different. They are profit-making companies which are not, you know, working in the same way as police agencies or intelligence agencies or whatever. So, you know, where we have seen efforts that have worked in the past, and I have an example in the book when I talk about what's often referred to as carousel fraud. It's a particular issue that afflicts European countries because of the poor structure of the value added tax regime in the European Union. Carousel fraud was something that was a massive problem in the UK in the early 2000s and it was dealt with, I mean, almost entirely successfully, not completely successfully, you can never eradicate it completely, but pretty much completely successfully by taking an approach that's radically different to the approach that we take normally to tackle illicit finance. It was dealt with, like you say, with a mission attitude. Everyone was contributing. It was a diplomatic question. They had to deal with other jurisdictions. It was an intelligence question. They needed to collect intelligence on the criminals. Yes, it was a law enforcement question. They needed to prosecute people, but they also needed to change the law to make sure the law worked properly. All of these things work together, pulling together, you know, at all times, you know, in a really well-designed and well-coordinated campaign. And why it's a really interesting and I think instructive episode and something which deserves, I think, more credit than it gets as a law enforcement and government operation is that normally the campaign against illicit finance simply doesn't work like that. You know, we have very large numbers of private companies, banks and others who are filing colossal numbers of suspicious transaction reports, you know, in the millions every year into law enforcement agencies that simply don't have the capacity to read them all or respond to them in any way. There was a report a couple of weeks ago in the UK about the National Crime Agency about how their software system which they're using to tackle illicit finance is 15 to 20 years old. You know, we have this mad situation where the big financial institutions are using now, you know, really cutting-edge artificial intelligence to spot the red flags that are indicative of money laundering, filing gazillions of suspicious transaction reports which are then going into law enforcement agencies who are trying to tackle them essentially with a version of Windows which is, you know, 15 years old or whatever. I mean, the mismatch is extraordinary but it is, you know, indicative of a thing whereby governments have expected private companies to do an awful lot of work, have fined them massively if they failed to live up to those very high standards, but then the governments have not demanded the same high standards of themselves. And so that I think is at heart why we're failing because we have not had this joined-up, as you say, mission approach to tackling financial crime and illicit finance and governments frankly have not been doing the work that they should have been doing or living up to the standards which they claim to demand of others.
So do you think if that onus that was placed on private enterprise, especially in the financial sector, to monitor illicit flows and create the, you know, significant activity reports or suspicious activity reports, excuse me, there should be more of a feedback loop there. If that onus is going to be placed on them, should governments come back once they see that SAR and say, 'Yeah, tell me more about that.' Do we need to issue process in order to dig deeper from the governmental side or does it need to be scrapped altogether and looked at in a different way?
Yeah, I mean, it's not really, I mean, what's really interesting is actually I spent a bit of time in the British government archives looking at that first Financial Action Task Force meeting in 1989. There was actually in that file a letter, a very early letter from a British bank to the government reporting a suspicious transaction. I don't know whether this was essentially the first suspicious activity report or, you know, may have been even before they formally existed. And in the file was also a complaint from the bank that they hadn't had feedback about that suspicious activity report. You know, the failure of governments to provide feedback to SARs is baked into the process and it's impossible really to imagine how you could provide adequate feedback to hundreds of thousands or millions of SARs. The sheer volume of intelligence that's being poured in now is pretty, I mean, it's just impossible for anyone to respond to. I mean, I think what we need is, to be honest, a complete rethink of the situation because, you know, you have this, particularly in the financial sector, you know, this now incredibly sophisticated compliance machine which is attempting to detect the tiniest of red flags and, you know, whether they're succeeding or not we don't really know, but they are definitely employing a lot of people and throwing a lot of resources at trying to solve this problem. But criminals are not stupid, or at the very least top-end money launderers are not stupid. They can see where it's easy to launder money and where it's hard, they can tell where they're likely to be caught and where they're not likely to be caught. So, if you have a tremendous amount of fortification around one part of the economy, they're just going to move their money laundering activities into a different part of the economy. You know, we see now huge crypto companies which are in terms of their reported market capitalization far more valuable than almost all but the very biggest banks, which employ perhaps a couple of hundred, 300 or so people in the whole company, let alone in their compliance department. These are companies more valuable than major banks and yet their compliance department might be, you know, a 10,000th of the size of major banks. So obviously if you're going to be moving illicit wealth globally, you'd move it via crypto rather than via a bank because you're far less likely to be caught. And then if you look at the trade network, which is even less regulated still, you can pile a load of stuff into a container, ship it from one side of the world to the other, and then sell it, and you're almost certain to get away with it. So obviously the criminals are going to choose to move their wealth through these underregulated or less regulated parts of the economy rather than the best fortified parts of our defenses. And this is in a way the challenge is how can you somehow shore up the defenses of those other parts of the economy to keep criminal wealth out of them without gumming up the global economy altogether, which is, you know, if we had checks on the global trade network anything like commensurate to the checks we have on the global financial network, then it's hard to imagine how anything would ever move at all. So to go back to your question, yeah, we need a complete rethink really of what this looks like. Maybe this global system, the Financial Action Task Force-based system of having the same standards for everyone, maybe it's not possible. You know, maybe in reality that is not something that can be done. Maybe we need to have a more, you know, mission-oriented approach at a local level with each government deciding for itself what its priorities are. Maybe that's what we need to do. But it definitely needs to be different to what we have now because we have been banging away attempting to do this FATF-based global standard approach for certainly since the late 1990s and I suppose since 9/11 again differently because of the terrorism finance aspect and it's been a complete failure. You know, I mean, just talking about terrorism, terrorism has noticeably not got less since 9/11. I mean, the Taliban are back in power in Afghanistan. You know, the system that we have has not worked. So yeah, that has to be the start point that we have of recognizing that what we have built has failed. And if you do that, do you just radically reform it or do you replace it with something altogether different? That's a different question. But you need to recognize it's failed before you can do anything at all. And I don't think that recognition is nearly widespread enough.
Do you think that these issues surrounding all anti-money laundering efforts of governments globally that want to do the right thing or at least on the surface want to do the right thing, do you think part of that is a result of, to use your phrase, baked into the idea that governments have this over-reliance on bureaucratic solutions? They use an analog algorithm that worked well enough before criminals scaled their enterprises using sophisticated technologies like they use today and then they're using the same techniques from 1975 today and the world's completely different. Do you see it as that? Is that part of the exacerbating problem?
That's definitely part of the problem. I had a lot of fun in researching this book in going back to the beginning of anti-money laundering legislation. Just following the train back to the origins of the Bank Secrecy Act in the United States. I mean, it's a bit of an odd term that's called the Bank Secrecy Act when it, I mean, that's a, not what it's called, and b, it's a bank transparency act rather than a bank secrecy act, but anyway that's what everyone calls it so let's just go with that. You know, the author of that act was, you know, a very far-sighted man, Wright Patman, unjustly forgotten representative in the House of Representatives from Texas. Really interesting guy, you know, but he was responding to the reality in the late 1960s, which was a very different world to what the world is now. I mean, had some things in common, but it was a far slower form of finance. It was first, that piece of legislation was first implemented in the early 1980s in Florida. The criminals responded very, very fast, found ways around it which sort of defanged it, and yet we haven't really had the same kind of root and branch consideration of what we're doing that they did back when the Bank Secrecy Act was first conceived of. And that's something that we definitely need to do to respond to the digital reality that we now have. But in your question, you know, you suggested that governments want to do the right thing, and very definitely parts of governments want to do the right thing, but I don't think that there is across government a recognition that this is a battle that affects everybody. Illicit finance is not just a question for the banks or not just a question for law enforcement, but for any part of government that is attempting to improve society or to protect society needs to be concerned about illicit finance. And the thing, or one of the things that frustrates me most of all, is if you look at, you know, what is the single most useful tool for criminals to evade restrictions put in place to stop them laundering money. That tool is the banknote, cash money. Still, you know, despite everything, despite all the advances in technology now, as in the 1980s and the 1960s, if you want to hide your wealth, move your wealth in an unaccountable, non-transparent way, the easiest way to do that is to use cash. And if you look at the statistics for the production of banknotes globally, particularly in the United States, but not only in the United States, it is astonishing how the volume, the value of all the banknotes in circulation goes up and up and up and up. In the US, it doubles every decade and continues to do so and has continued to do so for the entire time I've been alive. If you look at the statistics, that doubling in value is almost entirely accounted for by a doubling in the value of all the $100 bills. The other banknotes, they barely move. They have increased a bit, but really not very much. $100 bills, however, just keep going up and up and up. And where are they going? Who wants them? If you try and use $100 bills to buy coffee in the US, people look at you a bit funny. In the UK, we have £50 notes. £50 notes you hardly ever see. They're really not particularly useful. And yet last year the Bank of England printed tens of millions of them. You know, where are they going? Who are using them? Why the central banks? They are part of government. They should be part of this effort to tackle illicit finance. Why don't they stop and think about the mix of the denominations they're printing and recognize that there is really only one big source of demand for these colossal values of high denomination banknotes? And the European Union does this too with a €100 bill and €200 bill and so on. You know, and that sort of demand is criminals, or at the very least in the gray economy. And you know, if we are all in this together, if we're all tackling this together, then, you know, you need to start with the lowest hanging fruit. Not printing high denomination banknotes and not giving criminals a very easy way around the restrictions being put in to try and stop them is the obvious thing to do. And yet the fact that this isn't even being discussed, in fact, not only is it not being discussed, but the US is currently talking about printing a $250 bill is incredibly irritating.
And that's one of your main points or at least one of your main prescriptive solutions is reducing, eliminating big banknotes. And the other one is discussion of regulatory framework around crypto, like real meaningful regulatory framework around crypto. So with crypto moving into that, let's discuss that a little bit because I think it's that technology piece that has left governments, so to speak, in the dust in terms of the capability matching the scale at which criminals are running their operations. And for me, I saw early on in my career when I was looking at Hawala networks and I was looking at that intersection of traditional finance, Hawala networks and trade-based money laundering, particularly in that, it was in Dubai. It was the one place in the world where you had a Hawala shop sitting next door to HSBC. And that was not coincidental, you know. And so the reality was we needed to scale ourselves into some level of technology to track both the human coming in about the Hawala piece, but also the dollars. And back then it was every currency in the world in Europe because the euro wasn't out yet. And the only way to really do that was to try to have some kind of technology solution that we could insert into the system to help us track it because the volume of information flowing, and this is mid-90s, was so great we couldn't keep track of it. And I found that the government's response initially, because there was a lack of trust for the private sector, was to try to build its own solutions, its own link analysis software, its own internally created database software. And it fell on its face and that was the age of the information boom, the initial phase of the information boom. And I found that, you know, solutions often come from the private sector. Firms like Chainalysis, firms like PenLink, and I'll just put a plug because the sign's right behind me, firms like Asset Reality. Do you think there could be a sea change in thought on truly outsourcing these technologically based challenges that criminals introduce into the equation and governments have trouble responding to? Do you think technology firms could step in and bridge that gap to make governments and their enforcement efforts more effective?
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Yeah, I mean, I think we need to recognize before I answer that, although obviously crypto is growing incredibly quickly as a solution to help criminals move their wealth quickly and easily and cheaply around the world. Whether that is the cartels in South America, whether that is fraudsters in Southeast Asia, whether that's the Iranian Revolutionary Guards, whoever, you know, crypto is incredibly useful for them and a real problem. And we see this developing all the time. You know, I've been writing a piece which hopefully is coming out quite soon about the Russian cryptocurrency A75. The Russians found difficulty using US dollar-denominated stablecoins. So, they'd been using USDT. They were frozen when a chunk of USDT was frozen at the Russian crypto exchange Garantex under pressure from European and American law enforcement. They quickly pivoted to using their own stablecoin which is outside of Western control. This is developing all the time and it's a real problem. But it's not an either-or. You know, we have seen these cash-for-crypto money laundering operations happening globally whereby, you know, the oldest form of money laundering by using cash is meeting the newest form using crypto and the two systems perfectly complement each other. It is a new form of Hawala trade-based money laundering which is much quicker. You don't need now to ship handbags around the world or used cars around the world. You can just move crypto around the world and it is deeply, deeply troubling and very, very hard to tackle. With regard to involving the private sector, absolutely. I think that there is a lot of really foolish squeamishness about tackling money laundering which we need to get over. This is an important challenge and it's a challenge that requires everyone to pull together. In the crypto space, yes, companies like Chainalysis, Elliptic and so on have done really extraordinary work, but I think it's important to recognize that we mustn't repeat the same mistakes that we made in essentially deputizing banks to do all the reporting of suspicious transactions. Private sector companies cannot be the only answer to this problem because if you are profit-making companies, then your interest is not in stopping crime, it's in making money. And so they need to be supplemented at all times by much better resourced law enforcement agencies who are given the political cover and the resourcing they need to do the work in terms of tackling financial crime. And this is, you know, particularly with regard to crypto, this is a real problem because, you know, since the very beginning of efforts to stop money laundering we've been very reliant as a world on the United States taking the lead. The United States passed the first rules against money laundering. It's done most of the big investigations. It's levied the biggest fines on the banks and so on. But what we are seeing with the current administration is a real willingness to just open the floodgates for crypto to allow it to essentially grow unhindered and unchecked in ways that are really, really troubling. Particularly, I think, because of the close business ties between big crypto companies and, you know, family members of members of the administration, which certainly gives the appearance of potential wrongdoing in a way that's really worrying for anyone who wants to have a well-resourced and well-intentioned regulatory regime because we're just not seeing that. So other countries really need to step up and to do it quickly. We need to see European countries really appreciating the urgency of the situation and stepping up and filling the gap which has been left a little bit by the retreat of the United States from this front line.
