FACT Book Talk: Everybody Loves Our Dollars – How Money Laundering Won with Author Oliver Bullough

Yeah, thank you. Thanks, Ian, and really good to be here. I should apologize, this book isn't yet available in the United States. I hope it will be, but it isn't at the moment. So you're just going to have to take my word for it that it's an absolutely fascinating tour de force of investigative non-fiction. So yeah, this is my, it's a sort of third in a trilogy, I suppose, about financial crime, kleptocracy, the misuse of the financial system by bad actors to get away with their crimes. And this book is a little bit different to the others because, you know, after the last two books that I wrote, which were quite critical of many aspects of the global financial setup, I'd received, you know, quite a lot of feedback from politicians, policymakers, officials, bankers, law enforcement professionals, you know, compliance people and so on, you know, saying that I was being a bit rude about them. That, you know, they were just doing their best in a tough situation and it really wasn't very helpful if you had someone on the outside, you know, sitting there throwing rocks over the fence. And they felt that I was being a bit cruel and they were, you know, doing their absolute best in really difficult circumstances. So I thought, well, you know, that's interesting. And I'd take them at their word and say, well, okay, if they are doing their best in really difficult circumstances to try and stop global money laundering, why are they so completely failing to stop global money laundering? You know, as far as we can tell from the statistics that we have, which obviously are not complete, you know, financial criminals don't file necessarily complete tax returns and so on. So we don't have all of the data that we might have, but as far as we can tell, the proportion of the global economy that is made up of criminal money is basically exactly the same now as it was back in the 1990s before we built this whole, you know, very intrusive, extremely expensive, bureaucratic architecture around trying to stop money laundering and terrorist financing. So, you know, we have this very, very expensive system which is completely failing to do the job we're asking of it. And if everyone involved is working as hard as they can, you know, why is that? That struck me as a really interesting question. So, as ever with my books, I like to try and go back to the source of the phenomenon I'm describing, to go back to its birth and attempt to isolate the factors, you know, what went wrong at the very beginning, you know, where was the flaw baked into the pottery, if you will. And that's what I've done. It also meant I had a lot of fun traveling to different places, including the piney woods of northeastern Texas, which was absolutely lovely, which perhaps we can get into a little bit later.

Yeah, I mean, it's really interesting. I mean, the grandfather of all money laundering legislation, you know, the guy who, as it were, created the idea of anti-money laundering legislation was a man called Wright Patman, a congressman who represented the first congressional district of Texas from 1928 all the way up to 1974. You know, one of those real veteran Southern Democrats, but you know, I mean, though he's very much not a perfect guy in any stretch of the imagination, by the standards of Southern Democrats of the time, he was a really decent person. He, you know, particularly in his approach to financial regulation, his distrust of big financial institutions, he was pretty unrecognizable from the kind of people who might represent his district in Texas today. He grew up in real extreme poverty in a log cabin in a hamlet called Patman Switch, which has disappeared, just outside the town of Hughes Springs, which is in northeastern Texas. You know, he rode to school on a mule every day, lit the fire in the school in the morning, cleaned up in the evening to pay his way through school, paid his way through law school by picking cotton. You know, served in the military during World War I and then after a bit of time as a state attorney, was elected to Congress in 1928. You know, a lot of the things that he did in Congress are really extraordinary. You know, and I mean, there are two biographies of him, or a biography of him and then a book which is kind of a semi-biography of him. And it's a sort of sign of quite how rich his career was that neither of them really, one of them doesn't mention the birth of anti-money laundering legislation at all and one of them only mentions it in a footnote. But you know, he was towards the end of his career the chair of the House Banking Committee and as such became concerned by the ease with which criminals were able to hide their wealth from the authorities because of the birth of offshore finance in the 1950s and 60s. And so he convened a series of hearings in his committee towards the end of the 1960s looking particularly into issues around bank secrecy, which actually is why the legislation is always referred to as the Bank Secrecy Act, even though it's actually more of a Bank Transparency Act. And you know, so he brought in this piece of legislation which was passed in 1970, which you know brought in things like having to report transactions of $10,000 or over, which you know we're now completely accustomed to. But you know, that was an innovation that he brought in, but really, you know, I think his major contribution was a conceptual one, the idea that financial institutions and other professionals had a responsibility to society to check the origins of the money that they're moving around. That idea was a completely new one. You know, if you look at how money laundering worked before that, or actually in other countries significantly after that, you know, you can tell that, you know, this idea that banks should check the origin of funds was completely alien. I mean, there's a hilarious example, I think, from the UK a few years later. There was a big gold bullion heist from a warehouse just near Heathrow Airport called the Brink's-Mat bullion robbery, which I think is still the second biggest heist in British history. Really huge amount of gold went missing. And you know, the police forces of the whole country were on the lookout for, you know, this gold, trying to work out what was happening to it. And meanwhile, near Bristol, there was a very small gold bullion dealer who was taking so much cash out of his local bank branch that the Bank of England had to arrange special shipments of cash to the bank branch. They ended up shipping an additional 10 million pounds worth of banknotes so he could buy all of this gold. And no one involved felt this was in any way suspicious or that they should report this to the authorities. There was no suspicious activity report or anything even remotely equating to that. And meanwhile, at the other end, he was handing this cash over in return for the gold. You know, the gold was being paid into a bank branch in Essex near London. Again, in huge quantities by people who really had no reason to have that much cash. And again, no one involved felt there was any need to report their suspicions. You know, bankers just didn't feel the need to do that. And the fact that that is now an accepted part of, you know, the financial system, that compliance is a thing, you know, that is something for which we can thank Wright Patman, or as the bankers like to call him, because they didn't like him, Wrong Patman.

Yeah. So Wright Patman came from a really interesting political tradition in the American South and up in the Midwest, which was at the time referred to as the populist tradition. But I mean, the word populist has gained a different meaning now, meaning sort of overpromising, cynical politicians. In those days, the People's Party was born of the years after the American Civil War to try and create a fairer financial system because at the time the debts that were being built up during the American Civil War were very much being dumped onto the poorest people in society, particularly farmers. And they wanted a fairer system. And they actually came up with some really imaginative solutions, many of which were considered to be, you know, incredibly reckless and almost insane at the time, but now which would be considered to be completely ordinary, like having a freely floating currency and, you know, having an age of consent for young girls to engage in sexual intercourse higher than 12, things like that. I mean, you know, they were really very ahead of their time. But by the time Wright Patman was born, that movement had been squashed by, you know, a real combination of, well, Democratic pressure in the South and Republican pressure further north. But, you know, the ideas within it, which included huge distrust of monopolies, huge distrust of big concentrated financial power, you know, very much grew out of the Gilded Age. You know, that was the political subculture that Wright Patman grew up in. And so that distrust of finance, the distrust of big business and monopolies is something that he took to Washington and he kept on to throughout his political career. He never really changed his outlook. He never allowed himself to be bought by lobbyists. You know, he was incredibly hardworking. He, you know, he lived very frugally. You know, he kept the same car from one end of a decade to the other. And so he, you know, he was, you know, very exercised by the need to overhaul the financial system. And it was, you know, his campaign against money laundering was all part of that. He saw that this was a, you know, essentially a conspiracy between the financial sector and criminals to essentially diddle, you know, the little man, as he referred to it, as he referred to sort of ordinary people out of their, you know, their wealth. Money that was being stolen was being hidden by the banks, you know, and that gets into, you know, why is money laundering a problem? You know, money laundering is the process whereby you take criminal wealth and move it through the financial system or some other form of the economy in order to make it look legitimate. So it can be spent without anyone being suspicious that it was the product of crime, which means that it's the support industry for all of the worst people in the world. If there is any form of iniquitous crime, whether that's, you know, people trafficking, drug trafficking, fraud, you know, theft, I mean, something as mundane as mobile phone theft, which is a big thing we talk about a lot in the UK at the moment, you know, that is enabled by money laundering. If you couldn't take the earnings of that crime and launder them and wash them through the financial system so they look clean and can be spent, then people wouldn't engage in those crimes in the first place. So this is why he felt it was necessary to tackle money laundering because it was essentially a support industry for criminality. You know, back at the time when he was, you know, coming up with these ideas, you know, there was a lot of focus on the war on drugs. It wasn't, I don't think it was really called that yet, but, you know, the campaign against drugs, the campaign against, you know, delinquency in the inner cities, much of it was targeting people of, you know, ethnic minorities. I mean, he felt that the crimes that they were committing were only happening because of the crimes of money laundering committed by largely white people living outside of the inner cities. And so he felt that it was a question of essentially fairness that not only should you target street-level criminals, but you should also target the people wearing white collars who launder their wealth. You know, it was a really imaginative response to a particular challenge that the nation had at the time. And, you know, and actually, I mean, interestingly, as a result of the Bank Secrecy Act that he passed, which was passed in 1970, he launched a congressional committee hearing in 1972 into a crime which had taken place in a hotel in Washington shortly before, which, of course, we now know as the Watergate scandal. Wright Patman's final act as a congressman was to launch the first inquiry into the Watergate scandal. And although he didn't manage to bust that open because of official opposition from the White House, he did manage to create enough, get enough of a paper trail that then led to a lot of the investigations that followed in the years ahead. So, you know, he was, you know, it's in fact, in a way, because of this piece of legislation that the Watergate scandal was uncovered at all.

I mean, the Bank Secrecy Act has been, you know, already substantially overhauled and added to and chopped around with in the years since. I mean, the real flaw, and he recognized this at the time, the flaw in Wright Patman's conception is that, of course, if you're trying to, and in those days money laundering largely consisted of taking cash and paying it into a bank, you know, if you're preventing people from doing that in the United States, and this is a lot of this was happening in Florida, then it's very easy to put your cash in a plane and fly to the Bahamas, the Cayman Islands, Panama, you know, Anguilla, wherever, one of the many, many jurisdictions that are just a short flight away from Florida. And so, you know, it was really important to have international cooperation, which then the next bit of the book is then follows through the creation of the Financial Action Task Force, which is a kind of entertaining story in and of itself, but at the end of the 1980s, after a real concerted effort failed largely to crack down on money laundering within the United States. Um, you know, in terms of what is necessary, I mean, you know, we need to recognize that, you know, money laundering is an intensely entrepreneurial activity, that the criminals engaging in it are constantly responding both to their desire to make it as cheap as possible, but also in their desire to avoid detection and make sure that they are not prosecuted for what they're doing. So it has become significantly more sophisticated than it was back in the sort of Miami Vice era of the 1980s, you know, particularly with its use of, you know, shell companies, bank accounts controlled by shell companies, shuffling money between multiple different jurisdictions. So, you know, certainly looking at the United States from the outside, you know, certainly one of the pieces of the jigsaw that's really missing in the US is corporate transparency. And it has been quite dismaying, to be honest, to see the fact that even though the Corporate Transparency Act was passed at the very end of the first Trump presidency, the fact that the second Trump presidency has seen that legislation really neutered and essentially, I mean, I know it still exists, but largely rendered a dead letter. That is, you know, that's a real shame because, you know, I'm not saying the rest of the world is perfect when it comes to shell companies, but, you know, a lot of progress has been made in other places, even in some of the really problematic British overseas territories. There hasn't, as a result of that, you know, the changes that followed Trump's re-election, a lot of that hasn't happened in the United States. So, you know, if I were to add, you know, I mean, I have many wishes on my wish list, but if I were to have one wish to add to the arsenal of tackling financial crime in the United States, it would be for, you know, more transparency, if only for law enforcement agencies, around who owns, you know, the many different forms of corporate structure registered by all the different states.

Yeah, I mean, it's a gloriously French story. To be honest, sorry, I'm British. I can say things like that. We like, you know, we like having digs at each other. You know, we love the French, but we also like laughing at them, just like they like laughing at us. And, you know, in 1989, the French were due to chair the G7. It was also the bicentenary of the French Revolution. So it's a big, big year for France. But the preparations were, and, you know, threatened to be overshadowed by this gloriously French political scandal whereby a French state company had taken over an American company, and just a couple of weeks previously, several close allies of President Mitterrand, who was a socialist, had, you know, entirely, I'm sure, coincidentally bought shares in the company that was about to be taken over, and when it was taken over, they'd made very substantial personal profits. These people included people like the bodyguard of Trosky and stuff. It was all, it was all sort of wonderfully, you know, incestuous. And so the press were having a field day, you know, saying, you know, socialism for everyone else, but crony capitalism for the insiders and so on. And Mitterrand, President Mitterrand, in an attempt to try and regain the initiative, said that the G7 summit would propose measures to tackle, you know, global financial crime, which came as a huge surprise to the other members of the G7, who had no idea that Mitterrand had any interest in this subject or was planning to do anything about this at all. And you can read in the government archives this sort of scramble to try and figure out what they were going to do about it. And you do see at the bottom of the G7 communique, I mean, 1989, as many people on this call may remember, was a pretty big year. You know, that was a year when, you know, not only was there the bicentenary of the French Revolution, but communism was falling apart in Eastern Europe. There was a détente with the Soviet Union as a result. There was a big sovereign debt crisis in Latin America, and there was, you know, there was an awful lot going on, and there was even concerns about climate change, improbably and prophetically enough. But right down there at the bottom of the communique, it says that summit participants will create, and they said, a financial action task force. And financial action task force was written with small letters, not with capital letters. And it didn't say the financial action task force, it said a financial action task force. And having said this, they then had to try and form some working parties to sort of work out what this meant. They created three working groups headed by the Italians, the Americans, and the Brits to discuss various different aspects of what they were going to do. And working in a tremendous hurry in the last months of 1989, they drew up 40 recommendations for how countries should work to tackle financial crime and money laundering. And, you know, those 40 recommendations are largely unchanged. They still, largely speaking, are the same recommendations that the FATF now imposes on all the countries in the world. You know, and I think, you know, if we're looking for reasons why the Financial Action Task Force has failed to stop financial crime in any meaningful sense, I think certainly one of the key reasons is that its core recommendations were drawn up in a hurry in 1989 by people who didn't really know what they were talking about. Not only did they not know what they were talking about, but they were working in an economy that's wildly different to the one that we have now, and were representatives of countries who only represented a very particular kind of economy as well, you know, the wealthy industrialized nations, rather than, you know, other places that do money laundering very differently. So, you know, the FATF was never really intended to be an institution. It was supposed to be just a sort of a working group. But then it gained, in this sort of wonderful way that bureaucracies occasionally do, it sort of gained a life of its own and has persisted to this day and retains this role as the standard setter tackling global money laundering, which, you know, it's very good at generating documents, but actually very bad when it comes to stopping money laundering in any meaningful sense.

Yeah. I mean, obviously they were, having drawn up these recommendations and, you know, joint standards that everyone in the country in the world should adopt, they then looked around the world and demanded everyone should adopt them. Now, you know, there were a number of places that were genuinely big problems when it came to laundering money. You know, I think everyone on this call is not going to be too surprised to learn that, for example, London was one of those places. Manhattan, Florida, Switzerland, you know, the usual suspects, Singapore, Hong Kong, you know, the kind of places that move large volumes of money are also the kinds of places that tend to move large volumes of criminal money. But the FATF had a sort of completist approach to what they wanted to do, and it was much more of a sort of box-ticking exercise than actually looking at where criminal money is really moved. So instead of punishing those places, the places where money laundering actually genuinely happens, or sitting down amongst themselves and working out where the problems were and kind of creating a bespoke solution for each place, they instead had this sort of one-size-fits-all approach to the standards that everyone should adopt, which meant that there were a number of countries who hadn't adopted those standards, including the one I focus on, which is the Marshall Islands, an archipelago in the Pacific, which is, I mean, the total surface area of the country is about the same as Washington, D.C., but it covers an area of ocean about the size of Mexico. It's a very far-flung collection of atolls with huge social problems, many of which date back to the disruption caused by American nuclear tests in the 1940s and 50s, which caused a big displacement of the population and really, really, you know, undermined the local economy. You know, it has serious, serious challenges, but among those challenges was not money laundering. There's no money there to launder, really. You know, so they were no more interested in adopting standards against money laundering than they were in adopting standards around winter sports. It just wasn't an issue in the Marshall Islands for them to concern themselves with. So, you know, but nonetheless, they got blacklisted and essentially excluded from the world economy for a couple of years because they hadn't passed the right pieces of legislation. You know, some of the other places that were blacklisted, you know, my particular favorite is the island of Niue. I may be pronouncing that wrong, which is an associated territory of New Zealand that only had one bank. You know, laundering with only one bank is, I mean, it's a little bit like, you know, trying to be a DJ with only one record player. I mean, it's technically possible, but you're not going to be able to do it very well. And, you know, that was essentially the approach of the Financial Action Task Force was not to look at where money laundering really happened, but instead to have this very kind of theoretical consideration of where had the right laws, not where the laws were being actually enforced, but just whether you had them. And so, you know, I think that is, you know, although, I mean, they have tried to change that approach over the years, they've really struggled to actually make any headway in really doing so. And that's one of the reasons that the world has sort of so signally failed to actually stop money laundering.

Yeah, I mean, just before I came on the call, I was reading some news about Papua New Guinea, which is threatened with being blacklisted by their regional money laundering body, the regional version of the FATF. You know, which seems almost sort of farcically reminiscent of the blacklisting of the Marshall Islands. You know, I'm sure Papua New Guinea is not a perfect place, but the idea that Papua New Guinea is a global center of money laundering is an absurdity. You know, and I think the FATF has got a real problem this year with regard to the United States. You know, they have previously finessed this with regard to inspections of the United Kingdom and France and other places that are, you know, obviously major centers of criminal finance but were at least able to show it, tell a story that legislatively they were moving in the right direction. That obviously isn't what's happening in the United States. The gutting of the Bank Secrecy Act is a, you know, sorry, gutting of the Corporate Transparency Act is a clear sign of that, but also the enabling of crypto, the receptiveness to some really questionable companies to list on markets in New York is a sign that, you know, that the United States is really moving in a different direction to what it used to be.

And this creates a really difficult dynamic for the rest of the world because, you know, as I made clear earlier, the very idea of anti-money laundering was invented in the United States. You know, that's Wright Patman's idea. It's been driven by a number of very imaginative legislators and officials and politicians in the US. The US has always been at the forefront of prosecuting financial institutions, levying the biggest fines, engaging in the most ambitious investigations, you know, bringing, you know, jailing people who in other countries would very much not have been jailed. You know, the fact that we now have a situation where, you know, the president of Honduras has been pardoned, you know, for engaging in some crimes which, you know, were pretty shocking to be honest from the standards of, you know, money laundering, you know, that we're entering into a new world and it's going to be a real challenge for the Financial Action Task Force, which very much has a sort of horse trading, diplomatic horse trading at the center of itself. You know, it's very much one of those organizations where, you know, if you're not at the table, you're on the menu. And the countries that are at the table are, you know, the big Western economies, always led by the United States. And, you know, this situation is a really challenging one because the, you know, the FATF faces an existential question. If they do criticize the United States, then, you know, it's hard to believe that the current administration in the US is going to take that very kindly. If they don't criticize the United States, it's hard to believe that the rest of the world is going to take that very kindly. So, you know, it's a really difficult time. And as for making a prediction about it, you know, I'm not going to do that, but I'm glad that it's not me who has to undergo this, do this particular work, though, you know, it is always possible that if this provokes a crisis, it could create a better version of the FATF in future, which, you know, wouldn't in many ways be a bad thing.

Yeah, I mean, I think there's a real issue with what you might refer to more broadly as a sort of anti-money laundering industrial complex. You know, there is a huge global compliance industry as well as, you know, more broadly the FATF and associated similar regional bodies, which are all driven by, you know, the same, I mean, I think you might call it dogma really, which was drawn up by the FATF back in 1989 and then of course, you know, refined or added to in 2001 after the attacks of 9/11 on New York and Washington. You know, those principles which have been drawn up are never really questioned in any meaningful sense. You know, I think that they should be questioned and I also think that, you know, it would be worth questioning whether a genuinely global body of this nature is actually what we need. You know, it strikes me that there is a real risk of, you know, tackling financial crime all in one go, of sort of trying to boil the ocean. You know, it's just too big a topic and also, you know, you're bundling a huge number of different things together. You know, it seems to be a little bit like, you know, wanting to start a healthcare system and just saying that you're going to cure ill health all in one go. You know, obviously that's a worthy goal and a good thing to think about, but that's not how you cure ill health. You cure each phenomenon differently with different tools and a different approach. And, you know, I think that having, you know, committed government action against individual manifestations of financial crime would probably be, you know, although a less ambitious and less sweeping and perhaps less grand approach would probably bring better results, you know, in the long term than, you know, setting out with a kind of very maximalist approach. So, I mean, you know, I have been talking to a few British officials about my opinion, you know, with the buildup to the FATF and the G20 and the illicit finance summit in the summer and all these things. And that's very much what I'm saying is trying to, you know, be more effective and by being less ambitious, you know, this sort of solve financial crime, all of it, all together in one go is, you know, wildly unrealistic. And, you know, I think that, you know, it's a real problem of making the perfect the enemy of the good. And that's something that we should all be aware of.