Re: Money Laundering (fwd)

Rohit Khare (
Fri, 28 Mar 1997 15:35:38 -0500 (EST)

The Black Unicorn is a completely protected pseudonym. He gave an
EXCELLENT talk at the Digital Commerce Society of Boston a few months
ago. I learned more about money laundering than I hope to use :-)


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Date: Fri, 28 Mar 1997 12:18:58 -0500 (EST)
From: Black Unicorn <>
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Subject: Re: Money Laundering

On Thu, 27 Mar 1997, Bill Frantz wrote:

> How much of the problem with money laundering is drug money and how much is
> other laundering. To put it another way, if the drug laws were to be
> changed to greatly reduce the profit level of drug smuggling, how much
> would the problem of money laundering drop off official Washington's radar
> screen?

No one knows. Anyone who tells you they do is lying, looking for funding,
trying to sell you on an anti-crime bill, or all of the above.

A common number that is tossed back in forth is $300bln (U.S. billions)
per year.

The problem is that it is tossed around entirely too much.

I've seen it used for total money laundering worldwide irrespective of
source of funds, total drug money laundering worldwide, total drug
profits worldwide, and total drug revenues worldwide.

I ran the sources back as far as I could and it appears that it
originated from a casual comment from a midlevel treasury analyist at a
cocktail party in Washington in the 1980s and proliferated so widely so as
to be quoted in several studies as fact. Even the major studies on the
topic admit that every method they have used to calculate total money
laundering funds is faulty.

Report of the Financial Action Task Force on Money Laundering, Paris, Feb
7 1990 was perhaps the best attempt, and as a result produced the most
useless and longest lasting inaccurate figures.

They used several methods including:

Direct Estimation:

Analysis of international banking statistics and capital account
statistics for balance of payments. IMF and BIS tried to track these but
discovered that though deposits may include substantial amounts of drug
money, but it is impossible to single it out. (Otherwise why not just
take it?) In addition, data for bank liabilities suffers from a lack of
statistics for offshore financial centers.

Indirect Estimation:

This was attempted through estimated value of production or
sales of narcotics. Certainly a difficult method to relate
with any accuracy. Their conclusion: Lack of sufficent information to
estimate the amount of already laundered money currently based on drug
sales, even if the latter figure could ever be accurately estimated.

In estimating the gross proceeds from worldwide drug production the task
force simply lifted the UNs figures. (Funny, they had arrived at the
amount of $300bln/year in 1987).

They also spent US$380,000 trying to estimate the consumption
needs of drug abusers. No figure was published as a result of this
effort, only a disclaimer that the study was not expected to be accurate.

Next: Estimation of total amounts by seizure statistics. But even law
enforcement numbers range from 5-20% seizure rate.

The task force finally arrived at a figure of ~85bln/year in funds
available to launder. (They claim to have arrived at this figure by
computing 50-70% of estimated revenues, which is difficult to compute if
they were using 300bln/year as revenues).

The U.S. Congress, Office of Technology Assessment, Information
Technologies for Control of Money Laundering issued a report in September
1995. Guess what their buzz figure was...?

That's right. $300bln/year laundered. Funny how the figure hasn't
changed since 1987. The laundering business must not be adjusted for

The National Institute of Justice issued a report titled: "Research in
Brief" in Sept. 1992. Their figures were $40-$80 billion
as drug profits and they attribute the rest to tax fraud, other illegal
activity, and securities manipulation.

Consider this:

There are some 700,000 wire transfers a year amounting to about $2
trillion. The Office of Technology Assessment admits that perhaps .05
to .1 percent represent money laundering.

Even using the most pro-government figures, and assuming that all money
laundering accounted for world wide is drug proceeds, you still come out
with a figure of 0.06% of the yearly flow of money in western nations.

My conclusion? Whatever the drug connection with money laundering, its
absence will merely create new money laundering Horsemen.

Money laundering is offensive to nations because it is a blow to their
power base. As economies globalize, and in the event Bill and Friends get
their low earth orbit communication network up, the grip will slip more
and more. Expect some rather bizzare (and hopefully futile) efforts to
maintain the status quo in the face of the most obvious technical

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