Mubarak’s Billions Beyond the Reach of Law

My mother is not so dumb. I’m visiting her today, and showed an economic analysis of the looting in Egypt by Gamal Mubarak and his cronies to her. The reaction:

That’s terrible. Those bloodsuckers. No wonder he didn’t want to leave. He wanted to make sure his money was safe first.

Turns out she was spot on. As I know by virtue of having read Nicholas Shaxson’s Treasure Islands (out in the UK, due to be published here in April) on tax havens, the world of “offshore” banking is vastly larger and more untouchable than most people realize. He describes in considerable detail about how buffers are built in so that funds become untraceable, and have further protections (as in if the authorities walk in to shut down a banking operation, the money can be moved through rapidly through several banking centers so it cannot be found, much the less seized).

And the de facto offshore banking protectorates of the US and the UK appear to be the state of the art. As George Monbiot observed:

Shaxson shows how the world’s tax havens have not, as the OECD claims, been eliminated, but legitimised; how the City of London is itself a giant tax haven, which passes much of its business through its subsidiary havens in British dependencies, overseas territories and former colonies; how its operations mesh with and are often indistinguishable from the laundering of the proceeds of crime; and how the Corporation of the City of London in effect dictates to the government, while remaining exempt from democratic control. If Hosni Mubarak has passed his alleged $70bn through British banks, the Egyptians won’t see a piastre of it.

The Telegraph confirms that Mubarak used his last days in office to secure his ill gotten gains:

The former Egyptian president is accused of amassing a fortune of more than £3 billion – although some suggest it could be as much as £40 billion – during his 30 years in power. It is claimed his wealth was tied up in foreign banks, investments, bullion and properties in London, New York, Paris and Beverly Hills.

In the knowledge his downfall was imminent, Mr Mubarak is understood to have attempted to place his assets out of reach of potential investigators.

On Friday night Swiss authorities announced they were freezing any assets Mubarak and his family may hold in the country’s banks while pressure was growing for the UK to do the same. Mr Mubarak has strong connections to London and it is thought many millions of pounds are stashed in the UK.

But a senior Western intelligence source claimed that Mubarak had begun moving his fortune in recent weeks.

“We’re aware of some urgent conversations within the Mubarak family about how to save these assets,” said the source, “And we think their financial advisers have moved some of the money around. If he had real money in Zurich, it may be gone by now.”…

Reports emanating from Egypt claim that Mubarak had accounts with the Swiss bank UBS as well as with HBOS, now part of Lloyds Banking Group, which is 41 per cent owned by the British Government. But it is understood that Lloyds bank officials have so far found no evidence Mubarak had secret accounts with them….

Intelligence sources indicate that the Mubarak fortune may be most easily traced via the business dealings of Gamal Mubarak, 47.

My impression is that it takes a wee bit of planning to have funds be difficult to trace; it appears the Mubaraks were either naive or lazy (anyone reading about the US rows with Switzerland over tax evasion would know that Swiss banks are not impenitrable). But it may also wind up serving them to have lost a lot of their fortune in transit. If the authorities nab a few billion, plus all the tangible assets like houses, they can declare victory and try to cover up the fact that a great deal was lost.

However, the Mubaraks’ brazen plundering of Egypt, in combination with the publication of Shaxson’s book, may lead to pressure to rein in these faceless, powerful banks. The genie is no doubt too far out of the bottle to end them, but any measures that reduce their scope and reach would be salutary.

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  1. Paul

    If the funds are untraceable, then how does the depositor protect his offshore money from being stolen by the bank or its employees?

    1. Yves Smith Post author

      The whole point of “offshore” banking is that it offers the level of security of onshore banks with robust mechanisms for secrecy. You need to read Shaxson, but one of the mechanisms is multiple levels of buffers among the staff. The funds will be listed in the name of a corporation, but the staff in the branch will have no idea who the directors or owners are. The law firm that is the agent for the account can hide behind attorney client privilege, and in jurisdictions where they can’t, they have further buffers. There are quick trigger mechanisms to liquidate companies and move funds at the slightest sign of trouble.

      I’m doing this from memory, I don’t have a copy of the book at hand, but Shaxson provides far more detailed examples.

      1. Trader

        Also, clients of money laundering big western banks can reduce risks of theft by moving money in smaller packets.

        The main business model of the banks is transaction fees on money laundering. So it’s in their best interest to not let employees steal small portion of the ‘flow’ and thus stop the profit-generating ‘flow’.

        1. Trader

          It would be relatively easy to stop it:

          implement a central clearing entity (this already exists: SWIFT) and make all transactions 100% transparent and public.

          This means a loss of privacy but it eliminates the secrecy that allows criminals to launder money.

          Why should only western intelligence agencies be allowed to read out SWIFT transaction details, why are ordinary citizens excluded from this vital mechanism of oversight?

          1. Anonymous Comment

            The answer to your question depends on whether or not you are willing to believe that [something like] the swift system could be corrupted?

          2. gepay1

            J orlin Grabbe had this to say about money laundering:
            “So you wanna launder money! Does the process appear mysterious? It’s not. But the only way to understand money laundering is to think about it in operational terms. What exactly would you do to get the job done, if your mother told you that you had to do it?
            Okay. Let’s take a simple example. Suppose you had a fried chicken outlet (let’s call it “Tyson’s Tasty Tidbits”) and you also dealt heroin on the side. In your chicken business, you fry up Tasty Tidbits, people come in and give you cash for the chicken, and with the cash you pay your wages and other expenses. What’s left over is profit. In your accounting records you write up an income statement that says: profit = sales – expenses.
            So if you took in $1000 and paid out $800 as expenses, leaving $200 profit, you would record:
            200 = 1000 – 800.
            Now in your heroin business, you sit at the bar of the Capital Hotel during the evening, and your customers, posing as “friends”, come up to chat with you for a moment. You slip them a packet of smack and they slip you money. (At 35 percent purity no one need bother with those nasty needles anymore, they can just snort heroin like coke.) It’s a good evening, and you sell $800 worth, for which you paid the heroin wholesaler $600. You have $200 heroin profits.
            Next, to conceal your heroin profits, to “launder” them, you walk back to your chicken outlet and put the $200 cash in the cash drawer. Remember that equation that said profit = sales – expenses? Now it reads like this:
            400 = 1200 – 800.
            Wow, the chicken business is good! Way over in New York, a company analyst working for Goldman Sachs looks at the figures and writes: “Due to the amazing increases in efficiency at Tyson’s Tasty Tidbits, profits have doubled (from 200 to 400) while sales have only increased by 20 percent (from 1000 to 1200). Stock in Tyson’s is a recommended buy.”
            No bank (the government’s new spies) will wonder where you got the cash, for yours is a cash-based business. The Banking Secrecy Act allows your bank to exempt you from filling out currency transaction reports (CTRs) if your deposits or withdrawals of currency fall into any of the following categories (see 31 C.F.R. 103.22(b)(2)(1992)):

            1) They are made from an existing bank account, and you are an established U.S. depositor who operates a “retail type of business”. This means that you sell consumer goods for which payments are substantially in the form of currency, just as long as you are not an automobile, aircraft, or boat dealer. (Wal- Mart, for example, can get a bank exemption.)

            2) They are made from an existing bank account, and you are an established U.S. depositor who operates a sports arena, race track, amusement park, restaurant, hotel, check cashing service licensed by state or local governments, vending machine company, theater, regularly scheduled passenger carrier, or public utility. (The Oaklawn racetrack in Hot Springs, Arkansas, can get a bank exemption.)

            3) You are a local, state or United States governmental agency or instrumentality. (Both the National Programs Office and the Arkansas Development Finance Authority can get bank exemptions.)

            4) They are made from an existing bank account, and you are an established U.S. depositor who regularly withdraws more than $10,000 to pay your employees in currency. (The paymaster for the pilots at Mena airport can get a bank exemption.)

            Also exempt from CTR reporting are currency transactions made with Federal Reserve Banks or Federal Home Loan Banks, transactions between domestic banks, or transactions between commercial banks and nonbank financial institutions.
            Pretty neat, huh? Now I hear you ask: But what can I do if I am just Joe Blow, and I don’t have a bank or a chicken franchise or a sports arena? The answer: “Tough luck, Buster. The money- laundering regs were written for you.”

      2. Francois T

        I’m sure the Russian or Sicilian mafia has the means to pierce the veil of secrecy. It’s a matter of ruthlessness.

  2. Andrew DeWit

    Ssshhh. The econned political science types’ll start a growth industry modeling rational-choice dictators self-maximizing on their points of departure.

  3. Jack Rip

    It is difficult to envision today’s political reality allowing the elimination or even reduction of shadow banking. Big money dominates the politics of most western countries and it has a clear interest in the existence and livelihood of these shadows.

    After all, the day will come (might take another 50 years) and the US people will rise against Wall Street and demand the stolen money which is several orders of magnitude greater than that of Mubarak.

  4. Scientist

    Could you let us know the “economic analysis” of the looting?
    So far, I have only seen statements from “sources”.

    The mechanism to make off-shore accounts you describe is well known: If I recall correctly, it is already described in Frederik Forsyth’s “Dogs of War” (1974).

    1. Parvaneh Ferhadi

      I’d say the analysis is straighforward. The economics of looting consists of enriching a few. This is best done by way of a control fraud. Of course, banks are essential, but if you can control a country you can loot an entire country, as Mubarak has done, as others have done.

  5. DownSouth

    For those lacking firsthand knowledge of how banking in the U.S. and other countries like Great Britain and Switzerland who are in the money laundering business works, here’s an example:

    Swiss authorities have informed U.S. officials that they have discovered a trust fund containing more than $240 million that they suspect belongs to Raul Salinas de Gortari…the former president’s older brother, U.S. diplomatic sources and law-enforcement officials said.
    If the Swiss finding is a Raul Salinas’ fund, it would dwarf the amounts found in dozens of separate bank accounts held by him in Swiss, British, French and Caribbean banks, and could raise the total of his hidden fortune to at least $360 million, Mexican and U.S. officials say.

    The revelations of his fabulous wealth is not only raising outrage…in this country struggling to emerge from its worst economic depression in 50 years, but is also drawing questions about the role played by prominent Mexican businessmen and U.S. corporations in the case.

    Mexican, Swiss and U.S. investigators cooperating in the case are focusing much of their attention on Citibank… The bank’s New York…private banking office managed Raul Salinas’ accounts and set up secret trust funds for him overseas.

    Raul Salinas would send an employee with a check to Citibank’s offices in Mexico City, where the money would be exchanged through Tyler Corp., a Citibank subsidiary, into U.S. dollars and transferred to the bank’s New York offices.

    From there, the funds were sent to the bank’s subsidiaries in Zurich and London, where they were deposited in Citibank-staffed shell companies such as Trocca Ltd. and Brennan Ltd., investigators say.

    Under U.S. money-laundering laws, banks are not supposed to accept or look the other way when receiving huge amounts of money from clients who cannot justify such income. Raul Salinas was a mid-level government official who at the height of his government career in the early ’90s – when he made the huge money transfers abroad – reported income of $190,000 a year.$240+MILLION+IN+SWISS+BANK+MAY+BE+SALINAS‘.(NEWS)-a064939704

    The former president, Carlos Salinas de Gortari, was the United States’ point man—-his charge was to implement neoliberalism-on-steroids in Mexico. So he and his family had the full and unconditional support of the United States government.

  6. Bruce Krasting

    I can’t wait to read Shaxson’s book. He thinks tax shelters are growing. I think they are collapsing.

    At this point I don’t think there is any country that would take a US citizen who wanted to open a black account. That has all been shut down. No Swiss banks/Cayman/Panama/Hong Kong. That is over.

    Same for Europeans. They have been shut out of Swiss banks too of late.

    As for hiding money if you are a Potentate, well just read the paper. The Swiss threw Ali from Tunisia and now Hosni under a bus.

    There is no “safe” black account destination anymore. That’s a good thing.

    1. ex-PFC Chuck

      At this point I don’t think there is any country that would take a US citizen who wanted to open a black account. That has all been shut down. No Swiss banks/Cayman/Panama/Hong Kong. That is over.

      This may be true for those who fancy themselves a cut or two above The Little People, but for those several notches above that I find it hard to believe that if you have enough money it won’t talk.

      1. Wild Bill

        Bruce, to write something like that is just ignorant. You have no idea what the top-level Swiss bankers will allow. They don’t follow any law, so who care’s if new laws are made. Tell me, where did the loot from the bankrupt Bank of Kabul go? Dubai. Where is Mubarak headed? Dubai. They’ve had halal forever. How you gonna break that? I may not be able to open an overseas account now, but there are plenty who can. There’s a Friend of Angelo program at every bank.

    2. Yves Smith Post author

      The fact that you still think Switzerland has the best safety shows you are way behind the state of the art. The best domiciles are apparently the US and UK protectorates.

      1. skippy

        And on that note…it brings into question…the hole lets get the americanesqe tax cheats from all the over/off seas havens…eh…eh…eh.

        Skippy…are the wolves, after a hard winter, feasting on the previous great herd created during calmer seasons, a feast to tide them over…get them over the next cold wind.

    3. Paul Repstock

      Perhaps the “Real Serious Money and Power People”, don’t even need secret bank accounts?? After all, if you are not paying taxes, why bother??

      On the other other hand…If you look at what was exposed in the UBS case or even in the recent Wikileaks stuff..all you will find are a ‘few’ and I mean very few, low level and mostly pathetic examples of hiding money. If I correctly recall the UBS arm twisting, it yeilded 5000 accounts with an average content of less than ‘One million dollars”, hardly the stuff of global finance??

    4. Keith

      On the subject of shell companies, the US state of Missouri allows LLCs to be organized in the state without any disclosure of ownership whatsoever. No ownership information is collected by the state government. If you don’t have anything on file, law enforcement can’t access it and neither can the public. The only thing that has to be on the registration documents is a mailing address and a registered agent. If that registered agent is a lawyer you then have attorney client privilege issues with finding out who owns what.

      With entities like that, you don’t even have to move the money, you just shift ownership of the LLCs. The money or property can sit exactly where it is and no one even knows it’s changed hands. As long as none of the documents of ownership are ever disclosed, you can’t even tell if there has been a taxable transaction.

      For example:
      Say I own an LLC with $20 million in cash. You own an LLC with an office building. We sign some papers in our lawyers’ offices and then I own an LLC with an office building and you own an LLC with $20 million in cash. The LLC’s name is on the deed at the local county courthouse and no one will ever know that the LLC has changed hands if the parties to the transaction don’t disclose it. You may be able to guess later on if the building is sold by the LLC and a different manager’s signature is on the documents, but you have to suspect the earlier transaction happened before you’d even be looking for that.

      1. Yves Smith Post author

        Shaxson mentions this and other details. He argues the US is the biggest player in “offshore” banking.

  7. rd

    Sounds like a job for Lisbeth Salander.

    Maybe the hackers out there can do some good and transfer some of these funds into the Egyptian Treasury.

  8. steelhead23

    One wonders what happens with court ordered restitution. Does the perp. lie? Then if he spends money, an intrepid investigator could trace the transaction or confiscate the goods. Perhaps this is language too strong for this blog, but to the extent banks rob us and facilitate our plunder, they are our enemies, with far greater effect than terrorist. They should be afforded similar courtesies.

  9. sushisioux

    KYC- know your client policy. if a natural person or a legal entity (trust, LP, LLP, LLC, Inc) opens up an account the bank will demand a copy of the organizing documents which identify the beneficial owner(s).

  10. gil mendozza zuntzes

    hum… Naked Capitalism… where is my Comment?.. are we are in Egypt? do we in America have Freedom?.. yes my other Comment regarding: “The third World Countries they never see Fredom under Our Imperialism System” please printed!!!
    ps/ I do know we are still with out of freedom.

  11. gil mendozza zuntzes

    hum… hum… how about this!… I do not know why the Humble, Gullible, Stupid and Crazy Hard Working Americans are Worshiping and Idolatrizeing Ronald W Reagan when this is a Country from the People and by the People that still with out of freedom. Ronald W Reagan was an actor and a clown and He play “The Office of the Presidency of the US” but He was not a good President!!! He Was a Swindler… a Liar… a Cheater, He Defraud and Broke many Rules and People Rights… in short He was another Worthles or Useless President of our Evil Democracy!!!

  12. Skeptic

    So what is the message.
    I think maybe we should have been on Wall Street, demanded the Banksters cough off their illegal gains. It is seems that in Egypt the politicos get it. Time will tell, but maybe we can learn from the democracy in Egypt. When the banksters rule do we have a democracy ?

  13. Gloppie

    A French journalist, Denis Robert, has devoted a big part of his life to exposing the scam of clearing and how corrupted some are. He wrote several books about it that I don’t think were translated; “la boite noire”, “Revelation$” etc…
    Google it.
    Moving money out of reach is as easy as a couple of phone calls, when you can afford it. Mere millionaires need not apply.

  14. KnotRP

    > But it is understood that Lloyds bank officials have so
    > far found no evidence Mubarak had secret accounts with them….

    How about any account?
    Yes, we all know how this game is played…

  15. KnotRP

    and…”found no evidence” means they probably made sure
    to not look in a specific file, or took some other evasive action, so why does anyone bother to get quotes like this, when
    no one even knows what the word “is” means anymore?

    Quotes like these are for pikers.

  16. par4

    A few hours of enhanced interrogation would produce everything you need to know about their stashed loot.

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