Stupid or Unlucky

Paul Manafort Was Stupid or Unlucky. Most Money Launderers Get Away With It.

The world is doing a terrible job of cracking down on illicit financial flows. Here’s why.

By JOHN A. CASSARA

These days, a money launderer has to be either very stupid or very unlucky to get caught.

In fact, data suggests the U.S. government’s efforts to enforce America’s money-laundering laws fail 99.9 percent of the time. As financial crime expert Raymond Baker notes, “Total failure is just a decimal point away.”

All of which makes it all the more surprising that Paul Manafort and Rick Gates, President Trump’s former campaign chairman and his deputy, got busted last week. Special Counsel Robert Muller accused Manafort, with Gates’s help, of laundering approximately $30 million—an effort that, according to the indictment, began years ago but continued through their time on the Trump presidential campaign. The charges do not involve the president or his campaign.

Had Trump lost the election, Manafort and Gates might have gotten away with their alleged crimes. But now they’re caught up in Mueller’s investigation of Russian meddling in the 2016 election, and they have the misfortune of being pursued by skilled and motivated prosecutors with deep expertise in financial crimes and almost unlimited resources. Mueller’s team includes Andrew Weissmann, who no less than former White House strategist Steve Bannon has reportedly dubbed “the LeBron James of money-laundering investigations.”

It’s tempting to think of money laundering as a victimless crime. Who cares if Paul Manafort was able to buy himself some fancy rugs and a nice brownstone in Brooklyn? So what if Rick Gates bought himself a nice house and sent his kids to private schools?

That view couldn’t be more wrong. I spent 26 years in the U.S. government, much of it fighting the scourge of money laundering. It’s a crime that sustains devastating drug epidemics—opioids, methamphetamines, cocaine. Gang violence, fraud in government programs, corruption, internet scams, identity theft and so many other crimes affect our daily lives. Terrorism—made possible in part by money laundering—threatens our national security.

Many of the ills we face come back to money. And money laundering—the hiding or disguising of the proceeds of any form of criminal activity—is the essential component of transnational crime. Without the ability to move money around, pay their foot soldiers and profit from their illegal activities, criminal networks wither and die. It shouldn’t take a national political scandal to crack down on their misdeeds.

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How big is the world’s money-laundering crisis? It’s hard to say for sure, because precise data doesn’t exist. The IMF believes money laundering makes up about 2 to 5 percent of the world’s GDP, or approximately $1.5 trillion to $3.7 trillion in 2015. Similarly, the U.N. Office on Drugs and Crime found criminal proceeds in 2009 amounted to 3.6 percent of global GDP or roughly $2.1 trillion. Using these guesstimates, the amount of international money laundering today is approximately the same as the annual U.S. federal budget.

Depending on what is included in the count, the reality is much higher. For example, there is an international movement to recognize tax evasion as a predicate offense to charge money laundering. The Tax Justice Network, an NGO that advocates against tax evasion, estimates that between $21 and $32 trillion is hiding in more than 80 international tax havens.

The scope of the problem is breathtaking, as the release of the “Panama” and “Paradise” papers showed. Those records, millions of financial documents leaked from the files of Panama-based law firm Mossack Fonseca, show the extraordinary lengths legitimate businesses, criminals, corrupt government officials, celebrities and common taxpayers go to hide their income and wealth. According to the Panama papers, Mossack Fonseca set up more than 200,000 shell corporations over the years, with registration in places with particularly lax money-laundering laws—the kind of offshore web allegedly used by Manafort and Gates.

The IMF and UNODC don’t count trade-based money-laundering, either. When you include all its various forms, this technique is probably the world’s most common way to launder money. It is poorly understood, investigated or enforced—and therefore escapes our traditional countermeasures. Here’s one way it works: trade misinvoicing, an oft-used method of moving value illicitly across borders. Conspirators deliberately misrepresent the value of a commercial transaction on an invoice by misreporting the quantity, quality, price per unit and/or description of a good that results in the shipment being over or under-invoiced or other fraudulent schemes. The potential scale here is enormous, given that the amount of average annual global merchandise trade is approximately $20 trillion. According to some estimates, 80 percent of the world’s illicit money flow stems from trade-related activities.

So out of the multiple trillions of dollars that are laundered internationally every year, how much of the proceeds of crime are actually seized and forfeited? According to the UNODC, the answer is less than 1 percent.
The other bottom-line metric that matters is the number of successful anti-money laundering convictions. The State Department tracks these statistics on a yearly basis. They vary markedly from country to country. Yet a review of the overall reporting shows that the actual numbers of convictions are miniscule in comparison to the magnitude of transnational criminal activity. Many countries’ anti-money laundering efforts are essentially worthless. Some countries, the Philippines for example—have never had a money laundering conviction. Criminals are attracted to the weak link; when one country fails to crack down on money laundering, it affects many others.

By looking at the bottom line numbers, unfortunately the United States is also a weak link. Manafort and Gates were allegedly able to exploit vulnerabilities for years until they were caught because of unique circumstances.

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The total amount of money laundered annually in the United States is conservatively estimated in the hundreds of billions of dollars. According to the IRS, tax evasion is skyrocketing—and “money laundering is in effect tax evasion in progress.” While tax evasion is not yet considered to be a “specified unlawful activity” to charge money laundering in the U.S., related crimes are. For example, identity theft connected to tax fraud is rampant.

In 2014, the U.S. “confiscated” approximately $4.4 billion. While this appears to be an impressive number, it is not certain what percentage was actually forfeited instead of ultimately released. Let us approximate $3 billion. The UNODC estimated proceeds from crime in the U.S. (excluding tax evasion, many forms of trade-based money laundering, cybercrimes, the use of new payment methods, etc.) was $300 billion in 2010, about 2 percent of the U.S. economy. If we use the conservative UNODC estimate (a more accurate estimate would be much higher), that means we are recovering less than 1 percent of the illicit money generated by criminal activity every year.

In one illustration, a few years up to $39 billion of illicit proceeds were smuggled annually across our southern border in the form of bulk cash. Analysis showed that for every $100 smuggled across our southern border we are recovering a quarter! Literally one quarter—as in 25 cents, not 25 dollars.

We often forget about the money made on the money that is successfully laundered. Although this is simplistic, let’s assume the $39 billion is accurate and the cartels simply invest the illicit proceeds at a 5 percent annualized rate of return; after 20 years, just that one year has mushroomed into a $1.7 trillion problem! And that represents just one year and one straightforward money laundering methodology limited to one geographic area.

Some apologists in government or industry will have you believe that countering money laundering is all about “disruption,” or “deterrence” or the number of financial intelligence reports filed by financial institutions. These platitudes are ridiculous. Stopping money laundering ultimately all comes down to enforcement—and America is doing a lousy job of it.

Currently, there are about 1,200 money-laundering convictions a year at the federal level. That seems like a large number and undoubtedly some money launderers plead to other charges. But if we factor in the amount of criminal activity and the multi-hundreds of billions of illicit proceeds generated, it’s just a drop in the ocean.


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The Bank Secrecy Act, the U.S. government’s primary model for stopping money laundering, was enacted almost 50 years ago. Our financial intelligence countermeasures were primarily designed to stop the money laundering of cowboy cocaine dealers operating in Miami. The model is outdated, inefficient and expensive. Financial institutions and money service businesses in the United States spend approximately $8 billion a year to comply with money-laundering rules – more than twice the amount of criminal proceeds forfeited. As Ron Pol, a respected money laundering expert, recently put it, “Anti-money laundering legislation is the least effective of any anti-crime measure, anywhere.”

But we have to try. The Senate Judiciary Committee is holding hearings aimed at modernizing laws against money laundering. Other committees are active as well. Government and industry representatives should work together and design and implement a modern, robust, efficient, effective and near real-time system for detecting money laundering that incorporates the necessary privacy safeguards and oversight.

We can do far better than a 1 percent success rate. It shouldn’t take a special counsel’s investigation to detect and prosecute money laundering.