April 14, 2009 • 26 mins
Money laundering -- the practice of disguising illegal funds -- can be domestic or international in nature. Join Josh and Chuck as they take a look at the history, practice and future of money laundering in this podcast from HowStuffWorks.com.
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Speaker 1 (00:00):
Brought to you by the reinvented two thousand twelve Camray.
It's ready. Are you welcome to Stuff you should know
from house Stuff Works dot Com. Hey, and welcome to
the podcast. I'm Josh Clark. Wake up, Chuck Bryant, what's up, Buttercup?
(00:20):
Chuck's payton. He's ready to get out of here. So
we're gonna don't watch these rainy days. You know, rainy
days on Monday. They always get you down. Karen Carpenter,
what a waste? Yea said, Yeah, so this is not
on anorex yet. No, it's not. Actually it's on money laundering,
which we can't or you can or can't say, I
(00:41):
think is one way to put it. Whether or not
Karen Carpenter ever engaged in that, God Rest her soul.
I believe that she did not do. You never know, Chuck.
I'll go on record, Chuck, you ever see scar Face?
Are you kidding me? So you have seen it? Oh? Yeah,
many times? Edward g Robinson, James Cagney, Oh and I
thought you're talking to us. I just don't like it
when you gloat. Um. So you know that one scene
(01:05):
when he's sitting there laundering the money with the guy
who turns out to be the cop, and for some
reason to Palma made it so like, uh, it actually
simulates the eight hours that they're supposedly sitting there doing it.
That was actually pretty good lesson in what not to
do when you launder money, and I think the moral
to it was never louander money with an undercover police officer.
(01:27):
My favorite part of that movie is when he buries
his face in the huge mountain of cocaine on his
desk at the end. That is a good part. And
thousands of bullets, hundreds of bullets could not even take
him down at that point, but they did eventually. No, no,
yeah they did. Yeah. No. I couldn't remember if he
died in an explosion, but there because there are grenades
in that scene. That is a good, good movie. Anyone
(01:50):
who hasn't seen that can sign up to be derided
by Chuck and I um on our blog, which we'll
talk about later. But first let's talk about money laundering
shock Lets. So you know, like for the most part,
it's a well you would think for the most part,
it's it's the realm of drug dealers, like they use
cash almost exclusively. They've got to wash it. It's dirty money.
(02:14):
They can't account for it. Um and the the text system,
especially in the US, is set up in such a
way that that's supposed to be obvious where which is
where money laundering comes in. It's a way around this,
you know, declaration of Hey, I made a bunch of
money by selling heroin, which you can't really do because
(02:36):
they bust you for selling heroin. I'm surprised the government,
wouldn't you say that's great. Yeah, I mean really, honestly,
what would the I r S contact the DA or
would the I r S just be like, you're an
upstanding citizen, you're drug dealer. Well, that's one of the
big arguments for legalization of drugs is you can just
tax the heck out of it and legitimize it and
(02:56):
make a lot of money off of it. And again,
remember when we were talking about how Moon's Done works.
During prohibition, it kind of added this forbidden aspect to
to drinking, and so of course drinking increase, right, So
that makes you wonder if drug use would drop. But
that's neither here nor there. It isn't. But what I
was saying was is you would think it's mainly drug
traffickers engaged in money laundering is because a million dollars
(03:19):
in cocaine estimated at twenty ki lows, right, um or
twenty key lows for our metric friends, Yeah, um and uh,
a million dollars in cash weighs two hundred and fifty
six pounds, So it's kind of tricky, right. The thing is,
though it doesn't it turns out it's not just drug
(03:39):
dealers who are laundering this heavy, heavy cash because the
UN estimates this is a two thousand five estimates. The
latest I can find that the global drug trade is
valued at about three billion dollars annually. It is a
lot of dope, but it's estimated that the value of
(04:00):
all of the money that's laundered every year globally is
somewhere between five hundred billion and one trillion. So clearly
the entirety of the drug trade three times over couldn't
account for the high end estimate now of of all
the money that's being laundered in the world every year. Terrorists, terrorists,
big white collar guys, um, basically anybody who's come across
(04:23):
a substantial amount of money that you can't just walk
around within your pockets and you don't want to pay
taxes on right, you you launder the money, right, So
how how do you do this? Oh? And also I
should probably say the vast majority of the cash that's
getting washed is the U. S. Dollar for two reasons.
Number one, it's pretty much the de facto international currency.
(04:44):
We learned about that in our audiobook, right, I'm sorry,
our spoken word album um. And Uh. Also because the
US is some of the strictest banking transparency laws in
the world. So if you have some dollars and you
want to get it back into the US, you've gotta
wash it first, Right, So how do you do that?
Let's talk about the three steps Chuck. Number one is
(05:06):
called placement three steps the money long. Placement basically means
that the launderer UH inserts dirty money into a legitimate
um financial institution, Like so they'll put their money in
a bank, but it's dirty money. This is the point.
This is the riskiest stage. This is like the water
making that tense, hollow sound is it's filling up in
(05:28):
the drum of the washing machine. Right. And it's risky
because cash, large amounts of cash are always a red
flag UH these days, and in fact, in the US,
I believe the limit is a ten thousand dollar deposit.
It's not just the US that holds that standard, but
definitely sure. Yeah, the International Task Force, well, they're required
to report anything ten thousand or I believe it's anything
(05:51):
totally in ten thousand within like a five day period,
Is that right? I think one day, one day. Okay,
you're right, but yes, still the golden number if you're
laundering money is to stay below tan grand in a day, right,
in deposits. So once you've got that done and your
dirty money is in a bank, lots of it, you
move on to step two, which is called layering, and
that means you start to send this money out via transactions. Right,
(06:15):
we're talking bank to bank transfers, wiring money, um, investing
in some high value items like you can go buying
yacht or something like that. And you're basically just trying
to send the money out and spread it around to
all different sorts of places. This is why I consider
the rent cycle the rent cycle. Yes, yeah, it's so
it's being agitated and and um yeah, so this is
(06:35):
and that's the most complex. This is part of laundering
money as well, because you're taking one lump sum and
then dividing it into as many things as you possibly can,
which makes it hard to trace, which is really essentially
the whole point to money launderings. You want to make
it really hard to trace back to you. So then
we come, Josh Josh E to integration, which is phase three,
(06:58):
and this is when the money comes back and the
mainstream economy um looking like legitimate transactions. You divest from
those legitimate businesses you invested in, you sell that yacht um,
or you transfer money from these kind of shady banks
or or or banks in in countries of shady systems,
(07:19):
which we talk about in a minute, into you know,
US banks again or something. And at that point, as
Joe Pesci would say, the money is laundered, yes, and
that that was too I think I call it. That's
sad that you know that I'm ashamed of you right now.
The next thing, you know, you're gonna tell me you
watch The Closer. I know I've never seen that show,
(07:40):
but I'm a big alright, so so good, this is nice.
I was at one point until The Closer. Let's get
offer so um, you know, since there's so many different
countries out there, that have banking secrecy UM protection. Basically,
there's so many places where you can go buy a
(08:02):
yacht and they're not going that. They don't have to
buy laws say where'd you get this money? Um, And
businesses don't have to say, hey, where'd you get this money?
If you're investing in them. That it seems like it
would be impossible to catch. It's it's hard to catch too.
It is, well, Josh is certainly not from a lack
of looking, because there are a lot of places that
try to find money launderers, like the Department of Justice,
(08:25):
State Department, FBI, I R S, d e A. They've
all got money laundering departments or money laundering. They're not
laundering money obviously, no, they're they're looking for money launders.
So um, yeah, the I R S can find you,
and I imagine if you're a money launder, they can
find you to write. And there's also since we're talking
(08:47):
about those are the United States based organizations. It gets
global too because it's it usually involves global transactions. That's
kind of the key to the whole thing. So there's
something called the Financial Action Task Force on Money Laundering,
the f a T That was the other organization. I
was saying that has that ten tho dollar reporting required. Well,
that's fantastic. The UN gets involved to our buddies at
(09:09):
the u N. Yeah, the World Monetary Fund, So that's
who's looking out for International Monetary Fund. I'm sorry about
that one, right. So do you want to talk about
the some of these methods, Josh, Like the Paco exchange, Yeah,
that's pretty cool, hit it? Okay, so, um that is
the black market Colombian payso exchange system. And this is
(09:29):
like the the the world standard um and actually it
is centered in Colombia. What happens is is like say
you are a drug trafficker and you have a bunch
of dirty money. Chuck, say it. I am a drug
trafficker and I have a load of dirty money. Well
I just happened friend to be a paso broker, and
I can clean that money for you. And you want
to hear how I'm gonna do it. Well, what do
(09:49):
you mean by clean, Josh? I'm gonna make it so
that it's legitimate again. Okay, So what's going to happen
is you're going to give me your dirty money. Okay,
I'm going to give it to a Colombian importer who's
going to buy a bunch of American made goods, and
we're gonna buy him on the black market because we
don't want to pay any taxes on any of this. Right,
(10:12):
So the importer goes in orders a bunch of stuff,
gets it under the radar, UM, imported to Colombia, sells
it for paces, takes the paces, the the the Colombian
importer is going to give me the pasos, take a
little bit for himself, any profit he can make off
of it. He's gonna pay me back the equivalent of
the U. S. Dollars I gave him in pasos. I'm
(10:33):
gonna skim a little off top and bot a boom
bout a. Being my friend, you have just converted your
dirty U. S. Dollars to clean Colombian pasos. Thanks than
go forth, do whatever you like. We've got a deal.
Thank you, thank you for It's basically it is UH
and actually sadly it is very easy and it was
fine under the radar, like we said, for many many years,
and apparently the Colombian government UH and the American government
(10:58):
we're trying to figure out, um what was going on
with all of these illegal u S imports and came
to figure out also, oh yeah, well Columbia also has
a huge money loan doing problem and they're known understand it,
ye right, Yeah, so that's the old black market Columbia
pays so exchange two steps shuffle, very nice and apparently
(11:18):
that's just a one stop shopping deal. If you want
to laund your money, that's the place to go. But
there's also another one, and I know this one's your
favorite because of the name smurfing. Uh, structuring deposits is
uh the formal name, but they call it smurfing. And
basically this entails when you break up large amounts of
money into smaller um less suspicious amounts. So in the
(11:40):
US that's got to be below ten tho dollars um because,
like we said, that's when banks have to report you.
And uh, it's the money is deposited. The smaller amounts
are deposited into one or more banks by people called smurfs,
that's what they call them. Yeah, for no apparent reason.
So smurf that unless pay O, the creator of the Smurfs,
was caught doing this, maybe that's where it was, Maybe
(12:01):
that's where it originated. It sounds like a smurfing good
idea to me. Have you ever seen the smurf carpet
bomb ad? No? I think it was for um UNICEF.
It was a UNICEF ad and they played it in
Belgium and basically it was an anti war public service
announcement and they used the Smurfs and the Smurf's villages
(12:22):
just carpet bombed and they're all like killed, and they
showed the aftermath and burning smurfs are walking around. It's
really something you should look it up. Jeez. Uh. So
that's disturbing onto overseas banks, which is always big. You
always hear about offshore accounts and you know, growing up
you hear this from watching chips and stuff like that
in my era, and you hear about offshore accounts and
(12:42):
always pictures some like bank floating in the ocean. You know,
that's not what's going on there. But they're basically countries
have really lax or not lax, but they just have
secrecy laws and allow anonymous banking to take place. Yeah,
like bah rain Um is one that's not in the Caribbean, Hamas,
the Caymans, Caymans, Hams, Caymans, Hong Kong shore. Uh, there's
(13:04):
a place called Macau off the coast of China underground
alternative banking, which kind of cracks me up. I don't
know that I would invest in an alternative bank. This
seems kind of like tribal in nature. Yeah, exactly, like
it's existed long before any banking regulations. Very popular in
Asia and now than Pakistan, the Hawalla system in Pakistan
and India and the five Chin system in China. Yeah,
(13:26):
so basically it's a it's a trust system. There's no
paper trail, no paper, which is key because you want
to lounder money, you don't want paper. That's all point.
It's pretty it's very much like the offshore accounts, Like
these are secret accounts. You they won't reveal your identity. Um,
there's no paper trail that's public in any way, shape
or form. So these are really good places to use
(13:48):
if you plan on laundering any money, right, not that
we would encourage that, because it's illegal, You get busted,
you go to jail. No, although if you look at
if you put together some of these seemingly random podcasts
we've done, you could make move Chine sell it lounder money.
Londer money and exactly early on and then get out.
(14:09):
So there you go, and here we are not making
take your own advice, right. And then Josh, there are
shell companies. Of course, when you have like a fake company,
you'll set up that really doesn't sell or manufacture anything.
What's the difference between a shell company and a front company?
Is there a difference? There's a difference. You want to know?
Then why don't you talk? I was just trying to
set you up. But the shell company is set up,
(14:30):
it doesn't really do anything. It's only it only really
exists on paper, um, and it's express purposes the longer money.
A front company is real company, right, but it's meant
to longer money too. But you could say it's a store.
You could actually go into the store and buy something,
but it really the purposes to longer money. And that
actually leads us to one of the problems with money laundering.
(14:51):
I mean, you ask, why why would I care if
people are laundering money, you know, aside aside from the
obvious one like I hate drug dealers, you know, and
and don't want them laundering the money, or I hate terrorists.
Clearly everybody hates terrorists. Yeah, but but for this reason,
the last part with the front company, it affects local
economies and that small businesses can't compete with the front
(15:14):
company because they're not trying to turn a profit off
their product, so they can sell it like add or
below cost if they want and drive other companies out
of business. Well that seems a little flashy to me.
If you're a front company, sure, I would think you
just kind of want to stay even keel the whole time. Right, Yeah,
But greed, brother, it's true. Same with the ponse it's
greed takes a hold and then you're screwed. Same with
(15:35):
the what it's a Ponzi scheme, but on a much
a much larger level, there's other bigger problems, like it
can affect whole financial sectors or economies if enough money
is is laundered through. Well. One of the reasons why
is a lot of these countries that these things are
running through were small countries and they don't have like
the big, huge economy United States does. So someone's laundering
(15:55):
you know, seventy five million dollars through a tiny little country.
It's all vaults. You know, that's gonna affect the economy
in that country. Yeah, Plus no one pays taxes on it,
so you and I end up making up, well, not you,
because apparently you don't pay taxes, but I do now,
pal Okay, I just didn't in the mid early decade.
Yeah uh so, yeah, we end up making up for
(16:15):
that taxpayers do by having to pay higher taxes. Right.
But I think ultimately the reason why the d o J,
the FBI, the I R S, and the d e
A are all involved in trying to catch money Launders
because the government ain't making any money off of it. Exactly,
you know what I mean. I mean we're talking if
we're if it's a trillion dollars, you know what's thirty
of that billion? I gotta tell you, the U S
(16:37):
could use that three billion right now if you can
get you that much of a chunk of it, right
and we'd go give it to some institution that's collapsing
exactly exactly. Yeah, that's that's robbing Peter to pay Paul.
Oh wait, that was from the Ponzi scheme when wasn't it. Yeah,
but that's still a nice term. Okay, thanks a lot, um, So, Chuck,
you want to talk about a couple of famous um
(17:00):
any laundering busts. I would love to talk about Crazy Eddie. Okay, good,
because I want to talk about Franklin GIRARDA. Didn't that great?
When it works out like that, it's different Crazy Eddie.
And I remember this guy when I lived in New
Jersey seeing the Crazy Eddies TV commercial. Oh yeah, he
was one of those guys that it's exactly how you
would think Crazy Eddies. Uh. This is in the nineteen eighties,
Eddie and Tar Crazy Eddie's Electronics. He skimmed millions of
(17:23):
dollars uh from his own company to hide it from
the I R S. So he was doing this, he
had some co conspirators and eventually he thought, you know what,
I should send this money back into my own company.
Disguised his revenue right because he was going to launch
an initial public offering, so I'll inflate my soon to
(17:43):
be stock quote And he did substantially right bucks or something. Yeah,
but that's false money. So it was over inflated and
the result for him was bad news. He laundered more
than eight million bucks and was busted and flew to
Israel and they found him in nine they extradited him
(18:04):
back to US. To stand trial and he went to
the Who's Scott for eight years? Yeah, which isn't that bad.
I imagine he probably had a lot of money staffed
away waiting for I know, I was kind of surprised
most of these prison sentences in here, like six to
eight years. I think it would be a little more
than that. That's why I think the Bernard made Off
sentence is gonna be so cute, just gonna get like
a hundred plus years. Yeah. So, um, can I talk
(18:25):
about my guy now, Franklin Girardo. Uh and you want
to put an R toward the end of it, but
it's not. It's Gerrado Grado. Um. So he was actually
an economist. Um. And apparently economists are really good people
to get to to longer money for you because they
know exactly what they're doing. You just need to get
a crooked economist pretty much. And from what I understand,
(18:48):
this guy was it. Um. There was a Colombian drug
kingpin named Jose Santa Cruz Londono and uh he had
Gerrado basically placed the drug money into Colombian banks, right,
which we've already seen Columbia not that big on the
banking regulation. Laws, right, and then from there he started
(19:09):
making wire transfers and deposits to a hundred different accounts
that have been set up some and made up names,
some in family members names. Um in sixty eight banks
in nine European countries, right, and he was doing this
really well for a while. Um. I think he managed
to launder thirty six million bucks. Um, but he was smurfing. Actually,
(19:30):
do you mean something else there or you mean smurfing?
He was smurfing as far as money laundering goes. I thought,
you're just using smurflight? Does your mind the getter there? Um?
He was. He was probably doing that too because you know,
he's laundering millions of dollars. So all the smurfy wanted
um the uh the he just threw me off there,
(19:50):
chucks sorry um so, but he was smurfing in that.
Like none of his deposits top ten thousand dollars, right,
So imagine how active this guy was, and he had
a lot of money to deal with. He got busted
basically in two ways. Um. A red flag was raised
when a bank in Monico collapsed, and UH an audit
revealed that that he had a bunch of accounts that
(20:12):
didn't have his name on it, but could be traced
back to him, which is fairly unusual. And then really
what when he was actually arrested? This is great. His
neighbor called the cops to file a noise complaint because
Gerardo was running his money County machine all night. The
cops show up and this guy surrounded by millions of
dollars in cash. I love those machines you see m
(20:33):
in the movies. Yeah so cool? Right, yeah, they are
pretty cool. I've never had enough money to put him.
Mine would go yeah, it would be over. Yeah, you
have fifteen dollars lucky. Um so yeah, that that's how
Gerardo got busted. He got seven and a half years,
and he's in Harvard. Man, we should note. Yeah, so
it's not all just untoward. Uh That's why I purposely
(20:57):
left off the Harvard educated economists, because I mean, I think,
look at made off. He's an intelligent guy, as crooked
as they come. It's called white collar, dude. It surely
is for a reason. Um, So I guess do you
want to just quickly go over operation Juno? Uh? Yeah,
do you you know what I'm talking about? Because you
(21:18):
know it happened right here in Atlanta. This is the
headquarters for it. That was a part of it. What
do you really know? But this was in Atlanta and
the d e A pulled this one off. And it
was not a sting operation for pregnant teens the movie Juno.
This is pre pre that. This is is when it ended.
And basically it was a sting operation. They set up
(21:39):
drug traffickers, gave them resources to to turn their drug
money and from dollars into pay so's used in the
original uh Paso scam, and they busted uh you know,
forty people, ten million bucks they seized. And what substantial
is the amount of cocaine that they seized. Yeah, thirty
six kilograms of cocaine, No, buddy, thirty six hundred yea,
(22:03):
three thousand, six hundred kilograms of cocaine. That puts scar
face even to shame, it really does. You can't stick
your face in that mount and walk away from it. No.
So that was Operation Juno. That was the d e A.
That's about as successful as it comes from what I understand. Yeah,
I always have mixed feelings about staying operations though, to
be honest, it's shifty, it's susceptive, It is well. At
(22:23):
the same time though that you're getting you've busted these people,
so the end result is nice, but you know, macabillion
and justifies the means. Sure in some cases. I think
that's a definite model for a lot of law enforcement.
I just think it's interesting that a cop can go
up and say, hey, man, you want to launder this money,
and we'll make it happen, and then we'll arrest you
for it. Clearly, the Colombians who are busted never saw
(22:45):
a scarface, so that's a money laundering. Um. If you
want to try your hand at it, you know pretty
much everything you need to know right now. Yes, but
you should not do that. And we want to thank JR.
From Portland, Oregon. Jr was who suggested this. Yeah, thanks
j R. That was a good idea right out of
the suggestion. But we wonder why j R. But whatever
he actually said his email, I don't want to try this.
(23:06):
I'm just curious. So if yeah, if he follows up
with counterfeiting, he'd like to hear that one then or PONTI, Well,
actually that we're digging your way out of prison, right Yeah, Well,
if you want to know a little more, this is
actually a great article by our colleague Julia Layton. Excellent writer. Um,
you can type in money laundering in the handy search
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(23:27):
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(23:48):
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we might get to record another one yea, something more
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(24:29):
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We tried to do a little shorter than usual because
it's listening mail time. So this comes to us from
Meg and I'm just gonna call this exceptional listener mail
(24:50):
only in one today. Can know which one this is?
It's good epilepsy, Yes, yeah, it's good. So in our
Deja Vu podcast we talked a little bit about epile
te and that it's tied to deja vu many times,
as is smelling lavendar before you have a seizure. So
Meg writes in and she wanted to thank us for
talking some about epilepsy as she is an epileptic. She
(25:13):
has a temporal lobe epilepsy, and she said she does
suffer from deja vu on a fairly regular basis, but
it doesn't necessarily mean wait for a seizure, which is
what you said. Um, it is a seizure basically. Oh really,
that's how she describes it. H deja vu is a
simple partial seizure. It can give way to a complex
partial or generalized seizure, but it doesn't always have to.
(25:36):
And she is she's pretty amazed by her own epilepsy.
She and she said, the brain does crazy things when
it's working normally. Just imagine what it can do when
it's not. Some of the simple partial seizures I've included
smelling lavender, deja vu, tunnel vision, sparkly lights, and they
sometimes but not always, give way to complex partial seizures
(25:59):
that can leave you drained for quite a while. So
there's obviously downside. It's not all and lavender. So we
just want to thank Meg for writing in. And she said,
one day maybe we can do something on epilepsy. But
I know eventually we're gonna have a health podcast here,
so we're probably not allowed the clam burder, but thank
you Meg for that and good luck with your epilepsy.
(26:19):
Thanks thanks for sharing Meg, that's pretty pretty cool. Exceptional
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from house Stuff Works dot Com. Hey, and welcome to
the podcast. I'm Josh Clark. Wake up, Chuck Bryant, what's up, Buttercup?
(00:20):
Chuck's payton. He's ready to get out of here. So
we're gonna don't watch these rainy days. You know, rainy
days on Monday. They always get you down. Karen Carpenter,
what a waste? Yea said, Yeah, so this is not
on anorex yet. No, it's not. Actually it's on money laundering,
which we can't or you can or can't say, I
(00:41):
think is one way to put it. Whether or not
Karen Carpenter ever engaged in that, God Rest her soul.
I believe that she did not do. You never know, Chuck.
I'll go on record, Chuck, you ever see scar Face?
Are you kidding me? So you have seen it? Oh? Yeah,
many times? Edward g Robinson, James Cagney, Oh and I
thought you're talking to us. I just don't like it
when you gloat. Um. So you know that one scene
(01:05):
when he's sitting there laundering the money with the guy
who turns out to be the cop, and for some
reason to Palma made it so like, uh, it actually
simulates the eight hours that they're supposedly sitting there doing it.
That was actually pretty good lesson in what not to
do when you launder money, and I think the moral
to it was never louander money with an undercover police officer.
(01:27):
My favorite part of that movie is when he buries
his face in the huge mountain of cocaine on his
desk at the end. That is a good part. And
thousands of bullets, hundreds of bullets could not even take
him down at that point, but they did eventually. No, no,
yeah they did. Yeah. No. I couldn't remember if he
died in an explosion, but there because there are grenades
in that scene. That is a good, good movie. Anyone
(01:50):
who hasn't seen that can sign up to be derided
by Chuck and I um on our blog, which we'll
talk about later. But first let's talk about money laundering
shock Lets. So you know, like for the most part,
it's a well you would think for the most part,
it's it's the realm of drug dealers, like they use
cash almost exclusively. They've got to wash it. It's dirty money.
(02:14):
They can't account for it. Um and the the text system,
especially in the US, is set up in such a
way that that's supposed to be obvious where which is
where money laundering comes in. It's a way around this,
you know, declaration of Hey, I made a bunch of
money by selling heroin, which you can't really do because
(02:36):
they bust you for selling heroin. I'm surprised the government,
wouldn't you say that's great. Yeah, I mean really, honestly,
what would the I r S contact the DA or
would the I r S just be like, you're an
upstanding citizen, you're drug dealer. Well, that's one of the
big arguments for legalization of drugs is you can just
tax the heck out of it and legitimize it and
(02:56):
make a lot of money off of it. And again,
remember when we were talking about how Moon's Done works.
During prohibition, it kind of added this forbidden aspect to
to drinking, and so of course drinking increase, right, So
that makes you wonder if drug use would drop. But
that's neither here nor there. It isn't. But what I
was saying was is you would think it's mainly drug
traffickers engaged in money laundering is because a million dollars
(03:19):
in cocaine estimated at twenty ki lows, right, um or
twenty key lows for our metric friends, Yeah, um and uh,
a million dollars in cash weighs two hundred and fifty
six pounds, So it's kind of tricky, right. The thing is,
though it doesn't it turns out it's not just drug
(03:39):
dealers who are laundering this heavy, heavy cash because the
UN estimates this is a two thousand five estimates. The
latest I can find that the global drug trade is
valued at about three billion dollars annually. It is a
lot of dope, but it's estimated that the value of
(04:00):
all of the money that's laundered every year globally is
somewhere between five hundred billion and one trillion. So clearly
the entirety of the drug trade three times over couldn't
account for the high end estimate now of of all
the money that's being laundered in the world every year. Terrorists, terrorists,
big white collar guys, um, basically anybody who's come across
(04:23):
a substantial amount of money that you can't just walk
around within your pockets and you don't want to pay
taxes on right, you you launder the money, right, So
how how do you do this? Oh? And also I
should probably say the vast majority of the cash that's
getting washed is the U. S. Dollar for two reasons.
Number one, it's pretty much the de facto international currency.
(04:44):
We learned about that in our audiobook, right, I'm sorry,
our spoken word album um. And Uh. Also because the
US is some of the strictest banking transparency laws in
the world. So if you have some dollars and you
want to get it back into the US, you've gotta
wash it first, Right, So how do you do that?
Let's talk about the three steps Chuck. Number one is
(05:06):
called placement three steps the money long. Placement basically means
that the launderer UH inserts dirty money into a legitimate
um financial institution, Like so they'll put their money in
a bank, but it's dirty money. This is the point.
This is the riskiest stage. This is like the water
making that tense, hollow sound is it's filling up in
(05:28):
the drum of the washing machine. Right. And it's risky
because cash, large amounts of cash are always a red
flag UH these days, and in fact, in the US,
I believe the limit is a ten thousand dollar deposit.
It's not just the US that holds that standard, but
definitely sure. Yeah, the International Task Force, well, they're required
to report anything ten thousand or I believe it's anything
(05:51):
totally in ten thousand within like a five day period,
Is that right? I think one day, one day. Okay,
you're right, but yes, still the golden number if you're
laundering money is to stay below tan grand in a day, right,
in deposits. So once you've got that done and your
dirty money is in a bank, lots of it, you
move on to step two, which is called layering, and
that means you start to send this money out via transactions. Right,
(06:15):
we're talking bank to bank transfers, wiring money, um, investing
in some high value items like you can go buying
yacht or something like that. And you're basically just trying
to send the money out and spread it around to
all different sorts of places. This is why I consider
the rent cycle the rent cycle. Yes, yeah, it's so
it's being agitated and and um yeah, so this is
(06:35):
and that's the most complex. This is part of laundering
money as well, because you're taking one lump sum and
then dividing it into as many things as you possibly can,
which makes it hard to trace, which is really essentially
the whole point to money launderings. You want to make
it really hard to trace back to you. So then
we come, Josh Josh E to integration, which is phase three,
(06:58):
and this is when the money comes back and the
mainstream economy um looking like legitimate transactions. You divest from
those legitimate businesses you invested in, you sell that yacht um,
or you transfer money from these kind of shady banks
or or or banks in in countries of shady systems,
(07:19):
which we talk about in a minute, into you know,
US banks again or something. And at that point, as
Joe Pesci would say, the money is laundered, yes, and
that that was too I think I call it. That's
sad that you know that I'm ashamed of you right now.
The next thing, you know, you're gonna tell me you
watch The Closer. I know I've never seen that show,
(07:40):
but I'm a big alright, so so good, this is nice.
I was at one point until The Closer. Let's get
offer so um, you know, since there's so many different
countries out there, that have banking secrecy UM protection. Basically,
there's so many places where you can go buy a
(08:02):
yacht and they're not going that. They don't have to
buy laws say where'd you get this money? Um, And
businesses don't have to say, hey, where'd you get this money?
If you're investing in them. That it seems like it
would be impossible to catch. It's it's hard to catch too.
It is, well, Josh is certainly not from a lack
of looking, because there are a lot of places that
try to find money launderers, like the Department of Justice,
(08:25):
State Department, FBI, I R S, d e A. They've
all got money laundering departments or money laundering. They're not
laundering money obviously, no, they're they're looking for money launders.
So um, yeah, the I R S can find you,
and I imagine if you're a money launder, they can
find you to write. And there's also since we're talking
(08:47):
about those are the United States based organizations. It gets
global too because it's it usually involves global transactions. That's
kind of the key to the whole thing. So there's
something called the Financial Action Task Force on Money Laundering,
the f a T That was the other organization. I
was saying that has that ten tho dollar reporting required. Well,
that's fantastic. The UN gets involved to our buddies at
(09:09):
the u N. Yeah, the World Monetary Fund, So that's
who's looking out for International Monetary Fund. I'm sorry about
that one, right. So do you want to talk about
the some of these methods, Josh, Like the Paco exchange, Yeah,
that's pretty cool, hit it? Okay, so, um that is
the black market Colombian payso exchange system. And this is
(09:29):
like the the the world standard um and actually it
is centered in Colombia. What happens is is like say
you are a drug trafficker and you have a bunch
of dirty money. Chuck, say it. I am a drug
trafficker and I have a load of dirty money. Well
I just happened friend to be a paso broker, and
I can clean that money for you. And you want
to hear how I'm gonna do it. Well, what do
(09:49):
you mean by clean, Josh? I'm gonna make it so
that it's legitimate again. Okay, So what's going to happen
is you're going to give me your dirty money. Okay,
I'm going to give it to a Colombian importer who's
going to buy a bunch of American made goods, and
we're gonna buy him on the black market because we
don't want to pay any taxes on any of this. Right,
(10:12):
So the importer goes in orders a bunch of stuff,
gets it under the radar, UM, imported to Colombia, sells
it for paces, takes the paces, the the the Colombian
importer is going to give me the pasos, take a
little bit for himself, any profit he can make off
of it. He's gonna pay me back the equivalent of
the U. S. Dollars I gave him in pasos. I'm
(10:33):
gonna skim a little off top and bot a boom
bout a. Being my friend, you have just converted your
dirty U. S. Dollars to clean Colombian pasos. Thanks than
go forth, do whatever you like. We've got a deal.
Thank you, thank you for It's basically it is UH
and actually sadly it is very easy and it was
fine under the radar, like we said, for many many years,
and apparently the Colombian government UH and the American government
(10:58):
we're trying to figure out, um what was going on
with all of these illegal u S imports and came
to figure out also, oh yeah, well Columbia also has
a huge money loan doing problem and they're known understand it,
ye right, Yeah, so that's the old black market Columbia
pays so exchange two steps shuffle, very nice and apparently
(11:18):
that's just a one stop shopping deal. If you want
to laund your money, that's the place to go. But
there's also another one, and I know this one's your
favorite because of the name smurfing. Uh, structuring deposits is
uh the formal name, but they call it smurfing. And
basically this entails when you break up large amounts of
money into smaller um less suspicious amounts. So in the
(11:40):
US that's got to be below ten tho dollars um because,
like we said, that's when banks have to report you.
And uh, it's the money is deposited. The smaller amounts
are deposited into one or more banks by people called smurfs,
that's what they call them. Yeah, for no apparent reason.
So smurf that unless pay O, the creator of the Smurfs,
was caught doing this, maybe that's where it was, Maybe
(12:01):
that's where it originated. It sounds like a smurfing good
idea to me. Have you ever seen the smurf carpet
bomb ad? No? I think it was for um UNICEF.
It was a UNICEF ad and they played it in
Belgium and basically it was an anti war public service
announcement and they used the Smurfs and the Smurf's villages
(12:22):
just carpet bombed and they're all like killed, and they
showed the aftermath and burning smurfs are walking around. It's
really something you should look it up. Jeez. Uh. So
that's disturbing onto overseas banks, which is always big. You
always hear about offshore accounts and you know, growing up
you hear this from watching chips and stuff like that
in my era, and you hear about offshore accounts and
(12:42):
always pictures some like bank floating in the ocean. You know,
that's not what's going on there. But they're basically countries
have really lax or not lax, but they just have
secrecy laws and allow anonymous banking to take place. Yeah,
like bah rain Um is one that's not in the Caribbean, Hamas,
the Caymans, Caymans, Hams, Caymans, Hong Kong shore. Uh, there's
(13:04):
a place called Macau off the coast of China underground
alternative banking, which kind of cracks me up. I don't
know that I would invest in an alternative bank. This
seems kind of like tribal in nature. Yeah, exactly, like
it's existed long before any banking regulations. Very popular in
Asia and now than Pakistan, the Hawalla system in Pakistan
and India and the five Chin system in China. Yeah,
(13:26):
so basically it's a it's a trust system. There's no
paper trail, no paper, which is key because you want
to lounder money, you don't want paper. That's all point.
It's pretty it's very much like the offshore accounts, Like
these are secret accounts. You they won't reveal your identity. Um,
there's no paper trail that's public in any way, shape
or form. So these are really good places to use
(13:48):
if you plan on laundering any money, right, not that
we would encourage that, because it's illegal, You get busted,
you go to jail. No, although if you look at
if you put together some of these seemingly random podcasts
we've done, you could make move Chine sell it lounder money.
Londer money and exactly early on and then get out.
(14:09):
So there you go, and here we are not making
take your own advice, right. And then Josh, there are
shell companies. Of course, when you have like a fake company,
you'll set up that really doesn't sell or manufacture anything.
What's the difference between a shell company and a front company?
Is there a difference? There's a difference. You want to know?
Then why don't you talk? I was just trying to
set you up. But the shell company is set up,
(14:30):
it doesn't really do anything. It's only it only really
exists on paper, um, and it's express purposes the longer money.
A front company is real company, right, but it's meant
to longer money too. But you could say it's a store.
You could actually go into the store and buy something,
but it really the purposes to longer money. And that
actually leads us to one of the problems with money laundering.
(14:51):
I mean, you ask, why why would I care if
people are laundering money, you know, aside aside from the
obvious one like I hate drug dealers, you know, and
and don't want them laundering the money, or I hate terrorists.
Clearly everybody hates terrorists. Yeah, but but for this reason,
the last part with the front company, it affects local
economies and that small businesses can't compete with the front
(15:14):
company because they're not trying to turn a profit off
their product, so they can sell it like add or
below cost if they want and drive other companies out
of business. Well that seems a little flashy to me.
If you're a front company, sure, I would think you
just kind of want to stay even keel the whole time. Right, Yeah,
But greed, brother, it's true. Same with the ponse it's
greed takes a hold and then you're screwed. Same with
(15:35):
the what it's a Ponzi scheme, but on a much
a much larger level, there's other bigger problems, like it
can affect whole financial sectors or economies if enough money
is is laundered through. Well. One of the reasons why
is a lot of these countries that these things are
running through were small countries and they don't have like
the big, huge economy United States does. So someone's laundering
(15:55):
you know, seventy five million dollars through a tiny little country.
It's all vaults. You know, that's gonna affect the economy
in that country. Yeah, Plus no one pays taxes on it,
so you and I end up making up, well, not you,
because apparently you don't pay taxes, but I do now,
pal Okay, I just didn't in the mid early decade.
Yeah uh so, yeah, we end up making up for
(16:15):
that taxpayers do by having to pay higher taxes. Right.
But I think ultimately the reason why the d o J,
the FBI, the I R S, and the d e
A are all involved in trying to catch money Launders
because the government ain't making any money off of it. Exactly,
you know what I mean. I mean we're talking if
we're if it's a trillion dollars, you know what's thirty
of that billion? I gotta tell you, the U S
(16:37):
could use that three billion right now if you can
get you that much of a chunk of it, right
and we'd go give it to some institution that's collapsing
exactly exactly. Yeah, that's that's robbing Peter to pay Paul.
Oh wait, that was from the Ponzi scheme when wasn't it. Yeah,
but that's still a nice term. Okay, thanks a lot, um, So, Chuck,
you want to talk about a couple of famous um
(17:00):
any laundering busts. I would love to talk about Crazy Eddie. Okay, good,
because I want to talk about Franklin GIRARDA. Didn't that great?
When it works out like that, it's different Crazy Eddie.
And I remember this guy when I lived in New
Jersey seeing the Crazy Eddies TV commercial. Oh yeah, he
was one of those guys that it's exactly how you
would think Crazy Eddies. Uh. This is in the nineteen eighties,
Eddie and Tar Crazy Eddie's Electronics. He skimmed millions of
(17:23):
dollars uh from his own company to hide it from
the I R S. So he was doing this, he
had some co conspirators and eventually he thought, you know what,
I should send this money back into my own company.
Disguised his revenue right because he was going to launch
an initial public offering, so I'll inflate my soon to
(17:43):
be stock quote And he did substantially right bucks or something. Yeah,
but that's false money. So it was over inflated and
the result for him was bad news. He laundered more
than eight million bucks and was busted and flew to
Israel and they found him in nine they extradited him
(18:04):
back to US. To stand trial and he went to
the Who's Scott for eight years? Yeah, which isn't that bad.
I imagine he probably had a lot of money staffed
away waiting for I know, I was kind of surprised
most of these prison sentences in here, like six to
eight years. I think it would be a little more
than that. That's why I think the Bernard made Off
sentence is gonna be so cute, just gonna get like
a hundred plus years. Yeah. So, um, can I talk
(18:25):
about my guy now, Franklin Girardo. Uh and you want
to put an R toward the end of it, but
it's not. It's Gerrado Grado. Um. So he was actually
an economist. Um. And apparently economists are really good people
to get to to longer money for you because they
know exactly what they're doing. You just need to get
a crooked economist pretty much. And from what I understand,
(18:48):
this guy was it. Um. There was a Colombian drug
kingpin named Jose Santa Cruz Londono and uh he had
Gerrado basically placed the drug money into Colombian banks, right,
which we've already seen Columbia not that big on the
banking regulation. Laws, right, and then from there he started
(19:09):
making wire transfers and deposits to a hundred different accounts
that have been set up some and made up names,
some in family members names. Um in sixty eight banks
in nine European countries, right, and he was doing this
really well for a while. Um. I think he managed
to launder thirty six million bucks. Um, but he was smurfing. Actually,
(19:30):
do you mean something else there or you mean smurfing?
He was smurfing as far as money laundering goes. I thought,
you're just using smurflight? Does your mind the getter there? Um?
He was. He was probably doing that too because you know,
he's laundering millions of dollars. So all the smurfy wanted
um the uh the he just threw me off there,
(19:50):
chucks sorry um so, but he was smurfing in that.
Like none of his deposits top ten thousand dollars, right,
So imagine how active this guy was, and he had
a lot of money to deal with. He got busted
basically in two ways. Um. A red flag was raised
when a bank in Monico collapsed, and UH an audit
revealed that that he had a bunch of accounts that
(20:12):
didn't have his name on it, but could be traced
back to him, which is fairly unusual. And then really
what when he was actually arrested? This is great. His
neighbor called the cops to file a noise complaint because
Gerardo was running his money County machine all night. The
cops show up and this guy surrounded by millions of
dollars in cash. I love those machines you see m
(20:33):
in the movies. Yeah so cool? Right, yeah, they are
pretty cool. I've never had enough money to put him.
Mine would go yeah, it would be over. Yeah, you
have fifteen dollars lucky. Um so yeah, that that's how
Gerardo got busted. He got seven and a half years,
and he's in Harvard. Man, we should note. Yeah, so
it's not all just untoward. Uh That's why I purposely
(20:57):
left off the Harvard educated economists, because I mean, I think,
look at made off. He's an intelligent guy, as crooked
as they come. It's called white collar, dude. It surely
is for a reason. Um, So I guess do you
want to just quickly go over operation Juno? Uh? Yeah,
do you you know what I'm talking about? Because you
(21:18):
know it happened right here in Atlanta. This is the
headquarters for it. That was a part of it. What
do you really know? But this was in Atlanta and
the d e A pulled this one off. And it
was not a sting operation for pregnant teens the movie Juno.
This is pre pre that. This is is when it ended.
And basically it was a sting operation. They set up
(21:39):
drug traffickers, gave them resources to to turn their drug
money and from dollars into pay so's used in the
original uh Paso scam, and they busted uh you know,
forty people, ten million bucks they seized. And what substantial
is the amount of cocaine that they seized. Yeah, thirty
six kilograms of cocaine, No, buddy, thirty six hundred yea,
(22:03):
three thousand, six hundred kilograms of cocaine. That puts scar
face even to shame, it really does. You can't stick
your face in that mount and walk away from it. No.
So that was Operation Juno. That was the d e A.
That's about as successful as it comes from what I understand. Yeah,
I always have mixed feelings about staying operations though, to
be honest, it's shifty, it's susceptive, It is well. At
(22:23):
the same time though that you're getting you've busted these people,
so the end result is nice, but you know, macabillion
and justifies the means. Sure in some cases. I think
that's a definite model for a lot of law enforcement.
I just think it's interesting that a cop can go
up and say, hey, man, you want to launder this money,
and we'll make it happen, and then we'll arrest you
for it. Clearly, the Colombians who are busted never saw
(22:45):
a scarface, so that's a money laundering. Um. If you
want to try your hand at it, you know pretty
much everything you need to know right now. Yes, but
you should not do that. And we want to thank JR.
From Portland, Oregon. Jr was who suggested this. Yeah, thanks
j R. That was a good idea right out of
the suggestion. But we wonder why j R. But whatever
he actually said his email, I don't want to try this.
(23:06):
I'm just curious. So if yeah, if he follows up
with counterfeiting, he'd like to hear that one then or PONTI, Well,
actually that we're digging your way out of prison, right Yeah, Well,
if you want to know a little more, this is
actually a great article by our colleague Julia Layton. Excellent writer. Um,
you can type in money laundering in the handy search
part how stuff works dot Com. Don't go anywhere because
(23:27):
we're about to blast your ears with our spoken word
plug a right, Josh and I and Jerry, I'm sorry,
Josh and me. We don't write in correct? Me again,
grammer police and getting that a lot. I know. Yeah,
it's called the Stuff you should know, super Stuff Guide
to the Economy, and we get to go out and
interview folks and go on location and we really break
(23:48):
down economics and the economy into the way that everyone
can understand. It was a lot of fun to do, Yes,
it was. We recommend it highly for three nine on
iTunes and type and super stuffed in the iTunes search
part should be the thing that comes up. And what's
most amazing to me is it doesn't suck. No, it's good.
We're very proud of it and we appreciate your support
thus far. And if you guys can support us with this,
(24:09):
we might get to record another one yea, something more
interesting than the economy, because you know, Chuck blogged me
yes blog. We also need to give a quick shout
out to our blog called Stuff you Should Know on
the website how stuffworks dot com, post today, Me in
the morning, Chuck at night. You should visit twice yes
to see you. And we do a podcast recap on
(24:29):
Friday's so that's where we can all sit around and
chat about what we do here. And you said you
can find on the right rail of the homepage. Yes, sir,
and uh that means thank you for bearing with us.
We tried to do a little shorter than usual because
it's listening mail time. So this comes to us from
Meg and I'm just gonna call this exceptional listener mail
(24:50):
only in one today. Can know which one this is?
It's good epilepsy, Yes, yeah, it's good. So in our
Deja Vu podcast we talked a little bit about epile
te and that it's tied to deja vu many times,
as is smelling lavendar before you have a seizure. So
Meg writes in and she wanted to thank us for
talking some about epilepsy as she is an epileptic. She
(25:13):
has a temporal lobe epilepsy, and she said she does
suffer from deja vu on a fairly regular basis, but
it doesn't necessarily mean wait for a seizure, which is
what you said. Um, it is a seizure basically. Oh really,
that's how she describes it. H deja vu is a
simple partial seizure. It can give way to a complex
partial or generalized seizure, but it doesn't always have to.
(25:36):
And she is she's pretty amazed by her own epilepsy.
She and she said, the brain does crazy things when
it's working normally. Just imagine what it can do when
it's not. Some of the simple partial seizures I've included
smelling lavender, deja vu, tunnel vision, sparkly lights, and they
sometimes but not always, give way to complex partial seizures
(25:59):
that can leave you drained for quite a while. So
there's obviously downside. It's not all and lavender. So we
just want to thank Meg for writing in. And she said,
one day maybe we can do something on epilepsy. But
I know eventually we're gonna have a health podcast here,
so we're probably not allowed the clam burder, but thank
you Meg for that and good luck with your epilepsy.
(26:19):
Thanks thanks for sharing Meg, that's pretty pretty cool. Exceptional
listener mail indeed, Um, if you have anything exceptional to say,
or you just want to say hi, or you want
to tell us, UM that we say we interchange iron
me too much. Actually, not that last one. UM. You
can send us an email to Stuff Podcast at how
stuff works dot com For more on this and thousands
(26:44):
of other topics. Is that how stuff works dot com
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Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.