Money laundering question

Factual Questions
#1

I’ve been watching “Dirty Money” on Netflix. In the episode “Dirty Gold”, the FBI guy says that it works like this:

  1. Drugs are made in Colombia, smuggled into the US via Mexico and sold on the streets for cash.
  2. The cash is bundled together and sent to Peru where the drug dealers buy illegally mined gold.
  3. The gold is now owned by front companies owned by the drug dealers that sell the gold to refiners back in the US.
  4. The refineries pay the front companies with wire transfers and now the money is in the bank and clean.

My question, what happens with the cash in Peru now? ISTM that the Peruvian gold miners have just inherited the same problem that the drug dealers had. I’m sure I’m missing something but why don’t the illegal miners create their own front companies to sell their gold to the refineries?

#2

My understanding is a Colombian Drug Baron with a billion dollars is unable to bank it (and from there spend it on large items such as property or equity investments) without providing a plausible account of how they came to earn it.

However a Peruvian itinerant miner with a modest hundred dollars can spend it freely on food, rent, clothing and indeed can deposit it in a bank.

The physical dollar bills are not in themselves stolen or otherwise illegal. It’s large amounts of them that create difficulties.

TCMF-2L

#3

This is pretty right on the money, so to speak.

One issue is getting the cash back to Peru.

And of course this means several steps- and each step has the chance of being intercepted by the Feds or by thieves. And there is a cost for each step.

Interesting side note, according to a UK book I read the slang for police is often either “the filth” or “The Feds”- which in the USA means only federal agents of the US government. But the UK does not have a National Police force per se.

#4

I’m not really following this. They are buying a few hundred dollars worth of gold at a time? Managing a huge number of small retail purchases of tiny amounts of physical gold seems like it would be a whole lot of work - and involve a large overhead and infrastructure.

#5

Itinerant illegal miners don’t get the full market value of their unrefined gold. You are asking about illegal activities. Imagine you were selling a stolen car in your own country. Would you expect to get full market price?

It’s money laundering. It’s drugs. You must have heard how a poppy farmer in Afghanistan earns dollars selling to a local dealer earning hundreds of dollars to a Drug Lord earning thousands of dollars. Next thing is the street value is millions of dollars.

TCMF-2L

#6

That wasn’t the principal issue I was raising. I was just commenting that it seems like a huge amount of work to launder hundreds of millions of dollars through a vast number of small retail purchases of gold.

But I guess if they are buying illegal gold significantly below market value, then it’s a separately profitable business that covers its own overhead?

#7

Have you ever seen pictures of raids on drug lords and they have pallets of literally millions of dollars all over the place? They simply store it up because laundering it (and being able to spend it) is really, really difficult. And becoming increasingly difficult.

Without knowing as a fact, I strongly suspect Peruvian gold is either now, or soon will be, an option no longer.

TCMF-2L

#8

Please feel free to continue your recreational astonishment at my ignorance of aspects of the drug business that have no relevance the question I was asking.

#9

Here you go. Mexican drug lord’s stash of an estimated 22 BILLION dollars.

TCMF-2L

#10

The relevance is drug lords struggle to launder money. Hence they need to develop laundering techniques such as buying stolen unrefined gold from Peruvians.

A successful drug lord doesn’t require a particularly efficient return on their dollar. They merely require something that allows them to legitimise at least some of their ill gotten gains.

TCMF-2L

#11

It just seems hard to believe that small time illegal Peruvian gold miners can distribute hundreds of millions of dollars in cash on a scale that has to rival the Colombian cocaine cartels.

#12

I would think it’s not just Peruvian gold. The gold scam is probably just one of hundreds of laundering schemes used to move all the money. Giant drug cartels are like multinational corporations. They don’t just do one thing. They are vast enterprises.

#13

It’s not just Peruvians. But on the show, they were talking about hundreds of millions of dollars worth of gold buying.

#14

Yes, with only 30 million Peruvians, it’s hard to imagine the Peruvian underground gold economy alone is large enough to make much of a dent in the amounts they need to launder.

#15

To provide a few statistics.

Total gold exports from Peru in 2020 were 4.4 million Troy ounces worth $7.9 BILLION.

The link between Peruvian gold and crime is well known and being addressed. It is probably not a coincidence 2020 saw the lowest export volumes for years. It was over 6 million ounces for the three proceeding years.

Obviously not all of the gold is illegal but it would not be unreasonable to suggest, over the last decade, literally billions of dollars of illegal money has been involved.

Cite • Gold exports from Peru 2020 | Statista

TCMF-2L

#16

The guy with the gun trumps the guy with the gold. I am pretty sure that the lowly gold miner knows what will happen to him, his family, his friends and maybe even his neighbors if he tries to go into business for himself.

#17

Honestly, a whole lot of crimes I’ve heard about seem like an awful lot of work compared to just having a regular job.

#18

Yeah, a con game is just a sales pitch. And the really lucrative cons require just as much cold-calling as a legitimate sales job would.

#19

The rule of thumb I’ve read about is that money laundering can cost 50% to 90% of the money’s face value. You don’t organize a swap meet and invite a half million itinerant miners. You know some guys - maybe a few dozen - who will take $1M and return you $500,000 of gold. They in turn know, say, 100 local guys who will take $8.000 and bring back $5,000 worth of gold from the 50 or 60 miners they know, over a month or so. Everyone makes a cut. Everyone knows what happens if there’s a shortchange issue.

It’s no different than owning several dozen pizza parlours, or hole-in-the-wall bars. The manager of each gets, say, $50,000 and has to trickle it into the books as legitimate business activity over a month or four. In return, the manager makes an above-average salary and the organization ahs a very astute lawyer on speed-dial should the need arise.

Or as some previous thread suggested, the drug lord finds a smart cookie who runs a used bookstore on Amazon; they sell books to random people who are given $500 at a time by the same sort of group of 50 who know 100 each to send in $400 orders that never actually get shipped, but are on the books as orders paid for with prepaid credit cards. Better yet, sell downloadable software, no need to fake shipping receipts.

Money laundering is as much of a business and art as is manufacturing and distributing drugs.

#20

Illegal mining in general is not something a person with a lot of choices would select as his occupation. Safe commercial mines require lots of capital, organisation and machinery. Take those away and you have an incredibly risky operation that requires very hard physical labour. The people doing that labour are not people who are capable of setting up an international front company.

Here’s a BBC article on illegal gold mining in South Africa from a few years ago.

Another article notes that 20 dead illegal gold miners were found at a site near Johannesburg last year.

What the independent miners, or mines do is sell their gold to a local buyer - someone who goes around the area buying small amounts of gold from the miners or the mine boss. That buyer then sells the gold to a distributor who sells the gold to a broker, who is the entity selling the gold to the overseas buyers. The international money laundering front described by the OP would be established by a broker. The illegal mines could also be controlled by a criminal syndicate, but the network would be the same, just with an internal structure.

One other note - these networks are the norm for small scale producers in lots of countries even when the product is not illegal. Small scale coffee farmers don’t sell their coffee beans directly to the large-scale consumer product producers such as Nestle. Instead they go through a network that handles transportation and processing with brokers generally managing the sale and export to the consumer product producers.