I thought I’d respond to this statement as well. It’s definitely correct that the problem of laundering the cash has been passed down to the gold exporter, whether that exporter is part of the drug dealers organisation, or a separate group. The exporter would be conducting a mix of legitimate and illegal business, using the funds from the wire transfers for his legitimate business and using the US dollars for the illegal business. He’d then have to arrange his accounting books sufficiently to hide his cash operations from the Peruvian authorities. On the opposite side, the US dollars being sent to Peru isn’t free money. It’s being exchanged for gold. So the exporter would have to find a way ship more gold to the US than the wire transfers were paying for, and to disguise that overshipment from custom authorities in the US.
Isn’t that the opposite of laundering money? To launder money, I don’t want to buy things below market value. I want to buy them equal or above market value. If I pay $1000 for $2000 worth of gold, haven’t I compounded the problem?
No, laundering money is not about whether you generate a gain or a loss. It’s a series of transactions that put money into the banking system with a paper trail to an apparently legitimate source.
Right, but how do I account for the fact that I own $2000 worth of gold that came from seemingly nowhere? Before I had $1000 cash I needed to legitimize. Now I have $2000 worth of gold I need to legitimize.
Stated differently, I get the idea if I own a strip club. I say that some eccentric old man came in and dropped $5k on lap dances, VIP champagne rooms, hot tub fantasies, etc. I don’t know his name, sorry, but we get a lot of people like that who wish to remain anonymous. Probably paying cash to hide it from his wife.
That works for me. I have now legitimized $5k worth of dirty cash. Maybe I pay each stripper $200 to repeat that story; she’s happy, I’m happy, cost of laundering money. But if I have to provide a tangible product for that money, then I have to account for where THAT product came from. What am I missing?
Read the thread. The mechanism by which the money is laundered is that black market gold is purchased, then sold by a front company purporting to be a legitimate mining company to a refiner. The money is now in the banking system, apparently the proceeds from the sale of legitimately mined gold.
The price at which the gold was purchased in the black market is not relevant to the character of the laundering process. If the launderers buy it below market value from the people doing the illegal mining, so much the better.
I have read the thread, but the OP’s question remains. It all seems to work for the drug dealers and the front company which is a gold exporter, but the mining company has to account for illegally mined gold bought by illegitimate currency.
Is the answer that they keep a little, fade in a little to the business, give a few to the miners, etc? I think that is the answer, but I’m not sure.
There are other methods of laundering money that involve putting fake revenue on the books that vastly exceeds the value of goods or services actually provided. That’s still not the same thing as buying something above market value. Nobody actually paid the $5k to buy anything.
The purchases of black market gold are not “on the books” anywhere, obviously. All the front company has to do is explain where their gold came from. The explanation being that they represent themselves as a legitimate mining company.
I get that. I’m not talking about the front company. I’m talking about the real company that actually mines gold. It mines legal gold, but also in addition a bunch of illegal gold. It has the same problem that drug dealers have. It has to account somehow, on the books or not, for all of this extra cash that they have, but do not have from legitimate sources.
And not to speak for the OP, but I believe the answer to that question remains outstanding. Sure, the drug dealers have now insulated themselves. But haven’t they just handed the problem to the (real) mining company?
**You have answered the above/below market value question, and thank you.
Clearly you have NOT read the thread. It’s not like it’s 1000 posts or something. The source of the illegally mined gold is the focus of the discussion in the first dozen posts of the thread.
I reread the thread. The posts all seem to be either asking the same question I am asking or saying that the drug lords really do have a problem because they have piles of cash sitting around. The only attempt at an answer is that the Peruvian miners aren’t attracting attention spreading $100 here and there. My question was, “Is this really the answer?” That millions and possibly billions of dollars are just hidden by throwing the miners a few bucks?
You seem to be asking exactly the same question that I did at post #4, where I commented that making a huge number of small retail purchases of illegal gold seems like a very cumbersome and inefficient way to launder hundreds of millions of dollars. Which brings us back full circle to the fact that the gold is purchased well below market price - which presumably makes purchasing this gold a profit center in itself, in addition to the laundering feature.
I don’t disagree with any of this. The drug lords have a setup where they have solved their money laundering issue, making a profit off of gold to boot. But the problem is, and it is the OP, that it just kicks the issue down to the legitimate mining company who now must launder money.
The drug lords may say, meh, not my problem, but it will be their problem if the mining company gets caught, the fed trace it to the front company, and then to the drug lords who run the front company.
No one knows it is illegal drug funds. And if you are a certain kind of business, you just walk down to the bank and deposit that cash. Some businesses are expected to have large amounts of cash flowing in.
Not to mention, out there in the hinterlands of Peru, etc there is many a wink and a nod, many a greased palm or intimidated official.
That happens also. Art and antiques is a good sink, who knows how much that stuff is really worth, right?
No, they just deposit it.
The drug dealer/cartel isn’t buying the gold from the mining company but instead from individuals who are mining illicitly in the same area. Some, perhaps, may be actual employees of the mining company and selling gold on the side (though my understanding is that people at mines like this are searched pretty thoroughly at the end of the shift) or just people who came to the area and are mining aside from the mining company.
This helps a little, but it then just shifts the focus. The front company is paying for illegal gold with ill gotten cash. They then sell the gold and get money through legitimate channels. They should make approximately $X of wire transfers on these activities, but a review of their accounts will show that they made $X+$huge on these activities, triggering suspicion. How does the front company’s books pass even a cursory inspection? How do they document the infusion of cash from the drug lords to the satisfaction of any law enforcement?
I’m not concerned about making cash deposits. It happens all of the time. I make cash deposits. What triggers scrutiny is when your cash deposits are seriously out of whack with what is to be expected in your business. What also triggers scrutiny from the opposite direction is living a lavish lifestyle out of whack with your reported income. Unless they really are just giving $100 here and $100 there, it seems that the authorities would be suspicious very quickly.
Here is the basic situation as I understand it. Note this was the situation for the last decade or so but the international community is slowly clamping down.
The drug cartels in Peru have been setting up illegal mining operations. They have been illegally setting up temporary townships in the middle of protected rainforests and doing serious mining. They sometimes just pan from rivers but they also use heavy machinery to clear the forest and then dig mines.
The two very big environmental concerns are simple physical damage to the rainforest by felling trees but much more than that the routine use of mercury to start refining the gold. Until recently there were no import restrictions into Peru of mercury and an estimated 90% was being used for illegal mining. Everyone knows mercury is a dreadful pollutant. Illegal miners have zero qualms about the pollution they create. And the environmental disaster they have left behind.
Illegal miners end up with fairly pure gold worth literally billions. Although because it is illegal at this point it has a lower value. Plus the miners are generally working for the drug cartels so they get paid what the cartel decides to pay. Indeed some will be slaves - produce gold or die.
Either by adding it to the inventories of legal mining companies (the ‘legal’ mining company simply record a greater output from their operations) or by setting up a ‘front’ company or simply by producing forged documentation the gold will be exported. Note many feel there has been complicity to some extent from some sections of the Peruvian state.
Billions of dollars of supposedly legal (but it is suspected some, perhaps much, is illegal) got imported to Miami in the USA. China is another country that imported billions. Apple as a computer company uses a lot of gold. In others words Governments and the biggest companies in the world all BECOME involved.
Gold, whether for jewellery, central banks or industry routinely get passed around being further purified and cast into convenient physical forms. It passes from companies to governments and companies with shipments getting mixed and along the way the original sources, the connection to illegality, gets lost. The gold becomes legitimate and now carries full market value.
So drug cartels aren’t paying a few indigenous Peruvians a few dollars for a few stolen nuggets. They are building temporary towns, bringing in machinery and chemicals. Food, alcohol and prostitution. They are bringing in their ‘soldiers’ to keep control. They are bribing government workers. In total hundreds of millions of illegal drug dollars are (or at least were) being deployed. Billions of dollars of gold was being produced.
As has been noted recreational narcotics are (basically) always illegal to possess. Gold can be explained away as legal to hold. As noted upthread if a drug cartel has one billion of illegal dollars the end result of the laundering process is not to achieve one billion of legal dollars (although that would be nice) but even one hundred million of ‘clean’ money would be good.
It’s a big business. It worked. But it is now coming under control.
TCMF-2L
I’ll clarify I am not saying Apple specifically and knowingly dealt in illegal gold. But their use of gold created a demand. Which increased the price. I would assume Apple bought all their gold from legitimate sources. My point is as gold moves around the world it can start illegal and ends up legal. Gold is gold.
TCMF-2L
Very interesting. Thanks. So by what mechanism is this gold “illegal”? Has the Peruvian government by law or treaty made certain gold mining illegal but the corrupt officials simply do not enforce the law? Is it a violation of US (or other countries) law to buy this “illegal” gold?