Professional Documents
Culture Documents
Financial Crime and Corruption
Financial Crime and Corruption
Corruption
2nd EDITION
Lidija Rangelovska
A Narcissus Publications Imprint, Skopje 2007
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I. Slush Funds
II. Corruption and Transparency
III. Money Laundering in a Changed World
IV. Hawala, the Bank that Never Was
V. Straf – Corruption in Central and Eastern Europe
VI. The Kleptocracies of the East
VII. Russia’s Missing Billions
VIII. The Enrons of the East
IX. The Typology of Financial Scandals
X. The Shadowy World of International Finance
XI. Maritime Piracy
XII. Legalizing Crime
XIII. Begging Your Trust in Africa
XIV. Organ Trafficking in east Europe
XV. Arms Sales to Rogue States
XVI. The Industrious Spies
XVII. Russia’s Idled Spies
XVIII. The Business of Torture
XIX. The Criminality of Transition
XX. The Economics of Conspiracy Theories
XXI. The Demise of the Work Ethic
XXII. The Morality of Child Labor
XXIII. The Myth of the Earnings Yield
XXIV. The Future of the SEC
XXV. Trading from a Suitcase – Shuttle Trade
XXVI. The Blessings of the Black Economy
XXVII. Public Procurement and Very Private Benefits
XXVIII. Crisis of the Bookkeepers
XXIX. Competition Laws
XXX. The Benefits of Oligopolies
XXXI. Anarchy as an Organizing Principle
XXXII. Narcissism in the Boardroom
XXXIII. The Revolt of the Poor and Intellectual Property Rights
XXXIV. The Kidnapping of Content
XXXV. The Economics of Spam
XXXVI. The Content Downloader’s Profile
XXXVII. The Fabric of Economic Trust
XXXVIII. The Distributive Justice of the Market
XXXIX. The Agent-Principal Conundrum
XL. The Green-eyed Capitalist
XLI. Notes on the Economics of Game Theory
XLII. Market Impeders and Market Inefficiencies
XLIII. The Pettifogger Procurators
XLIV. Microsoft’s Third Front
XLV. NGOs – The Self-appointed Altruists
XLVI. Who is Guarding the Guards
XLVII. The Honorary Academic
XLVIII. Rasputin in Transition
XLIX. The Eureka Connection
L. The Treasure Trove of Kosovo
LI. Milosevic’s Treasure Island
LII. Macedonia’s Augean Stables
LIII. The Macedonian Lottery
LIV. Crime Fighting Computer Systems and Databases
LV. The Author
LVI. About "After the Rain"
Slush Funds
Slush funds infect every corner of the globe, not only the
more obscure and venal ones. Every secret service - from
the Mossad to the CIA - operates outside the stated state
budget. Slush funds are used to launder money, shower
cronies with patronage, and bribe decision makers. In
some countries, setting them up is a criminal offense, as
per the 1990 Convention on Laundering, Search, Seizure,
and Confiscation of the Proceeds from Crime. Other
jurisdictions are more forgiving.
Return
Corruption and Transparency
I. The Facts
Return
Money Laundering in
A Changed World
If you shop with a major bank, chances are that all the
transactions in your account are scrutinized by AML (Anti
Money Laundering) software. Billions of dollars are being
invested in these applications. They are supposed to track
suspicious transfers, deposits, and withdrawals based on
overall statistical patterns. Bank directors, exposed, under
the Patriot Act, to personal liability for money laundering
in their establishments, swear by it as a legal shield and
the holy grail of the on-going war against financial crime
and the finances of terrorism.
The System
Why is It a Problem?
Regulation
Return
Hawala, or
The Bank that Never Was
I. OVERVIEW
Return
Straf - Corruption in Central and
Eastern Europe
Thus, we are better off asking "cui bono" than "is it the
right thing to do". Phenomenologically, "corruption" is a
common - and misleading - label for a group of
behaviours. One of the following criteria must apply:
ERADICATING CORRUPTION
Return
The Kleptocracies of the East
Still, the ubiquity of crime in east Europe and its reach are
unprecedented in European annals. In the void-like
interregnum between centrally planned and free market
economies only criminals, politicians, managers, and
employees of the security services were positioned to
benefit from the upheaval.
At the outset of transition, the underworld constituted an
embryonic private sector, replete with international
networks of contacts, cross-border experience, capital
agglomeration and wealth formation, sources of venture
(risk) capital, an entrepreneurial spirit, and a diversified
portfolio of investments and revenue generating assets.
Criminals were used to private sector practices: price
signals, competition, joint venturing, and third party
dispute settlement.
Return
FIMACO - Russia's Missing Billions
The IMF insisted that the PwC reports exonerated all the
participants. It is, therefore, surprising and alarming to
find that the online copies of these documents, previously
made available on the IMF's Web site, were "Removed
September 30, 1999 at the request of
PricewaterhouseCoopers".
The rot may run even deeper. The Geneva daily "Le
Temps", which has been following the affair relentlessly,
accused, two years ago, Roman Abramovich, a Yeltsin-era
oligarch and a member of the board of directors of
Sibneft, of colluding with Runicom, Sibneft's trading arm,
to misappropriate IMF funds. Swiss prosecutors raided
Runicom's offices just one day after Russian Tax Police
raided Sibneft's Moscow headquarters.
Absconding with IMF funds seemed to have been a
pattern of behavior during Yeltsin's venal regime. The
columnist Bradley Cook recounts how Aldrich Ames, the
mole within the CIA, "was told by his Russian control
officer during their last meeting, in November 1993, that
the $130,000 in fresh $100 bills that he was being bribed
with had come directly from IMF loans." Venyamin
Sokolov, who headed the Audit Chamber prior to Sergei
Stepashin, informed the US Senate of $2 billion that
evaporated from the coffers of the central bank in 1995.
DISCLAIMER
Sam Vaknin served in various senior capacities in Mr.
Gaon's firms and advises governments in their
negotiations with the IMF.
Return
The Enrons of the East
That was before Enron. The tables have turned. The Big
Five - from disintegrating Andersen to KPMG - are being
chastised and fined for negligent practices, flagrant
conflicts of interests, misrepresentation, questionable
ethics and worse. Their worldwide clout, moral authority,
and professional standing have been considerably dented.
America's GAAP (Generally Accepted Accounting
Practices) - once considered the undisputable benchmark
of rectitude and disclosure - are now thought in need of
urgent revision. The American issuer of accounting
standards - FASB (Financial Accounting Standards Board)
- is widely perceived to be an incestuous arrangement
between the clubby members of a rapacious and
unscrupulous profession. Many American scholars even
suggest to adopt the hitherto much-derided alternative -
the International Accounting Standards (IAS) recently
implemented through much of central and eastern Europe.
Return
The Typology of Financial Scandals
I. Overview
But this was too little and too late. The S&L's were
rendered unable to further support the price of real estate
by rolling over old credits, refinancing residential equity,
and underwriting development projects. Endemic
corruption and mismanagement exacerbated the ruin. The
bubble burst.
But the very fact that S&L's were poised to exploit these
opportunities is a tribute to politicians and regulators alike
- though except for setting the general tone of urgency and
resolution, the relative absence of political intervention in
the handling of the crisis is notable. It was managed by
the autonomous, able, utterly professional, largely a-
political Federal Reserve. The political class provided the
professionals with the tools they needed to do the job.
This mode of collaboration may well be the most
important lesson of this crisis.
Return
The Shadowy World of International
Finance
The Shoppers
The Con-Men
The Launderers
The Investors
Return
Treasure Island Revisited
On Maritime Piracy
Return
Legalizing Crime
Also Read:
PRACTICAL:
PRACTICAL:
PRACTICAL:
PRACTICAL:
Return
Begging Your Trust in Africa
Return
Organ Trafficking in Eastern Europe
Return
Selling Arms to Rogue States
Also Read
Return
The Industrious Spies
The average net loss per incident reported was $19 million
in high technology, $29 million in services, and $36
million in manufacturing. ASIC than upped its estimate to
$300 billion in 1997 alone - compared to $100 billion
assessed by the 1995 report of the White House Office of
Science and Technology.
But the FBI is only one of many agencies that deal with
the problem in the USA. The President's Annual Report to
Congress on "Foreign Economic Collection and Industrial
Espionage" dated July 1995, describes the multiple
competitive intelligence (CI) roles of the Customs
Service, the Department of Defense, the Department of
Energy, and the CIA.
Return
Russia's Idled Spies
Also Read
Return
The Business of Torture
Also Read
Return
The Criminality of Transition
Lecture given at the Netherlands Economic
Institute (NEI) on 18/4/2001
Human vice is the most certain thing after death and taxes,
to paraphrase Benjamin Franklin. The only variety of
economic activity, which will surely survive even a
nuclear holocaust, is bound to be crime. Prostitution,
gambling, drugs and, in general, expressly illegal
activities generate c. 400 billion USD annually to their
perpetrators, thus making crime the third biggest industry
on Earth (after the medical and pharmaceutical
industries).
To summarize:
Return
The Economics of
Conspiracy Theories
Return
The Demise of the Work Ethic
Not only was the link between worker and product broken
- but the bond between artisan and client was severed as
well. Few employees know their customers or patrons first
hand. It is hard to empathize with and care about a
statistic, a buyer whom you have never met and never
likely to encounter. It is easy in such circumstances to feel
immune to the consequences of one's negligence and
apathy at work. It is impossible to be proud of what you
do and to be committed to your work - if you never set
eyes on either the final product or the customer! Charlie
Chaplin's masterpiece, "Modern Times" captured this
estrangement brilliantly.
Return
The Morality of Child Labor
Return
The Myth of the Earnings Yield
But, if so, why the volatility in share prices, i.e., why are
share prices distributed? Surely, since, in liquid markets,
there are always buyers - the price should stabilize around
an equilibrium point.
Return
The Future of the Securities and
Exchange Commission (SEC)
Interview with Gary Goodenow
Under Act Section 103, the Board shall: (1) register public
accounting firms; (2) establish "auditing, quality control,
ethics, independence, and other standards relating to the
preparation of audit reports for issuers;" (3) inspect
accounting firms; and (4) investigate and discipline firms
to enforce compliance with the Act, the Rules,
professional standards and the federal securities
laws. This is a sea change in the US.
Under Act Section 108, the SEC now decides what are
"generally" accepted accounting principles. Registered
public accounting firms are barred from providing certain
non-audit services to an issuer they audit. Thus, the split,
first proposed by the head of Arthur Anderson in 1974, is
now the law.
Return
Trading from a Suitcase
The Case of Shuttle Trade
Return
The Blessings of the Black Economy
Operational Recommendations
Government Tenders
Law Enforcement
Legal Issues
Public Campaign
The government should embark on a massive
Public Relations and Information campaign. The
citizens should be made to understand what is a
budget, how the taxes are collected, how they are
used. They should begin to view tax evaders as
criminals. "He who does not pay his taxes – is
stealing from you and from your children", "Why
should YOU pay for HIM?" "If we all did not pay
taxes- there would be no roads, bridges, schools,
or hospitals" (using video to show disappearing
roads, bridges, suffering patients and students
without classes), "Our country is a partnership –
and the tax-evader is stealing from the till (kasa)"
and so on.
Return
Public Procurement and Very
Private Benefits
Q: In the age of the Internet and the car, isn't the added
layer of municipal bureaucracy superfluous or even
counterproductive? Can't the center - at least in smallish
countries - administer things at least as well?
Return
Competition Laws
2. Collusive tendering;
'Intimidate' Competitors
Raise "mobility" barriers to keep competitors in the
least-profitable segments of the industry. - This is a tactic
which preserves the appearance of competition while
subverting it. Certain segments, usually less profitable or
too small to be of interest, or with dim growth prospects,
or which are likely to be opened to fierce domestic and
foreign competition are left to the competition. The more
lucrative parts of the markets are zealously guarded by the
company. Through legislation, policy measures,
withholding of technology and know-how - the firm
prevents its competitors from crossing the river into its
protected turf.
'Vertical' Barriers
Practice a "preemptive strategy" by capturing all
capacity expansion in the industry (simply buying it,
leasing it or taking over the companies that own or
develop it).
Return
The Benefits of Oligopolies
Return
Anarchy as an Organizing Principle
But the ethos and myth of "order out of chaos" - with its
proponents in the exact sciences as well - ran deeper than
that. The very culture of commerce was thoroughly
permeated and transformed. It is not surprising that the
Internet - a chaotic network with an anarchic modus
operandi - flourished at these times.
Return
Narcissism in the Boardroom
Return
The Revolt of the Poor
The Demise of Intellectual Property?
This is the theory. But the facts are tellingly different. The
less the cost of production (brought down by digital
technologies) - the fiercer the battle against piracy. The
bigger the market - the more pressure is applied to clamp
down on samizdat entrepreneurs.
Governments, from China to Macedonia, are introducing
intellectual property laws (under pressure from rich world
countries) and enforcing them belatedly. But where one
factory is closed on shore (as has been the case in
mainland China) - two sprout off shore (as is the case in
Hong Kong and in Bulgaria).
But this defies logic: the market today is global, the costs
of production are lower (with the exception of the music
and film industries), the marketing channels more
numerous (half of the income of movie studios emanates
from video cassette sales), the speedy recouping of the
investment virtually guaranteed. Moreover, piracy thrives
in very poor markets in which the population would
anyhow not have paid the legal price. The illegal product
is inferior to the legal copy (it comes with no literature,
warranties or support). So why should the big
manufacturers, publishing houses, record companies,
software companies and fashion houses worry?
Disintermediation
Market Fragmentation
http://www.Turnitin.com
Return
The Fabric of Economic Trust
Return
The Distributive Justice of the
Market
Return
The Agent-Principal Conundrum
Return
Notes on the Economics of
Game Theory
Consider this:
Return
Market Impeders and
Market Inefficiencies
This still does not deal with the "not serious" and the
"personality disordered". What about the inefficient havoc
that they wreak? This, after all, is part of what is known,
in legal parlance as: "force majeure".
Note
Return
The Pettifogger Procurators
Diplomats in Post-Communist
Countries
Return
Microsoft's Third Front
The Intellectual Property Wars
But Microsoft may need that hoard. The battle is far from
over. The European Commission, though much weakened
by recent European Court of First Instance rulings against
its competition commissioner, Mario Monti, can fine the
company up to one tenth its worldwide turnover if it finds
against it. Microsoft is being investigated by the European
watchdog for anti-competitive practices now threatening
to spread into the high-end server software and digital
media markets.
Return
NGOs - The Self-Appointed Altruists
It is this very violence that the west tried to drown with its
credits. But unbeknownst to it, this very violence thrived
on these pecuniary fertilizers. A plant of horrors, it
devoured its soil and its cultivators alike. And 120,000
people paid with their lives for this wrong gamble.
Counting its losses, the west is poised to spin the wheel
again. More money is amassed, the dies are cast and more
people cast to die.
Return
The Honorary Academic
Higher Education for Sale in
Countries in Transition from
Communism
The reason is that the best and the brightest - when shut
out by the members of the ruling elites - emigrate. In a
country where one’s job is determined by his family
connections or by influence peddling - those best fit to do
the job are likely to be disappointed, then disgusted and
then to leave the place altogether.
Return
The Eureka Connection
How East and Central Europeans
Defraud the Gullible West
Return
The Treasure Trove of Kosovo
Now that the war is over, some people are counting their
dead - while others are counting their blessings. But this
has all been a prelude. It is the next wave of aid which is
the main course in this bacchanalia. Outlandishly feverish
numbers are tossed around. Kosovo's immediate
reconstruction (housing and infrastructure) will require
well over 2 billion US dollars in the next 2 years. Of this,
1.5 billion dollars has already been raised. A further 2
billion USD is slated as direct aid to the shattered
economies of Macedonia and Albania. But the real booty
lies in Serbia. A minimum of 10-13 billion dollars will be
required simply to restore Serbia's infrastructure to its
former, inglorious self. To resuscitate the whole
languishing area, a staggering 30 billion dollars is touted
as the minimal bill.
Return
The Macedonian Lottery
Return
Crime Fighting Computer Systems
and Databases
Interpol's I-24/7
Interpol Fingerprints
http://www.atg.wa.gov/hits/index.shtml
http://www.mass.gov/msp/unitpage/vicap.htm
http://www.fbi.gov/hq/isd/cirg/ncavc.htm
http://www.rcmp.ca/techops/viclas_e.htm
http://www.justicejunction.com/innocence_lost_ian_wing
_utap.htm
http://www.interpol.int/Public/ICPO/FactSheets/fsADN20
0501.asp
http://www.interpol.int/Public/ICPO/FactSheets/i247.asp
http://www.europol.eu.int/index.asp?page=facts
T HE AU THO R
Curriculum Vitae
Bildung
Business Experience
1980 to 1983
1982 to 1985
1985 to 1986
1986 to 1987
1990 to Present
1990 to 1995
1993 to 1994
1993 to 1996
1996 to 1999
1999 to 2002
2001 to 2003
2007
"After the Rain – How the West Lost the East", Narcissus
Publications in association with Central Europe
Review/CEENMI, Prague and Skopje, 2000
Contact Details:
[email protected]
My Web Sites:
Economy / Politics:
http://ceeandbalkan.tripod.com/
Psychology:
http://samvak.tripod.com/index.html
Philosophy:
http://philosophos.tripod.com/
Poetry:
http://samvak.tripod.com/contents.html
Return
After the Rain
How the West
Lost the East
The Book
This is a series of articles written and published in 1996-2000 in Macedonia, in Russia,
in Egypt and in the Czech Republic.
How the West lost the East. The economics, the politics, the geopolitics, the
conspiracies, the corruption, the old and the new, the plough and the internet – it is all
here, in colourful and provocative prose.
From "The Mind of Darkness":
"'The Balkans' – I say – 'is the unconscious of the world'. People stop to digest this
metaphor and then they nod enthusiastically. It is here that the repressed memories of
history, its traumas and fears and images reside. It is here that the psychodynamics of
humanity – the tectonic clash between Rome and Byzantium, West and East, Judeo-
Christianity and Islam – is still easily discernible. We are seated at a New Year's dining
table, loaded with a roasted pig and exotic salads. I, the Jew, only half foreign to this
cradle of Slavonics. Four Serbs, five Macedonians. It is in the Balkans that all ethnic
distinctions fail and it is here that they prevail anachronistically and atavistically.
Contradiction and change the only two fixtures of this tormented region. The women of
the Balkan - buried under provocative mask-like make up, retro hairstyles and too
narrow dresses. The men, clad in sepia colours, old fashioned suits and turn of the
century moustaches. In the background there is the crying game that is Balkanian
music: liturgy and folk and elegy combined. The smells are heavy with muskular
perfumes. It is like time travel. It is like revisiting one's childhood."
The Author