INSTANCES: CASE STUDIESMoney laundering is the process that takes place every day in every part of the world. Hereare few instances when they were unearthed and resulted in a great lesson for our policymakers.

Russian Money Laundering ScandalThis scandal became public during the summer of 1999, with media reports of $7 billion in suspect funds moving from two Russian banks through a U.S. bank to thousands of bank accounts throughout the world. Two Russian banks deposited more than $7 billion in correspondent bank accounts at a New York bank. After successfully gaining entry for these funds into the U.S. banking system, the Russian banks transferred amounts from their New York bank correspondent accounts to commercial accounts at the bank that had been opened for three shell corporations. In February 2000, guilty pleas were submitted by a bank employee and spouse and the three corporations for conspiracy to commit money laundering, operating an unlawful banking and money transmitting business in the United States. Operation Wire Cutter

The U.S. Customs Service, in conjunction with the Drug Enforcement Administration (DEA) and Colombian Departamento Administrativo de Seguridad, arrested 37 people in January 2002 as a result of a two-and-one-half-year undercover investigation of Colombian peso brokers and their money laundering organizations. These people are believed to have laundered money for several Colombian narcotics cartels. Laundered monies were subsequently withdrawn from banks in Colombia in Colombian pesos. Investigators seized more than $8 million in cash, 400 kilos of cocaine, 100 kilos of marijuana, 6.5 kilos of heroin, nine firearms, and six vehicles. Wire Remittance Company Both a wire remittance company and a depository institution filed SARs outlining the movement of about $7 million in money orders through the U.S. account of a foreign business. The wire remittance company reported various persons purchasing money orders at the maximum face value of $500 to $1,000 and in sequential order. They received amounts ranging from $5,000 to $11,000. The foreign business identified by the wire remittance company also was identified as a secondary beneficiary. The money orders cleared through a foreign banks cash letter account at the U.S. depository institution.

The Franklin Jurado case: a strange silence on an issue in favour of Luxembourghttp://ethiquedesplaces.blogspirit.com/archive/2006/07/28/the-franklin-jurado-case-a-strange-silence-on-the-issue.htmlIn the late 1980s and early '90s, Harvard-educated economist Franklin Jurado ran an operation to launder money for Columbian drug lord Jose Santacruz-Londono. His was a very complex scheme. In its simplest form, the operation went something like this:

Placement: Jurado deposited cash from U.S. drug sales in Panama bank accounts.Layering: He then transferred the money from Panama to more than 100 bank accounts in 68 banks in nine countries in Europe, always in transactions under $10,000 to avoid suspicion. The bank accounts were in made-up names and names of Santacruz-Londono's mistresses and family members. Jurado then set up shell companies in Europe in order to document the money as legitimate income.Integration: The plan was to send the money to Columbia, where Santacruz-Londono would use it to fund his numerous legitimate business there. But Jurado got caught.

In total, Jurado funneled $36 million in drug money through legitimate financial institutions. Jurado's scheme came to light when a Monaco bank collapsed, and a subsequent audit revealed numerous accounts that could be traced back to Jurado.

Jurado's neighbour in Luxembourg filed a noise complaint because Jurado had a money-counting machine running all night. Local authorities investigated, and a Luxembourg court ultimately found him guilty of money laundering. When he'd finished serving his time in Luxembourg, a U.S. court found him guilty, too, and sentenced him to seven-and-a-half years in prison.

When authorities are able to interrupt a laundering scheme, it can pay off tremendously, leading to arrests, dirty money and property seizures and sometimes the dismantling of a criminal operation. However, most money-laundering schemes go unnoticed, and large operations have serious effects on social and economic health

The Jurado case is an example of the increasingly sophisticated means drug cartels employ to secure assets. But it also indicates that the very profits that motivate drug organizations are an Achilles heel and that national legislators, law enforcement agencies and international bodies are stepping up efforts against money laundering.

In this context,Luxembourg did a very good job.

Something striking is thatthe case, which is in favour of Luxembourg to demonstrate the action to refuse criminals, is forgotten in Luxembourg(it is not actually presented in the Codeplafi Database, it is not quoted by professionals to promote the ethics of the financial center) all the more as at the time of the trial, Etienne Schmit, who was deputy prosecuting attorney had said "We hope this makes the criminals understand that we do not want their money" (quoted by the International Herald Tribune). As if some pragmatic people wanted the criminals do not understand Luxembourg do not want their money. After the Jurado case Luxembourg had adopted a money-laundering law in 1989, but critics had said that it was full of holes. At the same time, the government had been concerned not to undermine the banking secrecy laws on which much of Luxembourg's wealth depends. Other text came later: Law of 5 April 1993 updated on 18 October 1999 and recently law of 12 November 2004.

We saw the same bad pragmatism in the framework of the debate relating to the current law on money laundering (12/11/2004). Luc Frieden's draft text was credible and appreciated by the IFM, but some professionals refused the wording as they wanted a text that would not have a negative impact on the commercial objectives and would be strictly limited to European requirements. The Prosecutors' Office underlined some international recommendations and especially those of the FATF-GAFI and explained it is no use having texts if the implementation is not effective. The Prosecutors' Office had even understood when reading comments on the draft that it was expected "to close the eyes on some obvious cases of dysfunction".

"Pragmatic people" won, which is a shame as Luxembourg could have anticipated some of the requirements of the new3rd European directive.and therefore become a market leader in business ethics.Bernie Madoff Investment Scandal: This scandal was perpetrated by Bernie Madoff and is considered by many to be thebiggest hedge fund scandal of the century. He defrauded investors out of nearly $50 billion. The modus operandi that he used was getting in new investors and using the money from them to payoff the old investors rather than generating profits from trading.Unlike other Ponzi schemes, Madoff didn't promise astronomical returns but regularly paid off returns between 10-15% which raised red flags because maintaining such consistent returns weren't possible.Bernie Madoff was a broker-dealer also and therefore the funds in his wealth management fund was kept in his own brokerage accounts thus protecting them from investigation. Madoff mostly managed money for charities which meant that he was on the hook for paying off just 5% of his money . This allowed him to be safe from unexpected withdrawals. Madoff kept an aura of eliteness around himself which convinced investors to keep their money with him. When a few investors wished to withdraw, he promptly paid them off giving confidence that the firm was solvent.Madoff liquidated his holdings at the end of each period thus avoiding filings with the SEC. He also kept all the auditing responsibilities with his own auditor and thus perpetrated one of the biggest accounting frauds in history. He kept a veil of secrecy around his operations citing that he didn't wish to disclose his proprietary trading strategies. He was basically called by many as running an unregistered hedge fund of funds. He has also been accused of front running i.e he used the knowledge of the orders of his brokerage clients to trade against them. This is evident by the fact that he paid many brokers a "kickback" for executing their orderflow.He was caught when in the general market downturn in 2008, investors wished to withdraw $7 billion, he couldn't pay them off as he had only $200 million. Madoff was asked to pay $17 billion in restitution.Madoff investment scandal2.)LIBOR Scandal: This is called by many to be thebiggest scandal in history of Financial Services Industry.I will not go into the details of how LIBOR [London Interbank Offered Rate] is fixed but it is fixed by banks operating in the London InterBank Market twice a day.Now LIBOR is a very important rate as the entire U.S Derivatives market is based on these rates since these rates are the basis of a range of financial products. Many floating rate bonds are indexed to this rate. Now many banks with proprietary trading operations in these derivatives manipulated LIBOR to their advantage. Infact phone and mail records have been found of traders which said that LIBOR rate fixing was now a cartel and they could get LIBOR to whatever value they wished.The main perpetrators of this were Barclays, Deutsche Bank, JP Morgan, Citigroup, Bank of America, RBS etc.In 2012, new rules were passed which subjectedLIBOR to increased UK regulatory oversight. A few banks did pay monumental fines in this regard and Bob Diamond, then CEO of Barclays plc even had to resign.Libor scandal3.)Enron scandal: Probably the most famous scandal, this was perpetrated by Enron, an energy, commodities and services company.This company was accused of using a series of creative accounting strategies like mark-to-market accounting which allowed it to state future profits even before they were earned. This was done so thatcorporate executives could drive stock prices up and thus be paid higher bonuses. They also received stock options as part of their compensation which could then be sold for higher prices. Enron was at it's peak called as one of America's most innovative companies.Enron also concealed a lot of their losses in off-balance sheet special purpose vehicles designed by their CFO, Andy Fastow.The collapse of Enron had widespread ramifications across the business world as itlead to the passing of the Sarbannes-Oxley actandfall from grace of Arthur Andersenwhich was considered to be one of the Big 5 accounting firms alongside PwC, KPMG, E&Y and Deloitte.This also questioned the co-existence of accounting and consulting firms and forced many big auditing firms at that time to sell of their consulting practices(Though they have rebuilt them now)EnronOther notable mentions are Charles Ponzi (The name Ponzi scheme has come from this person), WorldCom, Harshad Mehta stock scandal etc.Updated 3 Feb. 394 views. Asked to answer byAbhishek Malhotra.Upvote5