Offshore to online: How money was laundered in the past

Jodesz Gavilan
From investing to businesses to offshore bank accounts, past high profile cases highlight the many ways people hide money obtained illegally

IN THE PAST. High profile cases of money laundering use various ways to disguise illegal money.

MANILA, Philippines – The Senate is now trying to get to the bottom of the biggest money laundering scandals to ever hit the Philippines.

About $81 million (P3.8 billion)* out of the $101 million (P4.7 billion) illegally taken by hackers from the account of the Bangladesh Central Bank with the Federal Reserve Bank of New York ended up in Philippine-based bank accounts.

The stolen money was wired to 4 foreign currency accounts at the Rizal Commercial Banking Corporation (RCBC), transferred to money transfer company Philrem Service Corporation, which converted the amount to pesos and eventually delivered the money to casinos.

This was the money laundering route that funds from the impoverished country took to the Philippines. (TIMELINE: Tracing the $81-million fund from Bangladesh Bank)

What is money laundering?

Money laundering, as defined by the International Criminal Police Organization (Interpol), refers to covering or disguising the identity of illegally obtained proceeds or dirty money “to appear to have originated from legitimate sources.”

It usually takes 3 steps:

  1. Placement or inserting the dirty money into the financial system 
  2. Layering or enacting a financial transaction to hide the fact that it came from an illegal source
  3. Integration where eventually the dirty money is “returned” to the criminal after going through seemingly legal financial transactions

Several methods are involved under each step to cover up the dirty money, such as purchasing foreign money and even investing or placing bets on gambling events, among others.

Rappler looks at high profile cases of money laundering and the routes they took to make the illegal look legal:


Ferdinand E. Marcos / Philippines

Ferdinand E. Marcos ruled the Philippines as president for at least two decades. Nine years of his 21-year rule was under Martial Law where he and his cronies allegedly amassed money through graft and corruption from national government agencies, aside from human rights abuses.

Transparency International estimates that Marcos embezzled from $5 billion (P231.8 billion) to $10 billion (P464 billion) from 1972 to 1986. According to the United Nations and World Bank’s Stolen Asset Recovery (StAR) Initiative report published in 2007, they laundered the money through shell corporations, real estate properties here and abroad, and by depositing money in numerous offshore banks “under pseudonyms, in numbered accounts or accounts with code names.”

After he was overthrown by the People Power Revolution in 1986, President Corazon Aquino established the Presidential Commission on Good Governance (PCGG) to help recover the money from Marcos, his family, and allies.

It has so far recovered $3.6 billion (P170.45 billion) from 1986 to 2015 while there are still 19 pending civil cases against the former dictator and his cronies. (READ: At 30: PCGG by the numbers)


Sani Abacha / Nigeria

Sani Abacha was a military general who served as Nigeria’s de facto president from 1993 to 1998 after overthrowing the transitional government headed by Chief Ernest Shonekan via a palace coup.

Although the country achieved economic growth under his administration, Abacha’s rule was tainted by human rights abuses and corruption.

Abacha reportedly stole government funds amounting to almost $5 billion (P231 billion) throughout his administration. Most of the illegally amassed wealth was laundered by diverting money to foreign banks, including those located in the United States, Britain, and Switzerland.

After his death in 1998, efforts to implicate the family and recover the dirty money heightened. In 2014, the US returned $480 million (P22.3 billion) of Abacha’s stolen money to Nigeria.

Switzerland, meanwhile, charged his son Abba Abacha, of money laundering in 2005. He was also taken into custody by the Swiss government and jailed for more than a year.


Al Capone / United States

One of the most famous mob gangsters, Al Capone, was behind a 1920s American organization with an estimated $100 million (P4.6 billion) illegal earnings each year.

The huge amount of money came from the illegal activities of Capone’s criminal syndicate, the Chicago Outfit, which included distribution of illegal alcohol during the Prohibition era, gambling, prostitution, loan sharking, extortion, and murder.

It is said that he laundered more than a billion dollars by investing in several businesses. One famous tidbit, although never confirmed, was that one of his first businesses was a laundromat.

In 1932, he was sent to prison not for money laundering but for tax evasion.

After Capone’s incarceration, the “Mob’s Accountant” Meyer Lansky transferred dirty money from his own illegal activities to Europe after seeing the importance of laundering money to foreign banks and a network of shell companies – which exist mainly on paper. These companies are often used by criminals to hide illegally obtained money.


Drug cartels and the Black Market Peso Exchange / Colombia

The Black Market Peso Exchange (BMPE) is a system which launders proceeds from drug operations – mostly of cartels from Colombia through international trade and foreign currency accounts. It is considered the “largest drug money-laundering mechanism.”

The illegal drugs produced by cartels in Colombia are sold in the US, thus generating dollars, which, however, cannot be used to buy assets in their home country. The BMPSE solves this. When these dollars are transferred to Colombia, “brokers” sell the laundered foreign currency to Colombian businessmen who are in need of dollars.

According to reports, the BMPSE launders more than $5 billion (P231.8 billion) a year.

The establishment of this system was triggered by the problem encountered by illegal drug businesses in Colombia. The cocaine distribution of Pablo Escobar’s Medellin cartel was so successful and massive that he hid the money in various places – farms, warehouses, and even under the ground.

A report by Business Insider on his chief accountant’s memoir said that he lost 10% of his wealth – because of water or even rats that damaged the money.


Liberty Reserve / Costa Rica

Liberty Reserve (LR) is an Internet-based currency service incorporated in Costa Rica.

In 2013, the United States charged the 7 people behind it – including founder Arthur Budovsky – for being the “online service preferred by cybercriminals around the world for laundering the proceeds of their criminal activities.” It is estimated that the system helped launder over $250 million (P11.5 billion).

The LR system was designed in such a way that financial transactions can be done anonymously. Users were able to register and use the system without further verification from their end.

According to legal documents from the US Department of Justice, the website was used by those involved in credit card theft and computer-hacking rings from countries such as Vietnam, Nigeria, Hong Kong, and China. They utilized the system to distribute the illegally amassed money to various individuals.

After being initially investigated by authorities in 2011, Liberty Reserve began emptying its bank accounts but the Costa Rican government was able to hold $19.5 million (P903 million). Its other officials, however, also tried to transfer funds to at least 10 accounts linked to shell corporations in Cyprus, Hong Kong, China, Morocco, Australia, and Spain.

The website was eventually shut down and seized by US authorities after years of investigation in 2013. Budovsky, in January 2016, pleaded guilty to conspiring to commit money laundering and is awaiting conviction. – Rappler.com

*$1 = P46.3

Al Capone photo from Wikicommons, Sani Abacha and Ferdinand E. Marcos photos from AFP, and Liberty Reserve photo and drug cartel photos from Shutterstock.

Jodesz Gavilan

Jodesz Gavilan is a writer and researcher for Rappler and its investigative arm, Newsbreak. She covers human rights and also hosts the weekly podcast Newsbreak: Beyond the Stories. She joined Rappler in 2014 after obtaining her journalism degree from the University of the Philippines.