Money Laundering and Drugs in Romania and Spain

[Jan Klimkowski]

A typically fine article from Golem XIV:

Money Laundering and Drugs in Romania and Spain

I was in Timisoara Romania last week. Timisoara is a city of roughly 320k people on the Western edge of Romania. On the drive in to the city I was struck by the huge number of different banks I kept passing.

From one corner of the central square eight different banks were in sight of each other: RBS, UniCredit Tiriac, GEC Bank, CITI, Banca Transyvania, JTP Bank, ING, Volksbank and BCR (which is Erste - the Austrian bank). Elsewhere in the small city centre I also noted Raiffeisen Bank (another Austrian), BRD (which is actually Societe General), Piraus Bank (Greek). I also noted both PriceWaterhouseCoopers and Deloitte.

Now Timisoara is one of Romania's larger cities, though still only 320K. It does also have half a dozen international manufacturing plants. So by Romanian standards it is affluent. However, nice as it is to have manufacturing in a city, it does not make everyone rich. So you do have to ask why quite so many banks? Surely they are not all there to compete for the deposit business of the city's working class, nor even of their more well paid managers? When I asked a group of a dozen of the city's affluent professional class about the number of banks, they smiled and said, didn't I know it was because everyone in Timisoara was so very rich. So I did a little poking around and found this rather timely article in the EUobserver reporting on this study from EUROPOL which is itself the distillation of 70 000 pages of intelligence from different police forces gathered over the last two years. The headline of article and report is that,

"Southeastern Europe is becoming the main gateway for smuggling drugs, guns and people into the EU...."

By Southeastern Europe it means mainly Albania, Romania, Hungary and Ukraine. The article notes that Romania and Hungary are a principle focus of drug smuggling because of their long and poorly policed borders and their application for admittance to the Shengen group of nations which allows passport free travel between member countries. I spoke to a Romanian journalist who readily confirmed what I had previously been told, that Romania has become a major route for Heroin transport into Europe. Coming ashore in the Black Sea and then moving by road - the so called Black Sea Route, is central to Heroin and increasingly for Cocaine into Europe. From Romania the drugs have then to pass through Hungary before getting to Austria and the beginning of the affluent markets for drugs. Timisoara is the last city before crossing the border into Hungary.

Wherever there are drugs there have to be banks in which to put the profits. Banks don't like such insinuations of course. But on the other hand the is no getting around the fact that there would be no viable drug business if the money could not get into the financial system. One way or another banks DO launder all the world's drug money. The first and most difficult part of the laundering process, 'placement', is getting the cash in to a bank. Once in, its a matter of disguising it's provenance. By far the best way of placing dirty money is to have a willing business or bank, or both.

There are a lot of banks in Timosoara. What is more a lot of those banks are owned by and part of European banks - especially our friends the Austrian banks. In fact if you look at the ownership links of Austrian and Greek banks (See Piraus Bank for example) you see a clear pipeline running from Ukraine westwards to Romania and Austria.

This is no kind of proof of course, but it did set me to looking under more rocks. And under one I came across this business which says it specializes in creating Financial Trusts in, among other countries, Romania. Now Financial Trusts and Foundations are JUST the kind of thing which a friendly broker or Lawyer can set up in order to accept and hide dirty money.

The same company helpfully lists the countries in which it can facilitate setting up Trusts and Foundations:

Corporation formation in: Switzerland, Cayman Islands, British Virgin Islands, Thailand, Ireland, Holland, Hungary, Mauritius.
Trust formation in: Switzerland, Holland, Cayman Islands, British Virgin Islands, Nova Scotia, Belize, Isle of Man; and Partnerships, Scotland.
Foundation formation in: Switzerland, Curacao, Liechtenstein, Panama;

I couldn't help noticing Ireland making its appearance among the big boys of Cayman Islands, BVI, Switzerland, Liechtenstein and Panama. (For those who are surprised at Panama, don't be. The links between Panama and Israel are the really interesting ones. Panama is a hub for arms and laundering)

As I say none of this is anything but innuendo and supposition. But you do have to wonder at a small city stuffed to the gills with banks from Western and Southern Europe.

It reminds me of the tiny and very much contested Spanish enclaves of Ceuta and Melilla in Morocco. They are home to about 65K people each and are both very poor with high unemployment. They are also a focus for illegal immigration. So why would Spain hang on to them despite Moroccan anger, Muslim unrest and constant problems with illegal immigrants?

Well if you look them up Melilla has seven different Spanish Banks including branches of Santander, BBVA and Banco Popular which also advertises its services for Private Banking customers wishing more discrete private banking arrangements in Melillo. The place is dirt poor! Ceuta also houses seven banks. In neither place is there conceivably a demand from the local populace for two never mind seven banks.

What are they all doing there? According to Wikileaks papers from the American Embassy in Morocco and the Moroccan government the enclaves are major routes for Cocaine coming into Europe from South America. The route as far as I can tell comes ashore in Angola, goes cross country and leaves for Spain from Ceuta and Melillo. The two enclaves are also a route for Hashish. Once the drugs are about to head into Europe there is going to be the need for a lot of banking. And all those Spanish banks just happen to be there.

The poor old Portuguese could really do with some cash for their banks but being only in Angola they would only get a poor share.

Banks launder money. They do so knowingly. They claim not to of course. But the evidence is that they are drawn to the very places where there is money in dire need of laundering. In so doing they are central to the drug crime business. They enable and enrich the most violent criminals. And they do it for profit.

[Danny Jarman]

Found this while digging around. From 1998...

EMBARGO BUSTING:
SERB ECONOMY STAYS AFLOAT WITH THE HELP OF CRIMINAL NETWORK:
GANGS OF SMUGGLERS, THIEVES ROAM EUROPE, KEEPING SHOPS IN BELGRADE FULL:
A SOURCE OF HARD CURRENCYby Roger Thurow
/Staff Reporter of The Wall Street Journal/
BELGRADE, Yugoslavia -- The Serbs, it would seem, have pulled off the
economic miracle of the ages.
Inflation, which at the beginning of the year was doubling every
several hours, is now down next to nothing. The dinar, as worthless
as old gum wrappers a few months ago, is now pegged by the government
to equal the German mark. And stores, once barren, now offer a
dazzling array of imports, from Pampers to Air Jordans. All this
in a country supposedly ravaged by three years of war in neighboring
Croatia and Bosnia-Herzegovina and an international trade embargo.
"How do we do it?" asks the Yugoslav central bank director, Dragoslav
Avramovic. "It's 90 percent luck, 10 percent wits."
And a whole lot of help from an international criminal underworld.
ARMY OF PICKPOCKETSAlthough the government has restrained spending and
stopped
round-the-clock printing of money, its newfound fiscal discipline
is being propped up by a veritable army of pickpockets, drug dealers,
smugglers, extortionists and gangsters at work throughout Europe.
In essence, the gangs generate the cash and commodities needed
to keep this Serb-dominated country and its war effort in Bosniaafloat.
The thievery and scams provide a constant flow of foreign
currency into the country that is vital to the government's effort
to support the dinar. And the smuggling of everything from
oil and weapons to cigarettes and pork chops has relieved the
government of having to finance sanctions-busting imports, an
activity that originally helped pusah inflation to dizzyingheights.
All of this has, up to now, blunted the sting of United Nations
sanctions and created an illusion of plenty in an otherwise
impoverished land, allowing President Slobodan Milosevic to
stave off social unrest and remain all-powerful despite
deafening international condemnation.
Government ministers indignantly reject the suspicions of
Western police and diplomats that the government is in cahoots
with the criminals, who the ministers say are controlled by
paramilitary leaders or mobsters. Mirko Marjanovic, the new
prime minister. says he is a crusader against what he calls
"war profiteers." Yet as he speaks, he proudly offers a visitor
smuggled Kent cigarettes and his secretary pours a glass of
scotch. "Twelve-year-old Chivas Regal," Mr Marjanovic says.
"You can buy it here in the stores."SUBVERSIVE LEGACY
The emergence of a criminal underworld, allegedly operating
at least tacitly in tandem with the government, is one of
the more subversive legacies of the war over the breakup of
Yugoslavia, which now consists only of Serbia and its smaller
ally, Montenegro. (Several other republics, including Croatia
and Bosnia have declared independence.)
European law-enforcement officers worry that Yugoslavia
may remain a haven for the underworld long after the war is
over. They say that the country, starved for foreign currency,
has become a handy laundromat for "dirty" money from criminals
throughout Europe. And, they add, rampant smuggling also has
become an attractive cover for drug traffic moving from Turkey
and the Middle East into Europe.
In Vienna, for instance, Austrian police and Interpol agents
recently announced the arrests of 35 Yugoslavs who, they claim,
are part of a Europe-wide "currency creation scheme" that
employs pickpockets and petty thieves to steal cash, traveler's
checks and credit cards and to rob banks and houses. In Austria
alone, they reckon, the ring has accumulated more than $10 million
in cash. And with Austria being the smallest country stung by the
scam, investigators say the total -- including loot from Italy,
France and Germany -- is much higher.
The police are still following the money trail, but they believe
the cash is either taken directly to Belgrade or used to buy goods
that are smuggled into Yugoslavia. The arrested Yugoslavs, who
would from time to time retreat to Belgrade when the police trail
in Western Europe got too hot, "couldn't eat or drink all the money
themselves," says Walter Pretzner, director of the organized-crime
division of the Austrian police. "It's a huge money siphon and
there's no money there. So you ask yourself, what happened to it?
Where did it all go?"
If not Belgrade, then, most likely to Timisoara, Romania. This
ancient and decrepit city near the Serbian border is now a center
of sanctions-busting. It is teeming with Serbs, smugglers and
shadowy businesses run by, among other characters, former officers
of Romania's Securitate, the dreaded security force of executed
dictator Nicolae Ceausescu.
Piles of money, rarely seen in Romania, are now appearing as if
by magic. One day last August, a Syrian businessman whose company
reportedly trades with Serbia walked into a Timisoara bank carrying
two leather briefcases stuffed with 800,000 marks in cash (about
$500,000 under current exchange rates). The next day he returned
with two bodyguards and $1 million in U.S. dollars.
The 30-mile stretch between Timisoara (pronouced Ti-mee-SCHWAR-a)
and the Serbian border is a porous crossing where, smugglers say,
Romanian and Serbian customs agents are easily bribed and
sanctions-monitors appear only sporadically. It is there that
everything from guns to glass makes its way to and from Yugoslavia
in violation of the two-year old U.N. embargo, which bans all trade
except for medicine, food and humanitarian aid. Highway E70 has
also become an oil and gasoline pipeline.

[Danny Jarman]

I don't know if this is completely relevant, but it does involve the Romanian police...

http://robbtaylor.wordpress.com/2012/02/...d-for-hire

[Danny Jarman]

After 1990, many operatives engaged in Securitate's smuggling and other illegal
operations abroad returned to Romania to expand their "business." When the war in
the former Yugoslavia closed down the traditional "Balkan Route" for heroin,
Romania became one of its alternatives.

The inadequate legislation, the collapse of public order, the economic recession and rampant corruption contributed to turning
Romania into, as Observatoire Geopolitique des Drogues put it, "the biggest drug warehouse
in Eastern Europe."

Of all the Southeast European countries, foreign nationals have played perhaps
the largest role in organizing the smuggling channels in Romania. As one of the
measures taken to raise funds for paying off the foreign debt, Ceausescu's regime
invited thousands of students from developing countries (mostly the Arab world) to
Romania. During the shortages in the 1980s, many of these students turned into "businessmen"
and became the main suppliers of the expanding black market. In 1990,
many Arabs were among the first to "legalize" their businesses, using them as a cover
for the expanding smuggling networks. Arab presence was especially strong on the
drug and cigarette smuggling scene. The biggest competitors to the Arab smugglers
seem to be the Kurds from Turkey, who control the heroin shipments from Turkey
through Romania to Western Europe. Indications exist that the profits from Kurdishrun
heroin trade are used for financing the Kurdistan Workers' Party (PKK).36
Like all other Serbian neighbors, Romania also exploited the opportunities
offered by the international sanctions imposed on rump Yugoslavia. In the year
2000, the then-President Constantinescu accused his predecessor, the current
President Iliescu and the former Foreign Minister Melescanu of being involved in the
oil smuggling to Serbia (see chart 1). Such allegations are not uncommon in the
Southeast European political infighting and should be treated with caution. Yet, it is
hard to believe that the largest operation, involving around 1,000 railway wagons
loaded with fuel and which, as subsequent investigation revealed, crossed from
Romania into Serbia at the Jimbolia border crossing, could have been performed
without the knowledge of some of the highest Romanian officials.37
Romania was also among the largest exporters of arms to all warring sides in the
former Yugoslavia during the arms embargo imposed on them. The illegal arms
exports were controlled by former Securitate and army employees. Viktor
Stanculescu, the former head of the quartering corps for Romanian army and a member
of the tribunal which sentenced Ceausescu to death, became the owner of several
leading arms exporting companies (all of which were selling weapons to Croatia
and to Serbia) almost immediately after the revolution.38

From the paper in this thread