Financial Crime and Corruption - AuthorsDen

Financial Crime and Corruption
3rd EDITION
Sam Vaknin, Ph.D.
Editing and Design:
Lidija Rangelovska
Lidija Rangelovska
A Narcissus Publications Imprint, Skopje 2009 Not for Sale! Non-commercial edition.
© 2002-9 Copyright Lidija Rangelovska.
All rights reserved. This book, or any part thereof, may not be used or
reproduced in any manner without written permission from:
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Created by: LIDIJA RANGELOVSKA
REPUBLIC OF MACEDONIA C O N T E N T S
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 Eastern and Central Europe
VII. Russia's Missing Billions
VIII. The Enrons of the East
IX. The Typology of Financial Scandals, Asset Bubbles, and Ponzi
(Pyramid) Schemes
X. The Shadowy World of International Finance
XI. Maritime Piracy
XII. Legalizing Crime
XIII. Nigerian Scams - 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. Using Data from Nazi Medical Experiments
LVI. Surviving on Nuclear Waste
LVII. Human Trafficking in Eastern Europe
LVIII. The Mendicant Journalists
LIX. Moral Hazard and the Survival Value of Risk
LX. Private Armies and Private Military Companies (PMCs)
LXI. The Con-man Cometh
LXII. The Author
LXIII. About "After the Rain"
Slush Funds
According to David McClintick ("Swordfish: A True Story of Ambition,
Savagery, and Betrayal"), in the late 1980's, the FBI and DEA set up dummy
corporations to deal in drugs. They funneled into these corporate fronts
money from drug-related asset seizures.
The idea was to infiltrate global crime networks but a lot of the money in
"Operation Swordfish" may have ended up in the wrong pockets. Government
agents and sheriffs got mysteriously and filthily rich and the whole sorry
affair was wound down. The GAO reported more than $3.6 billion missing.
This bit of history gave rise to at least one blockbuster with Oscar-winner
Halle Berry.
Alas, slush funds are much less glamorous in reality. They usually involve
grubby politicians, pawky bankers, and philistine businessmen - rather than
glamorous hackers and James Bondean secret agents.
The Kazakh prime minister, Imanghaliy Tasmaghambetov, freely admitted on
April 4, 2002 to his country's rubber-stamp parliament the existence of a
$1 billion slush fund. The money was apparently skimmed off the proceeds of
the opaque sale of the Tengiz oilfield. Remitting it to Kazakhstan - he
expostulated with a poker face - would have fostered inflation. So, the
country's president, Nazarbaev, kept the funds abroad "for use in the event
of either an economic crisis or a threat to Kazakhstan's security".
The money was used to pay off pension arrears in 1997 and to offset the
pernicious effects of the 1998 devaluation of the Russian ruble. What was
left was duly transferred to the $1.5 billion National Fund, the PM
insisted. Alas, the original money in the Fund came entirely from another
sale of oil assets to Chevron, thus casting in doubt the official version.
The National Fund was, indeed, augmented by a transfer or two from the
slush fund - but at least one of these transfers occurred only 11 days
after the damning revelations. Moreover, despite incontrovertible evidence
to the contrary, the unfazed premier denied that his president possesses
multi-million dollar bank accounts abroad.
He later rescinded this last bit of disinformation. The president, he said,
has no bank accounts abroad but will promptly return all the money in these
non-existent accounts to Kazakhstan. These vehemently denied accounts, he
speculated, were set up by the president's adversaries "for the purpose of
compromising his name".
On April 15, 2002 even the docile opposition had enough of this fuzzy
logic. They established a People Oil's Fund to monitor, henceforth, the
regime's financial shenanigans. By their calculations less than 7 percent
of the income from the sale of hydrocarbon fuels (c. $4-5 billion annually)
make it to the national budget.
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.
The Catholic Bishops Conference of Papua New Guinea and the Solomon Islands
issued a press release November 2001 in which it welcomed the government's
plans to abolish slush funds. They described the poisonous effect of this
practice:
"With a few notable exceptions, the practice of directing funds through
politicians to district projects has been disastrous. It has created an
atmosphere in which corruption is thought to have flourished. It has
reduced the responsibility of public servants, without reducing their
numbers or costs. It has been used to confuse people into believing public
funds are the 'property' of individual members rather than the property of
the people, honestly and fairly administered by the servants of the people.
The concept of 'slush-funds' has resulted in well-documented inefficiencies
and failures. There were even accusations made that funds were withheld
from certain members as a way of forcing them into submission. It seems
that the era of the 'slush funds' has been a shameful period."
But even is the most orderly and lawful administration, funds are liable to
be mislaid. "The Economist" reported recently about a $10 billion class-
action suit filed by native-Americans against the US government. The funds,
supposed to be managed in trust since 1880 on behalf of half a million
beneficiaries, were "either lost or stolen" according to officials.
Rob Gordon, the Director of the National Wilderness Institute accused "The
US Interior Department (of) looting the special funds that were established
to pay for wildlife conservation and squandering the money instead on
questionable administrative expenses, slush funds and employee moving
expenses".
Charles Griffin, the Deputy Director of the Heritage Foundation's
Government Integrity Project, charges:
"The federal budget provides numerous slush funds that can be used to
subsidize the lobbying and political activities of special-interest
groups."
On his list of "Top Ten Federal Programs That Actively Subsidize Politics
and Lobbying" are: AmeriCorps, Senior Community Service Employment Program,
Legal Services Corporation, Title X Family Planning, National Endowment for
the Humanities, Market Promotion Program, Senior Environmental Employment
Program, Superfund Worker Training, HHS Discretionary Aging Projects,
Telecomm. & Info. Infrastructure Assistance. These federal funds alone
total $1.8 billion.
"Next" and "China Times" - later joined by "The Washington Post" - accused
the former Taiwanese president, Lee Teng-hui, of forming a $100 million
overseas slush fund intended to finance the gathering of information,
influence-peddling, and propaganda operations. Taiwan footed the bills
trips by Congressional aides and funded academic research and think tank
conferences.
High ranking Japanese officials, among others, may have received payments
through this stealthy venue. Lee is alleged to have drawn $100,000 from the
secret account in February 1999. The money was used to pay for the studies
of a former Japanese Vice-Defense Minister Masahiro Akiyama's at Harvard.
Ryutaro Hashimoto, the former Japanese prime minister, was implicated as a
beneficiary of the fund