Washing away all my problems II

I received an email from a reader asking me what money laundering has to do with fraud.  It's a good question, so I thought I would take an interlude tonight and answer this.

    It is important to remember that laundering is the system and method by which all proceeds of a crime are intergrated into the banking systems and business environments all over the world.  The proceeds of a crime, namely the monies and the owners of these dirty monies are transformed (well, not the owners) so that the proceeds appear to originate from a legitimate source.  This way, the funds disappear and the criminals can have the benefits of their "work."

   Money laundering is not done by small-time crooks anymore.  It is one of the primary sources in which major criminal groups receive their funds, including:

Mafia organizations (Russian and Italian)
Yakuza (Japanese)
Nigerian gangs (including 419 scammers)
Mexican drug cartels

   Further, this is the method by which Al Quaeda and other Islamic terrorist groups get their funds as well (one of the primary methods).

   So, money laundering is indeed fraud because deceitful means are being used to get monies, or in this case, hide from where the monies are coming.

As always, have a great and fraud-free day.

http://www.tauskvega.com

------------>>>>>>>>>>>>>gene tausk

Washing away all my problems I

Money laundering.  It sounds kind of funny (it is hard to translate this phrase to other languages from English), but it is one of the most serious issues of the 21st century (so far).  Money laundering used to be a way for thugs to literally whitewash their illegal earnings.  Now, it has become a way for terrorists to fund their operations.  Groups like Al-Quaeda would be out of business overnight if they could not get money to function.  Because of money-laundering operations, they sometimes make more money than some governments.

     But, let's start at the beginning.  What is money laundering?  Simply put, it is a way to disassociate the proceeds of criminal endevours from the activities themselves.  If someone is making money by drug dealing, if he deposits his ill-gotten gains in a bank, especially large amounts of money or a continued influx of cash receipts with no verification from where this money arose, then sooner or later this bank account, and eventually the person, will find themselves the target of an investigation.  Of course, no self-respecting criminal wants this.

    So, the only way around this is to "clean" the money, hence the phrase.  The easiest way to do this is to take over businesses with a high cash turnover, like restaurants, and then proceed to mingle the cash generated from the illegal activity with the legitimate income, thus creating a logical and commercial reason for the large sums of cash.  The term "money laundering" came about because in the 1920's, laundry operations were the primary source for laundering operations.

    So, we being our exploration of money laundering.  Should be fun.

As always, have a great and fraud-free day.

http://www.tauskvega.com

--------------->>>>>>>>>>>>>>>>>gene tausk

Interludes

To my readers - sorry for the delay in posting - the usual suspects at work.

    We have discussed Charles Ponzi and discovered the man behind his massive fraud scheme.  As posted earlier, we saw that Ponzi played off of basic human emotions to get rich quickly as well as use his charismatic personality to draw investors.

    Beginning tomorrow, this blog will move forward and discuss money laundering.  It will be an introductory discussion as money laundering, like most fraud topics, is a large field and deserves special consideration.  But, we have to begin from somewhere.

    As always, have a great and fraud-free day.

http://www.tauskvega.com

------------->>>>>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi XV

We've seen the rise and fall of Charles Ponzi, the 20th century's first great, well-known con artist who achieved a kind of immortality with his name now forever linked to the name of a scheme linked with fraud and deceipt.  So intertwined is his name with fraud that his name is mentioned in countless Federal and State lawsuits and criminal prosecutions and is self-defining.

     Note one thing I mentioned at the very beginning of this thread - Ponzi already had a criminal past when he began his fraud scheme.  This goes also to what I said at the beginning - fraud schemes and con artists, no matter how elaborate or "charming" (as Hollywood would have it), are criminals at heart.  They seek to defraud people.  Their methods and means may be more "polite" than holding up someone with a gun or beating a person for his money, but the results are the same - a person loses his money through dishonest means.

     Ponzi's scheme had all the hallmarks of a "get rich quick" idea that appealed to the baser instincts of human nature.  While it seems lucridous to believe that people fell for it, keep in mind that Ponzi schemes are alive and well today.  If Ponzi could come back from the dead, he would look at Enron and other modern-day frauds and feel right at home.

     Ponzi would be the first to say that human nature does not change and people like Ponzi would always be around to take advantage of it.

    In his own way, therefore, Ponzi was indeed "great."

Have a great and fraud free day.

http://www.tauskvega.com

------------>>>>>>>>>>>gene tausk

The Great Charles Ponzi XIV

Let's look at the ultimate fate of Charles Ponzi, once again courtesy of Wikipedia:

In two federal indictments, Ponzi was charged with 86 counts of mail fraud. At the urging of his wife, on November 1, 1920, Ponzi pleaded guilty to a single count before Judge Clarence Hale, who declared before sentencing, "Here was a man with all the duties of seeking large money. He concocted a scheme which, on his counsel's admission, did defraud men and women. It will not do to have the world understand that such a scheme as that can be carried out ... without receiving substantial punishment." He was sentenced to five years in federal prison.^[7]

He was released after three and a half years and was almost immediately indicted on 22 Massachusetts state charges of larceny.^[1] This came as a surprise to Ponzi; he thought he had a deal calling for the state to drop any charges against him if he pleaded guilty to the federal charges. He sued, claiming that as a federal prisoner he could not be tried by the state. The case, Ponzi v. Fessenden, made it all the way to the Supreme Court of the United States. On the 27th of March, 1922, the Supreme Court ruled that plea bargains on federal charges have no standing regarding state charges. It also ruled that Ponzi was not facing double jeopardy because Massachusetts was charging him with larceny while the federal government charged him with mail fraud (even though the charges implicated the same criminal operation).

In October 1922, he was tried on the first ten larceny counts. Since he was insolvent, Ponzi served as his own attorney and, being as persuasive as he had been to investors, the jury found him not guilty on all charges. He was tried a second time on five of the remaining charges, and the jury deadlocked. Ponzi was found guilty at a third trial, and was sentenced to an additional seven to nine years in prison as "a common and notorious thief." ^[7]

After word got out that Ponzi had never obtained American citizenship (despite having lived in the United States for most of the time since 1903), federal officials initiated efforts to have him deported as an undesirable alien in 1922.^[8]

Ponzi was released on bail as he appealed the state conviction. He went to the Springfield neighborhood of Jacksonville, Florida and launched the Charpon Land Syndicate ("Charpon" is an amalgam of his name), offering investors in September 1925 tiny tracts of land, some under water, and promising 200 percent returns in 60 days.^[1] In reality, it was a scam that sold swampland in Columbia County.^[9] Ponzi was indicted by a Duval County grand jury in February 1926 and charged with violating Florida trust and securities laws. A jury found him guilty on the securities charges, and the judge sentenced him to a year in the Florida State Prison. Ponzi appealed his conviction and was freed after posting a $1,500 bond.

Ponzi traveled to Tampa,^[9] where he shaved his head, grew a moustache, and tried to flee the country as a crewman on a merchant ship bound for Italy. The ship, however, made one last American port call; he was caught in New Orleans and sent back to Massachusetts to serve out his prison term.^[1] Ponzi served seven more years in prison.

In the meantime, government investigators tried to trace Ponzi's convoluted accounts to figure out how much money he had taken and where it had gone. They never managed to untangle it and could conclude only that millions had gone through his hands.

Ponzi was released in 1934. With the release came an immediate order to have him deported to Italy. He asked for a full pardon from Governor Joseph B. Ely. However, on July 13, Ely turned the appeal down.^[10] His charismatic confidence had faded, and when he left the prison gates, he was met by an angry crowd. He told reporters before he left, "I went looking for trouble, and I found it."

Rose stayed behind and later divorced him in 1937,^[11] as she did not want to leave Boston. Rose, who later remarried, eventually became the bookkeeper for the New Cocoanut Grove Inc, the parent company of Boston's Cocoanut Grove nightclub.^[3][12][13]

In Italy, Ponzi jumped from scheme to scheme, but little came of them. He eventually got a job in Brazil as an agent for Ala Littoria, the Italian state airline.^[2] During World War II, however, Brazil sided with the Allies, and the airline's operation in the country was shut down. During that time, Ponzi also wrote his autobiography.^[14]

[edit]

Ponzi spent the last years of his life in poverty, working occasionally as a translator. His health suffered. A heart attack in 1941 left him considerably weakened. His eyesight began failing, and by 1948, he was almost completely blind. A brain hemorrhage paralyzed his right leg and arm. He died in a charity hospital in Rio de Janeiro, the Hospital São Francisco de Assis of Federal University of Rio de Janeiro on January 18, 1949.^[2]

We will conclude our discussion of Charles Ponzi tommorrow.

http://www.tauskvega.com

-------------------->>>>>>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi XIII

We will be wrapping up our conversations about Charles Ponzi.  Ponzi created the classic, well, Ponzi scheme.

It had all the elements:

1.  The Benefit - the investor is lured by promises of amazing, but not completely unrealistic, returns.  This is the classic "hook."

2.  The setup - a believable explanation as to how money will be made.  In Ponzi's case, it was the postal marker  scheme.  It was believable and acceptable.

3.  Initial Credibility - the person running the scheme has to have the credibility and charisma to pull it off.  Ponzi had these qualities.

4.   Initial investors paid off.  Ponzi's initial investors were paid off, and were, of course, very happy.

5.  Communicated success.  These initial investors told other investors and.......so it goes.

Read through Ponzi's history again in the previous posts.  We can see how these elements emerged and were applied.


As always, have a great and fraud-free day.

http://www.tauskvega.com

-------------->>>>>>>>>>>>>>>>gene tausk

The Great Charles Ponzi XII

Well, we saw the fate of Charles Ponzi.  Please note I mentioned at the beginning of this series of posts that Ponzi was not the first person to actually do a "Ponzi Scheme," but his name is forever linked with the scheme and the victims that followed.  Why was Ponzi so unlucky (or lucky since he has achieved a type of immortality) to achieve this dubious distinction?

     Ponzi lived during the beginning of the age of mass communication - namely that of radio.  The 1920's, when Ponzi was operating, was the birth radio technology.  Much like the net and various apps and smartphones today, radio had the possibility to change the world because, for the first time in human history, allow people to be connected instantaneously.  It was a new technology and was just barely beginning to be exploited.  Also, it was a form of mass communication technology that was, more or less, available to all Americans.

    Like any new technology, the uses of this technology when it starts is always questionable.  People are always asking "just how viable is this technology and will it last?"  Try looking at the history of 8-track tapes and Betamax for recent examples of technology failure.

   Radio, however, was an invention at the right place and at the right time.  And, a story like Ponzi's was almost created for this new medium.  Ponzi's scheme could be written in newspapers for instant distribution and read aloud on radio for instant transmission.  Millions of people could suddenly be aware of this vast scheme and the incredible numbers of people who were defrauded.

    Radio was in the right place at the right time, but Ponzi was in the opposite situation if he wanted to be forgotten by history.

As always, have a great and fraud-free day.

http://www.tauskvega.com

--------------->>>>>>>>>>>>>>>gene tausk