GUNS/MONEY LAUNDERING/GOLD Flashcards
Factors causing growth in black market weapons
- The “arms race” was an economic war
- The U.S. successfully bankrupted the Soviet Union by outspending them to oblivion
- Increases in technology
- Supply and demand – prices have come down dramatically
Who are the top 5 arms producers?
- Lockheed Martin
- Boeing
- BAE Systems
- General Dynamics
- Raytheon
Why is corruption and bribery involved in the arms industry?
• Main effect is to drive many transactions further into the underground economy in search of more sophisticated money laundering techniques.
What is driving the so-called legitimate market demand?
- Value in use
- Value in display
- Value in bribery
Motives for buying weaponry on the black market?
- Guerrilla groups seeking arms
- Smaller nations not approved by UN for arms purchase
- Nations seeking to keep their arms build-up under the radar of others
What was the outcome of demand for black market guns?
• The rapid increase in worldwide demand attracted new suppliers into the market
How did the UN attempt to control arms smuggling?
• Implementing an end-user certificate program (EUC)
What is the purpose of an EUC?
- Purchaser has to agree to their legitimate use and can not re-sell the weapons
- Exporters were bound by needing an EUC to create a sale
Why is the EUC ineffective?
- Certificates are secured through bribery or counterfeited
* Huge nature and size of second-hand market has made access cheap and readily available
What are supply side factors of illegal arms market?
- New manufacturers
- Widespread regulatory corruption
- Large second-hand market
What are demand side factors of illegal arms market?
- Embargoed countries
- Guerrilla groups
- Criminal groups
What are the currencies used in the black market?
- Cash and barter
* Networks leverage above ground economies: banks, transportation and storage infrastructure
What is the government’s three-pronged approach to policing markets?
- Pursue the middlemen – between suppliers and consumers
- Following the money trail
- Demand side control
How is pursuit of the middlemen – between suppliers and consumers, effective for policing efforts?
- Operators are usually “small business people” operating in wide and thin networks
- Arms smugglers caught are easily replaced
How is “following the money trail” effective for policing efforts?
- Focus is on going after proceeds of crime
- Efforts directed at those who are seeking illegal profits
- Fraudulent documents may hide transaction details from banks and shippers
How do police control the demand side of underground economy?
- Apply economic sanctions to purchases, eg. Trade embargoes
- Address underlying conditions driving demand
Apply economic sanctions to purchases, eg. Trade embargoes
- Starves population at large as the ruling group siphons off funds to take care of its own interests
- Focuses on “root causes” of the problem
- Most effective, but requires most time and commitment
Addressing underlying conditions driving demand
- Often reveals much bigger societal issues – lack of social justice
- Huge distribution gap issues around income, wealth and ecological capital
Historical aspects of money laundering
- Money laundering Is an ancient activity
- Usury is a crime and sin, punishable by financial and social penalty and exocommunication
- Pirates set up the first off-shore money havens in the 1600s
How the 20th century changed laundering
- Large scale wars meant increased taxation – focused on a persons income not wealth
- Personal vices became criminalized
- WW1 and WW2 created the need to hide wealth from enemy capture
Historical methods of laundering
- Disguising an interest payment by inflating the exchange rate between two currencies
- Lending to a shell company in order to pay out non-existent profits
What is the U.S.’s strategy to shut down money laundering?
• Creation of the Financial Action Task Force, an international program designed to blacklist countries not following the standard regulations to fight money laundering
What is the goal of the FATF?
• To prevent dirty money from being deposited into banks
What are the mechanics of money laundering?
- Moving money away from direct association with the crime
- Disguising the money trail to cover ones tracks
- Reintegrating the money into the legitimate economy
