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TEST 2 Underground Economy > GUNS/MONEY LAUNDERING/GOLD > Flashcards

GUNS/MONEY LAUNDERING/GOLD Flashcards

1
Q

Factors causing growth in black market weapons

A
  • 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
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2
Q

Who are the top 5 arms producers?

A
  1. Lockheed Martin
  2. Boeing
  3. BAE Systems
  4. General Dynamics
  5. Raytheon
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3
Q

Why is corruption and bribery involved in the arms industry?

A

• Main effect is to drive many transactions further into the underground economy in search of more sophisticated money laundering techniques.

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4
Q

What is driving the so-called legitimate market demand?

A
  • Value in use
  • Value in display
  • Value in bribery
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5
Q

Motives for buying weaponry on the black market?

A
  • 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
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6
Q

What was the outcome of demand for black market guns?

A

• The rapid increase in worldwide demand attracted new suppliers into the market

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7
Q

How did the UN attempt to control arms smuggling?

A

• Implementing an end-user certificate program (EUC)

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8
Q

What is the purpose of an EUC?

A
  • 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
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9
Q

Why is the EUC ineffective?

A
  • Certificates are secured through bribery or counterfeited

* Huge nature and size of second-hand market has made access cheap and readily available

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10
Q

What are supply side factors of illegal arms market?

A
  • New manufacturers
  • Widespread regulatory corruption
  • Large second-hand market
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11
Q

What are demand side factors of illegal arms market?

A
  • Embargoed countries
  • Guerrilla groups
  • Criminal groups
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12
Q

What are the currencies used in the black market?

A
  • Cash and barter

* Networks leverage above ground economies: banks, transportation and storage infrastructure

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13
Q

What is the government’s three-pronged approach to policing markets?

A
  1. Pursue the middlemen – between suppliers and consumers
  2. Following the money trail
  3. Demand side control
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14
Q

How is pursuit of the middlemen – between suppliers and consumers, effective for policing efforts?

A
  • Operators are usually “small business people” operating in wide and thin networks
  • Arms smugglers caught are easily replaced
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15
Q

How is “following the money trail” effective for policing efforts?

A
  • 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
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16
Q

How do police control the demand side of underground economy?

A
  1. Apply economic sanctions to purchases, eg. Trade embargoes
  2. Address underlying conditions driving demand
17
Q

Apply economic sanctions to purchases, eg. Trade embargoes

A
  • 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
18
Q

Addressing underlying conditions driving demand

A
  • Often reveals much bigger societal issues – lack of social justice
  • Huge distribution gap issues around income, wealth and ecological capital
19
Q

Historical aspects of money laundering

A
  • 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
20
Q

How the 20th century changed laundering

A
  1. Large scale wars meant increased taxation – focused on a persons income not wealth
  2. Personal vices became criminalized
  3. WW1 and WW2 created the need to hide wealth from enemy capture
21
Q

Historical methods of laundering

A
  • 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
22
Q

What is the U.S.’s strategy to shut down money laundering?

A

• Creation of the Financial Action Task Force, an international program designed to blacklist countries not following the standard regulations to fight money laundering

23
Q

What is the goal of the FATF?

A

• To prevent dirty money from being deposited into banks

24
Q

What are the mechanics of money laundering?

A
  1. Moving money away from direct association with the crime
  2. Disguising the money trail to cover ones tracks
  3. Reintegrating the money into the legitimate economy
25
Q

Three-cycle laundry machine

A
  1. Run dirty money through the till for “services” rendered
  2. Report money as earnings of the business
  3. Tax return legitimizes the cycle
26
Q

What is the Black Market Peso Exchange?

A
  • Tight currency controls and tax laws creates a need for a black market to exchange currency between U.S. and Colombia
  • Colombian traffickers side-step the legitimate bank system and started using the black market peso exchange to launder their drug money
27
Q

Characteristics of Black Market Peso Exchange

A
  • It’s a parallel illegitimate international banking system
  • Money side is a separate business from drugs
  • Financiers only receive money, process it, and sell it at a profit
28
Q

Steps of the BMPE

A
  • Financiers act as money brokers – buying dollars from drug sales on streets in the US and exchanging them for a cut into pesos
  • After receiving money from US based traffickers, the broker takes on the risk of getting the pesos back to king pins in Colombia
  • Once money is in the bank, it is “clean” and free to move anywhere
29
Q

What is Bitcoin?

A
  • Electronic currency
  • Has a floating exchange rate with all major world currencies
  • Based on a peer-to-peer network and has no central authority in charge of money supply, nor a central clearing house
30
Q

Advantages of Bitcoin

A
  • No transaction fees
  • Speed
  • Convenience
  • Anonymity
31
Q

Why does Bitcoin get a bad rep?

A
  • Anonymity attracts criminal activity

* Potential risks posed in relation to money landering is a big concern to financial institutions and regulators

32
Q

History of gold

A
  • 19th century London, bankers created a system of paper money based on gold
  • Nixon broke the tie between gold and the US dollar to freely print money to fund the Vietnam War
  • Seen as a universal currency
33
Q

How are gold-operated businesses (jewelry and coin dealers) linked to criminal laundering operations?

A
  • Front for depositing cash in banks
  • Recycle illegal cash from offshore
  • Full service laundering

TEST 2 Underground Economy (1 decks)

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