Who's Exercising

Podcast Length 00:48:14

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S1: This ad free podcast is part of your Slate plus membership.

S2: Hello and welcome to the Who’s Exercising edition of Sleep Money, your guide to the Business and Finance News of the Week.

S3: I am Felix Salmon of Axios. I am here with Emily Peck of Huff Po. Hello. I am here with Anna Shamansky of Breakingviews. Hello. We are going to talk about our exercise regimens. Honestly, it’s not quite as boring as there is a lot of interest in at home exercise and a lot of money in Axum at home exercise. And this whole idea of exercise is a service which you buy a subscription for. It’s become this massive industry. Look at the market capitalization on the stock market. We are going to talk about all of that. We are going to talk about the effects of having COVID on your personal finances, which are enormous. And we are going to have even more COVID content in Slate, plus about norms around my squaring and the philosophy thereof. But we are going to start with the big news of the week, which was this massive investigation by BuzzFeed News and the International Consortium of Investigative Journalists, all about money laundering and suspicious activity reports from banks. All of that coming up on slate money. So two years, four hundred plus journalists, 88 countries, 106 news organizations, the biggest investigative investigation at least since the Panama Papers. Emily Peck, what or who is a thin and file?

S4: It’s the Financial Crimes Enforcement Network. It’s part of the Treasury Department, and their job is to fight money laundering. And the bottom line of this investigation is they don’t do that great of a job.

S3: This is my favorite statistic. They have two hundred and seventy employees. And as I say, the journalists doing this investigation for two years had over four hundred people working on it basically full time. The two hundred and seventy employees did not have two thousand reports to try and investigate like the journalist did. They had 12 million reports to investigate over the amount of time that the, you know, at the same time period. So it’s basically inconceivable that they would be able to do anything like the job that the journalists did. But the message of the journalists of the journalism in the journalism project was, look what we found after spending two years looking at all of this stuff. Shouldn’t you have found this and done something about it much more quickly? And the answer to that is yes, right?

S5: Yes. Although much of it to be fair is old news. It’s things that, in fact, have already been discovered, some of which have already been adjudicated so well. Yes, I think it’s great that they did this and show this very little of this is new, right?

S3: It’s not. It’s one of those pieces of investigation. It’s one of those pieces of investigative journalism where, like, there’s no great big smoking gun if look what we’ve discovered and you wouldn’t, frankly, expect there to be because these are reports that were sent to. Law enforcement years ago, so it’s not like, you know, the banks are going to try and hide that because by definition they weren’t hiding it, they were sending it to the authorities. But the fact is, the banks on some level knew that the authorities weren’t likely to do anything with this information. And because they had sent these reports to law enforcement, they could continue to do business with these suspicious actors. And apparently and this is the bit which I don’t entirely understand, if you have filed a suspicious activity report, then that basically gives you would get out of jail free card for like a betting money laundering.

S1: I don’t think it’s that simple. I think that. After I think 2012, there were some money laundering fines, I think Standard Chartered and another bank or some fairly large fines, and as a result of that, you can very clearly see that was when the number of these stars went from around sixty thousand a year to about two million a year. And it makes sense because if I’m a bank and I’m nervous that I could potentially get fined, what am I going to do? Anything that is the tiniest bit suspicious. I’m going to send in a star to be like I’ve covered myself. The problem with that is then that means you’ve massively increased the number that these people have to deal with. So it actually makes it harder to find the ones that are legitimate because the vast, vast, vast majority actually aren’t really bad activity.

S3: It’s only a small problem. The problem isn’t the numbers so much as it’s the fact that sending in this covers yourself, like if if you had to send in the suspicious activity report. But that didn’t give you a get out of jail free card, you know, if you had to send in a suspicious activity report. But if you continue to do business with someone you thought was money laundering, you could still get prosecuted and fined, then maybe they would that would be more effective. The problem is that they seem to be using this as a way of avoiding prosecution more than a way of actually helping crack down on money laundering.

S6: I want to step back a little bit because we know that banks, they have too much power to regulate themselves and then things like they get away with a lot of bad stuff. And that’s part of what this investigation shows. But I do think this investigation also shows how money laundering is, this widespread multitrillion dollar activity taking place all over the world, much of it going through the United States. That doesn’t get stopped. And last week we talked about how Facebook undermines democracy. But what really struck me here is how banks undermine democracy by abetting dictators and drug runners and oligarchs. Money laundering. It’s it’s actually pretty. I guess it’s kind of like you read it and you’re like, oh, I knew this. I knew HSBC had like special deposit windows made up for drug dealers so they could drop off their cash faster. Oh, you know, I knew that JP Morgan did some stuff for money laundering for Iran or, you know, there was a bus explosion in Jerusalem tied back to a bank that tied back to money laundering that took the bank over a decade to report in a SARS. And like you kind of know all this, but like seeing it all together, you really start to realize how very little I think. I spoke to my friend Benjamin, who works at ICG, which helped spearhead this investigation, and he was saying, like, less than one percent of all money laundering is stopped, which is really crazy. Like if you think about other crimes, if we said, like, less than one percent of murders are are, you know, prosecuted or people would be up in arms. But because this is so boring, kind of even though there are these shocking moments like the deposit window, people like mostly just like let it go, you know, so it’s more than like banks kind of like getting like a cover your ass for submitting these reports. It’s kind of, I think, underresourced in part because it’s like a little bit boring, but it’s like this really big deal.

S3: The thing and the big picture as well is that the banks are making money from this. They wouldn’t open these deposit windows. They wouldn’t drag their feet. They wouldn’t, you know, just continue doing business while covering their ass by sending in these two million reports a year. If it wasn’t for the fact that they were finding this business incredibly profitable and this is what I wrote in the newsletter this week, is the only way to really crack down on money laundering is to change the incentives of banks so that it stops being money laundering, stops being a profit center for them, and starts being something which really costs the money on a regular basis in the form of fines and other sanctions. Unless and until that happens, it’s going to continue to be a major global industry.

S1: To me. I think part of the issue does come down to the fact that you have trillions of dollars of transactions going every single day. It is very, very hard for any financial institution and any regulator to deal with that. And to me moving forward, I think this is an instance where technology is going to have to play a role. You are simply never going to be able to hire enough people or change incentives enough to be able to regulate that. To me, this has to be a technological fix or nothing will ever fix it. There’s just too much.

S3: Well, I mean, I think I mean, I think that’s actually one thing where the ICJ project is very useful, like they had this huge pile of suspicious activity reports and they realized that none of them were really possible in the same format. And so they had to write a whole bunch of custom software in order to. Be able to link them together across banks and across clients and be able to see what money was flowing from where to where and. It’s pretty obvious that software doesn’t exist on the law enforcement side, that if you look at all of the different countries that are trying to deal with this independently and trying to coordinate with each other, they don’t have a software platform that allows them to do this. And they don’t have a kind of seamless coordination between each other and also with the banks and the compliance departments and the banks so that they can all work together and pull in the same direction. And this is what my former colleague Elizabeth Nuzzi wrote for Bloomberg. It’s like the only way, realistically, that this can be solved. I mean, obviously, you need the stick of sanctions being able to sanction banks even if they have filed these reports. But you also need, as Anna, you said, you need a lot more coordination. You need a lot more technology, and you need to really take this very seriously on a coordinated basis. But, hey, Pellant is about to go public, so maybe you can create that right yare.

S6: I also think there was one story in particular that I really liked and the ICJ investigation that I wanted to flag. And it was this look at how this Ukrainian oligarch looted all this money from the bank he ran in Ukraine. He just stole a bunch of money and then he laundered it through by buying a bunch of buildings in the United States, including like factories in Ohio, steelwork where people are working and then ran them into the ground. And as a result, someone even even died in a factory accident. Like, it just kind of brought home how this money laundering and looting, it’s not these are not victimless crimes at all. And I think part of inspiring people to write these algorithms to stop the laundering would involve, like surfacing more stories like that, which would kind of I don’t know how to say this, but I feel like you have to make money laundering and this bank malfeasance, like a little sexier to get people interested in it in the media. Right.

S5: Although to be fair to say, the Kominsky I mean, like Prabhat Bank was nationalized, like, this isn’t something that people didn’t know about and nothing happened. Like the bank was nationalized wrap.

S4: Just someone in Ohio died in a factory accident because.

S5: So no. And I agree and I agree. The oligarch in Ukraine. Yeah. Yeah.

S3: And I think you’re reacting to something different here. We’re not we’re not saying that he wasn’t caught and nothing happened. Yeah. What we’re saying is that this was a claim with victims and often think of money laundering as a victimless crime. And I do think that the massive CIJ sprawling website situation does make it quite hard to find those stories like it. It really felt like an eat your greens kind of piece of journalism rather than something that anyone would actually want to read.

S6: Yeah, that’s what is frustrating. I think it’s like there’s this massive fraud and money laundering and these oligarchs running rampant and like some poor guy dying in Ohio and oh, and oh. And there was this tidbit in the story about the state giving tax breaks to the money launderers for starting businesses in the Midwest. And it was sort of just a harp, another heartbreaking example of states like giving away so much to these awful people anyway, side note. But the fact is people aren’t interested enough in this, given the seriousness and its widespread effects.

S3: One thing I will say is that anecdotally, the outcome that I really fear here is that the big billionaire Ukrainian oligarch types and drug lords will continue to launder their money without much difficulty. And if there is some concerted crackdown on fraud and money laundering, it’s going to really hit like a bunch of small business owners who will be the first people caught up in these nets. And often they will be completely innocent and doing no money laundering at all. I’ve just anecdotally heard like three different examples of this just in the past couple of weeks of banks sort of freezing accounts with no discernible reason and giving no explanation of when that account might be unfrozen. And I think trying to get the banks to really concentrate on the big fish rather than a little fish, I don’t know how you do that.

S1: Yeah, and that’s the I agree. And I think that’s that’s the issue. So I don’t disagree with you that we need to make the fines, the penalties, you know, stronger. The problem, of course, with that is that that just means that then anything that it could potentially be even the tiniest bit suspicious, you just cut them off from their financial system. And that is almost certainly going to take in a ton of companies that aren’t. Actually doing anything wrong.

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