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Financial fraud growing more complex—American banks and economy at risk
by Monica Davis (davis4000_2000 [at]
Sunday Dec 9th, 2007 4:43 PM
FBI reports that financial fraud has become extremely sophisticated and a new breed of criminal is moving beyond street crimes and the drug trade into financial fraud.
According to an FBI report, financial fraud is becoming more complex than in times past. Using a combination of emerging and current technologies, the new breed of criminal is moving beyond simple street crime and drug related crime. Financial and mortgage crime have become the new activity of choice for drug dealers and crime cartels. Financial fraud by industry insiders, combined with rampant fraud in the sub-prime lending arena, and in mortgaging as a whole, have created a massive financial crisis for the nation and the world.

Financial crimes offer less risk than the dangerous drug trade and have become so lucrative, that they are the activity of choice among many former Chicago drug kingpins. (Chicago Police Department) Unfortunately for many jurisdictions, the sophistication and multi-jurisdiction of these crimes makes them extremely difficult to investigate.

Financial fraud: it’s more than simple check kiting. It’s a multi-billion dollar industry which threatens tens of millions of Americans around the nation. According to the FBI: Criminal activity has become more complex and loan frauds are expanding to multitransactional frauds involving groups of people from top management to industry professionals who assist in the loan application process. These professionals include loan brokers, appraisers, accountants, and real estate attorneys. Such transactions are sometimes hidden against a backdrop of genuine transactions, which give them an appearance of legitimacy. Due to the complexity of these crimes, more FIF investigations are being initiated than ever before. These cases target large-scale fraud operations, often involving hundreds of subjects in multiple jurisdictions. (2004 FBI Financial Crimes Report)

Mortgage loans and real estate investment have become the mode of choice for many criminal syndicates to launder drug-related earnings. Over the past few years, many large and well-renown banks have become ensnared in federal crime investigations. Economists say the take is huge. There is a consensus among U.S. Congressional Investigators, former bankers and international banking experts that U.S. and European banks launder between $500 billion and $1 trillion of dirty money each year, half of which is laundered by U.S. banks alone. As Senator Carl Levin summarizes the record: "Estimates are that $500 billion to $1 trillion of international criminal proceeds are moved internationally and deposited into bank accounts annually. It is estimated that half of that money comes to the United States. (US Bank Money Laundering -Enormous By Any Measure, by James Petras, Binghamton University)

According to Petras, the sheer scale of the money laundering scheme boggles the imagination. For much of this decade, the emphasis has been on the transfer of wealth from the Third World to the ‘West’, but now, with the so-called ‘mortgage crisis’ currently suffocating American real estate markets, we may be seeing a reversal of the schemes, with American banks and financial being compromised by fraudulent American mortgage and real estate investments.

A congressional investigation shows just how vulnerable the nation’s banking system is to criminal corruption:
The Democratic staff of the U.S. Senate Permanent Subcommittee on Investigations, under the leadership of Senator Carl Levin, conducted a year-long investigation of correspondent banking and its use as a tool for laundering money. The staff's investigation led them to conclude that allowing high-risk foreign banks and their criminal clients access to U.S. correspondent bank accounts, among several negative impacts, "facilitates crime" and "undermines the U.S. financial system." In their view: "It is time for U.S. banks to shut the door to high-risk foreign banks and eliminate other abuses of the U.S. correspondent banking system." (CORRESPONDENT BANKING: A GATEWAY FOR MONEY LAUNDERING, By Linda Gustitus, Elise Bean, and Robert Roach, Democratic Staff, Permanent Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate)

Nevertheless, the cross-manipulation of huge sums of money, using various bundled real estate investment products in the money laundering process, particularly when laundered money is leveraged as investment capital, has infected the international banking system and taints the world economy, including the financial structure of the United States. Foreign and domestic finanicial criminals have corrupted many financial institutions, creating a massive economic threat to the nation’s financial well-being. The scale, scope and time frame of transfers and money laundering, the centrality of the biggest banking enterprises and the complicity of the governments, strongly suggests that the dynamics of growth and stagnation, empire and re-colonization are intimately related to a new form of capitalism built around pillage, criminality, corruption and complicity. (ibid)

When most people think of money laundering, they think of a group of drug dealers sitting on a pile of money trying to ‘wash’ their money through different banks, often using ‘investments’ as tool to hide ill-gotten profits. However, the old BCCi scandal proves an old maxim: “The best way to launder money is to own a bank.” Or, bank, mortgage company, real estate brokerage or investment business.

The best method of both stealing and laundering money is to own a bank. And while banks are an at risk group in relation to their main functions of deposit taker and opening of accounts, what can be done against his crime if the bank is international and in complicity with vast numbers of its depositors. When the CIA moved money via the BCCI it called it "facilitating the national interest". When the Mafia and the Libyans do it, it is called money laundering. (Billy’s Money Laundering Information Website)

American drug addicts spend billions of dollars on their habits, so much money that the drug syndicates can’t launder the money fast enough. The illicit drug trade pays so well that drug kingpins have been known to sit atop basements full of drug money, fearful of running afoul of federal banking laws.

All bank deposits over $10,000 must be reported—when you’re taking in that much a day, it’s hard to hide from the authorities if you use the nation’s banking system. So, the boys in the street, including Wall Street, have become a lot more sophisticated than the average citizen gives them credit for when it comes to laundering illegal profits.. They are moving billions of dollars in drug money through the world’s banks and into real estate, housing and even commercial lending.

The money launderers have turned to real estate investment as an effective way to launder their money. In response to the surge in financial crimes, law enforcement agencies around the nation are beefing up their fraud units to deal with this new twist to mortgage and real estate money laundering. Multiple agencies within the federal law enforcement and housing loan industry are closely watching the situation. What they are finding, they say, is “alarming,” because of the breadth of the money laundering and fraud in real estate investment.

The fraud has snared a variety of people as shills, ranging from real estate professionals, to bankers, to ordinary people who are recruited as “straw buyers” in the scheme. FBI investigators say the real estate con artists have targeted ordinary people, consumers, real estate professionals and others in a variety of schemes to commit real estate fraud.

The Federal Reserve is closely monitoring real estate fraud. According to a report on federally guaranteed housing loans:
"An alarming number of Fannie Mae's recent investigations have found that otherwise honest consumers and real estate professionals are fooled into conspiring to commit mortgage fraud." William Brewster, the housing agency's director of anti-fraud initiatives, said in prepared remarks delivered at a Federal Reserve hearing on subprime lending last week. (The Street, 6-19-2007)

Years ago, banks were banks, insurance companies sold insurance and real estate agents sold real estate. Now, banks can sell real estate and insurance. Some real estate agents are also mortgage brokers, and thieves, con artists, document forgers and ID theft crook slide in and out of the industry like a snail leaving slime in a patch of grass.

In the aftermath of the Great Depression in the thirties, banks were prohibited from being anything but a ‘bank’. They could not sell insurance or securities, because experience had proven that multiple exposure across financial products left the banks vulnerable to catastrophic collapse.

This financial domino theory dominated federal banking law for generations, until time passed and most of the nation was too young to remember the harsh lessons of the Great Depression. As the banks consolidated across state lines and broadened their business to include insurance and real estate, the birth of the mega-bank created a series of financial behemoths, whose great size became financial black holes, capable of dragging down the economies of entire nations.

And that is the situation that we have today. The world’s financial industry is now comprised of tens of thousands of compromised mega-banks, which have bought up smaller banks around the nation. These massive financial institutions have become financial dominos, capable of creating a ripple effect of Financial Institution Fraud (FIF), where bad decision-making, or even illegal decision-making, combined with insider fraud and collusion within the industry is now affecting banking on a global scale.

Monica Davis has written hundreds of articles on government, economics and current events. Her books include Land, Legacy and Lynching: Building the Future in Black America