Re: Laundering money through commodity futures
[then is described the double-up strategy] Ideally, you play this game with two players with relatively deep pockets. This means that A can cover the short term loses.
Here's the flaw, in full glory. This scheme is the classic double-or-nothing martingale. It doesn't work. The "relatively deep pockets" of A have to be infinite, because that's the expected value of the amount of A's intermediate loss in the random walk to the completion of the transaction.
The example is ludicrous, but the conclusion is valid. More transactions means more interactions between them and more possibility to hide something inside the ever-increasing flux.
There is a major difference between playing this game with commodities and trying to win with a double or nothing Martingale scheme in a casino. The casino always takes their cut. The transaction costs in the futures market are often much smaller if you're dealing with significant amounts of money. Many of the people who experiment with these schemes have very large pools of money to move. You must realize that laundering money was usually done through much more inefficient ways. Some typical techniques involve double billing and inflated construction costs. If Entity A wants to move money to Entity B then, Entity A contracts with B for a big new building. B charges too much for the building and A pays up. This can be done with supplies or other commodities. The problem is that you've got a brand new building that you've got to sell/lease or whatever. So, are there problems? Yes. But it can be much more efficient and much more transparent than almost other scheme. Remember that the flux between the two entities in the commodities market is not immediately apparent. You don't need to use the same broker. One could use a broker in Hong Kong and the other could use one in Chicago. You don't even need to trade the same contracts. One side of the deal could buy gold futures market marked in pounds sold in London and the other side could sell gold futures marked in dollars in Chicago. The thousands of arbitrageurs out there will make sure that the markets move together. (You can also hedge your deal against the currency risk.) Who is going to piece these two together?
There is a major difference between playing this game with commodities and trying to win with a double or nothing Martingale scheme in a casino. The casino always takes their cut. The transaction costs in the futures market are often much smaller if you're dealing with significant amounts of money. Many of the people who experiment with these schemes have very large pools of money to move.
You still need infinite pockets with transaction costs of zero. Again, it's only this one example that's flawed, not other ways around it.
If Entity A wants to move money to Entity B then, Entity A contracts with B for a big new building. B charges too much for the building and A pays up. This can be done with supplies or other commodities.
Ever been suspicious of the run-up in prices of Impressionist paintings by the Japanese a few years ago? Give someone an inexpensive painting (or have them buy it), and then buy it at an inflated rate from them, at auction. Eric
Ever been suspicious of the run-up in prices of Impressionist paintings by the Japanese a few years ago? Give someone an inexpensive painting (or have them buy it), and then buy it at an inflated rate from them, at auction.
Eric
Not only that, but paintings were a favored way to transport large amounts of cash in a compact form across U.S. borders. From the article I read about 2 years ago, in "ArtWeek" or somesuch (I don't normally read it...I just saw the story mentioned on the cover, in connection with why so much art is being stolen, used as collateral, moved around, etc.), art does *not* have to be declared at Customs at the U.S. border, either coming or going. So, a Columbian cartel member wishing to move $10M into or out of the U.S. can carry Picasso's famous "Young Girl Encrypting a File" in his luggage and not have to worry. The same article mentioned that bribes were often paid to people by selling them artworks at "artificially low" prices. (The notion that there is some "true" or "market" price for thinly-traded things like paintings is at issue here. Many opportunities for tax evasion, money laundering, and bribes. And not much the government can do about it.) Ironically, I saw Peter Wayner's article in "RISKS" a few days ago and was preparing e-mail to him noting the similarity of what he talked about to Hillary Clinton's sweetheart deal...then Netcom crashed and I never did send the mail. "Insider nontrading" is another gem of an idea. --Tim -- .......................................................................... Timothy C. May | Crypto Anarchy: encryption, digital money, tcmay@netcom.com | anonymous networks, digital pseudonyms, zero 408-688-5409 | knowledge, reputations, information markets, W.A.S.T.E.: Aptos, CA | black markets, collapse of governments. Higher Power: 2^859433 | Public Key: PGP and MailSafe available. "National borders are just speed bumps on the information superhighway."
On Sun, 17 Apr 1994, Timothy C. May wrote:
The same article mentioned that bribes were often paid to people by selling them artworks at "artificially low" prices. (The notion that there is some "true" or "market" price for thinly-traded things like paintings is at issue here. Many opportunities for tax evasion, money laundering, and bribes. And not much the government can do about it.)
Some 3 years ago the Swedish legislation made it taxable to profit from a private buy-sell art transaction (above a certain profit-percentage, around 50). Art prices fell to 0.25 but that included the general recession of the time (that has not yet recovered, art is still bad business - or a buyers market). See how easy it was to launder money in the 80's: buy a piece of cheap art - 'give' your dirty money to an 'art collector' who then buys it from you at an inflated price and just stores it - who is to tell the value of art? - and the 'collector' is of course a fall-guy with his office in his pockets and no permanent address (except the racing track). Funny, even now I always see a lot of art dealers at the tracks...(trotting is the big thing over here). Buying a winning coupon is still very safe. For a $10000-range one you pay an extra 10%, for bigger ones 5%. //mb
C'punks, On Sun, 17 Apr 1994, Eric Hughes wrote:
. . . [quotes from another poster] You still need infinite pockets with transaction costs of zero. . . . [blah, blah, blah]
Almost everyone posting on this subject keeps forgetting that this isn't an exercise in probablity theory. These are rigged transactions. The fix is in. A broker in on the deal assigns the wins and loses *after* the trades are completed. This is not conjecture; I used to work for someone who--by his own admission--used to perform a similar service for clients. S a n d y P.S. I'm not picking on Eric, he just had the most recent post.
participants (5)
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hughes＠ah.com -
Mats Bergstrom -
Peter Wayner -
Sandy Sandfort -
tcmay＠netcom.com