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



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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.