Interpol now rates South Africa as the fourth-largest cannabis producer in the world. Around a quarter of worldwide seizures involve South African cannabis. The trend is confirmed in a report by the Institute for Security Studies in Cape Town, which says that most of the marijuana seized in the UK, and a third of that seized globally, is now of South African origin.
The potential for vast profit from South African cannabis was highlighted in late 2003 when five members of a gang led by unemployed twenty-four-year-old Robert Beal were jailed for varying terms totalling thirty years. Beal was arrested at a north London flat along with two South African accomplices, businessmen Aaron Reichlin, fifty-three, and forty-year-old Katiso Molefe, when police carried out a search in connection with a robbery. They found 25,000 ecstasy pills, 5.2 kilos of cannabis and a cache of firearms, including a submachine-gun and two semi-automatic pistols.
They also found details of a shipment of two electrical transformers from South Africa, which were awaiting collection in Ipswich. When police searched the transformer units at the dockyard they found 825 kilos of high-quality herbal cannabis. They resealed the empty containers and put them under surveillance as they were taken to an industrial estate in Wembley, north-west London, where police arrested the three other gang members. Beal had paid £65,000 for the cannabis concealed in the transformer units. In the UK, its value was £4.5 million.
In early 2003, when the Government first floated the idea of making cannabis a Class C rather than a Class B drug, critics of the scheme pointed out that, if this were the case, the maximum penalty for trafficking, regardless of quantity, would be just five years’ imprisonment. The penalty for trafficking has since been increased to fourteen years, but studies have shown that confusion reigns, particularly among the young, about the implications of the change in the law. Many teenagers mistakenly believe that cannabis is now legal but, although police are now more likely to confiscate the drug than make arrests and no longer target those using cannabis in their own homes, the personal use and possession of the drug is still against the law.
The confusion echoes that seen in the initial pilot scheme that took place in Lambeth in south London in 2001. Designed to give local police the chance to focus their attention on Class A drugs, like heroin and crack, the scheme led to a three-fold rise in consumption, with dozens of Londoners travelling to the borough in the mistaken belief that they could buy the drug there and not be arrested.
The increase was blamed on the fact that the experiment had been carried out in Lambeth in isolation creating a ‘goldfish-bowl’ effect as the curious travelled to the area to see for themselves what was happening. While this was true to some degree, the early feedback from a rolling-out of the experiment on a national basis is that consumption is rising rapidly. Once it has settled down, the value of the UK market for cannabis is expected to double to £2 billion as a direct result of the change in the law.
One thing is certain: for great numbers of people cannabis is already a way of life. For them, the only question that matters is, ‘Is the price right?’, and that seems unlikely to change – whatever happens to the law.
MONEY LAUNDERING
CHAPTER SIXTEEN
I’m sitting in a quiet corner of the ZiZi pizza restaurant on George Street in the heart of Oxford, tucking into a huge plate of mushroom ravioli with chilli and spring-onion sauce. Opposite me is the well-tanned face of Laurence, a forty-something company director with a glowing smile and flowing blond locks, whose various business enterprises show a seven-figure annual turnover.
The meeting has been arranged by a series of intermediaries on the basis that I have a problem that Laurence might be able to solve. As far as he is concerned, I am a mid-ranking drugs-dealer with just short of three hundred thousand pounds in cash that I somehow need to make legitimate. Laurence, whose real wealth has been made though laundering millions of pounds’ worth of criminal gains for top drug-dealers and associates of some of Britain’s most notorious family firms, has offered to give me an initial consultation.
In the old days when armed robbery was king, money-laundering didn’t enter the picture. If you did a successful job you simply spent the cash as and when you needed, storing the rest in a safety-deposit box or, for the ultimate discretion, in a hole in the ground at some secret location. If you opted to deposit the money in your bank account, you could simply say you’d had a good day at the races and no one would ask too many questions. Banks were under no obligation to pass on details of suspicious transactions to the police and were unwilling to do anything to alienate ‘good’ customers, regardless of the source of their income.
Today, thanks largely to the growth of the global drugs trade, all that has changed. The sums being earned by even modestly successful criminals are simply so vast that the old methods will no longer suffice. A mid-ranking dealer, like the one I am pretending to be, would be selling grams of cocaine to street dealers who would pay them out of the profits of their own sales. That means the money would come to them in small-denomination bills – mostly five and ten-pound notes. Although they could easily use this money to purchase flashy jewellery, and perhaps a nice car or some fine antiques, new banking regulations and the fact that we live in a largely cashless society would mean they could do little else.
Few estate agents would be happy about accepting payment for a house in cash; most hotels and all car-hire companies would rather have a credit card than a wad of notes and even rental companies would rather receive their funds by direct debit. Paying the money into a bank account would immediately cause suspicion. All banks and other financial institutions are legally obliged to report all transactions of £10,000 or more if the customer cannot adequately explain the source of the income. All of this and more has made those with expertise in the field of money-laundering among the most powerful figures in the modern criminal underworld. Rarely drawn from the traditional criminal classes, the best launderers are successful businessmen, accountants or lawyers, who enjoy the thrill of beating the system almost as much as they do earning money.
Money-laundering consists of three phases: placement, layering and integration.
In placement, money derived from criminal activities is introduced into the financial system. In many money-laundering schemes, the biggest ‘problem’ here is handling cash.
In the layering stage, the money-launderer manipulates the illicit funds to make them appear as though they were derived from a legitimate source. This always involves transferring money from one account to another, and even though this may be done as carefully as possible, it still creates problems in the traditional banking system. First, there is the possibility that a transaction could be considered suspicious and reported as such. Related to this is the paper trail created by these transactions. If any portion of the laundering network is examined, the related paper trails could lead investigators directly to the source of the criminal proceeds and unravel the money-laundering network.
In the final stage of money-laundering, integration, the original supplier of the money finally gets the chance to get their hands on the loot. The launderer either hands over the ‘cleaned’ cash, invests in other assets or continues to invest in additional illegal activities on behalf of the client.
Wary at first, Laurence soon opens up and tells me about his life. He explains that he has no criminal convictions – his background is that of twenty years as a legitimate businessman, working first in the aerospace industry and later in diamond mining in Africa. ‘Over the years I built up a lot of trust and started dealing with lots and lots of cash because the diamond business is like that. I’d fly from Freetown to Brussels with a suitcase containing two or three hundred thousand pounds and I’d be doing that at least once a week. It was all completely above board and the bank had no problem with it.
‘I got to know a few people in the course of my business who were involved in slightly less legitimate enterprises, and once they found out that I had the ability to funnel large amounts of cash into the system, they asked if I could attach some of their profits into my turnover. That’s how it started and it grew from there.
‘You have to have a contact with a cash economy of some kind otherwise you’re fucked. This business of banks and accounts and lawyers having to report anything over ten thousand pounds only applies if the transaction is suspicious. There is no law saying you cannot go to your bank and pay in a million pounds in cash just so long as it is in the normal course of your business. Otherwise half the businesses in the high street would be getting reported every Friday afternoon when they took their takings down to their local branch of NatWest.
‘So, what you have to do is create a sequence of events that legitimises the transaction or provides enough of an explanation for the bank to feel confident and not have to ask for any more information. In my experience, banks don’t really care what the source of the money is just so long as they can say they had no reason to suspect it was suspicious. We have an account with a high street bank and put a lot of money through them. They look back at our accounts and see that, in the line of our business, we always put through a lot of cash. That means they’re covered under the laundering act so they feel a lot better.
‘How you proceed is down to you. If you give me the three hundred thousand now and say you want it turned round in seven days, I’m going to have to say no. Trying to launder that kind of money and get it into the system in such a short time is going to be a huge risk. I’ll do it, but it will cost you seventy-five per cent commission because that’s the risk I’m taking. What I prefer to do is take the money and come back to you in a month or so.
‘We could tag it on the back of second-hand car sales. We’ve got a few dealers who trade Bugattis, Bentleys and the like and they do a lot of cash work. Cars like that, you can easily be looking at seventy-five thousand. They can claim to be making an extra sale a week and put the money through their books. In a couple of months, your money is all sorted.
‘It all depends on how quickly you want the money and how much work you’re prepared to do. For example, you could go to Scotland, rent a warehouse and a yard and spend three weeks going out to auctions and buying big pieces of plant equipment. Some of those diggers and big earth-movers go for fifty or sixty thousand a time, sometimes even more. No one is going to blink an eye if you pay cash, but you couldn’t spend the whole three hundred thousand at once, you’d have to spread it out.
‘After a month or so you can put the stuff on the market and adjust the price according to how quickly you want to sell it. If something is worth a hundred thousand and you put it on the market for seventy or eighty, it’s going to sell right away. Okay, you’re making a twenty or thirty per cent loss on your original money, but for a lot of people in your situation, that’s acceptable.’
I ask about commission, and Laurence sits back in his chair and lights a cigarette. ‘That completely depends. It goes from zero upwards. I dealt with one company who wanted to clean up three hundred grand. We took the money and bought plant in Europe, then shifted it out to Africa. Over there we actually managed to get a lot more money for the gear. It took three months but at the end of that I gave them back the exact sum they had given me. I didn’t need to charge commission because we’d made about sixty thousand profit on the sales.
‘It’s a gamble in case you lose the money but for me it’s a gamble worth taking. Normally, on cash, the commission varies between two and five per cent. If you have things like Scottish currency – especially the hundred-pound notes they issue – they’re a pain in the arse to get rid of. With that and small denominations, the commission goes up to ten or sometimes fifteen per cent, but that’s still a pretty good rate.
‘I guess I’m used to it now but at first it always surprised me that, especially in this day and age, the diamond business still revolves around cash. I think the reason it’s not well known about is that the Jewish community in Antwerp keeps a very tight rein on it. But once you get out to Africa, they no longer have control. That’s where our contacts are and these are the people who help us get the rough stones. Once you get them back to Europe it’s a whole different ball-game. You’re dealing with a whole new business community and you don’t trust them and they don’t trust you.
‘We have our own polisher. If you try to sell rough stones in the UK, you’re talking about maybe ten buyers in the whole country. And that means they’re going to spend just that bit more time checking the paperwork because they know they’re in the frame. If you have polished stones, then you can sell the things at every jewellery shop in the country. For cash.
‘It’s perfect because it’s one of the few areas left in the world where you can trade cash for product. The most difficult thing to do when it comes to money-laundering is to get the cash into the system. It’s still relatively easy to exchange the notes from one denomination or currency to another. If you gave me half a million in ten-pound notes and you want to change it into Swiss francs, no problem, I can do that at the airport. I’ll hire a bunch of guys, give them a few thousand each and they’ll hit every booth in Heathrow and get it changed.
‘If you had the money in Europe, then it’s just a case a driving around to every
bureau de change
you can find and changing a couple of thousand here, a couple of thousand there. That’s not a problem. You work hard for two weeks, change maybe thirty grand a day, and at the end of it, it’s done. Doing that won’t bring you any problems – you can even do it on your own passport.
‘If you gave me your money right now, and you had a bit of time, what I would do with it is go out and buy diamonds. Simply because with diamonds, more than with any other commodity, no one can disprove where they came from. If Customs turn around and ask where you got them, you say they came from a mine in Sierra Leone and there’s nothing they can do about it.’