Our good friend Libby just posted an article, Laundering Drug Money, about the latest private equity scandal involving Texas billionaire Allen Stanford. These days, news of scandals flow from the spigot faster than tap water, and my interest is not a rehash. You can read more about this latest scandal here, here, and here.
Now, it seems, Sir Allen is suspected of laundering money for the notorious Gulf cartel. But my question is this: Why just Sir Allen? Why not American Express? Or Bank of America? And every bank that sells travelers checks?
You see, your crafty Ocotpus has long known about the symbiosis between banking and money laundering, and the worst offender by far is American Express (Amex). This relationship between banking and money laundering is based on a concept known as "float." Here is how it works:
You buy American Express Travelers Cheques weeks in advance of a planned trip, and your trip lasts a few more weeks. Amex makes front-loaded income in the form of commissions from the sale of travelers' checks, but makes far more income on the delay between the time you purchased those checks and the time you spent them.
This delay between purchase and redemption is called "float" ... and Amex uses this "float" money to make more money. Float money is interest-free to Amex and other sellers of these instruments, but Amex can charge high interest rates to all sorts of borrowers for the use of float money. The longer the float, the more money Amex and others can make, and money-laundering has the longest, and most profitable, float of all.
What does every good drug or crime lord know about American Express Travelers Cheques? They are safe and can be redeemed anywhere in the world … just like the advertisement says.
The relationship between travelers’ checks and money laundering is one of Wall Street’s dirtiest, best kept secrets. Now you know.
Knock, knock. Someone at my door. Ooops! Gotta go …
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ReplyDeleteExcellent posts, 8pus and Libby and it brings to light another aspect of all this cheating that I hadn't really thought of.
ReplyDeleteThe banks have had so much latitude to conduct any business they want, totally disregarding our laws. It certainly is a glaring example of why our government must have some sort of oversight of our financial institutions as the finance industry has proven they will not police themselves.
Of course, legalization would bring a swift end to both the profit and illegality.
Yes, banks have been given too much latitude, but imposing our laws on foreign entities transacting business abroad that is not illegal there seems a bit questionable.
ReplyDeleteShould we sue Holland if come American walks into a coffee house in Amsterdam?
Captain, I have a bone to pick with American Express in specific, and Wall Street in general. A coffee house in Amsterdam is not within the scope of my beef.
ReplyDeleteI didn't know Octopi ate beef anyway.
ReplyDeleteCaptain, you should know me by now. Your cephalopod friend has an appetite for mixed metaphors.
ReplyDeleteWe're so paranoid in South Africa about money laundering trifling sums,but it seems that the rest of the world is doing some major money laundering via Amex t/c
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