Money laundering can be relatively easy if you know what you’re doing, though changes to the banking system in recent years have made it tougher to move large sums without attracting attention. But Paul Manafort made a series of mistakes that experts say made it easier for special counsel Robert Mueller’s team to track his cash.
“There are undoubtedly fewer and fewer ways you can move startling sums of money through the banking system without anybody noticing — and [Manafort] seems to have managed to fall over every trip wire on the way,” Nigel Morris-Cotterill, a financial-crime risk management strategist, told VICE News.
Purchasing and remortgaging luxury properties was the main way the former Trump campaign manager allegedly hid money he made as a foreign agent for Ukraine over many years.
Real estate fits a pattern
Real estate is a popular way to shield money, but a series of suspicious home equity loans totaling about $19 million, plus a few million spent on antique rugs and clothes and other items, were more red flags for investigators, on their way to indicting him Monday for laundering $18 million over the course of nine years, among other charges.
“Some of the alleged activity Manafort was involved in, in terms of purchasing properties and then taking out mortgages on those properties, that fits a pattern of using the asset as a way to secure extra cash,” says Mark Hays, a senior adviser for Global Witness, a nonprofit focused on exposing economic networks that breed corruption.
READ: Mueller’s indictment of Manafort was meant to terrify K Street
The largest payments were for real estate, including two properties in New York: a $2.85 million condo in Manhattan’s swanky Soho area— rented out as an Airbnb — and a Brooklyn brownstone that cost $3 million, both of which he mortgaged.
As for the $1 million he spent on rugs, that, too, fits with some previous money laundering cases. In the wake of sanctions being lifted following the Iran nuclear deal, Persian rugs were in high demand from U.S. customers — but banks were wary that they could be used for money laundering purposes.
It’s unclear from the indictment whether Manafort was trying to recoup cash by buying expensive rugs and selling them on, or was just looking to decorate his lavish properties. “Sometimes spending money on precious rugs is a way to launder money; sometimes it is a way to spend the money you have laundered,” Hays said.
Morris-Cotterill points out that any payment of over $10,000 is automatically flagged, something Manafort may not have been aware of.
“One of the things he seems to have been ignorant of or thought it didn’t apply to him, is the fact that international payments are all made through the SWIFT system, and if the documents cause any suspicion at the receiving bank, they are reported to the Department of the Treasury,” Morris-Cotterill said.
Here’s a list of some of the alleged payments made by Manafort:
- $934,350 to an antique rug store in Alexandria
- $623,910 to an antique dealer in New York
- $849,215 to a men’s clothing store in New York
- $520,440 at a clothing store in Beverly Hills
- $163,705 for three Range Rovers
- $62,750 for a Mercedes Benz
How money laundering works
According to Hays, there are three things you need for successful money laundering:
- Someone to take your ill-gotten gains. “You need a bank or financial institution willing to do business with you and look the other way,” Hays said. In Manafort’s case it was banks based in Cyprus, a region known to have lax regulatory laws and generates revenue from business activity from unscrupulous people.
- You need to set up a shell company, or ideally multiple shell companies. “You need a way to move the money without being detected, and shell companies are ubiquitous tools for that,” Hays said. Shell companies are set up specifically to facilitate money changing hands. There are 29 businesses listed in Mueller’s indictment — 17 of which are registered in the U.S.
- Finally, you need someone to construct the deal, some sort of financial gatekeeper. “Typically in major money laundering schemes, accountants and lawyers are often the ones creating these structures,” Hays said. In Manafort’s case, it is not clear from the indictment who else was involved in facilitating the flow of $75 million over the course of nine years.
Once you have these structures in place, the next step is to legitimize it. Mueller’s indictment lists more than 200 transactions involving payments from shell companies and offshore accounts to unnamed vendors in New York, Virginia, South Carolina, California and Florida.
What Manafort could have done to not get caught
While the intensity of Mueller’s investigation may have made any extra steps taken by Manafort redundant, there are things he could have done to make life tougher for the former FBI director and his team.
Manafort and Gates are understood to have used a structure which includes nominee or proxy owners, where the people listed on paper as directors or managers, don’t really control company — but that is just the first step they could have taken.
READ: The full indictment charging Manafort with conspiracy against the U.S.
They could have gone a step further and set up an arrangement where they would have power of attorney over the company, but their names would in no way be associated with the company, Hays said.
Or they could have routed the transactions through more jurisdictions or more secretive jurisdictions, making it harder for investigators to track the movement of money.
Finally, they could have split up the flow of illicit revenue and moved it through different jurisdictions in tranches so that they were not pooled all in one place — though Hays said this could also have exposed them to more regulatory oversight.
Still they managed to get away with it for a long time, because of “big gaps in the global financial system that make it possible for political operators…or drug cartels or human traffickers, to exploit those gaps and move money throughout the system,” Hays told VICE News.
The figures back him up: According to the U.N., between 2 percent and 5 percent of global gross domestic product is laundered each year. Even if you take the lowest end of that scale, it adds up to about $800 billion.
Of that, just 1 percent of the laundered money will be recovered by governments or law enforcement, according to John Cassara, a money laundering expert who worked for the State Department and the Department of Treasury for more than 25 years.
To get caught laundering money, “you’d have to be either very stupid or very unlucky,” Cassara recently told NPR. “The magnitude is really high, but the sobering part is that our success rate is staggeringly low.”