Luxury goods AML
Beyond simply buying luxury goods with money generated from crime, what’s often overlooked is how these goods intersect and even facilitate financial crime.

Luxury cars, designer clothes and private jets make attractive news headlines and movie scenes when it comes to criminals and luxury goods.  Designer clothes and cars often featured in news headlines in the case of money launderer Ramon Olorunwa Abbas (popularly known by his Instagram handle, “hushpuppi”) and a Bombardier Global 6000 private jet was grounded and seized in Canada connected to the OPL-245 oil field scandal out of Nigeria.  Criminals with an affinity for the high life often spend their illicit proceeds in the luxury goods market – the money needs to be spent somewhere after all.

In 2020, the world’s top 100 luxury goods companies generated revenues of $252 billion – and that’s not including goods and services such as; yachts, aircraft, automobiles, leisure services, wine and art.  Beyond simply buying luxury goods with money generated from crime, another side to luxury goods that’s not often covered is how these goods intersect with financial crime and even facilitate it.

Deforestation, Leather and People Smuggling in Luxury

When thinking of environmental crime or people smuggling, luxury cars may not be the first thing that comes to mind but even luxury cars can find their way to being used for crime and even indirectly facilitate crime in far off lands – sometimes where those involved may realise yet carry on and other times choose not to realise.

A 2020 investigation by Earthsight, a NPO (Non-Profit Organisation) found cattle ranches that had illegally cleared land inhabited by the Ayoreo Totobiegosode people in Paraguay, one of the only indigenous peoples living cut off from the rest of the world outside of the Amazon rainforest.  Investigators found slaughterhouses buying cattle from ranches on this illegally cleared land in Paraguay and followed the supply chain of cattle hides to a number the largest tanneries in Europe located in Italy – the primary destination for such leather from Paraguay.

Undercover visits found tanneries in Paraguay bragging about luxury car makers such as BMW and Jaguar Land Rover using leather hides for their cars from some of these slaughterhouses.  Earthsight also claimed a number of other car makers leather would have been sourced from the tanneries in question also.

A follow-up report in 2021 found little had changed – authorities in Paraguay were said to have not looked into the illegal activity found, not done anything to protect land where the Ayoreo Totobiegosode people live from deforestation and the leather continued to flow to Europe from Paraguay, with none of the car makers still able to trace the leather back to origin in order to ensure it originated from a clean sources.

High power luxury vehicles themselves have been used as part of people smuggling operations – the choice of such vehicles by one organised crime group from Europe was in order to avoid attention and security checks.  An investigation in Europe, which started in 2019, ended in 2021 with the arrests of 11 suspects.  The group was said to have transported 350 migrants during the 2 years, charging between €2,000 to €2,500 per person.  At least 89 vehicles were said to have been used, of which 29 were seized along with electronic equipment, documents and even a mining “tool” for Bitcoin.

Drug Cartels and the Fashion District

It’s not just high-end luxury goods, even fashion can find itself infiltrated by financial crime.   Whilst clothing lines inspired by images of drug traffickers, such as Pablo Escobar and Joaquin Archivaldo Guzman Loera’s (nickname “El Chapo”), may appear to make light of symbolism connected to drug trafficking, the drug trafficking world has also used fashion and clothing to laundering money.

The Los Angeles Fashion District, an expanse of over a 100 blocks, made up of hundreds of clothing and apparel stores has been the focus of attention by US authorities recently.  Towards the end of 2020, a 35 count indictment alleged that a Fashion District business was at the heart of two schemes; one involving imported clothing where over $10 million in customs duties was not paid and another known as a Black Market Peso Exchange (BMPE) scheme where the company was said to have laundered drug trafficking proceeds and didn’t report on tax returns over $17 million obtained in cash.

BMPE’s explained in their simplest form involve; drugs being sent by traffickers (from Latin America to the US, for example) where they are sold for cash – this cash now in the US, needs to be repatriated to the traffickers, illegal peso-dollar brokers/exchangers and trade/businesses are used to send back the drug proceeds in the form of good/value.

This is not the first time LA’s Fashion District has been the centre of drug trafficking-related money laundering operations involving BMPE’s, in 2014 US authorities executed multiple warrants as part of an investigation aptly named “Operation Fashion Police” and went on seize $140 million in criminal assets, of which $90 million was in cash.

The use of BMPE’s by drug traffickers is not new.  FinCEN (Financial Crimes Enforcement Network) released a detailed Advisory as far back as 1997 to warn financial institutions about Colombian drug cartels using these illegal exchanges to launder proceeds of drug trafficking.

BMPE’s remain in use today, continuing to move illicit drug proceeds but with a twist – a pivot towards China.  Earlier this year, a Chinese national living in Mexico was sentenced in the US to 14 years in prison for laundering drug proceeds for Mexican drug traffickers, following his arrest in 2018.  Cash would be picked up in the US and then transferred to bank accounts in China for it to be repatriated to Mexico, likely under the guise legitimate business.

Digital Luxury and the Future of Crime

Whilst physical luxury goods need storage and may even be difficult to move undetected, the rise in popularity of virtual assets and metaverse-type platforms means the term ‘luxury goods’ may crossover into the virtual realm – from a financial crime perspective, for criminals this may; remove bulky storage issues, potentially allowing even faster transfer of value and even aide sanctions evasion.

A recent Morgan Stanley report claimed that by 2030 a metaverse-related luxury market may be worth around €50 billion and a yacht seller has even recently claimed to be accepting a 10% fiat deposit, with the remaining balance accepted in Bitcoin, Ethereum, a number of other cryptocurrencies or NFT’s (Non-Fungible Tokens) of high value from collections such as CryptoPunks or the Bored Ape Yacht Club – creating a crossover between physical and virtual value, both in terms of a ‘currency’ (legal tender or otherwise) and physical and virtual assets.

The crossover of physical to virtual as been seen amongst a number of luxury fashion houses also, one such being Balenciaga, who recently announced a luxury fashion collaboration with Fortnite game developer, Epic Games.  Balenciaga have designed four “skins” (virtual clothing/outfits) which players can buy, along with accessories, weapons and there is also a virtual Balenciaga location in the game that includes a Balenciaga store.

For those in anti-financial crime the current and future luxury goods market leave much to think about.  Although they say “Crime doesn’t pay” and ultimately it doesn’t, it would appear the illicit proceeds from crime certainly do seem to pay for luxury goods – physical or otherwise.

About the Author: Dev Odedra

Dev OdedraDev Odedra is an independent anti-money laundering and financial crime expert. He has significant experience in managing financial crime risk in the retail, corporate and investment banking sectors. His expertise covers investigations, advisory and controls implementation and improvement.

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