The fall from corruption to money laundering

It is said that the authorities in 1920s and early 1930s Chicago knew that Alfonse “Scarface” Capone, commonly known as Al Capone, was involved in illegal activities but they could not prove it because no witness could come forward to provide the necessary evidence. Those who were close enough to Al Capone were either very loyal or feared death and therefore kept quiet.

Al Capone was also a very careful man who left little or no trace of any link between the criminal activities committed by his gang and himself. It is said that Al Capone only signed one cheque in his whole life and conducted the rest of this financial activities using cash. That one cheque was useful in convicting Al Capone on charges of income tax evasion. He was sentenced to a total jail term of 11 years.

The successful conviction of Al Capone, inadvertently led to the phenomenon of money laundering. People with money from illicit sources now had to find ways of passing it through legitimate channels. The man who took the lead in the early period of money laundering was Meyer Lansky who was an accountant for the gangsters. He was so affected by the conviction of Al Capone for something as simple as tax evasion that he set about to find ways of ensuring that a similar fate did not befall him. In less than a year, Lansky had discovered the numbered Swiss bank account. Illicit money could now first be banked then the bank would release it back to the gangsters’ business when it is disguised as a loan.

International efforts to fight money laundering is making the numbered Swiss bank account rather unappealing so the modern day Al Capone is forced to turn a respectable local company or non-profit organisation to be the front for laundering their loot.

Here in Uganda, recent stories of corruption are increasingly taking on the shape of money laundering. Just take a keen interest on some of the high profile probes some concluded and others ongoing and you will get the picture. Let me use a hypothetical company to paint the picture.

The republic of Boga is about to host a global conference on mudslides and landslides. The conference is heavily funded by donors and the ministry of finance. Some officials decide to appoint a sole supplier of toilet tissue for the guests coming to the conference; the figure for this tender is put at Shs 2.5 billion.

In truth no toilet tissue is meant to be supplied. The corrupt officials who came up with the toilet tissue tender set out on the task of finding a suitable business that can be used as a front. Careful to follow procurement procedures, the officials use selective bidding to identify Toilets and Sewage Ltd, a well known manufacturer of toilet tissue as their firm.

The officials tell Toilets and Sewage Ltd that since they are not making any actual supply, the tender money will be split so that two thirds go to the bureaucrats while the company receives one third.

The burden to account for the tender is passed on to Toilets and Sewages Ltd. This includes paying VAT of 18 percent of the Shs 2.5 billion; paying corporation tax at the end of the year and appearing before the Public Accounts Committee to explain any queries pertaining to the toilet tissue tender.

James Abola is a business and money coach. Email: james.abola@akamaiglobal.co.uk