Now this is really interesting. The Grauniad talks to some drug dealers about how they use bookies’ video roulette machines to launder their earnings. The main reason to do this is that they issue receipts, which permit you to explain to the police (and also the Revenue) why you’re carrying so much cash. It’s also useful to be able to transfer money into an online betting account and therefore reduce how much float you have to carry around at risk of robbery.
“James” is especially interesting because he seems to have an impressively precise grip on his business’s KPIs and his numbers add up. First, it’s said that the cost of the laundering – i.e. the losses due to the house edge – is about 5-10%. He sells £5,500 a week in cocaine, and his gross margin is 50%. He also says that he reckons that he spends about £15,000 a year in losses/laundering costs with the bookies. That’s £288 a week. 50% of £5,500 is £2,750, so that works out to 10.4%.
The actual loss rate is much higher, because he only wagers about 40% of the cash he pays in and evidently all the net losses come out of that. The figure of 40% is deliberate, because he suspects that there is a suspicious activity alert set at that level. Other interesting details are that his wholesaler supplies him on credit, although he still needs a substantial float because this might be called in unpredictably, perhaps due to conflict between suppliers, and that he travels everywhere by bus because the police are more likely to bother him in his car.
Hilariously, the surprisingly detailed accounting is because he worked in the back-office of an investment bank before quitting to pursue a more lucrative career, or conceivably to work his way back to respectability.
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what I don’t understand about this is that if plod approaches you and says “how come you have £10k in cash?” and you say you won it on the slots, proffering your receipts, why isn’t the next question: and where did you get the money you fed into the slots?
I know as a one off event you could claim to have won big after having gambled a few quid, but any concerted effort to catch somebody laundering money, involving repeatedly finding cash and repeatedly being told their source of income is gambling winnings, the story quickly becomes completely implausible by any sensible definition of “reasonable doubt”.
Luis, good point. So let’s look at why plod should spend time on this, or not.
The Graun noted that the economic activity of James was about all there was in some areas. Suppose you had someone influential whose Annual Appraisal was about GDP and little else. Maybe they would defend bookies economic activity. If 40% of that activity is James and his mates, then that can be the margin of viability for one of those ‘drop in centres’. Local councils might need a bit of push-back, in the name of GDP. Perverse incentives to plod’s target list are left as an exercise for the student.
Other interesting details are that his wholesaler supplies him on credit, although he still needs a substantial float because this might be called in unpredictably
Standard practice in the drugs business, I believe.
Though the police aren’t really doing their jobs if they look at someone with £2700 coming into his bank account every week and believe him when he says he’s winning it playing roulette.
Obviously this wouldn’t protect him against being audited, but then that’s not the point – he’s trying to avoid being the subject of an investigation, not trying to defeat one. “Enough security to make burglars try next door” is usually worth having – so is “enough concealment to make cops pick on the dealer next door”.
Exactly – if anyone gets enough suspicion up to look at his bank account or start systematically searching him, the ball’s on the slates anyway. The failure mode he’s worried about is that he’s vulnerable to being physically searched and wants to put a bit of grey area between “caught with a few grams” and “caught with a few grams and £3000 in twenty pound notes”; if he’s got a gambling winnings receipt he can tell the court that he won the money and then bought some drugs to celebrate, rather than vice versa.
Hilariously, the surprisingly detailed accounting is because he worked in the back-office of an investment bank before quitting to pursue a more lucrative career, or conceivably to work his way back to respectability.
I know banker bashing is in vogue now, but back office accountants at investment banks are just regular accounting schlubs just like at any other company. Are secretaries and janitors employed by investment banks also guilty by association?
Akbar, I’d say yes. If bankers want their floors clean, they can do it themselves.