TAKING STOCK: Money laundering: A delicate, dangerous art

Dear Mr. Berko: A friend of mine is going to sell a building he's owned for years at a very large profit, and the tax bite, according to one accountant, will be almost $120,000. A New York City lawyer and CPA he consulted said he could avoid these taxes with an impossible-to-detect series of electronic commodity money transactions. Can you tell me how this works and how safe it is? They told my friend that Jon Corzine is one of the geniuses who devised this transaction method. Next, my friend asked me to ask you if you could prepare a portfolio for him involving 40 or so blue-chip kinds of issues. BA, Syracuse, N.Y. Dear BA: I recently had a discussion with a knowledgeable banker who said that some lawyers may call this scheme a money transfer, but the IRS will call it laundering. It's as easy as pie to do an electronic transfer and cause billions of dollars to dance an Irish jig through a series of international accounts in England, Germany, Spain and New York. A little greed goes a long way, turning dirty money into clean cash, ripe and ready to spend. It can begin with the legitimate purchase, sale and delivery of a high-demand commodity (oil, wheat, copper, coffee, etc.) using a hedge fund or commodity trading firm such as MF Global to execute transactions involving a series of major banks around the globe. So when all the trade debits and credits are settled from the laundered money, the resulting amount is moved electronically to a designated "safe bank" that's immune to the demands of the IRS or the State Department. It may be one of the banks in the Bahamas, the Republic of Vanuatu, Lichtenstein, or, as some suggest, the sacrosanct Vatican Bank. Sophisticated electronic commodity trades--the stuff at which MF Global excelled when Jon "Crafty" Corzine took over--are used by drug dealers, arms merchants, dictators, oligarchs, politicians, big-time financial swindlers and the like to wash the stink from their cash. The proceeds from purchase, sale and delivery contracts are commingled daily (washed) with hundreds of billions of dollars of similar electronic transactions, and selected laundry pieces are key-stroked to a specified non-complying bank. And because the international purchase, sale and delivery of contracts of corn, nickel, soybeans, etc., involve multiple participants and are not considered cash transfers, it's almost impossible to identify the offending source. However, if the funds to be laundered basically require a one-time transaction, the process is a lot less convoluted. The purchase or sale, through a middleman, of a substantial asset (a piece of art, a 747, a yacht, real estate, diamonds, etc.) at a price significantly higher or lower than its value, or the sale of a similar asset at a price much higher or below its value, can achieve the same results. Your "friend's" paltry $120,000 isn't enough for these big boys to spit on, though. And I suspect that those New York City boys could pull a double-cross on your friend. And if those slickers run off into the sunset, to whom can your friend complain? Your friend ought to come out of the closet and tell the NYC lawyer and CPA to take a long walk off a short alp, and then he ought to hire one of the many fine CPAs and tax attorneys in Syracuse and pay the butcher bill. He'll certainly sleep better at night, and there should be enough money left to invest. There's an enormous difference between avoiding taxes and evading them. Evaders get put in prison, where they're entitled to free room, board and medical care, and some enjoy the evening's available entertainment. Your legal bills can be enormous, and the fines and penalties will give you angina. Avoiders usually pay the tax deficiency plus interest. Meanwhile, no matter which path you elect, I cannot recommend a portfolio of 40 or so stocks. Picking a stock portfolio is not like playing Whac-a-Mole. You need to personally discuss investment goals, time frames, risk tolerances, expectations, income objectives, tax consequences, etc., with a knowledgeable and experienced professional. And don't give this account to any of the so numerous average brokers at Merrill Lynch, Morgan Stanley, Raymond James/Edward Jones, etc. You'll get only average advice, and this market demands so much more than average advice. ---------- Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com. © 2011 Creators Syndicate Inc. Published: Fri, Feb 17, 2012