Friday, January 23, 2009

Learning Experience Macau 1 - 1

21 Dec 2008

Most people comes to Macau for one thing and that is GAMBLING. Over the years Macau has "branded" itself as the Las Vegas of the East. Every days thousand and thousands of people fly, ferry and drive to Macau to pursue this passion. I however is here for a different purpose. I am accompanying a client who is showing how money is laundered. Yes this is how I learn.

Let's talk about a different form of learning - learning by observation. I do not attend many seminars or go for talks or short course. The way I learn is actually through observations. Rather than paying thousands of dollars and listen to a person sharing his experience in a classroom, I will take the money, spent a few days and actually visit another country or follow a professional to show me a certain interesting process. For example many years ago I met a businessman whose business model is jewelry. He does not have an office and he has only one full time staff, but his turnover is tens of million. You see his business model is selling jewelry at exhibition. He travel from one country to another with his jewelry and buy/sell at exhibition. His money is then channel to an offshore company and an offshore bank account. He pays part time staff at the exhibition - cash and at time even bonus. He has been doing it for years. Following him I learned that there are many people using this business model for many other products. I follow him to learn.

This bring me to the topic for the trip --- Money laundering. This is a subject matters that is part of business and a need-to-know subject for any entrepreneur. Not that you will need it but it is good to know.

Why money laundering. The first premises for money laundering is that you must have the money, mainly excess "unaccountable" money. Money that you have problem explaining when the tax man come knocking at the door. Some are from illicit earning like drugs, gun trafficking etc while others can be through business transaction like commission earned or undeclared sales items. One is service and the other is product based. Revenue and profit has to be recognised somewhere either through individual or throught a business entity.

One of the most common form of laundering is through Gambling or winning from gambling.
Man with money.
Man enters the casinos.
Man change money for chips.
Man go to blackjack or roulette table in casino.
Man put bet on table and
Man "wins" lots of money.
Man change chips to cash.
Man walk out of casino with multiple of initial money that he declares that he won in a casino.
By the way I have simplified the whole process. It is actually more complicated than this.........

After the kind of money you "won"..... where do you put it????

Most common form is a business entitiy in the form of an offshore company or some people called it BVI company. Most countries do not tax earnings from offshore activities and activities in these companies are under a different jurisdiction and rules.

Forming the company is only part of the setup, the other is forming the banking account to put your "winning". There are many banks who have offshore banking. The key issue to note and very critical to the bank is the term "source of fund" --- where did the money come from......

Hope you get a rough idea on how the money is laundered :-)

To be continued.....

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