European Cartel Busted Laundering Cash via Ancient Silk Road

Image Credit

One of the world’s largest criminal organizations is an old Irish band of gangsters known as the Kinahan Clan to some, the Kinahan Cartel to others and the Kinahan Organized Crime Group to those who want to prosecute them. The Kinahan Clan was founded by notorious drug dealer, money launderer and all around bad guy, Christy ‘the dapper Don’ Kinahan in the 1980s. He has since handed the reins to his son, Daniel Kinahan, who acts like your average, modern day cartel in that he runs a multinational drug operation that partners with other known Cartels from other countries in order to funnel up to a third of the cocaine into Europe.

After one of the gang’s leaders was arrested a few days ago on suspicion of money laundering in the Costa del Sol area of Spain by an international group of law enforcement agencies, including the DEA. There is a real possibility that the Kinahan Clan could lose its international Cartel status because of this bust. But that is not what makes this story so interesting. What immediately stuck me in reading the news about Johnny Morissey’s arrest was the Kinahan Clan’s use of an ancient money exchange system to launder a good portion of its illicit funds known as the, ‘Hawala’. The Hawala dates back to the 2nd century BC and established the original Silk Road, which was credited to the Han Dynasty.

Credit: Gary Lee Todd

By the way, the original Silk Road should never be confused with the modern day Silk Road. One introduced the Far East to the West and facilitated worldwide growth and expansion. The other Silk Road simply got a lot of nerds, and even FBI agents, into a lot of legal trouble. Hawala, in its original form, was not a money laundering technique, but rather an informal, but reliable system designed long ago to transfer funds from one geographic location to another.

Traders created the Hawala system in order to protect themselves and their associates against theft. How? It was a broker system based on trust between the parties involved on either side, as no actual money was transferred across borders. Instead these brokers each carried each other’s debts and over time hoped that those debts would even out, and if they didn’t there were remediation policies in place. Hawala money transfers happened quickly, they were cheap to conduct and there was no need for bank accounts, or records of any transactions. It was like an ancient, decentralized fiat financial system.

Since the Kinahan Clan was busted using the Hawala system to launder drug money, the ancient financial exchange is obviously still in existence today, a fact that at least 9.5 out of 10 Americans are not aware of. Yet, almost $300 billion (USD) passes through the Halawa network each year, making it an important finance channel for millions of people, most of whom have no access to banking.

Americans and others in the western world just assume that everyone has a bank account where they store their money. That’s simply a dream for some, as 24% of the world’s population remains unbanked, which equates to about 1.4 billion people. For some perspective, consider that the current population of the US is close to 330 million.

There is obviously a deep need for the Halawa and the reason why it has existed for so long. The things that make the Halawa great, however, are the same things that make crypto great, and so the ancient network is ripe for corruption, as this article from Dow Jones points out in-depth. In the US, Halawa operators are subject to FinCen regulations, but around the world the network is regulated differently. The harsh reality, according to the Dow Jones piece is that many of these countries, “have not yet devised effective mechanisms to identify, monitor and take action against illegal Hawala service providers or to crack down on illegal or suspicious operations.”

The ability to launder money through the Halawa, however, is significantly reduced compared to crypto, which is the world’s ultimate laundering machine. The Halawa requires individual corruption to occur from both parties in order for crooks to launder illicit money and that is more rare than you might think. They can’t just hide behind a computer and do their dirty work alone in an empty apartment.

So when we see busts related to the ancient exchange they are usually in the lower hundred million of dollar range and often conducted by large criminal organizations. In the case of the Morissey bust the Kinahan Clan is accused of laundering almost $200 million over the course of a year. Yes, that is substantial, but put it into perspective — the infamous Crocodile of Wall Street Bitcoin bust was near $4.5 billion USD and conducted by just two people.

It is scary to think what could happen if the Kinahan Clan hooked up with a bask of Crocodile of Wall Street-types and put them to work on owning both the decentralized fiat money markets and the decentralized crypto currency markets. That could spell trouble for all of us.

- end