draining development.pdf - Khazar University

How Well Do Anti–Money Laundering Controls Work in Developing Countries? 393funneled through the Nicaraguan Democratic Foundation (FDN), anonprofit organization incorporated in Panama by Aleman and his wife.The Nicaraguan Directorate of Income was headed by Byron Jerez, aclose friend of Aleman. He set up a system whereby ENITEL, the mainpublic telecommunications company, would pay for the operation of thedirectorate. A number of shell and real companies set up by friends ofAleman provided the necessary goods and services. As compensation forthis expenditure, ENITEL received a tax benefit equal to the amountexpended. ENITEL transferred funds to the shell companies, which hadopened bank accounts for their accounts receivable. From there, thesecompanies transferred the funds to a consultancy firm, and eventuallythe funds were transferred to the FDN.ENITEL also guaranteed a loan to a state-owned insurance company.These funds were later transferred to an account of the Ministry of thePresidency; under Nicaraguan law, the funds could be spent at the completediscretion of the president. The president invested the money in acompany controlled by Jerez and his wife. This entity also received fundsfrom a secret account of the Nicaraguan Treasury set up by the director ofthe Treasury; these funds were then donated to a nonprofit organizationcontrolled by Aleman and his wife and subsequently donated to the FDN.The state agency in charge of privatization also funneled funds fromwinning bids into the FDN, as did the state-owned Channel 6 station. Ata low price, the government sold a telecommunications frequency to acompany controlled by Aleman associates. The sale was financed usingfunds from Channel 6, which gave a fake commercial rationale for theorigins of the money. Aleman used the FDN to pay for the personalcredit cards of himself and his family. The FDN also purchased a buildingand then transferred the title to a company controlled by ArnoldAleman. Finally, the FDN gave a loan to a company owned by Alemanand his associates that held many of Aleman’s real estate purchases, andthe loan was never called in.These are all examples of the embezzlement of public assets, but theyalso represent methods of laundering the proceeds from the thefts viacommercial entities in the reasonable expectation that no one would beattempting seriously to oppose the conduct. It seems unlikely that theseactions would have been picked up by an AML process, though a competenttracking investigation did eventually detect them.