Frank Maderal is a litigator and trial attorney (as featured on Netflix’s Dirty Money) whose work has given him an intimate knowledge of illicit gold mining and smuggling operations that wreak environmental, social, and economic havoc on a global scale.
What We Discuss with Frank Maderal:
- Why gold is such an ideal, sought-after medium by criminal enterprises for laundering billions of dollars every year.
- How unethical methods of gold mining — both illegal and quasi-legal — have a devastating, irreparable impact on the environments in which they operate and the people who live there.
- Money laundering 101: how it works on a global scale, what gives it away to law enforcement, and why gold makes its trail harder to trace even when the evidence is seemingly hiding in plain sight.
- Why otherwise on-the-level gold traders are increasingly turning to illegal means of aggregation (whether knowingly or not).
- What law enforcement is doing to make the illicit gold trade a more difficult business for its top-level players and deliberately ignorant enablers.
- And much more…
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In the past decade and a half, global gold consumption has risen by almost 1,000 tons a year to about 4,300 tons for use in everything from jewelry to electronic components. Legal mining operations haven’t kept up with demand, so illegal mines controlled by criminal gangs — from the Amazon to central Africa — help cover the deficit. Five countries in Latin America shipped 40 tons of gold from illegal mines to the US in one year — almost twice the legal exports from those countries.
South America’s illegal gold mines, most of them in the Amazon basin, are toxic pits in which mobs of laborers use fire hoses and mercury to extract nearly pure gold nuggets from the red earth. According to a finding by the United Nations, the industry thrives on child labor, devastates the environment, and enables prostitution at ramshackle camps around the mines. The gold moves from smuggler to smuggler, then into a network of refiners and traders, all feeding the world’s voracious demand. On this episode, we talk to litigator and trial attorney Frank Maderal (as featured on Netflix’s Dirty Money), whose work has given him an intimate knowledge of how these networks operate, why they’re a headache for law enforcement and national security, and what’s being done to shut them down. Listen, learn, and enjoy!
Please Scroll Down for Featured Resources and Transcript!
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THANKS, FRANK MADERAL!
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Resources from This Episode:
- Frank Maderal | Maderal Byrne PLLC
- Frank Maderal | Colson Hicks Eidson
- Frank Maderal | LinkedIn
- Dirty Money: Dirty Gold | Netflix
- Gold and Money Laundering | Money Laundering Watch
- Venezuela’s Maduro Under Investigation in $1.2 Billion US Money-Laundering Case | Miami Herald
- Former Julius Baer Executive Pleads Guilty to Money Laundering Conspiracy | The Wall Street Journal
- The Environmental Disaster That is the Gold Industry | Smithsonian Magazine
- Behind Gold’s Glitter: Torn Lands and Pointed Questions | The New York Times
- Mercury in Gold Mining Poses Toxic Threat | NBC News
- Gold Prices Linked to South American Deforestation, Study Shows | Time
- A New Threat to the Amazon: Gold | Scientific American
- Illegal Gold Rush Causing ‘Irreversible Damage’ to Rivers in the Brazilian Amazon | Mongabay
- The Long, Toxic Tail of the Gold Rush | GreenBiz
- Gold Mining Having Big Impact on Indigenous Amazon Communities | The Guardian
- A Gold Mine Swallowed Their Village. This Amazon Tribe Is Here to Take It Back | The Guardian
- As Investors Flock to Gold Due to COVID-19, Smuggling is Booming | Fortune
- Dirty Gold, Clean Cash | The Takeaway
- How to Become an International Gold Smuggler | Bloomberg
- Scarface | Prime Video
- Robert Wittman | The Undercover Hunt for Stolen Art | The Jordan Harbinger Show 401
- Gold Company Manager Charged in Vast Peruvian Smuggling Plot | Bloomberg
- What Happened to the Spanish Gold from the Incas? | Economics Help
- South Africa’s Illegal Miners Risk Everything for Gold | Voice of America
- ‘You Often Get Sick’: The Deadly Toll of Illegal Gold Mining in South Africa | The Guardian
- Bank Secrecy Act (BSA) | Investopedia
- Legal Definition of Deliberate Ignorance | The ‘Lectric Law Library
- Blood Diamonds | Time
- The World Gold Council Conflict-Free Gold Standard | World Gold Council
- What is Coltan? 5 Facts You Should Know | INN
- Data | CMS
- Peru’s Largest Banks Failed to Prevent Money Laundering | eSpear News
- How Billions in Dirty Cash Flowed Through Peru’s Biggest Banks | InSight Crime
- Gold Worth Billions Smuggled out of Africa | Reuters
- Gold Smuggling on the Rise as High Prices Boost Appeal in India | Bloomberg
Transcript for Frank Maderal | The Dirty Money Behind Illicit Gold Smuggling (Episode 450)
Jordan Harbinger: This podcast is brought to you by Microsoft Teams. When there are more ways to be together, there are more ways to be a team.
[00:00:06] Coming up on The Jordan Harbinger Show.
[00:00:09] Frank Maderal: Narcotics is inherently contraband. There's no excuse to having it and there's really no defense. Whereas if you have gold, you know, it's not inherently contraband. It's not inherently illegal. There's no reason to summarily arrest someone who's possessing it. So gold is a commodity that gets imported as long as you declare it, as long as you declare it. File a customs declaration. There is no amount of gold that you are not allowed to enter the United States with.
[00:00:43] Jordan Harbinger: Welcome to the show. I'm Jordan Harbinger. On The Jordan Harbinger Show, we code the stories, secrets, and skills of the world's most fascinating people. If you're new to the show, we have in-depth conversations with people at the top of their games — spies, psychologists, astronauts, entrepreneurs, even the occasional war correspondent, arms dealer, money-laundering expert. And today that's what we got for you — well, the money laundering expert anyway. Each show turns our guests' wisdom into practical advice that you can use to build a deeper understanding of how the world works and become a better critical thinker.
[00:01:15] Today, a lot is going on, in the past decade and a half global gold consumption has risen by almost a thousand tons a year. So now, we're at 4,300 tons. That is an absolute crap ton of gold. How's that? Legal mining operations haven't kept up with demands. So illegal mines controlled by criminal gangs from the Amazon to Central Africa, they help cover the deficit. Five countries in Latin America ship 40 tons of gold from illegal mines, illegal mines, to the US alone in one year, almost twice the legal exports from those countries. South America's illegal gold mines, most of them are in the Amazon basin. They're just toxic pits in which mobs of laborers use fire hoses and mercury to extract nearly pure gold nuggets from the red clay and the earth in there.
[00:02:06] And according to a finding by the United Nations, the industry thrives on child labor, devastates the environment obviously, enables prostitution at ramshackle camps around the mines — some with children, of course. The gold moves from smuggler to smuggler, then into a network of refiners and traders, all feeding the world's voracious demand for gold, the environmental damage and human misery mirror the scale of Africa's blood diamonds. That's what experts say anyway. And so it's no exaggeration. This is just horrendous all around. The environmental damage with the mercury and the poisons. Minors in Africa or South America, they just don't have better options to earn a living. So this romantic era of individual mining of gold especially has given way to a larger scale and dangerous operations run by foreign-controlled criminal syndicates.
[00:02:53] Many of them are controlled by Narcos, these mines. And Western investors, they want gold so they can diversify their portfolios. India and China wanted it for jewelry. Miners are often extorted. They have to hand over a part of their take before being allowed out of the pits. And the United Nations estimates, a hundred million dollars' worth of illicit gold is trafficked through just Uganda every single month. So gold might save your portfolio, but don't expect it to do too much for your soul.
[00:03:21] Today, we're talking with my friend Frank Maderal. He won a 3.6 bIllion dollar money-laundering case against illegal gold mining and smuggling. I find this incredibly interesting. I hope you do as well. It's not just about gold. It's not just about money. It's not just about human trafficking. It's not even just about the environment. It's the sum total that just adds up to one of the greatest tragedies of the 21st century.
[00:03:44] If you're wondering how I managed to book all of these great thinkers and amazing people every single week, it's because of my network. And I'm teaching you how to build your network for free. If it's a personal business reason, it doesn't matter, you need these great people around you. Go to jordanharbinger.com/course and start learning right away. Again, it's totally free. It's my gift to you. And most of the guests on the show, they subscribe to the course. They subscribe and they contribute as well. So come join us, you'll be in smart company where you belong. Now, here's Frank Maderal.
[00:04:17] Now, you won a — is it a $3.6-billion-money-laundering case?
[00:04:21] Frank Maderal: I did. I did. And when I say I won it, I think we should say that the United States government had a successful prosecution for a $3.6 billion money-laundering case.
[00:04:31] Jordan Harbinger: Yeah, I think that's more fair. What percentage of that do you get?
[00:04:34] Frank Maderal: I got zero. I got zero percentage of that.
[00:04:37] Jordan Harbinger: What a raw deal, man? Oh, well, I guess that's how that works, you know, public service and all.
[00:04:42] Frank Maderal: Yeah. It's a public service. You know what? I don't think we want our prosecutors incentivized to get convictions, by getting bonuses.
[00:04:50] Jordan Harbinger: No, you're probably right. That was ill-advised of me. This is why I don't make public policy now, but of course — I mean, that makes sense. We want you to go after in theory, what is right. That is such a huge amount of money. You must've been onto these people for a long time because I don't see how anybody could move that amount of money without getting flagged, I don't know, three billion dollars ago.
[00:05:13] Frank Maderal: Well, it is a lot of money. It is not a lot of money in the context of the international gold trade.
[00:05:19] Jordan Harbinger: Okay.
[00:05:20] Frank Maderal: Billions upon billions of dollars across the US border in gold every year. And so 3.6 is a lot, but it is nowhere near the total amount.
[00:05:33] Jordan Harbinger: So this is a drop in the bucket but man, that sort of is a different problem entirely, right? Because that means we're consuming, well, multiple tons of gold every year. And you can easily stash in some black-market gold and use it to launder money, right?
[00:05:49] Frank Maderal: Absolutely. Gold is, unfortunately, a good medium for money laundering because it's fungible and it's untraceable. Once you melt it down and turn it into some new form, a new bar, you mix it with another bar of gold, you don't know where it comes from.
[00:06:03] Jordan Harbinger: Right. So you can never really find out the source. It's not like, I don't know. I feel like they're able to do this with other things like minerals, they can say, "Huh? This sort of looks like these deposits are, it looks like those deposits with gold. It's just like you said fungible and it's basically kind of almost like water, right? You can't tell by examining this necessarily where it came from. Water, you'd probably even have more evidence of where it came from than you would with something like gold.
[00:06:29] Frank Maderal: Well, at least I know that there's no practical way to do it in terms of law enforcement.
[00:06:34] Jordan Harbinger: Yeah. I guess if you wanted to get down to the molecular level or something like that, you might be able to come up with a hypothesis, but that's above my pay grade here for sure. And then you'd have to do it for the whole gold bar, which is impossible, right? Especially if it's been melted.
[00:06:45] Frank Maderal: Correct. If they mix them together, what does that tell you?
[00:06:48] Jordan Harbinger: Yeah.
[00:06:48] Frank Maderal: And then even if you knew a source, let's say that would tie it to some certain region in the Amazon that wouldn't necessarily tell you if it was legal or illegally mined or funded with illegal money.
[00:06:58] Jordan Harbinger: So you've got 10,000 different sources. You don't know where it's from and global firms, who are essentially seeking to meet endless demand, they buy from what's called aggregators. Can you explain kind of what that is because that's who you were watching, right?
[00:07:12] Frank Maderal: Sure. So that's half the problem, right? In our case, what was happening? Refineries in the US were buying gold from sources in Latin America, without vetting who these sources were, where they're getting the gold, and what the gold was funded by. And what they would do is they would get some information on their customers as sources of gold. And many times the information was no more specific than this customer — customer X is an aggregator of gold. And when we did some digging, we said, "Well, what's an aggregator?" What we found out is it basically means nothing or it doesn't mean anything more than its name suggests. It's just someone who aggregates gold.
[00:07:51] Jordan Harbinger: Okay. So it could be anybody who gets gold from any source anywhere. And that's all we know.
[00:07:57] Frank Maderal: Right. So let's use an analogy. Let's say I went to a bank to deposit a million dollars and said, "Well, what do you do? "And instead of saying, I'm a lawyer, or I'm a doctor, or I have an Internet startup, I just said, "I'm an aggregator of dollars."
[00:08:11] Jordan Harbinger: Yeah.
[00:08:11] Frank Maderal: How absurd would that be?
[00:08:13] Jordan Harbinger: Right. I see. So instead of saying, I dig up gold in Peru, drive it down to Chile, and then fly to Mexico to pretend like I got it from there — you just say, "I'm a gold aggregator," and everyone goes, "Oh, okay, great. Here's a stamp and a check or some cash.
[00:08:28] Frank Maderal: Right, exactly. Or at least they don't ask the next obvious question, which is, "Okay, give me the list of sources from which you aggregated your gold."
[00:08:36] Jordan Harbinger: I put the carpet before the horse here because a lot of people are going. "Great. Okay. So you found gold that somebody didn't pay taxes on. Who cares?" But the reason that this is important is because this black market adds literally tons of illegally mined contraband gold to the international economy every year. And that's not just bad for the country as a whole or the IRS or something like that. This is usually done for money-laundering purposes, right? This is one of the primary uses of illegally smuggled gold at this point.
[00:09:08] Frank Maderal: It has become one of the primary uses and then there's so much that's wrong with it. First of all, you have the fact that a lot of this is just done contrary to that country's laws and regulations regarding mining gold. And that's bad, right? We don't want to encourage people to break the law in a foreign country and then come benefit from it here in our country. Secondly, I think there's an environmental impact. If you were to Google illegal gold mining, you would see photos of what looks like the surface of the planet, Mars. And sadly, what that is is that's the rainforest because when we think of mining, we think of maybe someone down deep, underground in a tunnel with a pick and a headlamp on, and they're just finding nuggets of gold, but that's not what's happening in the rainforest.
[00:09:52] What's happening is they burn it. They slash it. They use high-pressure hoses to erode the surface of the earth, 10 20, 30, 40 feet. And then they mix the mud that they create with mercury in order to extract the gold. And what they leave behind is a barren mud ridden, polluted mess in which nothing will grow again.
[00:10:15] Jordan Harbinger: Oh man, so these are just giant scars in the earth, in the middle of the rainforest in protected areas a lot of the time.
[00:10:21] Frank Maderal: Absolutely. And then on top of that, you have the human element. You have a lot of human trafficking, forced labor as this mining is controlled by criminal elements. And then on top of that, you do have money laundering. And what happens with money laundering is some criminals who have money that they are looking to put into the legitimate banking system but they cannot because they can't support the source. What they will do is they will buy this illegally mined gold from mines that they either work with or control. And then they will sell the gold without disclosing the source of the cash used to buy it. And so all of a sudden on top of everything else, your legal gold mining has become a highway for illicit funds entering the United States.
[00:11:07] Jordan Harbinger: So, so since we've got the war on drugs, narcotraffickers, kingpins, whatever, have essentially diversified into the gold industry. So they use drug profits, buy some mines, pay some miners, sell some gold to American or multinational companies. Then the money essentially looks clean because they're buying gold with it or digging up gold, and then selling that illegal gold back. And then they just say, yeah, like you said, I'm an aggregator of gold. So a lot of the stuff that's in our jewelry, coins, smartphones, and other electronics ends up financing shipments of narcotics to the United States and ripping up the rainforest in Latin America and getting people killed of course, as usual.
[00:11:46] Frank Maderal: Basically. Yes.
[00:11:47] Jordan Harbinger: So how does this specifically work? I mean, okay, I'm a drug dealer. I need to get the money into a bank. This is kind of where you shine, right? This is what you've investigated and prosecuted. How sort of specifically does it work? Obviously, we're not going to give away enough for people to be able to go and do it, but I don't think you need that many specifics to be able to go and do it. You need to have a bunch of cocaine money and a place to mine some gold. Right? So maybe that's the bottleneck.
[00:12:12] Frank Maderal: Right. Well, we won't give away any more than is already in the public record.
[00:12:15] Jordan Harbinger: Right.
[00:12:15] Frank Maderal: Let's put it that way. So the common problem drug dealer has a hundred million dollars cash. He imported a hundred million dollars worth of cocaine into the United States. He had his henchmen sell it on the street. They collected dollar bills. They aggravated altogether. Now, and somehow, somewhere in the United States, they've got a hundred million dollars of cash. Now, if anyone's ever watched Scarface, you know, the famous scenes of Tony Montana walking to the bank with duffel bag upon duffel bag of cash and depositing it.
[00:12:46] Here's the good news. The United States has really stamped that out. No bank, no bank in their right mind would take a hundred million dollars of cash deposited in duffle bags without asking more questions because they would be breaking the law. So what that means is the drug dealer. He can't get his cash into the financial system. He can't get a mortgage. He can't buy a jet. He can't do all the things that he would like to do with wire transfers and bank accounts in the United States that you can't really do with cash. And so that creates a need to launder the money.
[00:13:20] On top of that, if you were to deposit the cash and were able to get into the financial system, those otherwise unexplained deposits would be strong evidence against him in the court of law that he was in fact, a drug dealer. So he doesn't want that either. He wants to not only be able to use it, but he wants to obfuscate its source. So he needs to launder it. And that's what money laundering is.
[00:13:42] I think the classic example that everyone is aware of is buying a Laundromat. So what would you do? You would buy a Laundromat that has 20 laundry machines in it. And those 20 laundry machines, let's say make a thousand dollars a day. This is a really expensive laundry.
[00:13:57]Jordan Harbinger: Yeah.
[00:13:57] Frank Maderal: And so you're making $20,000 a day in laundry, except you don't have any customers. All you're doing is you're taking from your a hundred million dollar stash and you're putting it in your cash register. And then you're reporting it as income from your laundry business. And now you've successfully laundered your money. Here's a problem with that example. Laundry machines don't make a thousand dollars a day.
[00:14:18] Jordan Harbinger: Right.
[00:14:19]Frank Maderal: B, that's nowhere near enough volume to launder a hundred million dollars in any reasonable period of time. And C, that would be pretty easy to investigate. All you'd have to do is send a couple of FBI agents outside the laundromat to count the customers. Or to measure the electricity used, compare that against the income, and sooner or later you'd be able to easily prove that that's not the true source of the money.
[00:14:41] Jordan Harbinger: That was the first thing I thought of. I was like can't they just look at the electric pill that says none of these things are ever getting used. And there were two people in the store at any given time.
[00:14:49] Frank Maderal: Electric bill, water bill, all of it. So it's a problem. So now enter illegal gold mining. Think about this. You've got an illegal mind or really even a legal one in South America. It's digging up gold. It's putting that gold together into large amounts, and then shipping that gold to the United States to where the refineries are. What the refineries are doing is buying gold for let's say 97 percent of the spot price and selling it for 99 percent of the spot price. So they buy it. They refine it into those gold Knox-looking giant bars of gold, and they sell it to the international market. And they make a very slim profit of two cents on the dollar or two percent of the spot price. So they need a lot of volumes because the more volume they move through their refinery, the more money they make.
[00:15:40] So now a gold mine in Latin America calls them with some volume of gold to sell. It ships the gold up to the refinery in the US and the US wires back the same amount of money. So if they ship up to the US $10 million of gold, which is not a large shipment of gold, the refinery will wire back $10 million to the gold mines' bank account.
[00:16:03] So now let's think about this. If you have a hundred million dollars of drug money in the US and you traveled down to Peru. All you have to do is buy a hundred million dollars of gold. Now, you've got your a hundred million dollars of gold, and let's say you also buy mine. And now you call a refinery in the US and you say, "I would like to sell you a hundred million dollars of gold," which isn't an unusual amount. The refinery says, "Okay." The drug dealerships the gold up to the refinery and their finery wires back a hundred million dollars to the drug dealer's bank account. And if the refinery asks, "Where did you get the gold?" Well, they've got a very easy answer. "I dug it out of the ground," because that's where gold comes from. And now, the drug dealer has successfully laundered his hundred million dollars using gold.
[00:16:55] Jordan Harbinger: So a lot of people are doing this. It seems like this is the secret ingredient in the criminal alchemy of narcotraffickers, right? Because I can do this with a huge amount of money. Since gold is dense, it's easy to transport. If I get caught — if I go to the airport and I've got a couple of gold bars in my carry-on, is that illegal, or is it just really suspicious?
[00:17:17] Frank Maderal: It's neither.
[00:17:18] Jordan Harbinger: Neither?
[00:17:19] Frank Maderal: No, it's neither. So gold is a commodity that gets imported as long as you declare it, as long as you declare it. File a customs declaration. There is no amount of gold that you are not allowed to enter the United States with.
[00:17:34] Jordan Harbinger: Huh, wow, okay. Declaring it though. Then I got to pay taxes on it, right? So I'm probably trying not to do it.
[00:17:40] Frank Maderal: No, you do not have to pay taxes on that gold that you declare.
[00:17:44] Jordan Harbinger: What? Okay. So the declaration is just so people know how much gold is coming in and that's it.
[00:17:48] Frank Maderal: That's correct. That's just so the United States can track it. Where is it coming from? And who's it going to?
[00:17:54] Jordan Harbinger: So worst case — if I bring in a bunch of gold and I get caught, at the worst case, they say, "Hey, you were trying to get this in without declaring it." And I go, "I'm guilty as charged." and I hired a lawyer with some of my a hundred million dollars and I get off probation.
[00:18:06] Frank Maderal: Except for the most part, what the money launderers were doing was declaring it.
[00:18:12] Jordan Harbinger: So they're not even breaking the law. They're just saying, "Hey, I got all this legit gold as far as you know."
[00:18:17] Frank Maderal: That's absolutely right. They were hiding in plain sight. In fact, the case we put together, we put together mostly with the custom records in which all of the gold was declared. It's much more risky to not declare it and have a shipment seized by the government than it is to declare it and risk being the needle that is found in the haystack.
[00:18:36] Jordan Harbinger: Right. So if I declare it, it's like, okay, this and a bajillion other guys have flown into the US this year with a bunch of gold, not a big deal. But if they seize it and it's 10 million or a hundred million dollars with gold, then they're like, "Well, why was this guy trying to get this golden and not let us know where it came from? It must be illegal," because anybody importing this amount of gold knows that they have to declare it and they shouldn't have been hiding it. So, yeah, you're right that just draws suspicion, so the best way to do it is just to blend in with all the other people shipping gold. How come it's gold and not diamonds? Why gold and not diamonds?
[00:19:08] Frank Maderal: Well, gold — there are diamond mines in Latin America for one thing.
[00:19:11] Jordan Harbinger: Okay.
[00:19:11] Frank Maderal: Gold is a little bit easier to deal with. For one thing, it has a readily ascertainable value. I'm not a diamond expert. But in a nutshell, what has been explained to me as a diamond is truly only worth what the next person will pay for it. You can't go online and check the spot price of diamonds. And even if you could, there is a huge amount of subjectivity in terms of assessing the quality of a diamond. I think back when I got engaged, I was a three-week expert in diamonds.
[00:19:40] Jordan Harbinger: Yeah, same here.
[00:19:40] Frank Maderal: It was the five C's cut, clarity, and something like that. I don't remember them, I don't remember them anymore.
[00:19:47] Jordan Harbinger: You got two out of the five C's. So you know, we've been married for a while.
[00:19:50] Frank Maderal: But the point was, it's very difficult to figure it out. Gold on the other hand has a spot price. At any moment in time, you can go online and you can check the spot price of gold. Gold has qualities that are readily ascertainable. You weigh it. How much of this piece of gold weight. And then you take what's called an XRF gun and you get a purity percentage. So if this is a one-kilogram bar and it's 50 percent pure, I have 0.5 kilograms of gold, and I just multiply that, times the spot price. And that's what it's worth in Peru. That's what it's worth in Miami. And that's what it's worth in London. So there's very little risk.
[00:20:27] On top of that, the value density of gold is very high. So hundreds of thousands of dollars of gold, isn't actually that big, it's much smaller than the equivalent cash in terms of volume. So it's very good to move around. It's almost the perfect medium for laundering money.
[00:20:46] Jordan Harbinger: That makes sense. That's easy to transport. By the way, I looked at the five C's. It's carat, weight, so the size of the diamond, essentially color, clarity, and cut. And then the most important C of all is confidence. So in other words, who graded it and said it's worth anything. Was it some schmo or was it like an official diamond institute that you can actually trust and is the paperwork legit?
[00:21:09] Frank Maderal: Right.
[00:21:09] Jordan Harbinger: That makes sense. With gold, you just — is 0.99, or what is it? 99 percent pure or whatever it is like the — what is it? The nine, nine, nine. Is that what it is? Point nine, nine, nine.
[00:21:18] Frank Maderal: There's triple nine bar, which is the highest purity gold.
[00:21:22] Jordan Harbinger: Okay. Right. And diamonds it's like, was this cut well? Was it treated well? Did it transport well? What kind of color is it? You gotta look at it with a microscope. With gold, yes, you could probably stamp a triple nine on something that's not triple nine, but they'll find out pretty quick. Right? And then your trust is burned and you're not going to be able to do this again. That makes a lot more sense. So this is — essentially, it's better than cash, which you wouldn't have thought. You'd think cash would be the easiest thing to move. But if I get caught with a duffel bag full of cash, that's really suspicious. But if I get caught with a duffel bag full of gold, while I'm transporting gold, man, what do you want?
[00:21:53] Frank Maderal: Well, right. And it's born out by our economy. What happens is more often than not when things become uncertain or there's major crises, the price of gold goes up. So it's considered a safe haven.
[00:22:03] Jordan Harbinger: The difference between I guess transporting drugs and things like that is cocaine is obviously illegal. With gold, it's hard to tell. The papers can be forged. The metal can be melted, remelted like we said before until you can't pinpoint the origin. And this reminds me, I did an episode a couple of months ago with Bob Wittman, who is an art crime investigator for the FBI. And he was saying, "Hey man, if you've got a bag of cocaine in your backpack, you are going to jail." But if you've got a painting in a case, the flight attendant will put it in the little closet for you instead of putting it in the overhead bin, "I'll make sure you don't forget it." They'll give you the tube or the little sculpture in a case that you have as a carry-on. So gold is not illegal. It's not obviously contraband. There's no penalties for flying with a painting or a sculpture, or obviously a bag of gold, but you can't really say that for a giant sack of blow or a duffel bag full of cash.
[00:22:55] Frank Maderal: That's right. Narcotics is inherently contraband. There's no excuse to having it. And there is really no defense. Whereas if you have gold, it's not inherently contraband. It's not inherently illegal. There's no reason to summarily arrest someone who's possessing it, same as a painting.
[00:23:16] Jordan Harbinger: You're listening to The Jordan Harbinger show with our guest Frank Maderal. We'll be right back.
[00:23:21] Now, there are more ways to be a team with Microsoft Teams. Bring everyone together in a new virtual room, collaborate live, building ideas on the same page, and see more of your team on the screen at once. Learn more at microsoft.com/teams.
[00:23:35] Now, back to Frank Maderal on The Jordan Harbinger Show.
[00:23:39] A kilo of cocaine is worth — can be sold essentially for 2,500 bucks, which actually sounds like quite a bargain. When I was younger, that sounded like a lot more money than I guess it is. But those are raw material prices, of course. And a kilo of gold is worth between $30,000 and $40,000. And these are 2014 prices. It's got to be a lot more now. The price of gold has gone through the roof. Hasn't it?
[00:24:02] Frank Maderal: Yes, it has.
[00:24:03] Jordan Harbinger: So we're talking much higher value than cocaine, not illegal to transport, although probably a hell of a lot heavier. Now, we've established why gold is the most valuable way to transport illicit funds or any funds for that matter in a way, as long as it's not cash and you can wire it. How did they hide the criminal taint that comes from the illegal gold? You kind of mentioned this before that the refinery will send it up. Are they using front companies in other nations? In the court documents, I see things like Switzerland and the United Arab Emirates mentioned quite often.
[00:24:36] Frank Maderal: Yeah. So what they do is let's say you've got a hundred million dollars of drug money and you want to buy gold and launder it through a refinery. What you would do is you would form a corporation in a foreign country. You'd form that corporation, you might even get a storefront and then you would apply to become a customer of a refinery and you use that corporation and then you'd have a cover story. Your cover story might be if you're very sophisticated, that you own a mine in that country. And if you're even more sophisticated, you might in fact, actually own that mine. It could be a dormant mind, or it could be a mildly producing mine. And then you're just sort of padding the numbers and you'd have paperwork for that.
[00:25:17] If you were less sophisticated, you might just say that you are a gold aggregator, so you don't even need to bother with the paperwork and the hassle of buying and owning a mine in that country. You just declare yourself as someone who collects gold from somebody else. You know, we see those signs in the United States, "We buy gold," pawnshops, et cetera. Those are businesses that exist. If you were a little more sophisticated than that, and this did happen over time in the investigation that I was part of, rather than buying one company in doing this, you own multiple companies that are doing this in parallel.
[00:25:51] Jordan Harbinger: Okay. So I'm owning multiple front companies. And what's the reason for that, just to keep the quantity of gold going through one — in cash going through one company to a minimum.
[00:26:01] Frank Maderal: Absolutely. And to use a real-world example, what happened in Peru in 2012 and 2013, some of the entities that were related to our prosecution in Peru, they got flagged by the Peruvian authorities and were easy to identify by us because of the sheer volume of gold that was being exported by them from Peru and important to the United States. And these were companies that had not existed the year before, would open up, would export some ungodly amount of gold, let's say, $120 million, and then disappear. And then another company would open up and do the same thing.
[00:26:36] And so imagine if you're sitting in the Peruvian or US customs and you open up your spreadsheet of customs data. And the first thing you're going to do is sort by volume. I'm going to spend my time looking at it, right? So you're going to click column F for whatever it is, volume or total amount, and guess which ones are going to pop right up to the top. And so you don't want to be on the top. And so it would be much smarter and they realize this later — some of the criminals did — that rather than use these front companies sequentially to use them in parallel so that they don't stick out and they don't draw attention to themselves.
[00:27:09] Jordan Harbinger: That makes sense. And so to be clear, these pawnshops and other places that say, "We buy gold," they're not doing anything illegal. They're just trying to get raw materials to sell to aggregators. We also see them as fences on every crime show ever, where somebody robbed somebody and they go straight to the pawnshop and sell them the gold earrings and they just grabbed.
[00:27:28] Frank Maderal: Absolutely. And my point for referencing those because it's something that we see here in the United States is, in general, there is a concept of sort of aggregating at least scrap gold. In the United States, we know about scrap gold buyers and they make money by buying old jewelry and melting it down and buying it for one price and selling it for a higher price. That's something very different from what was happening in Peru. But as a general concept of aggregating gold, it is a business model.
[00:27:57] Jordan Harbinger: So once the deals get made here, these cocaine or narco kingpins, they've turned the dirty gold into to clean cash. And it's like, they're not even drug dealers anymore. They're just gold traders. That's essentially what money laundering does.
[00:28:10] Frank Maderal: Well, I don't know that that's necessarily what money laundering does in general. I think in this case, I think there were some examples and certainly some anecdotes of which we became aware where individuals who had been in the drug trade suddenly realized, "Wait a minute, I'm actually generating much more cash from these laundering gold transactions than I am from the cocaine transactions. And they're much less risky. And when I get my a hundred million dollars of cash from the refinery back. Instead of going and investing it in raw cocaine, shipping it, and redoing the whole cycle, I'm just going to invest it back directly into illegally mined gold, which I can buy because it's illegally mined in violation of Peruvian mine. Let's say I can buy at 40 cents on the dollar and then sell for 97 cents on the dollar, which is an incredible profit margin. For an amount of time that I might cycle through a hundred million dollars in several weeks."
[00:29:09] Jordan Harbinger: Oh my God. I think my point was to the outside world, they don't look like drug dealers anymore. They look like gold traders. So on paper, they're gold traders. Not that they just actually switched to their business, but it sounds like you've actually filled in the blanks there. And some of these guys go, "You know what? Screw this. This is better. It's easier." It's maybe less illegal somehow because it's not contraband and killing people, even though it is.
[00:29:30] Frank Maderal: Well, I don't know that it's lesser or more illegal, but it's certainly from, at least — in its infancy became a better business proposition for drug dealers who were doing their own elicit gold transactions to simply shift their resources into the illicit gold transactions and not the drug dealing.
[00:29:48] Jordan Harbinger: I guess when I say more illegal because — it's binary, right? Something is either illegal or it's not. I guess for me though, when we think of horrible cartels, killing tons of innocent people and hanging their bodies from bridges. We don't think, "Oh, those are those gold traders again." We think these are drug cartels doing that. Are the gold traders similar in their brutality? I mean, it seems like anytime you get a ton of black market off -the-books money, you're going to end up with that level of corruption and brutality.
[00:30:16] Frank Maderal: Well, that's a really difficult question to answer. I think the search for gold has led to a lot of historical brutality in Latin America, a lot of tragedy.
[00:30:27] Jordan Harbinger: Columbus Day was like the other day, right? So this is a pretty apropos episode. It depends on when this comes out, but this is pretty apropos. Like a lot of that expedition was let's dig up everything and send it back to Spain or Europe or whatever.
[00:30:41] Frank Maderal: Yes. There is a sort of sad historical thread here for Latin America.
[00:30:46] Jordan Harbinger: Why not just get legal gold or domestic gold? I mean, we have Nevada, Alaska, they've got tons of gold there. Right? Why do we need to look South?
[00:30:55] Frank Maderal: Right. In terms of just general gold demand or in terms of looking for an opportunity for—
[00:31:02] Jordan Harbinger: I guess, because why should US gold traders even buy stuff that's imported that might be tainted when they can just get their gold domestically? Is it that much more expensive?
[00:31:14] Frank Maderal: Well, I think it's two-fold. I don't know that it's that much more expensive, but the business model of gold refineries is volume, volume, volume. They are like a Walmart and that they are a low margin business, or at least that's the classic example that people use Walmart for. And so they need to sell a lot of sticks of chewing gum, right? They buy gold, the refineries do for, let's say. 0.97 of the spot price, so 97 percent of the spot price, and let's say they sell it for 99 cents, 99 percent of the spot price. So they're making two percent of the spot price and they have fixed overhead. They have a refinery that they have to run. They're buying gold. That's about 80 to 95 percent pure from Latin America and they were refinering it and they're turning it into these pure 0.999 bars that they then sell on the international gold exchange. And so in order to profit with that business, they just need as much volume as they can get. And the only limit to the amount of volume that they can get is the sources from which they can purchase.
[00:32:25] Jordan Harbinger: Okay. So they might not even be able to get what they need from Nevada and Alaska, especially if someone calls and says, "I have this much gold right now, and you can have it in a few days." That's a pretty tempting offer, right?
[00:32:37] Frank Maderal: Absolutely. And even if refinery number one, decided that it was only going to buy all at gold from Alaska or Nevada. Well, there still would be all this gold in Latin America that would support the venture of refineries too.
[00:32:52] Jordan Harbinger: Is all the illegal gold from Latin America? What about Africa? You hear about mining in Africa all the time. Is that mostly diamonds and other elements or is that gold as well?
[00:33:01] Frank Maderal: So my understanding, and I didn't investigate in this direction, but my understanding is that there is a lot of illegal gold in Africa, but that it is so well-known and so much of a red flag that the refineries were never able to develop a pretext for purchasing it.
[00:33:19] Jordan Harbinger: So essentially it's just so obvious that if you're getting a huge quantity of gold from Africa immediately red flag, immediate investigation type scenario.
[00:33:28] Frank Maderal: Right. So what happens is the refineries do have legal obligations under the Bank Secrecy Act for anti-money laundering policies. So their refineries in the US cannot purchase gold unless they have an adequate anti-money laundering program. So that kind of causes them to have some diligence. Also, the criminal money-laundering laws do create some criminal liability for what's called deliberate ignorance. So if you have every reason to know that something is an illicit transaction, but you move forward anyway, you can be criminally liable for that. So there are those things hanging over the refinery and when they start to buy from certain countries that just have a reputation for illegality or money laundering transactions, it's just too much business risk for them.
[00:34:13] Jordan Harbinger: That deliberate ignorance is interesting. Is that kind of why if somebody sells me an iMac out of the trunk of their car for $25, I'm in trouble too, because I should have known that the guy selling laptops or computers out of the trunk of his car for one one-thousandth of the purchase price or for one one-hundredth of the purchase price is not legit. I should have known.
[00:34:35] Frank Maderal: Yeah. So at least as a matter of federal criminal law where it needs to be proven that you knew something was illegal. You can prove that by establishing deliberate ignorance, which is more or less that someone had every reason to know but took some affirmative step to bury their head in the sand. So if you're buying that MacBook for one one-thousandth of the price from some guy in a parking lot, out the back of his trunk, and you see that he has a bunch of MacBooks in there and he says, "Yeah, these fell off the truck," and you say, "Well, I don't want to know. Don't tell me." You have basically just acknowledged that you're simply deliberately ignorant and therefore you know.
[00:35:10] Jordan Harbinger: If refineries can get gold from Africa because they need an anti-money laundering policy in place, why can't we set that up for South America?
[00:35:19] Frank Maderal: So it was set up for South America. What was happening, however, in South America is it simply didn't have that reputation, or at least the refineries weren't treating its gold source from those countries in the same way. And that was part of what was so important about this case is by making this case public and prosecuting it and putting this information in the public domain and podcasts such as yours and other media coverage, it actually denies — it denies refineries the ignorance to say, "We had no idea of the risk."
[00:35:52] Jordan Harbinger: Ah, okay. So this is kind of a lack of political will and the fact that they're getting away with it and people like you are eventually busting them, but it probably took a lot of resources for you to investigate and prosecute this. So it almost seems like even though it's $3.6 billion, if it's really a small percentage of it, is there a lot of political will to go after this? Or is it kind of like, "Look, we have bigger fish to fry here, it's just gold"?
[00:36:17] Frank Maderal: Well, I don't know that it's a political question. How is the department of justice prosecuting? So that's probably also, I'm sure a lot of people might debate that, but at least—
[00:36:26] Jordan Harbinger: Yeah.
[00:36:26] Frank Maderal: —for these sorts of what I would call, how would I call it? I do think this is sort of an political issue in terms of the prosecution. I think there's so many factors that go into prosecutorial discretion, particularly with regards to certain industries. I do think that there is some sense that, you know, word industry has gone unpoliced or industry has run amok for lack of prosecution. I do think that there can become an argument in favor of the prosecution. I think that was what was that play in this case. And then I think once that industry you've brought down the hammer, so to speak, you've publicized the issue. You've won some convictions and you've demonstrated to the industry what can happen and what will happen. It may rightfully be that you need to shift to the next industry. What's going on in diamonds? The fact of the matter is that the Justice Department, anyway, simply can't prosecute every possible federal crime, much less every possible, money-laundering crime.
[00:37:26] Jordan Harbinger: Aren't their certification agencies like they have for diamonds, right? This is not a blood diamond. This is conflict-free. How come we can't do that type of thing with gold smelted at legit companies? Why can't they sort of certify this is from a conflict-free source.
[00:37:41] Frank Maderal: I suppose there could be. There could be an agency that had some funding mechanism that allowed it to exist. And that actually did a truly diligent job in identifying the source of gold and verifying gold aggregators or gold mines, such that a refinery or person doing business with them could really not totally rely on it, but could really, for the most part, rely on it, even though they'd still be ultimately responsible, there could be, I just don't know that the incentive is there to create it.
[00:38:14] Jordan Harbinger: I mean, I'm sure that the gold industry isn't climbing over each other to make sure that they get more regulation that costs them more money if they're on these thin margins. They're going to fight that tooth and nail.
[00:38:24] Frank Maderal: As a general matter, I suppose that's correct. I mean, my understanding of the conflict diamond issue is a lot of that was forced by consumers. I think the market for diamonds is a little different than it is for gold. Gold has a lot of industrial uses other than jewelry. I think diamonds were mostly going to consumers who are becoming educated on the issues. And, you know, I don't like to be too cynical, but perhaps somewhere in some backroom, someone decided that it would actually be more profitable to certify diamonds as conflict-free than to allow it to go unregulated. And I just don't know that those same consumer market forces exist in the gold trade.
[00:39:04] Jordan Harbinger: Right. I guess if I'm buying a hundred million dollars worth of gold and it's all going to be shipped to different jewelry makers and electronics makers, I'm not as worried about that. But if I'm buying an engagement ring for my girlfriend and she's like, "Oh, I hope nobody got hurt doing this." I want to be able to prove it and go, "No, no, no, no. I didn't get a blood diamond. We're not those kinds of people." Meanwhile, Apple's not like they don't necessarily care where the gold comes from. They'd probably don't want to know where the gold comes from because it's just an extra layer of complexity when they're just trying to get raw materials.
[00:39:33] Frank Maderal: Well, I don't know about Apple.
[00:39:34] Jordan Harbinger: I'm just using them as an example. I know you can't name names, but I can be flippant you can't.
[00:39:39] Frank Maderal: Yeah.
[00:39:40] Jordan Harbinger: Very lawyerly of you, by the way, good catch.
[00:39:43] Frank Maderal: Thank you. And, well, actually I do say that because I do think that there are a lot of companies. And when I say, I don't know about Apple, I literally just don't know about Apple. There are a lot of companies that I think have worked to certify their sources of gold to the best that they can. But certainly to your point, I think there are enough industrial purchasers of gold all over the world and even consumers all over the world and even governments all over the world who probably don't care much that it's just not workable.
[00:40:18] Jordan Harbinger: This is The Jordan Harbinger Show with our guest, Frank Maderal. We'll be right back.
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[00:41:33] Now, for the conclusion of our episode with Frank Maderal.
[00:41:37] It's funny looking at that thing about the transporting of gold. I've got this friend, we'll call him Adam because that's his name. I met him a long time ago in New York City. And he used to mine Coltan. Are you familiar with that at all?
[00:41:51] Frank Maderal: No, I have not.
[00:41:52] Jordan Harbinger: So it's a rare earth mineral. That's probably used in semiconductors or something like that. I don't know, circuit board something, something. And we went out to a club and he goes, "Oh man, I didn't know. We were going to go to a dance club. I can't really stand around or dance or anything." and I said, "Why?" And he's like, "Well, I just got off the plane from Sierra Leone. And I have gold strapped to each leg," and I thought he was yanking my chain here. And he had a kilo of gold strap to each leg. And these little tiny bars on these, like kind of almost like you, would have if you had a bad knee, you know, those sort of elastic bands.
[00:42:27] Frank Maderal: Sure.
[00:42:28] Jordan Harbinger: He had that strapped to his leg. And I said, "What do you have that for?" And I did the price calculation. Recently, and it was something like $60,000 on this person, maybe a little bit more. And he said, "I have it on me all the time because I work and live in the jungle." And he's got his like militia bodyguards, but he's like the, "I am any day, just a few hours away from having to just leave everything I own over there and leave." And so this is like his get-out-of-jail-free card to bribe his way across borders, buy flight tickets, whatever he needs to do to get out of Sierra Leone in a hurry. And I asked him how he got that gig. And he said, "Oh, I'm friends with the president." So these are the kinds of people, at least one example of the kinds of people that are maybe mining things in the middle of jungles in Africa, at least, and possibly in Central or South America.
[00:43:17] Frank Maderal: Wild.
[00:43:18] Jordan Harbinger: Yeah. I mean, look, that's an anecdotal sort of story. So it doesn't necessarily represent every minor, but I've seen photos of him. I know he wasn't full of it. I've seen lots of photos of him laying in his little hut with tons of people waist-deep in mud pits, doing whatever you do when you're mining, I don't know, filtering things with pans. I'm not even sure what they're doing. You must love the challenge of this though, right? I mean, you have to think like a criminal and really get in the weeds when you're investigating. Is that kind of what you're doing is that the process involves.
[00:43:44] Frank Maderal: Yeah, it was fun while I was doing it to a certain extent. I mean, we started, I think, with this gold prosecution, we started actually with the customs data that we've already spoken about. And looking at that custom data and looking at trends and seeing where gold was coming, who was exporting it from what country and Latin America, who the individuals that they were declaring as a source, the individual corporations, who they were, how they were changing, where the trends are going from country to country. And from there, when we knew that there existed this motive, both for illegally mined gold, for exporting it, and also for using illegally mined gold from money laundering, we could look at the trends. And we could try and tell which one of these trends is actually highlighting for us money-laundering transactions. So an organization that's engaging either in money laundering or certainly engaging in transactions that are highly likely to be money laundering without doing any proper diligence.
[00:44:46] Jordan Harbinger: This just seems too easy. You know, you think when you buy drugs off of, let's say, the dark web or so I've been told they have to mail them in like these cheap Chinese toys and you crack open the little electronic violin and there's fentanyl in there, something like that. But for gold, are you concealing it, or are you just shipping it over via legit channels and just lying about the provenance?
[00:45:09] Frank Maderal: It's the latter.
[00:45:10] Jordan Harbinger: Wow.
[00:45:10] Frank Maderal: And frankly, I'm on the customs declaration with one exception, there really isn't a statement as to the provenance, so you're not even affirmatively lying as to the provenance beyond possibly the country of origin. There's no statement on the customs declaration that you need to make that either is or is not a legal gold for instance, or this is or is not a money-laundering transaction.
[00:45:35] Jordan Harbinger: It's so crazy. It just seems so easy to do that. And there's almost no way to find out whether or not it's legal. I mean, how did you even — so you found some volume and found out, okay, this can't be legit, but how do you then prove that this is illegally obtained gold? Do you have to work with other law enforcement agencies at the source, right?
[00:45:54] Frank Maderal: Well, we had a big group of cooperating agencies, both US agencies that were in the country and in foreign countries, and US agencies that were here and we had partners that were foreign law enforcement agencies. But believe it or not, we have a good set of statutes and criminal law enforcement from the Federal side in any event. We have a good set of money laundering statutes, and many of them contemplated these problems decades ago.
[00:46:21] And so just as much as it was illegal to transact in a bar of gold if you knew that it came from a specified unlawful activity, It was illegal to engage in transactions. If you knew you were promoting unlawful activity. So let's think about what that means. On a typical money-laundering transaction, let's say person one imports $10 million of gold bars. For me to prove that that is illegal money laundering, I have to prove that that $10 million of gold was derived from a specified unlawful activity, like drug dealing. So that means I actually have to trace the source. Who bought that gold? Where did that gold come from? Who paid for it? Where did they get the money to pay for it? All these things that would have happened months and months and months before the gold was imported into the US and probably years before I ever saw the record of it, having been important to the US.
[00:47:18] There's virtually no way short of a time machine and a plane ticket to the middle of the jungle that we're going to be able to do that. However, the money laundering statute also makes it a crime to promote specified unlawful activities like drug dealing or illegal gold mining. And that gave us an opportunity. Because the way the refinery business worked in the US at that time is there was a lot of customer loyalty. Right? You wanted people with gold and Peru to come back to your refinery. And the way that you got them to come back to your refinery was by giving them good customer service. They were your customers. You paid them quickly, right? If they sent you $10 million of gold, you sent them their $10 million wire as soon as possible. And you weighed their gold for them and you dealt with them and you sent them pictures of the refining process and you treated them really nicely. And when you went down to Peru, you took them out to dinner. And you took them to the best new restaurant, just like any business might do with its customers.
[00:48:17] And so you really helped promote their business. And then the minute I can prove that you as the refinery or you as the person working for the refinery, you know That they're buying illegal gold, your customer, or that they're dealing with drug dealers or your customer, or that they're bribing foreign officials as your customer, that I can prove that the transactions you're engaging in are promoting that unlawful activity, which is just as much of a crime as if I can prove that the individual pieces of gold you were buying were derived from that activity if that makes sense.
[00:48:50] Jordan Harbinger: It does. So this is almost like aiding and abetting, essentially. Right? And at some level.
[00:48:55] Frank Maderal: Kind of, or kind of, I mean, it's a, more of a direct and specific substantive crime of promotion, but it, what it does, is it criminalizes, engaging in transactions with somebody where you know, that you're promoting that person's illegal business even if the government can't prove that the actual funds as part of your transaction are the funds from that business if that makes sense.
[00:49:20] So let me give you another example. Okay. So let's say a drug dealer sends me $10 million. Well, That's laundered money, right? I now have $10 million. And if I can prove that came from the drug dealer, that's a problem. And you can get in trouble for receiving that money. But now let's say I loaned a drug dealer $10 million. That's also illegal under the promotion statute because now I'm engaging in a financial transaction. The purpose of which is to promote his business.
[00:49:49] Jordan Harbinger: Right. Okay. That makes sense. So is that how you got the US-based refinery employees?
[00:49:56] Frank Maderal: Yeah. That's how we got the individuals who were working for the refinery. The refinery itself, we ended up charging with a failure to have an adequate anti-money laundering program.
[00:50:09] Jordan Harbinger: So there are laws that say that they have to have some program in place. What is it that they didn't have in place? I mean, it was obvious they didn't have anything in place, but what were they supposed to have in place?
[00:50:17] Frank Maderal: Well, the law is vague, to be honest, it is. Basically, the requirement of the law that you have some adequate money laundering program in a nutshell. That's the requirement. Now, exactly what is adequate and what isn't adequate can be a little murky, but there are times where something is so obviously inadequate, so obviously inadequate that it becomes a violation of the law. And so in this case, what we would see is a company that had never existed before opens up and several months later is dealing with hundreds of millions of dollars of gold, then disappears. Then the same individuals who had applied for that company to be a customer, apply for a new company, to be a customer that never existed before and did a hundred million dollars of transactions. And then they repeated it again.
[00:51:08] And so in those situations, you look at the contours of those transactions and you say to yourself, "What possible justification could exist in the refineries anti-money laundering program to have allowed this to happen?" and then, so when you ask the refineries, "Show us your anti-money laundering file. Show us what information you had that justified this in your mind." And of course, they would have nothing. They would have one page that says the company is an aggregator and then another page that said new companies and aggregators. And so it became quite clear, at least in these examples that whatever an adequate anti-money laundering program is this isn't it.
[00:51:49] Jordan Harbinger: So these guys had, let's say, I walk into your refinery and I say, "Yeah, this is Harbinger Incorporated and I've got a hundred million dollars worth of gold." And then in three months I come back and I go — you say, "Hey, it's the guy from Harbinger Incorporated." I go, "No, no, no, no. Now we're in New York Incorporated and I have a hundred million dollars worth of gold." "Oh, okay. Company change. No big deal." Three months later, the same thing. "Hey, I'm Apple Incorporated." Or maybe that's taken, I don't know. "I'm Matthew Incorporated and I've got a hundred million dollars worth of gold." And we just keep doing that for years. You should, at some point — your case was — your argument was I should say — you at some point should have known that something is up with me, but you just never asked any questions. So we go back to the deliberate ignorance of me selling laptops out of the back of my car. Right?
[00:52:34] Frank Maderal: So it's related, it's a little bit less than that. To prove deliberate ignorance would be proving actual involvement in the money laundering.
[00:52:42] Jordan Harbinger: Okay.
[00:52:42] Frank Maderal: This is something a little bit less than that. This is just the failure to take reasonable steps to find out. So in theory, you could be guilty of having an inadequate anti-money laundering program, even if no money laundering was taken place. Does that make sense? It's separate—
[00:52:59] —from the money laundering itself. It's just your failure to have a program and your program is not supposed to be perfect. It's not supposed to — well, it is supposed to eliminate money laundering, but you're not going to be in trouble if you fail to eliminate it. You really have to try and go to do a good job and have some sort of controls, some sort of process in place so you know your customer. You know, who is coming into your refinery and you have some process for finding out where they're getting their gold from. And if you're not asking the right questions, or if you ask someone, "Where did you get this gold?" And the only answer they tell you is from somebody else. That's not adequate. Going back to the original example that we spoke about is if I went to a bank and deposited $10 million and they asked me where I got it, and I said, "I aggregated all these dollars." That would be ridiculous for the bank to accept that. It's no different for gold refineries.
[00:53:53] Jordan Harbinger: In closing here, what can — and in your opinion — should be done about this? Is there any way to stem this? Because it seems way too easy and it seems way too lucrative. I don't see why anybody would sort of voluntarily stop. This is like the Holy grail of money laundering.
[00:54:09] Frank Maderal: So I think refineries need to do a better job of having adequate anti-money laundering programs, I think shows like yours. Jordan, that's putting this out there in many ways, requires them to. One of the many things we looked at in prosecuting at least this one refinery for having an inadequate program where some of their customer names had they simply googled them. They would have seen money launderer as the first hit, right? So there is a Google test. And so the more we can put information about illegal gold out there, the more that refineries will have to be aware and deal with it as part of their programs. I think the government can keep doing a good job of prosecuting these cases and keeping the industry on its toes as it should be.
[00:54:55] You know, one thing I think that would be really fascinating is a couple of days ago for a different case. And now that I'm in private practice, I was investigating Medicare data. CMS, which is the agency in charge of Medicare in the United States has this wonderful website where you can go and you can see just any data you want on Medicare payments, providers, claims you can sort it, you can map it out. I mean, it is just phenomenal. The customs data for golden ports should be equally available in public. If the media could simply look at the data and publish what they saw, there would be such a disincentive for refineries and importers to do these illegal things, because it is really they're hiding in plain sight in this data.
[00:55:44] Jordan Harbinger: That all makes sense. Did I understand that? You googled someone and one of the first results was a money launderer. What was that? Like on his LinkedIn profile? I don't know. Did I misunderstand what you said?
[00:55:56] Frank Maderal: No, you didn't. There was a Peruvian individual who had been previously charged with money laundering in Peru and acquitted, but were you to read the newspaper articles he would be described at various times as Peru's most notorious money launderer.
[00:56:11] Jordan Harbinger: And this guy was just coming around with huge amounts of gold to refineries and they either googled him or didn't and still went ahead and did business with them, even though the first result for this guy was money laundering.
[00:56:23] Frank Maderal: Him or individuals clearly associated with him, yes.
[00:56:27] Jordan Harbinger: So that certainly sounds like deliberate ignorance, right? Is there really a Google test? Like, "Did you search for this person at all?" "Yes." "What came up? Because when I search it when the prosecution searches it when the judge searches it, the first result is this."
[00:56:40] Frank Maderal: Yeah. That always was my first test, which is the Google test, right? If a company is charged with knowing their customer, whether it's a gold refinery or a bank, what's the first thing you do as a matter of common sense to find out about someone.
[00:56:55] Jordan Harbinger: Yeah. Google, Internet.
[00:56:56] Frank Maderal: Why wouldn't a bank do the same thing. It's called open-source research and they do it. And the refineries should also do it. And so that's why I think it's so important that these prosecutions are brought, that these methodologies were made public. So that the next time a refinery is faced with a large transaction from a Peruvian corporation in gold that has never existed before and they Google let's say Peru Gold — I'm fairly certain that illegal gold or money laundering will auto-fill at the top of Google and they're going to be on heightened alert. And it's going to be much harder for them to claim that they didn't know, and it's going to be much more risky for them to engage in these transactions. And hopefully, in the aggregate across the industry, we move that needle in a positive direction.
[00:57:43] Jordan Harbinger: Frank, thank you very much. This has been really interesting. Of course, after the show, I want to go over some of the environmental impacts and human impact of this, but this is really interesting. Your line of work is interesting, man. I got to hand it to you. You must have felt pretty good about putting some of these people away. Even if you say, it's an ongoing problem. It must have felt pretty good to finally close the lid on this one.
[00:58:03] Frank Maderal: Well, it always feels good to work on something for a long time, with a lot of good people and get a just result. I can say personally with respect to putting someone away, you know, watching someone go to jail, that part never felt so good though. It never stopped me from doing what I thought was the right thing. I never felt too good about that part, but we did feel really good about what we did in this case. And there were a lot of people involved. So thank you for taking the time to ask us about it.
[00:58:34] Jordan Harbinger: I got a preview trailer of our interview with Mike Rowe, host of Discovery's Dirty Jobs and Returning the Favor on why the advice follow your passion is complete BS. Check out episode 264 right here on The Jordan Harbinger Show.
[00:58:48] Mike Rowe: Follow your passion as a bromide is precisely what 98 percent of the people do who auditioned for American Idol and they're lined up. Thousands of people who have been told if you believe something deeply enough and if you want something bad enough, and if you truly embrace the essence of persistence and your passion, if you let your passion lead, you stick with it. Well, following your passion is terrific advice if the passion is taking you to a place where opportunity and your own set of skills will be able to co-exist. Passion is something that all of the dirty jobbers that I met possessed in spades. They just weren't doing anything that looked aspirational. So it was confusing.
[00:59:34] So if a guy in a plaid shirt sipping a cappuccino, that doesn't make sense. Well, guess what, neither does a septic tank, cleaner worth a million dollars.
[00:59:42] Jordan Harbinger: That guy had a million-dollar business?
[00:59:44] Mike Rowe: I actually counted them up, ones. I could be wrong by a couple, but I put over 40 people that we featured on Dirty Jobs as multi-millionaires. Passion isn't the enemy. It's just not the thing you want pulling the train. But look, I don't say don't follow your passion. I say, never follow your passion, but always bring it with you.
[01:00:09] Jordan Harbinger: For more with Mike Rowe, including a behind-the-scenes look at some of his shows and why we should not view a blue-collar career as some sort of cautionary tale, check out episode 264 right here on The Jordan Harbinger Show.
[01:00:22] I've got a lot to say about this, of course, my intro was all there. I mean, this is just a fascinating, deep dive topic. The United States depends on Latin American gold to feed the ravenous demand from its jewelry, bullion, and electronics industries. A lot of us forget we use golden electronics, a lot of electronics, the amount of gold going through Miami every year is equal to roughly two percent of the market value of this US stockpile of gold in Fort Knox. Think about how much gold that is. I recommend checking out Dirty Money on Netflix. That's where I first saw Frank. It's a great series on everything money laundering, fraud. It's really, really interesting. We'll link it in the show notes.
[01:01:02] By the way, since gold price is set on a worldwide basis and the vast majority of trades are financed on credit, the metal, the gold has to move quickly between Latin America and the United States. So if one importer can pay a supplier faster than a rival can, it wins the deal. And surprisingly profit margins are small, which makes gold the volume business, which of course stacks and exponentially makes worse all of the negatives we just talked about here. The need for speed and quantity means obeying anti-money laundering laws. That's a cost, the requirement that many people just don't bother with. The United Arab Emirates buys billions of tons of gold from Africa annually. So it doesn't really matter if Europe and the US don't buy from Africa. I mentioned that earlier in the show, I was like, what about Africa? Much of the gold was not recorded in the exports of African States. So essentially all of this is off-book. Most of the gold leaves Africa, with no taxes being paid to the States that produce them. Human misery left in the wake. We can see huge amounts of gold being smuggled because one country like the United Arab Emirates will report one number. And then the African source nation will report another much, much smaller number. So this is really, really obvious smuggling.
[01:02:14] A lot of smuggling from Burkina Faso, they've arrested hundreds of Chinese miners expelled people in the past six years from Ghana mining gold illegally. In India, customs officials have arrested people for attempting to smuggle gold by concealing it in bags and clothing and household items and in their rectums — butt gold. That's right. These types of trends — okay, maybe the household items more than the butt gold —suggests that smuggling syndicates are actually using e-commerce platforms and couriers to smuggle gold into India by hiding it in what's called white goods. So smugglers have used everything from laptops, skateboards. There's a meat Cleaver, they found that it was essentially just gold mashed into a shape and then painted as other metal other hideaways. If you will, as I mentioned.
[01:03:00] And it's not just butts and laptops 66 pounds of gold were hidden inside a shipment of bathroom fittings. So as you can imagine, this is just impossible to police. It's impossible to interdict. The gold issue. It brings together money laundering, forced prostitution, drug traffickers, human trafficking, and child slavery. So it is just a freaking delight. And criminal groups make so much more money from gold than from Coca. It's easier. It's more legal. In Colombia, illegal gold mining is the largest single cause of deforestation. It's not the Coca plantations, it's as much or worse human misery, but far more legal and far harder to interdict and to stop, unfortunately. And gold miners have stripped roughly 415,000 acres of South American tropical forest. That's an area twice as big as New York City, much of the damage is happening inside national parks, logical preserves. It would be the equivalent of having thousands of acres of illegal strip mines, right in the middle of Yellowstone National Park and the government not being able to do anything about it.
[01:04:02] So this whole industry is just a tragic case in all respects. And it makes me want to pull in my investments entirely from gold. Bitcoin might be a better bet now anyway, but it's really, really, really sad. And I wanted to educate you all on this because you can't avoid using gold. If you buy electronics, you've got an iPhone or an Android you're using. It's just something we need to be aware of because this is a problem that's going to take a generation to correct.
[01:04:26] Links to all the resources for this episode in the show notes. Worksheets for this episode in the show notes. Transcripts for this episode are always in the show notes. I'm at @JordanHarbinger on Twitter and Instagram or hit me on LinkedIn.
[01:04:37] I'm teaching you how to connect with great people, certainly fascinating people, and manage relationships using systems and tiny habits over at our Six-Minute Networking course. It's a free course. These are the same drills habits systems that I use. Go to jordanharbinger.com/course. Find out how to dig that well before you get thirsty. Most of the guests you hear on the show, they subscribe to the course. They contribute to the course. Come join us, you'll be in smart company.
[01:05:03] This show is created in association with PodcastOne. My amazing team is Jen Harbinger, Jase Sanderson, Robert Fogarty, Ian Baird, Millie Ocampo, Josh Ballard, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for this show is that you share it with friends when you find something useful or interesting. You know, somebody who's into gold, money-laundering, smuggling, or just likes fascinating stories — maybe the environment, this might break their heart though. I do hope you share this with them and I hope you find something great in every episode of this show. Please do share the show with those you care about. In the meantime, do your best to apply what you hear on the show, so you can live what you listen, and we'll see you next time.
[01:05:42] Now, there are more ways to be a team with Microsoft Teams. Bring everyone together in one space with a new virtual room, collaborate live, drawing, sharing, and building ideas with everyone on the same page, and make sure more of your team is seen and heard with up to 49 people on screen at once. Learn more about all the newest Teams features at microsoft.com/teams.
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