03 August 2010

Money Laundering in Chess?

I just don't get it. Last week, in Need a Program to Identify the Players?, one of the groups I identified was 'Sodbiznesbank, VIP-Bank, CB Diamond; Andrei Kozlov, Alexei Frenkel'. What does this have to do with the game of Kings? An article published in June on the Karpov campaign site for this year's FIDE presidential election, Ilyumzhinov's Game – For the Benefit of the Elites (karpov2010.org), tries to make the connection. First it tells us,

Remember all the financial institutions like Diamant, VIP-Bank, etc.? That they were closed for money laundering? And the murder of Andrei Kozlov, the first deputy chairman of the Central Bank, remember? It's true that a certain Alexei Frenkel took the rap for everything. He, apparently, didn't have the chess know-how to jump off the board in time.

And later ties this together with chess by saying,

We also mustn't forget that FIDE and the general structures of chess are almost ideally suited for money laundering in general and bribery in particular. So you'd like for your person to have, for example, a big post in whatever Ministry of Economic Development, the VEB or there in the Skolkovo Innograd – sponsor a chess tournament on the border between Sudan and Zimbabwe. And there's no corruption!

The second half of that paragraph, about sponsoring a chess tournament, makes absolutely no sense to me, so I'll concentrate on the charges directed at FIDE. These are apparently what Mark Crowther had in mind when he wrote about Potential legal cases. He started,

Two potential legal cases may or may not reach courts in the near future. The organisers of the World Championship in Sofia are said to be taking action against ChessBase on the strictly limited idea that you can't dynamically take content from a website and sell it for profit. The next is that Kirsan Ilyumzhinov is planning to take Anatoly Karpov to he FIDE Ethics Commission over saying he was corrupt.

Skipping the first case for now,

The second case is perhaps more interesting. The Russian Press [link] is reporting that Kirsan Ilyumzhinov is about to sue his opponent Anatoly Karpov for libel. Well except he says it says that he is taking Karpov to the FIDE Commission of Ethics, which I can entirely believe but hardly sounds scary for Karpov. My understanding is that Ilyumzhinov is accusing Karpov of specifically saying that money is laundered through FIDE. I don't even know whether Karpov said this or whether he limited himself to saying that Ilyumzhinov or FIDE is corrupt in a more general way.

I wrote about FIDE Ethics a few months ago, but money laundering is a topic about which I am essentially clueless, especially when it comes to chess. Everyone knows that there is no money in chess, so how can the game be used for money laundering? First stop: How Money Laundering Works (howstuffworks.com).

The basic money laundering process has three steps: 1. Placement, 2. Layering, 3. Integration. • At the integration stage, the money re-enters the mainstream economy in legitimate-looking form -- it appears to come from a legal transaction. This may involve a final bank transfer into the account of a local business in which the launderer is "investing" in exchange for a cut of the profits, the sale of a yacht bought during the layering stage or the purchase of a $10 million screwdriver from a company owned by the launderer.

I've emphasized the integration step, because that would be the most likely point where professional chess might be useful. The first two steps involve banks: depositing cash, then hiding its origin.

To get an idea about how integration might work for chess, I looked at how it works in a sport which is known to have a problem with money laundering: football (soccer). A report from the European Commission, Study on Money Laundering through the Football Sector (europa.eu), says,

The Financial Action Task Force (FATF) has published a study examining what makes the football sector attractive to criminals. The report warns that football is at risk from criminals buying clubs, transferring players, and betting on the sport. The study has relied on the experience and support of the Member States of the FATF, the European Commission and the private sector. The report is a contribution to the implementation of the White Paper on Sport in the area of the fight against corruption and money laundering.

The report, Money Laundering through the Football Sector (fatf-gafi.org), which connects loosely to chess as 'the sports industry in general', starts,

The goal of this FATF report is to draw attention to some of the risks facing the football sector in particular – and the sports industry in general – to misuse by criminals so that government policy makers, law enforcement, the financial sector and sports regulatory authorities can better understand and begin dealing with this problem.

The associated PDF relates dozens of anecdotes about how criminal elements have used football as a legitimate cover for illegitimate activities. While most of the activities involve sums of money that the chess sector can only dream about, a couple of points made an impression on me.

56: 'Football has a status with which many people would like to be associated. Criminals often seek a status outside the criminal world and football can offer the opportunity for acquiring such a patron status ("sugar daddy") thanks to supporting a club no matter where the money comes from. An investment in a football club can provide the criminal the favoured status. In most cases investments in football clubs are characterised by a high degree of uncertainty over future results. However there are strong non-material rewards for wealthy individuals who invest in football clubs or players.

'Football clubs are deeply rooted in (local) societies. This makes football clubs an attractive way to gain social status in the local community and get entry to the establishment. By investing in football, criminal organisations might also gain control of associated activities such as betting, real estate businesses and contracts with the local government (in some countries, many club owners have come from the construction industry). This complex set of financial and non-financial motives could make football attractive to criminals seeking legitimate social status.'


92: 'The construction of sports facilities and the purchase of large amounts of equipment provide fertile fields for corruption in procurement.'

The 'sugar daddy' phenomenon is well known in chess, starting in the 19th century when wealthy patrons backed world class players in their chessboard struggles against each other. The construction aspect is a more recent phenomenon. Construction projects related to chess, which a few decades ago would have been dismissed during the brainstorming stage as idiocy, have been sprouting like mushrooms since the 1990s. Remember Chess City in Dubai? Perhaps it is simply a coincidence that Dubai is one of the money laundering centers of the world.

While it is very unlikely that FIDE itself is involved in illegal activities, it provides an attractive affiliation for anyone interested in profiting through illegal activites related to chess. Where in the FIDE statutes is it stated that all illegal activities are to be condemned? If there is no such statement, there should be.

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