Understanding Finance from scratch

Chapter 30 What to do when you are short of money, how to become a master of capital operation - learn some financing knowledge every day (1)
Money Laundering: Turning Money From "Black" to "White"

In 1983, this happened to the Bank of New York: a customer transferred a large amount of funds from a Russian bank account to two accounts of the Bank of New York, which were opened in the names of Company A and Company B.Investigators found that both the accounts of Company A and Company B were opened by Peter, a Russian man who immigrated to the United States in 1991, and his wife Lucy, who was also a Russian immigrant, was employed by the London branch of the Bank of New York.

The accounts of Company A and Company B were set up 2 years ago, and more than US$1 billion in funds flowed through these two accounts during the following 60 year.Most of the money was transferred daily from Russia to the two accounts in the form of wire transfers, and the amounts were substantial.These funds are then forwarded from these two accounts (typically within the same day) to numerous recipients around the world.In most cases, the number of wire transfers sent out from the accounts of Company A and Company B every day is tens or even hundreds.

Except that most of the transferred amounts are equal, most of the payees are located in some "offshore financial centers" or "tax havens", such as Luxembourg, Liechtenstein, Nauru, etc.Most of the money was then transferred to the investment accounts of different investment companies for the trading of securities, stocks and funds.

This is a typical case of money laundering. Some money of unknown origin is turned from black to white in this kind of operation.So, what kind of harm will money laundering bring to the financial economy?What about money laundering methods?

Money laundering first appeared in the 20s. At that time, a mafia member in Chicago opened a laundry shop. When calculating the laundry income of the day every night, he mixed the illegal income obtained through gambling, smuggling, and blackmail into the laundry. Income, he then pays tax to the tax department, and after deducting the payable tax, the remaining illegal income becomes his legal income.This is where the term "money laundering" comes from.

If we give a definition of money laundering, it refers to the use of various means to cover up and conceal the source and nature of the illegal proceeds of drug crimes, organized crimes of the underworld nature, terrorist activities, smuggling crimes, or other crimes. Acts that make it formally legal.From the perspective of financial transactions, we can describe money laundering as follows: Criminals and their accomplices use the financial system to pay or transfer funds from one account to another to conceal the true source and beneficial ownership of the funds; Fund custody services provided by the financial system deposit money.

According to the statistics of the International Monetary Fund, the annual amount of illegal money laundering in the world accounts for 2% to 5% of the world's gross domestic product, ranging from 6000 billion to 1.8 trillion US dollars, and the amount continues to increase by 1000 billion US dollars every year.You must know that money laundering is not just a matter of a few criminals possessing illegal income. From the perspective of financial management order, money laundering activities often use legal financial networks to launder large amounts of black money. This not only violates financial management order, but also Seriously undermined the rules of fair competition and the free competition among market economic entities, thereby bringing certain negative effects on the normal and stable economic order.

Money laundering is often done to hide the origin of assets.A typical transaction is divided into three processes: ① account entry, that is, putting illegal money into a financial institution through deposits, wire transfers or other means; Source; ③ Fusion, using a legal transfer transaction as a cover to conceal illegal money.Through these processes, criminals can transfer and fuse illicit proceeds into funds of legitimate origin.

In general, the movement of large sums of money, whether between companies or individuals, is usually done through the formal financial system using checks, transfers, etc.These financial activities are all documented and there are clues to follow.If there is a sudden movement of large amounts of cash, it gets noticed; illegal activities are often traded in cash.Therefore, the most important step in money laundering is the first step, which is to transform black money into a legal form and enter the formal financial system.Not only that, after entering the financial system, black money often has to be transferred multiple times and participate in various transactions in order to obscure the source clues, which is called "multiple bleaching".

Although there are various ways of money laundering, the usual methods are as follows:

One is to allow illegal income to have a legal form of existence in the financial system.Money launderers may collude with financial institution personnel to open accounts under false names, or to open accounts in someone else's name.Since the banks in most developed countries stipulate that if the deposit of a sum of cash exceeds a certain amount, the source must be declared in writing, so the method of breaking it into parts is often used, and the large sum of cash is split and deposited.In order to control and use the illegal income from bribery, it is also a common money laundering method to hand over the funds to your relatives, friends or cronies to open accounts, or to buy treasury bills, bonds, stocks, etc.

The second is to use wire transfers between banks to transfer money directly to overseas financial institutions.Today's most famous international financial transaction organization is the "International Interbank Financial Services Telecommunication Union" (SWIFT), which now handles more than 1000 billion electronic financial transactions every day.Due to the lack of uniform standards when confirming the identity of the wire transfer person through SWIFT, there are many people who use wire transfers to launder money.

The third is through some informal "underground bank" system.For example, hawala is an underground banking transaction network widely used in the Arab world and has existed for hundreds of years.The specific transaction process is that the remitter will hand over the cash to a certain branch of the underground bank, and this branch will communicate with another branch by telephone, fax or letter to explain the details of the remittance, and finally the latter will send the cash to destination.This type of transaction leaves almost no traceable records.Arabs abroad are usually used to sending money to the country through this underground trading network.U.S. and British intelligence agencies have found that groups such as Al Qaeda and the Hamas movement routinely use hawala to move money.In many corruption incidents in our country, criminals often transfer illegal income out of the country through underground banks.Because underground banks are not supervised by law enforcement agencies, they provide conditions for illegal fund transfers.It is estimated that about 1000 billion to 3000 billion US dollars are traded through such underground banks every year in the world.

In addition to the above methods, there are also money laundering using the price difference of import and export trade, money laundering through investment activities, and money laundering using online banking and online transactions. There are so many types that it is difficult to describe them all.

Faced with all kinds of money laundering methods and the characteristics of money laundering activities, all countries are working hard to prevent them.The United States has long had the "Money Laundering Control Act", which clearly stipulates the crimes of illegal financial transactions, illegal financial transfers and financial transactions with illegal proceeds.The crime of money laundering has long been included in the criminal law of our country, but with the continuous development of the economy, it is necessary to strengthen the crackdown on money laundering, so as to maintain the financial order of our country.

Private equity funds lead the private equity stage in China
Private equity funds originated in the United States. In 1976, three investment bankers from the famous Wall Street investment bank Bear Stearns jointly established an investment company specializing in mergers and acquisitions, which was the earliest private equity investment company.So far, there are thousands of private equity investment companies in the world, among which Blackstone, KKR, Carlyle, Bain, Apollo, Texas Pacific, Goldman Sachs, Merrill Lynch and other institutions are the best.

众多的私募股权投资公司在经过了20世纪90年代的高峰发展时期和2000年之后的发展受挫期之后，目前重新进入上升期。据英国调查机构2007年2月统计，世界共有950只私募股权投资基金，直接控制了4400亿美元。

So, what are the differences between private equity funds and public equity funds?How does it work?

Compared with public offering, private placement is defined as public offering and private placement, or public offering and private placement of securities based on the difference in the method of securities issuance, whether to issue securities to the unspecified public or to the public.

The "private equity fund" or "underground fund" often referred to in the financial market is a non-public publicity, a collective investment that raises funds from specific investors in private.There are basically two ways: one is a contractual collective investment fund based on the signing of an entrusted investment contract, and the other is a corporate collective investment fund based on joint capital investment to establish a joint-stock company.

Private equity funds correspond to "public offerings". Public equity funds are open-end or closed-end funds that we often see in our daily lives. In the face of public fundraising, the starting point for domestic entry is generally 1000 yuan or 1 yuan.Private equity is a "rich" fund, and the starting point for entry is relatively high. The domestic starting point is generally 50 yuan, 100 million yuan or even higher, and the number of fund holders generally does not exceed 200. Large-scale private equity is often raised through trust companies. , it is difficult for ordinary investors to join them.But the private equity fund institutions that always hide behind the scenes are undoubtedly the most dazzling stars in the investment and wealth management market, and their investment performance is generally higher than that of public funds.Funds, brokerage collective wealth management, etc. are nothing compared to it.

Private equity funds are legally in the form of partnerships.According to the laws of the United States, as long as the partner organization does not exceed a certain number of people, the organization has no disclosure responsibility and can avoid the disclosure responsibility.A survey report by the Financial Innovation Research Center, a think tank based in London, concluded that the secrecy of private equity funds is: "complexity and concealment are not signs of shrewdness, but proof of rent-seeking."

At present, private equity as a special term is appearing more and more frequently in the Chinese capital market.However, my country's current "Company Law" and "Securities Law" do not have clear provisions on the definition of private placement.In China, the private equity financing activities of unlisted companies or companies planning to list before listing are generally referred to as "private equity". For "directed additional issuance".

So what are the characteristics of private equity funds compared with public equity funds?

First, private equity funds raise funds through non-public means.In the United States, public funds such as mutual funds and pension funds generally attract customers through public media advertisements, while private equity funds are not allowed to use any media to advertise, and their participants mainly obtain so-called "investment funds". Reliable information", or directly know the fund manager to join.

Secondly, in terms of raising objects, the objects of private equity funds are only a small number of specific investors. Although the private equity fund circle is small, the threshold is not low.For example, in the United States, hedge funds have very strict regulations for participants: if participating in the name of an individual, the personal annual income in the past two years must be at least 2 US dollars; if participating in the name of a family, the family’s income in the past two years must be at least 20 If participating in the name of an institution, its net assets must be at least 30 million US dollars, and there are corresponding restrictions on the number of participants.Therefore, private equity funds have highly targeted investment objectives, and it is more like an investment service product tailored for middle-class investors.

Finally, unlike the strict information disclosure requirements of public funds, private funds have much lower requirements in this regard, and the government supervision is correspondingly looser. Therefore, the investment of private funds is more hidden, the operation is more flexible, and correspondingly high returns are obtained. The chances of paying back are also greater.

Private equity funds must meet the following characteristics: first, private equity is an organized fundraising, and the fundraiser must be an organization, not an individual; second, private equity must initiate the establishment of a company before it meets certain conditions and qualifications. ;Third, the scope of private placement should be determined; fourth, the standard of private placement should be determined; fifth, there should be a charter for how to invest the raised funds; sixth, the investment portfolio and some restrictions on investment should be clarified for private placement funds; Seventh, private equity funds must protect the interests of investors; eighth, private equity funds must disclose information in a timely manner.

There are two main modes of operation of private equity funds:

The first is to promise a minimum guarantee. The fund will hand over the minimum guarantee funds to the investor, and set the bottom line accordingly. If it falls below the bottom line, the operation will be automatically terminated, and the minimum guarantee funds will not be returned.

The second type is to receive the account number (that is, the customer only needs to give the account number to the private equity fund). If it falls below the agreed loss ratio (generally 10%~30%), the customer can automatically terminate the agreement. For the agreed profit part or the agreed profit reached the percentage (Generally 10%) The above part is divided according to the agreed ratio. This kind is aimed at familiar customers, as well as large enterprise units.

Discounted bills: a financing tool not to be underestimated
The reputable Gillette Blade Company wanted to buy $100 million in steel, but it only took out $20 in cash, and at the same time handed over a piece of paper to the iron and steel factory, which read: "This is the Gillette Blade Company worth $80." The banknote can be discounted to Gillette after half a year." One month later, the steel factory paid this "banknote" when purchasing equipment worth 1 US dollars: "Take it, this is the banknote of the famous Gillette company, It can be exchanged when it expires."... In this way, it changed hands 80 times in succession, and all 5 transactions were completed.

Three months later, the construction company that owns the "bill" is in urgent need of cash, and a financial company says, "Give me this bill, and I'll pay you $3 in cash." After deducting discounted interest for three months, the financial company pay the bill.Another three months later, they received $80 in cash from Gillette.

As a result, because of this bill, there were 3 more transactions within 5 months, and the flow of virtual funds increased 5 times.

This is bill discounting, so how did bill discounting come about?How does it help economic development?
Bill discounting means that the demanders of funds ask banks or discount companies to turn their undue commercial bills, bank acceptance bills or short-term bonds into cash, and banks or discount companies (financing companies) receive these undue bills. For bills or short-term bonds, pay in cash after deducting the interest from the discount date to the maturity date on the face value, and collect money from the drawer when the bills mature.For the holders, discounting is an act of selling undue bills to banks to obtain liquidity, so that the capital advanced on commercial credit can be recovered in advance, while for banks or discount companies, discounting is a combination of commercial credit lending business.

Bill discounting can make some idle fund owners use each other and benefit together.Discounting is therefore at the center of money market activity.Compared with other markets, the bill discount market has many special advantages.For banks, discount banks can obtain the following benefits: more interest income; quicker return of funds; safer return of funds, etc.For discount enterprises, short-term financing can be obtained through discount.

When a bank discounts bills, the formula for calculating the discounted payment amount is as follows:
Bank discount payment amount = bill face value × (1-year discount rate × days to maturity after discount ÷ 365 days)
The emergence of discounted bills has its realistic basis.We must know that the operation of a business is no different from our daily life, and we often worry about lack of money, such as late payment, large investment projects, etc. At this time, there is an urgent need for working capital, but the loan cycle is long, and relying on loans often Business opportunities will be lost.At this time, the bills in the hands of small and medium-sized enterprises can come in handy.

Generally speaking, small and medium-sized enterprises that use commercial bills of exchange for transaction settlement often hold a large number of bills of exchange.From the receipt of the bills to the due cashing date, the funds are idle for as few as dozens of days and as long as 300 days.Among them, bank acceptance bills and commercial acceptance bills paid by high-quality large enterprises are just low-cost financing resources that small and medium-sized enterprises can use.

Bill discounting can be divided into seller’s interest-paying bill discount business, buyer’s interest-paying bill discount business and negotiated interest-paying bill discount business.That is to say, the bearer of bill discount interest can be either the seller or the buyer, and the buyer and the seller can also negotiate and share the interest in proportion, so as to meet the individual needs of the enterprise to the greatest extent.

For example, small and medium-sized enterprises act as buyers in business exchanges. When faced with a strong seller, the seller is often unwilling to accept the payment of bills from small and medium-sized enterprises.Because for the seller, accepting the bill means freezing its own funds, or it needs to exchange the discounted interest rate for the liquidity of funds.In this regard, small and medium-sized enterprises can choose "buyer interest-paid notes" that are beneficial to both buyers and sellers, that is, the interest on discounted notes is paid by the buyer.

In this way, as a buyer, small and medium-sized enterprises can obtain working capital support at a lower cost at any time, and obtain commercial discounts through scheduled payment and cash purchase of the product to achieve the purpose of reducing capital costs.For the seller, there is no need to pay discount costs, and the bill settlement can be used to standardize the creditor-debt relationship between the buyer and the seller, reducing the risk of credit sales and bad debt losses.

So what are the current types of discount market transactions?

(End of this chapter)