This is an excerpt of a posting from a user known as SEALC, from the now sadly defunct Crimes of Persuasion forum.

What is the relation between boiler rooms operation and Asian crisis of 1998-1999

Posted by SEALC on Crimes of Persuasion

We have been authorized by our client to help answer questions on this forum that relate to 'boiler rooms'. We have interviewed 38 former employees to date, and have collected numerous data. If you post your questions in this subject line, we will do our best to answer them in a timely manner. While we have been asked on another post for supporting documentation, we are not permitted to offer any firm title or contact information. Further, our client's identity is confidential. However, the service we offer is free-of-charge, and we will not ask any person posting a question for any contact information nor fee of any sort.[/quote]

"What is the relation between boiler rooms operation and Asian crisis of 1998-1999?"

If by "Asian crisis" you refer to the situation between 1998-1999 when many East Asian countries long admired as some of the most successful emerging market economies, owing to their rapid growth and the striking gains in their populations' living standards, began to tumble and had sharp declines in international opinion, there is little direct correlation. These countries had what appeared to be relatively prudent fiscal policies and high rates of private saving, which were often cited as models for other similarly-situated countries. What we believe (and, please understand, we are not an economic theory think tank, but an investigative firm with some basic knowledge of economic models as they relate to global conditions) is that the apparent success in these countries made foreign investors underestimate the underlying economic weaknesses in these countries.

However, there was a significant lack of enforcement of prudential rules and inadequate supervision of financial systems, coupled with government-directed lending practices that led to a sharp deterioration in the quality of banks' loan portfolios. Also, this was exasperated by problems resulting from the limited availability of data and a lack of transparency, both of which hindered market participants from taking a realistic view of economic fundamentals. There were also obvious (though not related much in the general media) problems of governance and political uncertainties, which worsened the crisis of confidence, fueled the reluctance of foreign creditors to roll over short-term loans, and eventually led to downward pressures on currencies and stock markets.

Although the IMF attempted to assist the most drastically affected countries in 1997 and 1998 with a $36 billion aid package for Indonesia, Korea, and Thailand (as part of an international package that almost reached $100 billion), the authorities' initial hesitation in introducing reforms and in taking other measures to restore confidence led to a worsening of the crisis by causing declines in currency and stock markets that were greater than a reasonable assessment of economic fundamentals might have justified. This overshooting in financial markets worsened the panic and added to difficulties in both the corporate and financial sectors.

When combined with the legacy issues of corruption, this marriage made a fertile environment for what we will call "boiler rooms" to flourish. Remember, in part due to the large-scale financial inflows that their economic success encouraged, there were also increased demands on policies and institutions, especially those safeguarding the financial sector. In addition, the downward pressures on the economies, even after the IMF and international aid package, caused these officials to handle and manage more matters than staff or educational background could manage. This left many small doors for the introduction of "appreciation" money which would enable marginal (grey) enterprises to operate without immediate fear of intervention from enforcement or financial authorities.

Let us take Thailand, and specifically Bangkok, as a model. While there was a drive in the late 90's through today for the elimination of intra-country drug trafficking (meaning the importation and distribution of illicit narcotics within Thailand's geographic boundaries), the focus on its borders as a "transport" vehicle for such drugs was and continues to be minimal. Border officials understand that Thailand's Penal Code deals quite differently with inter versus intra drug trade, and therefore the risk-reward ratio for accepting bribes for enabling such activity has and continues to favor the acceptance of the former without the risk making such activity beyond any particular official’s risk threshold.

As to the relationship between the boiler rooms and the Asian crisis, perhaps the most that may be said is that once an official's hands are "tainted," especially with something as potentially impacting as the traffic in illicit drugs, its is much easier to accept bribes for something that seems as innocuous as fraudulent financial matters. Also, the numerous media articles at the time about the strength of the Asian countries' financial prowess and security made unwary foreign investors feel an inordinate sense of calm about sending money to Bangkok, for example.

Again, this is at best a cursory review of the matter of which you asked, and we recommend using publicly available sources from institutions such as the IMF (www.imf.org), The Council on Foreign Relations (www.cfr.org), and the Asia Pacific Foundation of Canada (www.asiapacificbusiness.ca) for more information.

(2) "Why Japan, Malaysia, Spain, Germany, Romania, Poland, financially reputation targeted by the same boiler rooms operations?"

These countries have not (based on our limited knowledge and review) been targeted evenly (or even in the same manner), and there are additional countries of which we are aware that have not been included in your list.

First, one must distinguish between four types of "targeting". These are targets as a source of potential: (a) "investors" (b) sales employees (for actually making phone calls) (sub-b) where sales employees would like to work (c) administrative, support, and marketing employees (d) physical locations (e) publicized locations

So, perhaps it would be best to share our list of countries and which provide what potential opportunity based on the list above, and why. First, using your list, in the order you entered them:

(i) Japan -- (a), (e) -- Japan's high cost of living, combined with expensive tariffs for international calls, banking regulations, and relative lack of willing corrupt authorities (in matters such as these) make Japan only attractive for the creators and managers of these operations as potential source of investors as well as a good place to establish a “virtual” office for the use of an address and phone service for answering (and potentially forwarding) incoming calls. The high cost of acquiring (c), plus the inability to attract (b) due to the high cost of ex-pat living make the physical operation of such a group from

(ii) Malaysia – (c), (d) -- Unfortunately, we have not had the opportunity to interview anyone that is currently or recently operating in Malaysia. However, we are aware of one Asian gentleman that had bragged to an undercover colleague in a bar that, at one time, he was able to have transferred close to One Million USD from a victim. We are in the process of locating this individual (who may be residing in Eastern Europe at the moment), and will update this site should more information become available. That said, Malaysia appears to qualify for (c) and (d) for low cost options, but the unstable environment makes the importation of (sub-b) a tough sell for prospective employees.

(iii) Spain – (sub-b), (c), (d) -- This is one of the few countries in which boiler rooms would and do thrive. We have visited (undercover) three operations in Spain (1 Malaga, 2 Madrid). There are many diversions for ex-pat employees, the administrative, support, and marketing staff costs are not too significant, and there is ample office space available due to poor economic conditions. Further, the acceptance by law and financial enforcement authorities, with nominal bribes (<2.000 Euro per month per operation) make the setting ideal for such operations. Further, its border-less nature for EU travel (or escape) is of obvious interest for owners, managers, and employees of these endeavors.

(iv) Germany – (a), (e) – Although Germany is not a desired location for operations, its thousands of citizens with “investment” (read disposable) funds that are interested in investing outside of the country make Germany an emerging target for such operations. Also, its waning, but still recognized, position as a leading country in Europe and one of some stability makes for a good “profile” location for a publicized virtual office.

(v) Romania – (~b), (sub-b), (c), (d), (e) – There is no substantial wealth to tap in the indigenous population, so (a) is not possible there. However, the significant attractiveness of Bucharest’s night life and growing cosmopolitan feel, united with an average monthly wage of US$150 and an urban population in which over 70% speak English on a conversational level, make Romania an ideal location for operating such operations. Ex-pats walking around with $500 a month mistresses 40 years their junior, feeling and being treated like royalty for US0.30 tips makes the lifestyle an attractive one. In addition, the local mentality is best summed up by what the local’s regard as a native truism: “To do a good deed is like f-ing your mother.” Further, local (c) may be trained to become (b), and the operations still existing in Romania bear testament to their ability to thrive. They have also engineered, according to two current and one former employee of a firm, a manner by which no local laws are directly violated. No bank transfers directly come into the financial system in Romania; all final “sales” are consummated abroad; reported income and operational taxes are paid; no natives are targeted as (a); and, of course, authorities are compensated for looking the other way.

(vi) Poland – (~b), (sub-b), (c), (d), (e) – Poland, and its two main cities, have all of the benefits associated with (v), combined with the border-less attributes of Spain. Therefore, it is likely in our opinion that more operations will move to this area as other countries become more hostile to such activities.

(vii) Czech Republic – (~b), (sub-b), (c), (d), (e) – very similar to Poland in its characteristics and future potential.

(viii) Hungary -- (~b), (sub-b), (c), (d), (e) – Like Romania, there is no substantial wealth to tap in the indigenous population, so (a) is not possible there. However, the significant attractiveness of Budapest’s adult industry, drug availability, and growing cosmopolitan feel, united with an average monthly wage of US$500 and an urban population in which over 60% speak English on a conversational level, make Hungary an ideal location for operating such operations. Further, the banking system there is not as complex nor as regulated as in, for example Romania. The bankers themselves are also eager to suggest means by which to avoid detection, a welcome attribute for any such operation. Ex-pats enjoy the restaurants, ample young prostitutes, and ready access to drugs, making the acquisition of new talent an easy concept. Further, local (c) may be trained to become (b), and the operations still existing in Hungary bear testament to their ability to thrive. As an example of the lack of staff and support to adequately investigate a claim there, we have reviewed information about a current investigation there that is so replete with mistakes, misunderstandings, and basic lack of knowledge that any beneficial conclusion seems unlikely at best. We have ourselves created a possible manner by which to assist in the investigation in a manner by which the current “investors” could re-coup some if not all of their investments, but the local authorities have been deaf to our initial inquiries. Our sources have identified private banking accounts with over US$4 million, (with bogus sourcing (origination) documents) of the beneficial owner of the firms under investigation, but the local authorities expressed no interest in such information (which still seems odd). In addition, if the investigation proceeds as we suspect it will, the most direct (and this is unfortunate) cause of the loss of money by these victims will have been the incompetence of the Hungarian authorities themselves.

(ix) Costa Rica, Thailand, and Mexico – (~b), (sub-b), (c), (d), (e) – very similar to Poland in their characteristics and future potential.

(x) United States of America – (b) – The United States is still the best recruiting ground for sales employees, and its unemployment rates and the advantage of earning significant money without needed to be reviewed for income taxes is a strong recruitment tool used by these firms. However, they are also avoiding (a), (c), (d), and (e) so as to avoid potential personal or subject matter jurisdiction in US courts.

(xi) United Kingdom – (a), (b) – The UK has become a more favorite recruiting area for sales employees, and its unemployment rates and the advantage of earning significant money without needed to be reviewed for income taxes is a strong recruitment tool used by these firms. However, they are also avoiding (a), so as to avoid, as best as possible, potential personal or subject matter jurisdiction in UK courts. Victims – these operations seek to target victims in English, or over 50% fluency, English-speaking countries, due to the language of choice of their sales personnel. Countries that are current targets include Ireland, the UK, South Africa, France, Austria, Australia, New Zealand, Switzerland, and Israel. Due to the strength and network employed by the United States, calls are rarely, if ever, placed into that country for any sales purpose.

(3) "how big is the scam?"

We have come into possession of what may seem laughable at first, but is indeed a hand-written analysis of an income statement of one of the firms that we are investigating. This is the basic analysis as we understand the coded words:

04-Mar-Bu//RO

•	Gross Income (Spectrum) 841.000€
•	COSA (cost of stock acquired) 56.066€
•	Gross Profit 784.934€ (93.33%)
•	Managers’ commissions 33.640€
•	SG&A (excl. telecom) 121.920€
•	Telecom 48.715€
•	Misc. (travel, materials, lawyers, bribes) 252.300€
•	Net Total to owners 328.359€ (39.04%)

Now, assume in each country mentioned above that there are, on average, 13 working offices (some may have as few a 2, other may have 20). That means, in 9 countries, with an average of 13 working offices, the total Gross Income for this type of operation (and this is collective as a figure, while the offices do not work in conjunction with one another and, in fact, many are at war with each other) is approximately 98,397,000€ per month. This figure may be off should we anticipate a slow month or fewer offices, but a realistic number would be at a minimum 600.000.000€ to 1.100.000.000€ in Gross Income per year.

We hope these answers were of some assistance. We have sometimes general, and in some cases, very detailed information about the companies; personnel (both local and foreign) that work or have worked for these firms; locations of funds (seized, hidden, and personal); as well as up-to-date investigative notes. Please let us know is we may help in any of these matters with specific questions.

(1) Virtual office providers Staff, answering the phone for boiler rooms (and potentially forwarding) incoming calls, and hearing the complaints from victims to their staff etc. How come that, virtual office providers failed to stop that scam for many years? One of virtual office providers had in its tenant's list more than 55 boiler rooms (number increasing every day.) it sound like Ali papa and four hundred thieves!

Essentially, one must examine the flow of capital to understand why and how the virtual office services operate their businesses to appreciate why boiler rooms flourish within these "office" environs.

While it is true that many companies use virtual offices to disguise their physical locations, many legitimate companies (such as Kraft Foods and Fidelity Investments) also use these offices because their locations and support staff are often require a significantly lower degree of sunk capital to initiate and sustain smaller operations. In Vienna, for example, Kraft uses a Regus office for a small staff, since the leasing, development, and management of its own independent office is cost-prohibitive given the needs of the labor force Kraft maintain there.

Perhaps it is best to consider a virtual office like a taxi. Some people buy their own cars for transportation, while others use taxis because they feel they are either more convenient or less costly than the other options. While some taxis may carry diplomats, executives, or celebrities, at various times, they may also transport thieves, rapists, and muggers. The difficulty lies in the fact that, from the outside, it is impossible to see what is inside the taxi as it is being driven. In fact, the only way to determine with any degree of certainty who is in the taxi is to actually enter it yourself and conduct a comprehensive interview of the driver and any people inside. The greater degree of difficulty lies in the concept of mixed company. For example, what if the mugger invited three of his friends in the car as well, and these three individuals are all proper citizens? Does one aggregate the guilt of one upon the other people inside? It is a complicated question with the unfortunate conclusion, in our belief, that arrives at the conclusion that the virtual offices are a service that cannot be blamed for their clients' behavior.

(2) Are boiler rooms owners educated in the same school? For they use typical strategy in renting virtual offices, using IPO restricted shares making their noisy attack from particular countries in same time.

One must understand the development of the concept of the "boiler room" to see how they seem to share so many common characteristics and methods of operation.

Begun in the mid-1980's in the United States, as a stepchild of the commodities hyper-activity that prospered in that time period. People began to appreciate the concept of calling over the phone to get money transferred, and the lack of comprehensive regulation to match the growing industry meant that many people with little moral code began to "mimic" the professionals to obtain "pure profit/pure theft" investments. However, the CFTC soon began to engage in substantial enforcement actions against these companies, with their owners often settling cases for hefty fines and lifetime bars against dealing in commodities trading. However, these individuals found they could not return to a "normal" life, and so therefore looked for other geographic areas, outside the reach of the United States, to develop new financial sales concepts that had, at best, minimal interaction with the Unites States. The concept which seemed to bear the most fruit was one of selling restricted stock in private United States-based companies to foreign investors, often called "regulation S" offerings.

The pioneer in this field was a man named John Kealy, an Irish (some say Australian) man, who began numerous operations in Bangkok, Thailand. Others continued in Amsterdam and Costa Rica. Within Kealy's organization, many current leaders in the boiler room trade, such as Bell, Hutchison, and Sterk, honed their skills and accumulated enough cash to initiate their own businesses. Further, after a few initial mistakes, they also developed the concept of the "representative owner/beneficial owner" model that many tax haven countries employ. Essentially, they trick an individual to become the prima facie owner of a company they wish to establish, and execute a confidential agreement between themselves and that individual that states that the individual is the "representative owner" and that the background man (e.g., Hutchison) is the "beneficial owner." If possible, they try and have only one original and no copies of this agreement, and the beneficial owner keeps such original so that they may do banking if necessary without the representative owner's knowledge or consent.

Kealy was the first to use multiple virtual offices for his companies, and his disciples followed suit. Their rule of thumb is to have at least three virtual offices (never in their physical area), and to never have virtual offices where they are fishing for "investors". In this manner, they minimize the chance that they will be discovered, since the police will attempt to first track them to the virtual office (giving the people time to change physical locations upon notice from the office that the police visited there), and not many potential investors will travel for one country to another just to see if an office is real or not.

The scripts (packaged conversations, including answers to potential objections that a listener may present) that these operations have used have also not changed much since the commodities days, since their approach seems to have worked. In such scripts, and during such conversations, the caller attempts to have the following at all times:

(i)	control of the conversation (can the caller make the listener answer yes when the caller wants, and can the caller control the direction and tempo of the conversation?); and
(ii)	availability of cash (does the caller know with a good degree of certainty that the listener has cash-on-hand to effectuate a transfer should the caller be able to convince the listener to do such); and
(iii)	excitement and interest (has the caller provided enough information, real or imagined, for the listener to be very interested in the conversation?)
(iv)	closing (is the person with whom the caller is speaking able to make a decision about whether the money can be sent?)

These were the tools used by the commodities brokers in the United States for the last 30 years, and the boiler room operators are employing the same concepts to this day (unfortunately, with continued success).