What is money laundering?
Money laundering is when the funds convert from criminal activity to “clean money”. And we cannot trace it back to criminal activity. The goal is to conceal the criminal activity and the criminals involved. One of the main reasons people commit criminal acts is to make money off of it. Money laundering allows criminals to enjoy these illegal proceeds without law enforcement noticing. We can use money laundering in drug trafficking, terrorism, financing, or tax evasion.
Steps involved in money laundering:
Placement – At this stage, the launderer inserts the dirty money into a legitimate financial institution. This is often in the form of cash bank deposits. This is the riskiest stage of the laundering process. Because large amounts of cash are pretty conspicuous, and they require banks to report high-value transactions.
Layering – Layering involves sending the money through various financial transactions to change its form and make it difficult to follow. Layering may consist of several bank-to-bank transfers, wire transfers between different accounts in different names in different countries, making deposits and withdrawals to continually vary the amount of money in the accounts, changing the money’s currency, and purchasing high-value items (boats, houses, cars, diamonds) to change the form of the money. This is the most complex step in any laundering scheme, and it’s all about making the original dirty money as hard to trace as possible.
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. At this point, the criminal can use the money without getting caught. It’s very difficult to catch a launderer during the integration stage if there is no documentation during the previous stages.
There are many forms of money laundering though some are more common and profitable than others.
Some of the more popular money laundering techniques include:
- Bulk cash smuggling involves literally smuggling cash into another country for deposit into offshore banks or other types of financial institutions that honor client secrecy.
- Structuring also referred to as “smurfing,” is a method in which cash is broken down into a smaller amount. Which is then used to purchase money orders or other instruments to avoid detection or suspicion.
- Trade-based laundering is similar to embezzlement. In that invoices are altered to show a higher or lower amount in order to disguise the movement of money.
- Cash-intensive business occurs when a business that legitimately deals with large amounts of cash uses its accounts to deposit money obtained from both everyday business proceeds and money obtained through illegal means. Businesses were able to claim all of these proceeds as legitimate. Income includes those that provide services rather than goods, such as strip clubs, car washes, parking buildings or lots, and other businesses with low variable costs.
- Shell companies and trusts use to disguise the true owner or agent of a large amount of money.
- Purchasing assets – The purchase of assets with cash where the primary purpose. It is to transfer the illegal profits from bulk cash to an equally valuable but less conspicuous form
- Blending funds – Using justifiable cash focused business to mix “dirty” funds with the legitimate income
- Exchanging currency – Buying foreign money with illegal funds through foreign currency exchanges
- Gambling – Buying casino chips, cashing out the chips and taking check payment or claiming the proceeds as gambling winnings.
- Bank capture refers to the use of a bank owned by money launderers or criminals. Who then move funds through the bank without fear of investigation.
- Real estate laundering occurs when someone purchases real estate with money obtained illegally, then sells the property. This makes it seem as if the profits are legitimate.
- Casino laundering involves an individual going into a casino with illegally obtained money. The individual purchases chips with the cash play for a while. Then cash out the chips and claims the money as gambling winnings.