Money Laundering

       Money laundering is the process of taking money that was gained illegally and converting it to money that can be used without worry or concern.   The illegally gained money that needs to be laundered for free use is first introduced into the financial system.  This is referred to as “placement”.  Once placed, the money is moved or transferred in order to conceal the actual and illegal source of the money which is known as “layering”.  Once the placed and layered funds are cleaned and ready for use they are said to be “integrated”.

       Money laundering is utilized in many different types of white collar crime, either as part of the crime itself or after the crime in order to be able to spend the money without worry.  There are many different methods of money laundering such as:

  • In round-tripping money is deposited in an offshore foreign corporation.  Generally done in a tax haven where the records that are kept are either not extensive or are conducive to manipulation.  The money is sent back as a “Foreign Direct Investment” that is exempt from taxation.
  • When money is structured or “smurfed” it is placed into smaller deposits of money which can be used to defeat the suspicion that money laundering is occurring and to avoid many of the anti-money laundering reporting requirements.  A related technique is to purchase bearer instruments, for example a money order which can then be deposited in smaller amounts.
  • Using shell companies and trusts is a common technique.  In some jurisdictions a shell company or trust does not need to disclose the true owner of the money which adds an extra layer of complexity and deception and makes it harder to detect or determine what is actually occurring.
  • The technique of bulk cash smuggling involves actually smuggling cash to another jurisdiction, where the money can be deposited into a financial institution, for example a bank that is offshore and that has more secrecy and a less restrictive anti-money laundering program.
  • While not technically a money laundering “technique” cash intensive businesses are commonly involved in money laundering.  A business that by its very nature involves a large amount of money coming in and going out can be used to deposit legitimate and criminally derived cash and declare all of them legitimate earnings.
  • When laundering a relatively large amount of money, the money launderers and criminals often buy a controlling interest in a bank that is in a country that has weak money laundering enforcement which allows the money to be moved freely and without restriction.
  • Real estate offers a opportunity to launder money.  The real estate is purchased with illegally gained funds and is then sold.  To the casual observer, the proceeds are legally obtained and difficult to trace to illegal activity.  In some cases the price of the house is recorded as sold at an artificially low price and the remaining funds are paid secretly in illegally obtained money.
  • In a technique known as using a “black salary”  A company uses employees that are paid without any records kept and with no written contract.   These employees are paid in cash which is frequently obtained from illegal sources.