Money Laundering

Money laundering is the practice of disguising the origins of illegally-obtained money. Ultimately, it is the process by which the proceeds of crime are made to appear legitimate. The money involved can be generated by any number of criminal acts, including drug dealing, corruption, accounting and other types of fraud, and tax evasion. The methods by which money may be laundered are varied and can range in sophistication from simple to complex.

Many regulatory and governmental authorities quote estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996 the International Monetary Fund estimated that two to five percent of the worldwide global economy involved laundered money.

However, the FATF, an intergovernmental body set up to combat money laundering, admitted that "overall it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard." Academic commentators have likewise been unable to estimate the volume of money with any degree of assurance.

Regardless of the difficulty in measurement, the amount of money laundered each year is in the billions and poses a significant policy concern for governments. As a result, governments and international bodies have undertaken efforts to deter, prevent and apprehend money launderers. Financial institutions have likewise undertaken efforts to prevent and detect transactions involving dirty money, both as a result of government requirements and to avoid the reputational risk involved.

Methods of Money LaunderingMoney laundering often occurs in three steps: first, cash is introduced into the financial system by some means (“placement”), the second involves carrying out complex financial transactions in order to camouflage the illegal source (“layering”), and the final step entails acquiring wealth generated from the transactions of the illicit funds (“integration”). Some of these steps may be omitted, depending on the circumstances; for example, non-cash proceeds that are already in the financial system would have no need for placement.

Money laundering takes several different forms although most methods can be categorized into one of a few types. These include "bank methods, smurfing, [also known as structuring], currency exchanges, and double-invoicing."

    * Structuring: Often known as "smurfing," it is a method of placement by which cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.

    * Bulk cash smuggling: Physically smuggling cash to another jurisdiction, where it will deposited in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement.

    * Cash-intensive businesses: A business typically involved in receiving cash will use its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Often, the business will have no legitimate activity.


    * Trade-based laundering: Under- or over-valuing invoices in order to disguise the movement of money.

    * Shell companies and trusts: Trusts and shell companies disguise the true owner of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose its true, beneficial, owner.

    * Bank capture: Money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.

    * Casinos: An individual will walk in to a casino or a horse race track with cash and buy chips, play for a while and then cash in his chips, for which he will be issued a check. The money launderer will then be able to deposit the check into his bank, and claim it as gambling winnings. If the casino is controlled by organized crime and the money launderer works for them, the launderer will lose the illegally obtained money on purpose in the casino and be paid with other funds by the criminal organization.

    * Real estate: Real estate may be purchased with illegal proceeds, then sold. The proceeds from the sale appear to outsiders to be legitimate income. Alternatively, the price of the property is manipulated; the seller will agree to a contract that under-represents the value of the property, and will receive criminal proceeds to make up the difference.

    * Terrorist Financing: Technically not money laundering at all; while money laundering typically involves disguising the source of the money, which is illegal, terrorist financing concerns itself with the disguising the destination of the money, which is illegal.

    * Black salaries: Companies might have unregistered employees without a written contract who are given cash salaries. Black cash might be used to pay them.

(en.wikipedia.org)

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Money Laundering
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