Money laundering

Money Laundering is the act of concealing ill gotten money. The money may come from drug smuggling or arms trafficking. This is a common practice of organized crime syndicates and terrorist organizations as a means of funding their activities. It is considered to be a type of embezzlement.

Methods edit

Money laundering is commonly defined as occurring 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", 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 be 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. Best suited is a service business. As such business has no variable costs, it is hard to detect revenues-costs discrepancies. Examples are parking buildings, strip clubs, tanning beds or a casino.
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 their true, beneficial, owner.
Round-tripping: Money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as a Foreign Direct Investment, exempt from taxation. A variant on this is to transfer money to a law firm or similar organisation as funds on account of fees, then to cancel the retainer and when the money is remitted represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.
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 into a casino with cash and buy chips, play for a while and then cash in his or her chips, for which he or she will be issued a check. The money launderer will then be able to deposit the check into his or her bank account, and claim it as gambling winnings.
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.
Black salaries: Companies might have unregistered employees without a written contract who are given cash salaries. Black cash might be used to pay them.
Tax amnesties: For example, those which legalize unreported assets in tax havens and cash.
Fictional loans.