Money Laundering for Dummies

*Money laundering is illegal in almost every country in the world. I do not condone the act of laundering money or the activities that result in money needing to be laundered. The knowledge I have brought together here is from wide reading on the subject and I is meant to be consumed for pure interest in the subject. That said it is an interesting!*

Have you ever seen a business that never seems to have any customers and doesn’t seem to be making any money but is still there month on month? I have seen many but one stands out to me. Let me tell you about the lemonade stand in Hungery.

I visited Hungery in September 2008 to race at the Olympic Hopes International Kayak Championships. The hotel the team was staying in was on the outskirts of the town of Szeged and just of the motorway. As you can imagine it wasn’t the most picturesque place in the world and the weather for September was cold with rain clouds threatening most days. From my window I could see the main road and was amused to see everyday the lemonade stall that opened for business there. Every morning when I woke it’s owners were setting up for the day and every evening I saw them leave but never once did I see a customer.

I never did find out much about that lemonade stand that interested me so much but one thing I did discover from talking to some people around the hotel was that the stall consistently took around $500 a day and was open all year round. How can a lemonade stall next to a motorway take $500 a day when it has no customers you ask? My answer, it must be a location for money laundering.

What is Money Laundering?

Lets go back to the beginning. Money laundering is the act of taking dirty money (generally from criminal activity) and ‘cleaning it’ to make it appear like it came from a legitimate source so that the authorities cannot seize the money. Money laundering is the achilles heal for organised crime. Finding a way to get their ill-gotten gains into banks without detection is probably the hardest part of the process for a number of reasons. Banks have to report any large cash deposits of to the serious crime organisation and because most organised criminals deal solely in cash because it is untraceable it becomes almost impossible to get the money into a bank with out someone noticing. It is important to remember that we are not talking about small amounts of cash that could be spent without passing through a bank. Try buying anything worth over £1000 with cash and you will almost certainly set alarm bells ringing in the serious organised crime agency these days as it is assumed you would pay by credit card.

Money laundering is infinitely complex and the rules of the game are always changing but let me explain the basic principle of money laudering.

Placement – The launderer inserts the dirty money into a legitimate financial institution. This is often in the form of cash deposits. The deposits must be kept relatively small, no more than $10,000 otherwise they will almost certainly be reported.

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 etc) 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. At this point, the criminal can use the money without getting caught.

There are many ways to actually launder money using the above structure, here are a few that are known to the authorities. There are probably many more that are simply not known about yet.

Smurfing

Smurfing or structuring deposits is probably the most simple way to launder money it entails breaking up large amounts of money into smaller, less-suspicious amounts. Generally these amounts must be smaller than $10,000 otherwise they are reported. The money is then deposited into one or more bank accounts either by multiple people (smurfs) or by a single person over an extended period of time.

Shell Companies

These are fake companies that exist for no other reason than to launder money. They take in dirty money as “payment” for supposed goods or services but actually provide no goods or services; they simply create the appearance of legitimate transactions through fake invoices and balance sheets. My example of the lemonade stand would be considered a shell company though it did have a public face to make it look more legitimate.

Off Shore Banking

Money launderers often send money through various “offshore accounts” in countries that have bank secrecy laws, meaning that for all intents and purposes, these countries allow anonymous banking. A complex scheme can involve hundreds of bank transfers to and from offshore banks. Examples of these countries include Switzerland, Luxembourg and the Bahamas.

Legitimate Business Investment

Launderers sometimes place dirty money in otherwise legitimate businesses to clean it. They may use large businesses like brokerage firms or casinos that deal in so much money it’s easy for the dirty stuff to blend in, or they may use small, cash-intensive businesses like bars, strip clubs or check-cashing stores. These businesses may be “front companies” that actually do provide a good or service but whose real purpose is to clean the launderer’s money. This method typically works in one of two ways: The launderer can combine his dirty money with the company’s clean revenues — in this case, the company reports higher revenues from its legitimate business than it’s really earning; or the launderer can simply hide his dirty money in the company’s legitimate bank accounts in the hopes that authorities won’t compare the bank balance to the company’s financial statements.

It’s worth noting as well that most schemes involve using a number of these methods to properly cover the tracks and the real source of the money.

So there you have it the dummies guide to money laundering, I hope it was interesting and informative. If you’d like to see what the authorities are doing to combat money laundering click here or for some money laundering case studies click here.

Leave a Reply

Click here to cancel reply.

Username (required) :
Email (required) :
Web Site :
Comment :

CAPTCHA Code