Money Laundering is a complex type of fraud, which involves a conglomerate of participants, resources, and circumstances. It’s a criminal activity classified as a white-collar offense with a rich history and global cases. It is wrapped around illegal financial transactions with the objective to hide the criminal nature of the income. Sometimes this term is applied to other aspects of financial crimes, like violation of the securities, digital currencies, credit cards, traditional currency, terrorism financing and evasion of international sanctions. The penalties for these felonies vary according to the level of severity.
As mentioned before, money laundering is a scheme designed to cover up the identity, source (original ownership), and destination of the money. It is done with the intent to camouflage the “dirty money”, and make it seem like it came from a legitimate source. The concept of dirty money means that they occurred from illegal activities like drug trafficking or illegal gambling, and they need to be deposited directly into a bank or other financial institution. Annually, the financial harm caused by this phenomenon is estimated to be between $500 billion and $1 trillion worldwide.
In order to manage this process, the following steps are required:
- Placement - Cash introduction into the financial system. (usually in the form of cash, bank deposits. This is considered to be the most dangerous part, because banks have to report high-value deals.
- Layering - Carrying out various financial transactions to cover up the original money source (like bank-to-bank or account-to-account operations), making deposits and withdrawals, purchasing high-value items (boats, houses, cars, diamonds) in order to change the form of money.
- Integration - Acquiring wealth from the transactions. Here money re-enter the mainstream economy in legitimate looking form.
Techniques of Money Laundering
Money Laundering might receive various forms:
- Smurfing (structuring deposits) - the idea of placing a big amount of cash, separated into smaller deposits of money. It might occur in a form of using smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts;
- Bulk cash smuggling - means that cash is smuggled abroad for deposit into offshore banks (or other sides of the financial system);
- Trade-based laundering - under- or overvaluing invoices to disguise the movement of money.
- Cash-intensive business means that businesses with a big cash-flow use their activity to deposit illegally gained cash into their accounts.
- Black salaries – a company hires unregistered employees without a written contract and pay them cash with dirty money.
- Gambling on high odds - money is spent and earned on gambling (especially on high odds)
- Shell companies and trusts - The main purpose of trust and shell companies is to hide the true origin of money, because according to jurisdiction, they do not disclose their true owner.
- Casinos – one of the most well-known ways to cover dirty money, which consists in exchanging cash for chips, and then use them to professionally mask a big amount of cash flow and present it as gambling winnings.
- Round Tripping - in this case, money is stocked in a foreign corporation offshore (usually in a tax heaven where we can witness minimal records and low rates) and then shipped back as a foreign direct investment, except taxation.
- Bank capture - a way to hide dirty money in the financial system with jurisdiction flaws and failures.
- Investing in legitimate businesses - using large businesses like brokerage firms or casinos that work with a big flow of money in their accounts and it is easy to place dirty stuff in there. These companies may even provide services, but their main purpose is to hide launder dirty cash.
Legislation and Anti-Money Laundering Laws
Daily, there are almost 700,000 global wire transfers and it gets extremely complicate to distinguish clean from dirty money, due to a never-ending development of the fraud schemes. As a result, United States implement two methods of money tracing, and laundry coping: i.e. legislation and law enforcement. Several legislative acts were issued to achieve these goals, like Bank Secrecy Act (1970) which basically removed all anonymous banking in the U.S.; Money Laundering Suppression Act (1994) which appoints banks to establish their own money laundering task forces to trace the illegal flows through the account that they serve; Money Laundering Control Act (1986) that specifies Money Laundering as a distinct crime and not a part of it, etc.
One of the countermeasures that government uses in order to combat these scams are undercover stings, whose main duty is to detect fraudulent schemes from the inside. It has to be mentioned that money laundering fight can’t be a local experience. If a country provides a zero-tolerance policy, white collars will look for other places to arrange their businesses. Consequently, it has to be an international cooperation. To back up this concept, some global organizations fighting money laundry include: the United Nations, The International Monetary Fund, Caribbean FATF, Asia-Pacific Group on Money Laundering.
The Financial Action Task Force (“FATF”) was formed by a coalition of countries in 1989. Today, it counts 34 members with its headquarter in Paris, and it always looks for possibilities to expand its membership to more regions. The FATF developed following instructions that could help combat the financial frauds:
- Consistently review and supervise existing trends and techniques in money laundering and new countermeasures and report them to member countries;
- Controlling the progress of member countries in their money laundering fight;
- Promoting FATF arrangement internationally.
Penalties of Money Laundering
The wide range of penalties varies according to the circumstances and the amount of cash involved. Typically, the larger amount is – the harsher the penalty, which can be the following:
- Imprisonment up to 20 years;
- Civil penalty lawsuit in the value of property or funds involved in the process of money laundering;
- Fines up to $500,000.
How To Defend Yourself
- Lack of evidence - In case that there is no sufficient evidence of the crime, the potential prosecution might be dismissed. Speaking in terms of enough evidence, we can underline two major ideas in the charge construction: the intent and the illegal activity. If one of two is missing, it becomes harder for the system to prosecute the suspect;
- Absence of intent to commit a crime - As mentioned above, the intent of being involved in a crime is crucial in the terms of committing it. Accountants, bankers or other individual who works with a big amount of money commit a crime without even knowing it. In this case, in order to defend yourself, you have to prove that you didn’t know that money came illegally.
- Duress - Sometimes, it happens that capable accountants or other financial workers are forced to comply with criminals in consequence of fear and thread.
To Sum It Up
Money Laundering, also known as a white collar crime is a well spread criminal act that involves a complex amount of transitions, operations and general schemes. Criminals that labor in this industry are very smart and creative, because their task is to fool not only separate individuals, but the financial system as a whole, and sometimes even countries. In 2015, an estimated $300 billion is generated through illicit activities in the United States, with approx. 20 percent of that associated with illegal drug trafficking. Law regulation, supervision, enforcement and compliance in the States are very successful in minimizing money laundering risks, although criminals tend to respond with innovation to enforcement initiatives, improving their methods and techniques. Because white collar crimes usually involve transactions that cross borders, U.S supervisory institutions depend a lot on foreign counterparts.
In case that you, or someone that you love, are accused of money laundering, don’t hesitate to contact a professional attorney that will help you handle the case. Legal Bistro is an online community that provides qualified help in this field.
Note: You remain anonymous until you decide to reveal your identity to the lawyer that you choose, and it is absolutely free for consumers so you have nothing to lose! Legal Bistro- when lawyers compete, you win!