Money Laundering

Money Laundering

Money laundering is the proceeds of crime. Terrorists will often break the law they do not respect to gain funds. Some of the crimes committed by criminal people will include:

  • Arms trafficking
  • Burglary and theft
  • Crooked or corrupt practices
  • Drug trafficking
  • People smuggling including "white slave"
  • Tax evasion
  • Terrorism


The issue with the money that has been made by criminal acts is that it draws attention when large amounts are spent. So the laundering has to occur to make the money part of the regular system and almost untraceable.

What methods are used to launder the money?

Placement

Placement is the first step in the cycle of money laundering. The ideal spot to put the money is into a financial institution. Some common methods that are used include:

  • Currency exchange - Purchase of foreign money with illegal funds through currency exchanges.
  • Currency smuggling - Physically smuggling currency in the country.
  • Direct deposit - Putting the money into someone's bank account under a phony name. Also using the account of a separate individual.
  • Insurance payments - Purchase life insurance policies from insurance agents.
  • Loan repayment - Pay out loans or credit cards with "dirty" money.


What is a smurf?

This is not the little blue people that had troubles with Gargamel! A smurf is someone who helps launder money by making deposits or purchases that are small enough to be treated as usual daily transactions. The method that smurfs will use to get ill-gotten gains into the system work like this:

  • Purchase a bank draft, money order, traveler's cheque or make small deposits into a bank account.
  • The purchase or deposits can all be done in one day or can be done by more than one smurf in more than one bank.
  • The money that has been deposited can be given to the criminal or transferred into the criminal's bank account using an electronic funds transfer (EFT).
  • The amounts of money transfered will be under the $10,000 threshold that sets off the warnings under the PC(ML)TF Act. This action is called structuring. An example of structuring would be a smurf making frequent deposits of small amounts of money into an account. Financial institutions are on the look-out for these types of activities.


Layering

Layering is the term used for when money launders want to separate the trail of the money. This is done by using different types of financial transactions to hide where the money came from. This helps to disguise any link with the original crime where the money came from. It also helps to hide the owner of the original illegal money.

Some examples of layering include:

  • International wire transfers - When money is deposited into an account it is then transferred by wire to an account in another country. Not all banks have the same rules. An offshore centre may have a policy of strict secrecy and not be diligent with anti-money laundering procedures.
  • Life insurance products - A life insurance policy is cashed in and then put into a bank account. It can then be transferred to one or more bank account by an EFT.
  • Purchase of traveler's cheques, money orders or bank drafts with the money from the bank account.
  • Money can also be transferred to different accounts within the same country. Different identities have been set up that receive the funds and then possibly transfer them on. These can be company accounts for an entity that has been set up using the correct corporate rules and laws but it doesn't really conduct any business. This is a shell company.


Integration

Integration is the step that follows layering and structuring. This stage is to get the money back to the criminal in what looks like a normal, legal transaction. Some common methods that are used include:

  • Credit cards - The money is transferred to an offshore account. The bank provides credit cards that has the same protection for secrecy. This card is now used worldwide to pay for purchases and draft cash.
  • Debit cards - The money is again transferred into the offshore bank account. The bank provides a debit card that is used for purchases and cash withdrawals.
  • False loans and front companies - A company is setup in a country where there are very strict secrecy laws. These laws protect the identity of the shareholders thus preventing authorities from gaining knowledge of who is receiving the funds. The front company now gets a loan from illegitimate money which makes everything look like a normal business transaction.
  • Life insurance policies - These policies have a cash value. They are cashed out and the money is used on a purchase of a home. Often the policy is paid in full at the time of purchase.
  • Mortgage financing - Dirty money is used for the down payment on a house. The mortgage is set up through a financial lender. Now the mortgage gets paid off quickly by large wire transfers. This usually pays off the mortgage within a year.
  • Property sales - The shell company that originally bought the property now sells it. This money is now "cleaned" and can go into the system without suspicion. Worldwide real estates purchases and sales are one of the favourite methods used to integrate illegal funds.
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