Money Laundering
Money laundering is the process of replacing real illegal sources of funds with legal ones. The money received from illegal activities goes through a series of techniques (conversion, movement across the border, placement in the capital of the company, issuance of a fictitious loan, etc.) to hide the legitimate source and make them look like they were obtained from legal operations.
The existence of the term “money laundering” is inextricably linked with the shadow economy – illegal entrepreneurial activity – and white-collar workers and street-level criminals usually commit such a crime.
The process of Money Laundering
The need for money laundering arises when:
- The origin of income is illegal, for instance, drug trafficking, racketeering, corruption, etc. Criminals who receive “dirty money” are forced to launder it in order to spend it freely.
- An entrepreneur or firm hides part of the legal income to protect it from taxes by understating earnings or overstating expenses, using unaccounted cash and so on.
- Recipients don’t want to disclose the real source for security, ethical or political reasons.
Criminals need to find ways to use “dirty money” and control the funds without drawing attention to the activity or the people involved.
The money laundering process usually occurs in three key stages:
- Placement - the money from the criminal activity is somehow "mixed" with legal money to get into the financial system.
- Layering - the layering stage occurs after the funds have entered the financial system. At this stage a person who is responsible for money laundering moves the funds to conceal the source. They are trying to find legitimate methods of transferring money, since banks are required to report large cash transactions and suspicious activity.
- Integration - the “dirty” money is collected in a legitimate account to be spent later.
The stages can vary depending on the situation.
There are a lot of ways to turn “dirty” money into money that has come from a legitimate source. Small cash-based businesses often become “factories” for laundering illegal income. For instance, if the company starts its own restaurant business, it can overstate daily cash receipts to transfer illegal money to its bank account and withdraw it later.
Money Laundering schemes
One of the most widespread schemes of money laundering is called smurfing. A large amount of illegal cash is divided into many small parts, which, with the help of the third parties, turn into financial instruments : deposits, savings certificates, checks, etc.
Money laundering can also be done with the help of “mules” - people who deal with the illegal transportation of large amounts of cash across the border. They open bank accounts in other countries and deposit illegal cash.
Below are stated other money laundering schemes:
- Exchanging “dirty cash” for casino chips, keeping them and turning them back to cash.
- Making investments in commodities, such as gold, allows criminals to inject money into the financial system.
- Money laundering through real estate occurs when people buy a property with cash and then sell - usually after a short period of time.
- Setting up shell companies.
- Counterfeiting.
The emergence of the Internet, digital platforms, and peer-to-peer transfers with mobile phones made it easier to launder money electronically. Besides, the fact that criminals began to use data anonymization tools and proxy servers becomes an obstacle to the prevention of illegal online activities.
People can also make money clean through online auctions, virtual gaming sites where illegal cash is exchanged for digital currency and then back to “clean” money. Сryptocurrencies (like Bitcoin) are very popular among cybercriminals and they are widely used in narcotics trade, extortion schemes and other illegal activities on the Internet.
Prevention of Money Laundering
The fight against suspicious transactions became a very important task for governments of different countries and they began to introduce regulations for financial institutions aimed at monitoring suspicious activity.
In July 1989, at a meeting of the heads of state and government of the leading industrial nations (G-7), the Financial Action Task Force (FATF) was established. It was an intergovernmental organization that was engaged in the development of a strategy to combat money laundering and to protect economic activities from "dirty" money.
The Bank Secrecy Act (BSA) was passed by Congress in 1970 to prevent money laundering and other financial crimes. The BSA requires many financial institutions to keep records and provide reports on certain transactions above $10,000. These reports are made available to the Financial Crimes Enforcement Service which was established by the U.S. Treasury Department (FinCEN). FinCEN collects and analyzes information to provide domestic criminal investigators or foreign financial intelligence units with it.
The second legislative act was the Money Laundering Control Act passed in 1986, which established a number of new criminal offences in the field of money laundering.
The USA Patriot Act of 2001, introduced shortly after the September 11 terrorist attacks, significantly expanded the capabilities and competencies of American regulatory authorities to combat money laundering.
The Association of Certified Anti-Money Laundering Specialists (ACAMS) is the largest international membership organization that offers the certificate of a Certified Anti-Money Laundering Specialist (CAMS), which confirms the experience in combating money laundering.
