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What is Money Laundering?
This post will help you to understand the basics of money laundering and at the foot of the post are some world renowned research papers, references and links to other content.
Money Laundering is essentially cleaning ‘dirty’ money to make it look clean to authorities. There are many, many methods to clean money. We have detailed many of them on this page.
Money laundering is defined as:
Money laundering is the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. The overall scheme of this process returns the “clean” money to the launderer in an obscure and indirect way
The process of money laundering is divided into three separate stages.
- Placement – Placement is essentially entering the dirty assets into the real economy. It can be putting it into a bank, buying shares or stocks, purchasing an asset like a house or gold, something that takes the dirty cash and uses it to enter into the money chain.
- Layering – Layering is ‘obfuscating’ the source of the money. Clearly, if you’re a drug dealer, you don’t want the authorities easily tracking the cash in your account to your illegal activities. So you might buy gift cards with it in cash and then sell those via an online market putting the money into your account from there. Or you might use ‘Smurfs’ (runners who deposit under threshold amounts of cash into an account to enter it into the financial system). Layers are usually multi level – each level dissapating the link back to the source.
- Integration – This is the stage where the money is used legitimately. The now clean money is used to buy every day objects- although for major money launderers this might be large ticket items like property, vehicles, boats, gold, yachts even planes. Anything to transfer the money back out of the financial system into tangible goods.
The best money laundering schemes use corporate vehicles in offshore territories that allow businesses, trusts or funds to be set up using nominee directors. This hides the real ownership of the assets and makes tracing it difficult for investigators – note I said difficult, not impossible.
Moving assets overseas repeatedly, in a kind of multi-national ‘tumbler’ also hides the real source of the asset and further adds bureaucratic layers for investigators to overcome. A US cop has no authority in the Bahamas for example. While there are ‘MLATS’ (Mutual Legal Assistance Treaties) between most developed nations, the time it takes to get responses to inquiries leaves investigators chasing shadows as the skillful launderer moves the money again before the response to his MLAT is received.
Resource for more reading…
Peter Temple, Essential Elements of the Prevention of Money Laundering, (Securities Institute Washington DC)
William C Gilmore, International Efforts to Combat Money Laundering, (Grotius Publications, Cambridge)
Peter Lilley, Dirty Dealing: The Untold Truth about Global Money Laundering,(Kogan Page Limited, London)
Guy Stessens, Money Laundering, (Cambridge University Press, Cambridge)
N.C. DeAssis & S.M. Yikona, Financial Sector Development and Money Laundering, (Mission Press, Zambia)
Sandeep Savla, Money Laundering and Financial Intermediaries, (Kluwer Academic Publishers Group, Dordrechdt)
FATF. Financial Action Task Force on Money Laundering website.
http://www.countermoneylaundering.com/ By antimoneylaundering.net
Schroeder, William. “Money Laundering: A Global Threat and the
International Community’s Response,” FBI Law Enforcement Bulletin:
United Nations Office for Drug Control and Crime Prevention
International Monetary Fund. Enhancing Contributions to Combating
Money Laundering: Policy Paper. Prepared by the staffs of the
International Monetary Fund and the World Bank. Washington, D.C.:
World Bank website, deals primarily on the macro-economic consequences of money laundering.