How money laundering
works.
Money laundering basics.
The most
common types of criminals who need to launder money are drug traffickers,
embezzlers, corrupt politicians and public officials, mobsters, terrorists and
con artists. Drug traffickers are in serious need of good laundering systems
because they deal almost exclusively in cash, which causes all sorts of
logistics problems. Not only does cash draw the attention of law-enforcement
officials, but it's also really heavy. Cocaine that's worth $1 million on the
street weighs about 44 pounds (20 kg), while a stash of U.S. dollars worth $1
million weighs about 256 pounds (116 kg). The basic money laundering process
has three steps:
- Placement
- At this stage, the launderer inserts the dirty money into a legitimate
financial institution. This is often in the form of cash bank deposits. This
is the riskiest stage of the laundering process because large amounts of
cash are pretty conspicuous, and banks are required to report high-value
transactions.
- 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, diamonds)
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. This
may involve a final bank transfer into the account of a local business in
which the launderer is "investing" in exchange for a cut of the
profits, the sale of a yacht bought during the layering stage or the
purchase of a $10 million screwdriver from a company owned by the
launderer. At this point, the criminal can use the money without getting
caught. It's very difficult to catch a launderer during the integration stage
if there is no documentation during the previous stages.
Money laundering
is a crucial step in the success of drug trafficking and terrorist activities,
not to mention white collar crime, and there are countless organizations trying
to get a handle on the problem. In the United States, the Department of Justice, the
State Department, the Federal Bureau of Investigation, the Internal Revenue
Service and the Drug Enforcement Agency all have divisions investigating money
laundering and the underlying financial structures that make it work. State
and local police also investigate cases that fall under their jurisdiction.
Because global financial systems play a major role in most high-level
laundering schemes, the international community is fighting money laundering
through various means, including the Financial Action Task Force on Money
Laundering (FATF), which as of 2005 has 33 member states and organizations. The United Nations, the World Bank
and the International Monetary Fund also have anti-money-laundering divisions.
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