Money Laundering

Money laundering is the practice of engaging in financial transactions in order to conceal the identity, source and/or destination of money.

In the past, the term "money laundering" was applied only to financial transactions related to otherwise criminal activity. Today its definition is often expanded by government regulators (such as the United States Office of the Comptroller of the Currency), to encompass any financial transaction which generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion or false accounting. As a result, the illegal activity of money laundering is now recognized as potentially practiced by individuals, small and large business, corrupt officials, and members of organized crime (such as drug dealers or the Mafia).

The increasing complexity of financial crime, the increasing recognised value of so-called financial intelligence (FININT) in combating transnational crime and terrorism, and the speculated impact of capital extracted from the legitimate economy has led to an increased prominance of money laundering in political, economic and legal debate.

The international response has been co-ordinated by the Action Task Force on Money Laundering(FATF).

Several FATF-style regional bodies exist, such as the Asia/Pacific Group on Money Laundering.

In many jurisdictions, money laundering is seen as an "activity based" offense.

Etymology

The term "money laundering" is said to have evolved from the Prohibition era in the United States.

Many methods were devised to disguise the origins of money generated by the sale of then-illegal alcoholic beverages.

One method was legal gambling via slot machines: this could efficiently transform giant volumes of coins into easily movable currency. Another business so employed was laundries, and from this particular aspect of the trade, the term "laundering" emerged. The reason that laundromats were favoured for use in this activity was that all money which went into the business was in the form of coins deposited into the machines. Seeing as there was never any tally of the money kept at the time of deposit, the operators of the business could add extra money, gained from illegal activities, on top of the days books, making it seem as if the money were gained through the legitimate operation of the business. Not to mention the fact that the term "to launder" means to make clean, and when one launders money, they are turning what was, and often could be seen by authorities as, illegaly gained money, into money which would be thought of as legal and lawfully acquired.

Process

Money laundering is often described as occurring in three stages: placement, layering, and integration.

• Placement refers to the initial point of entry for funds derived from criminal activities.
• Layering refers to the creation of complex networks of transactions which attempt to obscure the link between the initial entry point and the end of the laundering cycle.
• Integration refers to the return of funds to the legitimate economy for later extraction.

Examples

If a person is making thousands of dollars in small change a week from his business (not unusual for a store owner), and he wishes to deposit that money in a bank, he cannot do so without possibly drawing suspicion. In the United States, for example, cash transactions and deposits of more than $10,000 are required to be reported as "significant cash transactions" to the Financial Crimes Enforcement Network (FinCEN), along with any other suspicious financial activity as "suspicious activity reports". In other jurisdictions suspicion based requirements are placed on financial services employees and firms to report suspicious activity to the authorities. In the United Kingdom, for example, until the introduction of the Serious and Organised Crime and Police Act (SOCPA), there was no lower limit to what had to be reported - a £50 note could have been enough.

One method of keeping this small change private would be for an individual to give his money to an intermediary who is already legitimately taking in large amounts of cash. The intermediary would then deposit that money into his account, take a premium, and write a check to the individual. Thus, the individual draws no attention to himself, and can deposit his check into a bank account without drawing suspicion.

Another method involves establishing a business whose cash inflow cannot be monitored, and funneling the small change into this business and paying taxes on it. All bank employees however are trained to be constantly on the lookout for any transactions which appear to be an attempt to get around the currency reporting requirements.

By the strictest definition of the term, anyone who assists in concealing the proceeds from his transactions is considered a money launderer. An individual therefore may be unwittingly employed by money launderers, and may still be criminally liable in many jurisdictions. It should be noted, however, that the act of concealing money is different than that of laundering it, though many make the mistake of putting both actions under the term of laundering.

See also

• Whitewashing
• Smurfing (crime)
• Financial Action Task Force on Money Laundering
• Anti Money Laundering
• List of organizations & people involved in money-laundering

External links

• Moneylaundering.com - a popular source for news, guidance and analysis
• Offshore News - latest news and articles about money laundering, tax havens, offshore banking
• What is Money Laundering? from CounterMoneyLaundering.com
• The Financial Action Task Force website
• The Asia-Pacific Group on Money Laundering
• Money laundering via a hacked into internet bank account