According to the United Nations, the global amount of money currently being laundered is 2% to 5% of the world’s GDP. That is equivalent to $800 billion to $2 trillion USD every year. However, most experts suggest that around $1.5 trillion USD is more likely.
Surprisingly, 1% of all laundered money is actually seized by authorities. This means that those involved in money laundering schemes have a chance of getting away with their illicit activities..
So why does this happen?
Well, hiding illegally obtained funds isn’t too difficult for criminals. They can cleverly disguise the origins of the cash by transferring their ill-gotten gains between bank accounts, shell companies, stocks, real estate properties, and even cryptocurrencies. They can also physically smuggle cash across borders. Some use “deposit brokers” to wire amounts so they can avoid detection.
Secondly, organizations responsible for combating money laundering continue to face challenges, primarily due to funding and limited staffing resources. The sheer volume of transactions and the number of shell companies makes it difficult for law enforcement officials to do their jobs.
Additionally, privacy laws in countries hinder an investigator’s ability to trace the flow of money.
Also, advancements in technologies, such as cryptocurrencies and online banking, have opened up new avenues to money launderers ato use. The opening of these channels allows them to move funds anonymously on even a grander scale than what they’ve been able to achieve historically.
Although it may seem like criminals have the upper hand at present, there is the continued hope that international cooperation in money laundering efforts can change this dynamic, thereby shifting things in favor of law enforcement agencies and officials.
So, as time progresses, it may become significantly more difficult to engage in money laundering due to regulations, increased data sharing between countries, and investments in intelligence.
Nevertheless, criminal organizations are known for their ability to adapt and stay ahead of regulators in this regard. That is why money laundering remains an activity, at least currently, that offers rewards with low risks for those who are willing to bend the rules and take a chance in these unlawful enterprise activities..
The Money Laundering Process
So, how do money launderers actually clean their “dirty” funds? It’s a process involving three steps: placement, layering, and integration.
Placement, the first stage, is where illegal cash enters the financial system. This step carries a certain level of risk since large amounts of cash can attract attention. To avoid detection, launderers often split sums into deposits that go unnoticed. This is known as “smurfing.”
They also use cash businesses, such as casinos, bars and strip clubs, as a disguise for the money’s origin.
The second step is layering. During this phase, launderers move money around to obfuscate its source. They transfer funds between accounts, wire money internationally, invest in stocks, or engage in the trading of cryptocurrencies. By shuffling funds in this way, tracing the money becomes exceedingly difficult.
As a final step in the process, integration comes into play. This is where the illicit funds are seamlessly reintroduced into the economy and marketplace. These funds are allocated for purchases such as real estate, artwork, luxury aircraft, or lavish yachts. Alternatively, the money may also be invested in business ventures enabling the money launderer to convey the cash in the form of income or assets.
As a result, money laundering proves to be alarmingly effective. It’s no surprise then that many launderers manage to evade detection. That’s why money laundering stories are of intense interest to law enforcement officials and the public. Not only do launderers use real estate to launder money, they have gone through major banks, and have set up shell banks – all which have created worldwide scandals that allowed millions and billions of dollars to be channeled over time.
Historic Money Laundering Events, Cases, and Participants
One major U.S. case was the Wachovia bank case. The bank, once one of the largest banks in the U.S., agreed to a legal settlement of $160 million for laundering $380 billion for the purpose of drug trafficking and sales. Aircraft were bought from the funds for further trafficking as well. The bank was punished and sanctioned for failing to enforce anti-laundering restrictions.
The term, “laundering,” when applied to cash, is credited to mob boss, Al Capone, who used his legitimate laundromats to “launder” or hide his ill-gotten gains. He also used cash-intense businesses, such as breweries and restaurants, to protect the income he received from drug smuggling, tax evasion, and prostitution. A contemporary of Capone’s, Meyer Lansky, is noted as the “Father of Money Laundering” activities.
Lansky perfected the laundering of illegal funds through the Swiss banking system to conceal the money he made from his casinos. In fact, he made money laundering an art, if not a science. He did this to avoid getting caught and convicted for tax evasion, like Capone, who was indicted for the crime in 1931.
Known as the “Mob’s Accountant,” Lansky was in charge of casinos and nightclubs in Florida, Cuba, and Las Vegas. He finally was caught and charged with tax evasion in 1970, but was acquitted in 1974. After fleeing to Israel, he was deported back to the U.S for trial. Despite his long history as a participant in organized crime, Lansky was never found guilty of anything more than illegal gambling. He only served a short stint in jail in 1953. He was sentenced for 40 days and was released early for good behavior.
Common Techniques Employed by Money Launderers: A More Indepth Look
As noted, money launderers use common yet inventive methods to ensure the money they launder avoids notice. Below are some of the regular tools and activities money launderers employ.
One prevalent approach used by money launderers involves structuring bank deposits. This entails depositing sums in increments below the $10,000 reporting threshold. This is done to avoid complying with the mandatory reporting requirements of banks.
For instance, instead of depositing $50,000 all at once in cash, a money launderer may opt for deposits of $9,000, over six days at various banks.
This creates the illusion that they are depositing earnings.
Setting up shell companies
Money launderers frequently establish shell companies. Shell companies are corporations that do not operate like a regular business. They’re just a “shell” of a business – meant to mask the source of the company’s funds.
Therefore, the launderer creates a business channel for their cash, giving it the appearance of lawful income. They then move the “clean” money out of the shell business and into the financial stream. Shell companies merely serve as front companies on paper and feature no tangible products or services.
Trade based money laundering
Some individuals involved in money laundering disguise funds as payments for imports or exports. They manipulate the value of goods and services during transactions by either over- or under-invoicing them.
For instance, they might inflate the value of goods imported from abroad and use the surplus payments to launder money. Alternatively, they may understate an export’s worth while keeping the difference between the reported values overseas.
The anonymity provided by cryptocurrencies also makes them an appealing choice for money laundering activities. Launderers can transfer funds into cryptocurrency, mix or tumble the funds to blur their origin and subsequently convert the money back into currency in a different location.
They can also employ crypto ATMs, peer-to-peer exchanges and anonymous cryptocurrencies, like Monero, to hide their tracks.
Difficulties in Catching and Prosecuting Money Launderers
Apprehending money launderers is a monumental task, given the tactics they use to mask funds and erase the trace of “dirty” cash. The following factors make it complicated for law enforcement to pin down these criminals.
Because money launderers devise schemes that involve shell companies, offshore accounts, cryptocurrencies and other forms of concealment, the money becomes hard to follow. By the time the cash is reintroduced into the system, it takes on an appearance of legitimacy. In the meantime,any traceable trails have long gone cold.
Unraveling money laundering networks involves investments in time, finances, and expertise – any of which can be hard for law enforcement agencies to obtain or support.
When apprehended and brought before the court for prosecution, money launderers often face light punishments for their crimes.
Fines and short prison sentences, if given, are often seen as a small cost for those involved in illegal activities. To discourage money laundering, it might be more effective to impose harsher punishments, particularly for repeat offenders or for those involved in large scale operations.
However, the current legal system tends to favor influential individuals. This puts more pressure on prosecutors to handle white collar crimes with more leniency.
Challenges in Establishing Intent
Prosecuting anyone involved in money laundering necessitates showing the alleged perpetrator’s involvement—a task that can prove almost impossible. Money launderers exploit complexity by claiming that their transactions were carried out for business purposes.
Again, money launderers employ tactics such as using shell companies, offshore accounts and “smurfing” techniques to obscure the origin and ownership of funds. By the time these transactions come under scrutiny, vital evidence may have already vanished or been erased.
Therefore, just like a CPR emergency, time is of the essence when it comes to catching criminals involved in these activities.
Final Thoughts About Money Laundering Activities
Improving technology, increasing resources, and enhancing monitoring systems are critical in strengthening enforcement against money laundering activities. Updating money laundering laws and regulations can contribute to this effort as well.
However, it’s important to acknowledge that as long as there are avenues for generating profits, money launderers will persistently strive to stay one step ahead of the law. The battle against crime is multifaceted and demanding. Unless a whistleblower speaks out about the activity, this type of crime can go on for years, or even decades, without fail.
By: Donna Ryan
Author Bio: Donna Ryan is an experienced news journalist and article writer. Contact her with writing inquiries at email@example.com. You can also reach her about writing services at inkypub.com.