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CHAPTER 9

MONEY LAUNDERING

Money Laundering
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What is money laundering? Act of transforming profit earned from criminal activities into legal profits. Transformation of proceeds from criminal activities into a form that makes the funds appear legitimate. Criminal activities includes: Drug trafficking Organized crime activities loan sharking, illegal gambling, extortion, prostitution, corruption, illegal trafficking in arms and human being, illegal sale of natural resources such as oil, natural gas, metal and etc. Financial crimes bank fraud, credit card fraud, investment fraud, advance fee fraud, bankruptcy fraud, embezzlement from corporations, corporate kickbacks, tax evasion and insider trading.

Definition 1
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"Money laundering is called what it is because that perfectly describes what takes place - illegal, or dirty, money is put through a cycle of transactions, or washed, so that it comes out the other end as legal, or clean, money. In other words, the source of illegally obtained funds is obscured through a succession of transfers and deals in order that those same funds can eventually be made to appear as legitimate income".

Definition 2
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The

conversion or transfer of property, knowing that such property is derived from serious crime, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in committing such an offence or offences to evade the legal consequences of his action, and the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is

Definition 3 Money laundering is the process by which large amounts of illegally obtained money (from drug trafficking, terrorist activity or other serious crimes) is given the appearance of having originated from a legitimate source. If done successfully, it allows the criminals to maintain control over their proceeds and ultimately to provide a legitimate cover for their source of income. Money laundering plays a fundamental role in facilitating the ambitions of the drug trafficker, the terrorist, the organized criminal, the insider dealer, the tax evader as well as the many others who need to avoid the kind of attention from the authorities that sudden wealth brings from illegal activities. By engaging in this type of activity it is hoped to place the proceeds beyond the reach of any asset forfeiture laws

Purpose of money laundering:

Conceal the origin of the proceeds Maintain control of the proceeds Change the form of the proceeds

Money laundering occurs due to:

Extensive bank secrecy law Weak financial regulatory regimes Tax enforcement corruption

MONEY LAUNDERING PROCESS

Money laundering is not a single act but is in fact a process that is accomplished in three basic steps. These steps can be taken at the same time in the course of a single transaction, but they can also appear in well separable forms one by one as well. The steps are: Placement; Layering; and Integration.

PLACEMENT
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This is the first stage in the washing cycle. Money laundering is a "cash-intensive" business, generating vast amounts of cash from illegal activities (for example, street dealing of drugs where payment takes the form of cash in small denominations). The monies are placed into the financial system or retail economy or are smuggled out of the country. The aims of the launderer are to remove the cash from the location of acquisition so as to avoid detection from the authorities and to then transform it into other asset forms; for example: travelers cheque, postal orders, etc.

LAYERING
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In the course of layering, there is the first attempt at concealment or disguise of the source of the ownership of the funds by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity.
The purpose of layering is to disassociate the illegal monies from the source of the crime by purposely creating a complex web of financial transactions aimed at concealing any audit trail as well as the source and ownership of funds.

Typically, layers are created by moving monies in and out of the offshore bank accounts of bearer share shell companies through EFT.

INTEGRATION
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Money is integrated into the legitimate economic and financial system and is assimilated with all other assets in the system. Integration of the "cleaned" money into the economy is accomplished by the launderer making it appear to have been legally earned. By this stage, it is exceedingly difficult to distinguish legal and illegal wealth.

Methods popular to money launderers at this stage of the game are:

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the establishment of anonymous companies countries where the right to secrecy is guaranteed.

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the sending of false export-import invoices overvaluing goods allows the launderer to move money from one company and country to another with the invoices serving to verify the origin of the monies placed with financial institutions. a simpler method is to transfer the money (via EFT) to a legitimate bank from a bank owned by the launderers, as off the shelf banks are easily purchased in many tax havens.