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Money Laundering

The process of taking the proceeds of criminal activity and making them appear legal.

Laundering allows criminals to transform illegally obtained gain into seemingly legitimate funds. It is a worldwide problem, with approximately $300 billion going through the process annually in the United States. The sale of illegal narcotics accounts for much of this money. Those who commit the underlying criminal activity may attempt to launder the money themselves, but increasingly a new class of criminals provides laundering services to Organized Crime. This new class consists of lawyers, bankers, and accountants.

Criminals want their illegal funds laundered because they can then move their money through society freely, without fear that the funds will be traced to their criminal deeds. In addition, laundering prevents the funds from being confiscated by the police.

Money laundering usually consists of three steps: placement, layering, and integration. Placement is the depositing of funds in financial institutions or the conversion of cash into negotiable instruments. Placement is the most difficult step. The easiest way to begin laundering large amounts of cash is to deposit them into a financial institution. However, under the federal Bank Secrecy Act of 1970 (BSA), 31 U.S.C.A. §§ 5311 et seq., financial institutions are required to report deposits of more than $10,000 in cash made by an individual in a single day. To disguise criminal activity, launderers route cash through a "front" operation; that is, a business such as a check-cashing service or a jewelry store. Another option is to convert the cash into negotiable instruments, such as cashier's checks, money orders, or traveler's checks.

Layering involves the wire transfer of funds through a series of accounts in an attempt to hide the funds' true origins. This often means transferring funds to countries outside the United States that have strict bank-secrecy laws. Such countries include the Cayman Islands, the Bahamas, and Panama. Once deposited in a foreign bank, the funds can be moved through accounts of "shell" corporations, which exist solely for laundering purposes. The high daily volume of wire transfers makes it difficult for law enforcement agencies to trace these transactions.

Integration involves the movement of layered funds, which are no longer traceable to their criminal origin, into the financial world, where they are mixed with funds of legitimate origin.

Many banks did not comply with the BSA during the 1970s and early 1980s. Following several federal investigations where it was revealed that banks had failed to report billions of dollars of cash transactions, reporting requirements were strengthened. Congress also enacted the Money Laundering Control Act of 1986 (MLCA), 18 U.S.C.A. §§ 1956 et seq. This statute criminalizes money laundering itself. It centers its attention on the criminals and conspirators who seek to launder the proceeds of illegal activity, including merchants, bankers, and members of the professions who assist criminals with money laundering. Another provision of the MLCA authorizes the government to confiscate all property that is traceable to violations of laws against money laundering.

After the September 11th Attacks on the United States in 2001, the federal government began to investigate more closely the connection between Terrorism and the sale of illegal drugs. According to President george w. bush, "[T]errorists use drug profits to fund their cells to commit acts of murder. If you quit drugs, you join the fight against terror in America." Terrorists have laundered money through such foreign countries as Colombia and Afghanistan. In September 2002, the Drug Enforcement Administration opened a museum exhibit in New York entitled "Target America: Traffickers, Terrorists and You" in an effort to educate the American public about the connection between drug sales and terrorism.

Further readings

Lilley, Peter. 2003. Dirty Dealing: The Untold Truth about Global Money Laundering. 2d ed. Sterling, Va.: Kogan Page.

Sulltzer, Scott. 1995. "Money Laundering: The Scope of the Problem and Attempts to Combat It." Tennessee Law Review 63.

U.S. Department of the Treasury. 2000. The National Money Laundering Strategy for 2000. Washington, D.C.: Department of the Treasury.

Vukson, William B.Z., ed. 2003. Organized Crime & Money Laundering. Toronto, Ont.: G.7 Report Inc.

Woods, Brett F. 1998. The Art & Science of Money Laundering: Inside the Commerce of the International Narcotics Traffickers. Boulder, Colo.: Paladin Press.

Cross-references

Banks and Banking.

money laundering

the moving of the proceeds of crime through the financial system so as to conceal its nature. As a result of a European directive, the UK has implemented rules against this practice. Aside from controlling the actual criminals, persons can be guilty of offences if they do not report suspicions or information as soon as reasonably practicable where the laundering concerns terrorism or drug money. Assisting another person to retain the benefits of all types of crime is also made an offence, especially by TIPPING-OFF.
References in periodicals archive ?
So I asked the experts, "Why don't you end the bank secrecy system that hides and launders illicit funds?
In the hands of a skillful launderer, the payment for goods that appeared to have been delivered by one company based upon an invoice of sale prepared by another company covers the laundering of the purchase price when the goods never existed, and the companies are owned by the same party; the sale of real estate for an amount far below market value, with an exchange of the difference in an under-the-table cash transaction, launders what, on the surface, appears to be capital gain when the property is sold again; and a variety of lateral transfer schemes among three or more parties or companies covers the trail of monetary transactions between any two of them.
Another problem with restarting a pressure pour is that the first metal into the pour launder is cooled as energy is transferred from the treated iron into the refractory.
Talks about money laundering heightened globally amid allegations by US regulators that the New York branch of Standard Chartered helped launder $250 billion worth of dirty money from Iran.
Now in recognition of accountants' expertise in devising controls that make it more difficult to launder illicit proceeds, government and the business community are asking the profession to come up with recommendations on now to deny money launderers and their accomplices in organized crime opportunities to legitimize their illegal gains.
Most experienced fraud investigators view the Channel Islands and the Isle of Man [1] as loosely regulated tax havens immune to inquiries from foreign authorities, which make the Islands the choice of criminals to launder their illegal gains.
Friday's indictment also alleges that Nash planned an elaborate fraud and money laundering scheme between August 1994 and November 1995 in which he designed a system to launder criminal proceeds generated by associates of the enterprise and disguised ownership of property owned by a member of the enterprise.
However FATF notes that "unlike other serious and organised crime topics, there is very limited knowledge about the methods being used by criminal organisations to launder illegal proceeds related to human trafficking and illegal migration.