Meaning of Money Laundering: When money is obtained from criminal acts such as drug trafficking or illegal gambling, the money is considered “Dirty” in that it may seem suspicious if deposited directly into a bank or other financial institution. What does Money Laundering mean? Definition and Stages. Money laundering is a process used by offenders who attempt to conceal the true origin and ownership of the proceeds; these proceeds are results of criminal activities.
The concepts of Money Laundering is explained.
It allows them to maintain control over the proceeds and provide a legitimate cover for their source of income. Because the money’s owner needs to create financial records ostensibly showing where the money came from, the money must be “Cleaned,” by running it through a number of legitimate businesses before depositing it, hence the term “Money laundering”. Because the act is specifically used to hide illegally obtained money, it too is unlawful. Different jurisdictions, both foreign and domestic, have their own specific definitions of what acts constitute the crime of money laundering.
Which enforcement agency has the authority to investigate money laundering, as well as punishments for the crime, are outlined in the statutes of each jurisdiction? The laundering of the proceeds that result from criminal activity is done through the financial system. The people who are involved in such an action exploit the facilities of the financial institutions of the world.
Such an action is done easily under these conditions of free movement of capital. Banks involved in such actions risk losing their market reputation. Also, learn Investment Banks with their Principle and Functions.
Definition of Money Laundering:
A simpler definition of money laundering would be a series of financial transactions that are intended to transform ill-gotten gains into legitimate money or other assets.
The conversion or transfer of property, the concealment or disguising of the nature of the proceeds, the acquisition, possession or use of property, knowing that these are derived from criminal activity and participate or assist the movement of funds to make the proceeds appear legitimate is money laundering.
According to the United States Treasury Department:
“Money laundering is the process of making illegally-gained proceeds appear legal. Typically, it involves three steps: placement, layering, and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the “dirty money” appears “clean”.”
The Stages of Money Laundering:
Money laundering is accomplished in three stages, involving numerous transactions of the launderers.
Here they are:
It means physical disposal of cash proceeds got from illegal activity. Illegal activities like drug trafficking, extortion, generate very volumes of money. People involved in these activities cannot explain the origin and source of these funds to the authorities. There is a constant fear of getting caught.
So the immediate requirement is to send this money to a different location using all available means. This stage is characterized by facilitating the process of inducting the criminal money into the legal financial system. Normally, this is done by opening up bank accounts in the names of non-existent people or commercial organizations and depositing the money.
It implies a separation of illicit proceeds from their source; there are created complex layers of financial transactions meant to disguise the audit trail and they assure anonymity. This is used to distance the money from the sources.
This is achieved by moving the black money from and to offshore bank accounts in the names of shell companies or front companies by using Electronic Funds Transfer (EFT) or by other electronic means. During this process, they make use of the banks wherever possible as in the legal commercial activity.
Supposing that the laundering process was successful, the proceeds are placed back into the economy; they re-enter the financial system and seem to be normal business funds. This is achieved by making it appear as legally earned.
This is normally accomplished by the launderers by establishing anonymous companies in countries where secrecy is guaranteed. They can then take loans from these companies and bring back the money.
Techniques of Money Laundering:
There are many forms of money laundering though some are more common and profitable than others. Some of the more popular money laundering techniques include:
- Bulk cash smuggling involves literally smuggling cash into another country for deposit into offshore banks or another type of financial institutions that honor client secrecy.
- Structuring also referred to as “smurfing,” is a method in which cash is broken down into a smaller amount, which is then used to purchase money orders or other instruments to avoid detection or suspicion.
- Trade-based laundering is similar to embezzlement in that invoices are altered to show a higher or lower amount in order to disguise the movement of money.
- Cash-intensive business occurs when a business that legitimately deals with large amounts of cash uses its accounts to deposit money obtained from both everyday business proceeds and money obtained through illegal means. Businesses able to claim all of these proceeds as legitimate income include those that provide services rather than goods, such as strip clubs, car washes, parking buildings or lots, and other businesses with low variable costs.
- Shell companies and trusts are used to disguise the true owner or agent of a large amount of money.
- Bank capture refers to the use of a bank owned by money launderers or criminals, who then move funds through the bank without fear of investigation.
- Real estate laundering occurs when someone purchases real estate with money obtained illegally, then sells the property. This makes it seem as if the profits are legitimate.
- Casino laundering involves an individual going into a casino with illegally obtained money. The individual purchases chips with the cash play for a while then cash out the chips and claims the money as gambling winnings.