Money Laundering

DOIhttps://doi.org/10.1108/eb027152
Published date01 February 1998
Pages295-302
Date01 February 1998
AuthorMichael Zeldin
Subject MatterAccounting & finance
Journal of Money Laundering Control Vol. 1 No. 4
ANALYSIS
Money Laundering
Michael Zeldin
Money laundering is defined as the process by
which illicit money is made to appear licit. It is an
essential element of any cash generating criminal
venture.1 The manner in which money is laun-
dered is limited only by the breadth of the imag-
ination of the launderer. The focus of this paper
will be to provide an overview of the issues sur-
rounding money-laundering enforcement; outline
new schemes in use to launder illicit proceeds;
detail the elements of an effective anti money-
laundering compliance programme and list the
geographic hot spots where money-laundering
risks are the most extreme.
Typically, money is laundered through a three-
step process: placement, layering and integration.
Placement is the physical disposal of bulk cash into
the financial system or the conversion of cash to a
more manageable form. Because drug trafficking
and other illegal activity generates lots of cash and
cash is bulky, criminals must find a way to dispose
of it or risk theft or detection by law enforcement.
Criminals can convert bulk cash by converting
smaller bills to larger ones or purchasing banker's
cheques, money orders, travellers cheques, or
other cash equivalents. Criminals can also com-
mingle legitimate and illegitimate proceeds in legi-
timate or front businesses that will provide a cover
for the cash. But they cannot convert cash easily
any more without creating a paper trail. This is
because cash reporting laws require financial insti-
tutions and other businesses to file a report with
the Internal Revenue Service (IRS) whenever they
receive cash in excess of $10,000. Thus criminals
must get cash into the financial system without
creating a paper trail or by creating a false paper
trail that will not lead law enforcement to them.
The second phase of the money-laundering pro-
cess is layering. Once cash is converted to a more
manageable form or deposited into the financial
system, the criminals must distance themselves
from the illicit process. They do this by creating
complex layers of financial transactions designed to
thwart law enforcement. This is the phase of laun-
dering that businesses that do not accept cash, or
are sellers of consumer durables are likely to
encounter. The final stage of the money-launder-
ing process is integration. Integration occurs when
the funds have apparent legitimacy and are no
longer recognisable as dirty proceeds.
A criminal who has a lot of cash may go to a
money launderer who decides to convert the cash
into banker's cheques. The money launderer may
take the cash and go from bank to bank purchasing
banker's cheques, each with a face amount under
$10,000 to avoid triggering the banks' cash report-
ing requirements. The money launderer can then
open a bank account in the name of a fictitious
company and deposit the cheques into the account.
Because the deposits do not involve cash, the bank
does not have to report the transactions. Once in
the bank, the funds can be transferred by wire to
an account, perhaps in Panama, where certificates
of deposit (CDs) can be purchased. With those
CDs the criminal can go to another country, say
England, take out a loan using the CDs as col-
lateral and the money returns to the USA. The
scheme just described is basically what happened
in the Bank of Credit and Commercial Inter-
national (BCCI) case. In BCCI, however, the
money launderers that the criminals selected
happened to be government agents and so they got
caught.
While money laundering is typically associated
with the narcotics trade,2 it is an aspect of all pro-
ceeds-generating crimes. Tax evasion schemes
always have a money-laundering component, as do
a wide variety of white-collar crime operations.
In the early 1980s when money laundering first
caught the attention of US law enforcement
agencies, money launderers brazenly carried car-
tons of cash into domestic financial institutions.
The funds were willingly deposited and wire trans-
ferred offshore. Rarely, if ever, were Currency
Transaction Reports (CTRs) filed. Everything
Page 295

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