Money laundering through consulting companies
| Pages | 485-500 |
| DOI | https://doi.org/10.1108/JFRC-07-2019-0091 |
| Date | 20 April 2020 |
| Published date | 20 April 2020 |
| Author | Fabian Maximilian Teichmann,Marie-Christin Falker |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Money laundering through
consulting companies
Fabian Maximilian Teichmann
Teichmann International AG, St. Gallen, Switzerland, and
Marie-Christin Falker
Teichmann International (Schweiz) AG, St. Gallen, Switzerland
Abstract
Purpose –The purpose of this paper is to illustrate how illegally obtained funds are laundered by
employmentof consulting companies in Austria, Germany, Liechtensteinand Switzerland.
Design/methodology/approach –A qualitative content analysis of 28 semi-standardized expert
interviews with both criminalsand prevention experts, and a quantitative surveyof 200 compliance officers
led to the identification of concrete money-laundering techniques involving the employment of consulting
companies.
Findings –Consulting companiescontinue to be used for money laundering in European German-speaking
countries,especially in the layering and integration stages of the moneylaundering process, during which the
origins of fundsare concealed, and the money is integrated into the legal economy.
Research limitations/implications –Qualitative findings from the analysis of semi-standardized
interviewsare limited to the 28 interviewees’perspectives.
Practical implications –Identification of gaps in existing anti-money-laundering mechanisms provides
compliance officers, law enforcement agencies and legislators with valuable insights into how criminals
operate.
Originality/value –The existing literature focuseson organizations that combat money laundering and
the improvement of anti-money-laundering measures. This paper outlines how money launderers avoid
detection.Both preventative and criminal perspectives are considered.
Keywords Compliance, White collar crime, Money laundering, Consulting
Paper type Research paper
Introduction
Article 305
bis
of the Swiss Penal Code defines money laundering as an action designed to
prevent determination of the origin, retrieval or confiscation of funds that are likely the
result of a crime. Conviction of involvement in organized crime, involvement in groups
specifically formed to launder money or generating profits through money laundering is
punishable by up to three years of incarcerationor a fine (Teichmann, 2016, p. 7). Despite the
belief that money laundering requires a large amount of expertise, various methods exist
that enable criminals to laundermoney with little professional knowledge and at relatively
low cost. Said methods may be accommodated to fit one’s individual needs (Teichmann,
2016, p. 96).
Money laundering generally consists of three stages: placement, layering and
integration. Placement is the most challenging and crucial stage because it eliminates
evidence that might enable authorities to trace the origins of funds (Graber, 2009, p. 2). In
layering, funds are provided with a background story by being moved through bank
accounts across multiple jurisdictions (Madinger, 2011, p. 20). Transfers via multiple
accounts aggravate traceability and help avoid limits on transaction amounts designed to
Money
laundering
485
Received21 July 2019
Revised7 January 2020
28February 2020
Accepted11 March 2020
Journalof Financial Regulation
andCompliance
Vol.28 No. 3, 2020
pp. 485-500
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-07-2019-0091
The current issue and full text archive of this journal is available on Emerald Insight at:
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stop money laundering (Grosse, 2001, p. 5). During the integration stage, funds are
incorporated into the legal economy (Schneiderand Windischbauer, 2008,p.394;Arzt et al.,
2009,p.686;Trechsel, 1997, p. 14). Successful money laundering makes it difficult or
impossible for authoritiesto trace the illicit origins of funds (Gao and Xu, 2009, p. 1,494).
Because compliance efforts focuson the financial sector, according to the subjects of the
present study, the majority of surveyed compliance officers stated that they believe money
launderers target less regulated sectors such as retail, real estate or consulting. Compliance
officers are especially concernedabout sectors in which cash payments are prevalent. These
include for instance antiquities, jewelry, art, gold and raw diamonds (Teichmann, 2016,
26 ff.). At the same time, the mobility of funds complicates jurisdictions’efforts to end
money laundering (Focus, 2015, p. 1). As a result, international efforts have so far proven
incapable of preventing the practice’s persistence (Harvey, 2004, p. 339; van Duyne, 1994,
p. 62; Walker, 1999,p.36).
This study focuses on money laundering in European German-speaking nations. In
particular, this paper explores how money launderers use consulting companies to launder
incriminated funds. Their use for money-laundering purposes is associated with a number
of risks and challenges for the launderer but can be a lucrative practice. Consulting
companies usually do not operate using cash, which makes themethod more suitable to the
layering and integrationstages than the placement stage.
Although prior research on money laundering exists, it usually focuses on prevention
efforts and regulations or provides the dimensions of money laundering. Researchers such
as He (2006) or Gittleman and Sacks (2005) discuss financial institutions’obligation to
identify their customers and detail anti-money-laundering concepts such as the Wolfsberg
Principles, a “voluntary central code of conduct agreed to by 11 central banks”(He, 2006,
p. 62) or the USA Patriot Act, a money-laundering regulation relating to financial
institutions. Others, including van Duyne (1994) or the FATF (2019), attempt to determine
the extent of money laundering. The literature review will demonstrate that current
approaches to combat money laundering are insufficient. It will also be shown that money
laundering through consulting companies has thus far not been investigated in sufficient
depth. In contrast to previous studies, this paper focuses on the specific actions money
launderers take to launder their incriminated funds without being detected. For this
purpose, the unique approach of interviewing both money launderers and compliance
experts was chosen.
Literature review
Money laundering has likely existedfor as long as money (Muller et al., 2007, p. 3). Its main
purpose is to construct a legal history for illicitfunds (Van Duyne, 2003, p. 69) that prevents
illegally obtained assets frombeing traced to their true origins (Johnson and Desmond Lim,
2003, p. 7). The exact definition of money laundering varies between jurisdictions (Van
Fossen, 2003, p. 238). However,it is commonly acknowledged that money laundering is used
to hide the origin of incriminated funds and to integrate these into the legal economy (Art.
261 German Penal Code; Art. 305
bis
Swiss Penal Code; FATF, 2019). One main source of
incriminated funds is organized crime (Gaetke and Welling, 1992, p. 1,243). Money
laundering is often associated with narcotics, but profits from other criminal activities are
also regularly laundered (Levi, 2002, p. 182). These other activities include corruption
(Chaikin and Sharman, 2009, p. 24), prostitution, illegaltrade of arms (Lilley, 2003, p. 8), tax
evasion (Hampton and Levi,1999, p. 646) and financing terrorism (Koh, 2006, p. 12 ff.).
Although money laundering is an ancient phenomenon, it was only declared illegal for
the first time in 1986 (Sharman, 2008, p. 635). The war on drugs was in full effect in the
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