A typological study on money laundering

AuthorPing He
DOIhttps://doi.org/10.1108/13685201011010182
Pages15-32
Publication Date05 Jan 2010
A typological study on money
laundering
Ping He
East China University of Political Science and Law,
Shanghai, People’s Republic of China
Abstract
Purpose – The purpose of this paper is to make objective descriptions on various money-laundering
techniques and to put forward countermeasures in order to combat money laundering more effectively
and efficiently.
Design/methodology/approach – This paper based on 20 simplified money-laundering cases,
describes various money-laundering techniques, analyses the reasons why these methods prevail, and
points out the future efforts to be made in the fight against money laundering.
Findings – As usual, the ways of moneylaundering include cash smuggling, making use of banks or
insurance company, or making use of shell-company or front-company. Nowadays, criminals also turn
to real estate, lottery, international trade, offshore company to launder money. Sometimes lawyers,
accountants are exploited by money launderers. With the wide use of electronic money and internet,
criminals prefer to launder money through non-face to face transactions. The fight against money
laundering is the fight between justice and evil. It is of great importance to pierce the secret veil of
money laundering so that we can combat money laundering more effectively and efficiently.
Originality/value – This paper prevents a comprehensive description of, and comments on, various
money-laundering techniques and future efforts to be made in the fight against money laundering,
which would be beneficial to policy makers, enforcement authorities, and judicial professionals.
Keywords Money laundering,Crimes
Paper type General review
Money laundering is a sort of criminal activity trying to conceal the illegality of proceeds
of crime by disguising them as lawful earning. The complete process of it consists of
placement stage, layering stage, and integration stage (Gilmore, 1995). Money
laundering is a complicated activity, in which the source and nature of dirty money are
disguised in order to make the money look lawful and then become usable, transferable,
and negotiable. Owing to its complexity, the methods of money laundering are variable.
I. Cash smuggling
Case one
In November 1991, the first money-laundering case by smuggling cash in human body
was reported by John F Kennedy International Airport customs authority. A fema le
Ghana immigrant, under interrogation of customs officers, acknowledged carrying
$9,000 in cash, just under the customs declaration point of $10,000. Nevertheless,
customs officers found $24,000 small bank notes packed in some sheets in her luggage,
$224,000 in 100 cash rolls hided in shampoo bottles, and $53,000 in small bags in her
stomach, which was detected by X-ray test (Dupuis-Danon, 2006, p. 56).
Case two
In September 2001, Hong Kong (HK) police tracked down the biggest cross-border
money-laundering crime, which extended to Canada, HK, Yunnan province, and
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A typological
study on money
laundering
15
Journal of Money Laundering Control
Vol. 13 No. 1, 2010
pp. 15-32
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201011010182
Guangdongprovince of China Mainland,involving more than 50 billionHKD. In this case,
criminalgroups hired carriersto conduct day-by-daycash smuggling, withas much as ten
million HKD, from Shenzhen Luohu Customs toHK in a period of six years. Those dirty
money, gained by tax evasion and embezzlement in China Mainland, was transferred to
1,300 odd bank accounts after being smuggled to HK. Besides hiring carriers, the other
way is freighting 29 kinds of foreign currencies including GBP, JPY, FRF, USD, with
goods vehicles and private cars, to the dirty money transfer center in HK via Wen Jindu
Port and Luo MachuanPort. The freight frequency wasthree times a day. In every single
day, as much as 50 million HKD was smuggled overseas (Xinmin Weekly,2002).
Cash smuggling is a method of money laundering in which the proceeds of crime are
stealthily moved cross border, and then deposited in banking institution, paid for real
estate or invested to establish companies. Although the types of money laundering are
ever growing, which sometimes involves high-tech facilities or professionals, traditional
cash smuggling is still in use. The reason is that the proceeds of crime are mostly cash
initially,therefore cash smugglingis a simple way for the criminalsto evade tracing of the
authorities. And it is also an effective way by which the ties connecting the proceeds of
crime and theirillegal origin would be cut off or at leastblurred. Cash smugglers usually
needto change small denominationcash to large denomination forthe purpose of reducing
the size of the money, which can be conveniently smuggled by the carriers described in
case two. To bring the money through customs smoothly, the smugglers tried every
possible method. Besides, the tricks mentioned above, the US police tracked down some
“human piggy banks,” the carries who had swallowed many US$100 banknotes of drug
trade proceeds.In France, smugglers were foundcarrying e450,000 by packing hundreds
of e500 banknotes in their specially made ankle-highshoes (Dupuis-Danon, 2006, p. 57).
In the 2003 revised “Forty FATF Recommendations”, Article 19 provided that,
“Countries should consider: (a) Implementing feasible measures to detect or monitor the
physical cross-border transportation of currency and bearer negotiable instruments
[...]”. Most countries impose a declaring or examining requirement for cross-border
move of cash over a certain number. In China, the number is RMB20,000 or US$5,000,
while in some other countries like American, Canada, Italy, Japan, and so on, the number
is US$10,000. Smugglers surely would not report the true number of cash they carry,
often hidden in some altered devices or certain places of their body hard to search. To
resolve this problem, customs officers have to be very careful and sensitive to any tiny
suspicious evidence and take effective action. What is more, large denomination cash are
often employed by smugglers, and a simple countermeasure is to stop using them
anymore. The issuing of 1,000-Canadian Dollar (or CAD) banknote has been terminated.
And US$500 cash have been withdrawn from circulation since 1969 (Dupuis-Danon,
2006, p. 55). Another question worth concern is that smugglers tend to move dirty money
to those countries or areas with weak anti-money laundering measures. Since money
laundering is an international problem, the response to it must be as wide as possible.
Unless those countries or areas assume their responsibility of anti-money laundering,
the effort of others would be in vain.
II. Money laundering through banking institutions
Case one
From August 2002 to April 2004, Cai Qinghai gradually transferred his proceeds of
drug deal from underground banks in Philippines to the underground banks in
JMLC
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