MONEY LAUNDERING DEFINED:

What exactly is money laundering?

Money laundering refers to the process of concealing the source of illegally

obtained money. The methods by which money can be laundered are very
varied. But one has to first understand the motive for this illegal practice.

The goal of a large number of criminal acts is to generate a profit for the
individual or groups that commit the crime. However, in order to enjoy these
profits, criminals must disguise their illegal origins.

Huge amounts of proceeds can result from activities of organized crime in

activities like sale of illegal arms, drug trafficking, smuggling, prostitution
rings and child trafficking. Other activities like embezzlement, insider trading
and computer fraud schemes can also lead to big profits.

Then there are the profits made from corrupt practices specifically bribery
and tax evasion.

When substantial profits are made from these illicit practices, the individual
or group must find a way to control and spend the funds without attracting
attention to the underlying activity or to the perpetrators of the crime.

The way to "legitimize" these ill-gotten gains is through money laundering.

Money is normally laundered in three steps or stages. The first step is
through "placement" which means introducing the money into the financial
system either through a secret bank account or an offshore bank.

The second is "layering" or trying to camouflage the illegal source. The

launderer normally engages in a series of conversions or movements of
funds to distance them from the source. The launderer may disguise, for
example, the monetary transfers as payments for goods or services to give
them a legitimate appearance.

The third step is "integration" in which the funds re-enter the legitimate
economy. The launderer might choose to invest the illegal funds into real
estate, luxury assets or business ventures.

The different forms of money laundering are actually quite well known.
Examples are:
 Structuring: Often knowing as "smurfing," it is a method of placement
by which cash is broken into smaller deposits of money, and, then used
to purchase bearer instruments such as money orders and then
deposits this again in smaller amounts.
Bulk cash smuggling: Physically smuggling cash to another jurisdiction
with greater bank secrecy or less rigorous money laundering
enforcement.
Cash-intensive business: A business involved in receiving cash will use
its accounts to deposit both legitimate and criminally derived cash
while claiming all of it as legitimate earnings even if the business has
no legitimate activity.
Trade-based laundering. Under-or over-valuing invoices in order to
disguise the movement of illegally obtained money.
Shell companies and trusts: Trusts and corporate vehicles, unless
required by law, do not need to disclose their true and beneficial
owner.
Casinos: An individual can walk into a casino with cash and buy chips,
play for a while and then cash his chips for which he will be issued a
check. The money launderer can deposit the check and claim it as
gambling winnings.
Real estate: Real estate may be purchased with illegal proceeds and
then sold. The proceeds from the sale then appear to be legitimate.
However, the price of the property is manipulated. The seller will agree
to a contract that under-represents the value of the property and will
receive the criminal proceeds to make up the difference.

Money laundering as a crime only attracted interest in the 1980s,

essentially within a drug trafficking context. It was from an increasing
awareness of the huge profits generated from this criminal activity and a
concern at the massive drug abuse problem in western society. Governments
also recognized that criminal organizations, through the huge profits they
earned from drugs, could contaminate and corrupt the structures of the state
at all levels. This created the impetus for governments to act against the
drug dealers by creating legislation that would deprive them of their illicit
gains.

Money laundering is a truly global phenomenon, helped by the

International financial community which is a 24hrs a day business. When one
financial center closes business for the day, another one is opening or open
for business.
 As a 1993 UN Report noted: The basic characteristics of the laundering
of the proceeds of crime, which to a large extent also mark the operations of
organized and transnational crime, are its global nature, the flexibility and
adaptability of its operations, the use of the latest technological means and
professional assistance, the ingenuity of its operators and the vast resources
at their disposal.

In addition, a characteristic that should not be overlooked is the

constant pursuit of profits and the expansion into new areas of criminal
activity. The international dimension of money laundering was evident in a
study of Canadian money laundering police files. They revealed that over 80
per cent of all laundering schemes had an international dimension.
"Operation Green Ice" (1992) showed the essentially transnational nature of
modern money laundering.