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“In October 2005, U.S. congressman Tom DeLay was
indicted on money laundering charges, forcing him to step down as House
Majority Leader. Money laundering is a serious charge -- in 2001, U.S.
prosecutors obtained almost 900 money-laundering convictions with an average
prison sentence of six years. The rise of global financial markets makes money
laundering easier than ever -- countries with bank-secrecy laws are directly
connected to countries with bank-reporting laws, making it possible to
anonymously deposit "dirty" money in one country and then have it
transferred to any other country for use. “
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The most common types of criminals who need to
launder money are drug traffickers, embezzlers, corrupt politicians and public
officials, mobsters, terrorists and con artists.
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Drug traffickers in particular need to launder
money because they deal with everything in cash, and cant keep all the cash on
them because its physically to much to store
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There are three steps to money laundering
1.
Placement – placing the money into a legitimate financial institution, done usually offshore
or in secrecy, usually in small amounts
2.
layering – this step involves sending the money
through many different offshore accounts, wiring it to accounts in countries
with secrecy laws so the money is anonamous, purchasing many expensive items. This
is all done in an effort to make the money difficult , if not impossible to
trace back as dirty money once it reaches step 3
3.
integration – this is where the dirty money
becomes clean money. This is done in various ways, such as investing in certain
legitimate businesses and cutting the profits, or the sale of expensive items
the dirty money was used to purchase after it went through the layering step
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eddie antar – large scale case of crazy eddies
electronics. Laundered 8 million. Put money back in to business as revenue,
inflated stock price. He then sold stock and profited 30 million. Serving 8
year prison sentence.
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Tom delay – texas congressman that illegally
accepted corporate donations, sent them to republican national headquarters in
d.c. and then back to texas for use in his campaign.
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The Bank Secrecy Act (1970) basically eliminates
all anonymous banking in the United States. It gives the Treasury Department
the ability to force banks to keep records that make it easier to spot a
laundering operation. This includes reporting all single transactions above
$10,000 and multiple transactions totaling more than $10,000 to or from a
single account in one day. A banker who consistently violates this rule can
serve up to 10 years in prison.
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The 1986 Money Laundering Control Act makes
money laundering a crime in itself instead of just an element of another crime,
and the 1994 Money Laundering Suppression Act orders banks to establish their
own money-laundering task forces to weed out suspicious activity in their
institutions. The 2001 U.S. Patriot Act sets up mandatory identity checks for
U.S. bank patrons and provides resources toward tracking transactions in the
underground/alternative banking systems frequented by terrorist money handlers.
For a more complete list of U.S. anti-money-laundering legislation, see FDIC:
Bank Secrecy Act and Anti-Money Laundering.
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Money laundering generally refers to financial
transactions in which criminals, including terrorist organizations, attempt to
disguise the proceeds, sources or nature of their illicit activities. Money
laundering facilitates a broad range of serious underlying criminal offenses and
ultimately threatens the integrity of the financial system.
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The United States Department of the Treasury is
fully dedicated to combating all aspects of money laundering at home and
abroad, through the mission of the Office of Terrorism and Financial
Intelligence (TFI). TFI utilizes the
Department's many assets - including a diverse range of legal authorities, core
financial expertise, operational resources, and expansive relationships with
the private sector, interagency and international communities - to identify and
attack money laundering vulnerabilities and networks across the domestic and
international financial systems."
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I) PLACEMENT
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This is the first stage in the washing cycle.
Money laundering is a "cash-intensive" business, generating vast
amounts of cash from illegal activities (for example, street dealing of drugs
where payment takes the form of cash in small denominations). The monies are
placed into the financial system or retail economy or are smuggled out of the
country. The aims of the launderer are to remove the cash from the location of
acquisition so as to avoid detection from the authorities and to then transform
it into other asset forms; for example: travellers cheques, postal orders, etc.
(more details follow).
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ii)LAYERING
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In the course of layering, there is the first
attempt at concealment or disguise of the source of the ownership of the funds
by creating complex layers of financial transactions designed to disguise the
audit trail and provide anonymity. The purpose of layering is to disassociate
the illegal monies from the source of the crime by purposely creating a complex
web of financial transactions aimed at concealing any audit trail as well as
the source and ownership of funds.
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Typically, layers are created by moving monies
in and out of the offshore bank accounts of bearer share shell companies
through electronic funds' transfer (EFT). Given that there are over 500,000
wire transfers - representing in excess of $1 trillion - electronically
circling the globe daily, most of which is legitimate, there isn’t enough
information disclosed on any single wire transfer to know how clean or dirty
the money is, therefore providing an excellent way for launderers to move their
dirty money. Other forms used by launderers are complex dealings with stock,
commodity and futures brokers. Given the sheer volume of daily transactions,
and the high degree of anonymity available, the chances of transactions being
traced is insignificant.
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iii)INTEGRATION
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The final stage in the process. It is this stage
at which the money is integrated into the legitimate economic and financial
system and is assimilated with all other assets in the system. Integration of
the "cleaned" money into the economy is accomplished by the launderer
making it appear to have been legally earned. By this stage, it is exceedingly
difficult to distinguish legal and illegal wealth.
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Methods popular to money launderers at this
stage of the game are:
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the establishment of anonymous companies in
countries where the right to secrecy is guaranteed. They are then able to grant
themselves loans out of the laundered money in the course of a future legal
transaction. Furthermore, to increase their profits, they will also claim tax
relief on the loan repayments and charge themselves interest on the loan.
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the sending of false export-import invoices
overvaluing goods allows the launderer to move money from one company and
country to another with the invoices serving to verify the origin of the monies
placed with financial institutions.
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a simpler method is to transfer the money (via
EFT) to a legitimate bank from a bank owned by the launderers, as ‘off the
shelf banks’ are easily purchased in many tax havens.
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The placement stage represents
the initial entry of the "dirty" cash or proceeds of crime into the
financial system. Generally, this stage serves two purposes: (a) it relieves
the criminal of holding and guarding large amounts of bulky of cash; and (b) it
places the money into the legitimate financial system. It is during the
placement stage that money launderers are the most vulnerable to being caught.
This is due to the fact that placing large amounts of money (cash) into the
legitimate financial system may raise suspicions of officials.
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The placement of the proceeds of crime can be
done in a number of ways. For example, cash could be packed into a suitcase and
smuggled to a country, or the launderer could use smurfs to
defeat reporting threshold laws and avoid suspicion. Some other common methods
include:
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Loan Repayment
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Repayment of loans or credit cards with
illegal proceeds
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Gambling
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Purchase of gambling chips or placing bets on
sporting events
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Currency Smuggling
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The physical movement of illegal currency or
monetary instruments over the border
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Currency Exchanges
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Purchasing foreign money with illegal funds
through foreign currency exchanges
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Blending Funds
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Using a legitimate cash focused business to
co-mingle dirty funds with the day's legitimate sales receipts
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This environment has resulted in a situation
where officials in these jurisdictions are either unwilling due to regulations,
or refuse to cooperate in requests for assistance during international money
laundering investigations.
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To combat this and other international
impediments to effective money laundering investigations, many like-minded
countries have met to develop, coordinate, and share model legislation,
multilateral agreements, trends & intelligence, and other information.
For example, such international watchdogs as the Financial Action Task
Force (FATF) evolved out of these discussions.
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After placement comes the layering stage (sometimes
referred to as structuring). The layering stage is the most complex
and often entails the international movement of the funds. The primary purpose
of this stage is to separate the illicit money from its source. This is done by
the sophisticated layering of financial transactions that
obscure the audit trail and sever the link with the original crime.
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During this stage, for example, the money
launderers may begin by moving funds electronically from one country to
another, then divide them into investments placed in advanced financial options
or overseas markets; constantly moving them to elude detection; each time,
exploiting loopholes or discrepancies in legislation and taking advantage of
delays in judicial or police cooperation.
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The final stage of the money laundering process
is termed the integration stage. It is at the integration stage
where the money is returned to the criminal from what seem to be legitimate
sources. Having been placed initially as cash and layered through a number of
financial transactions, the criminal proceeds are now fully integrated into the
financial system and can be used for any purpose.
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There are many different ways in which the
laundered money can be integrated back with the criminal; however, the major
objective at this stage is to reunite the money with the criminal in a manner
that does not draw attention and appears to result from a legitimate source. For
example, the purchases of property, art work, jewellery, or high-end
automobiles are common ways for the launderer to enjoy their illegal profits
without necessarily drawing attention to themselves.
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