Money Laundering Techniques

 

Money laundering can take several forms, although most methodologies can be categorized into one of a few types. These include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing".

·         Structuring: Often known as smurfing, is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.

·         Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an Offshore bank, that offers greater bank secrecy or less rigorous money laundering enforcement.

·         Cash-intensive businesses: In this method, a business typically expected to receive a large proportion of its revenue as cash uses its accounts to deposit criminally derived cash. This method of money laundering often causes organized crime and corporate crime to overlap. Such enterprises often operate openly and in doing so generate cash revenue from incidental legitimate business in addition to the illicit cash. In such cases the business will usually claim all cash received as legitimate earnings. Service businesses are best suited to this method, as such enterprises have little or no variable costs and/or a large ratio between revenue and variable costs, which makes it difficult to detect discrepancies between revenues and costs. Examples are parking structures, strip clubs, tanning saloons, car washes, arcades, bars, restaurants, casinos, barber shops, DVD stores, sex shops, movie theaters, toy stores, bicycle shops, beach resorts and dry goods stores.

·         Trade-based laundering: This method is one of the newest and most complex forms of money laundering. This involves under- or over-valuing invoices to disguise the movement of money. For example, the art market has been accused of being an ideal vehicle for money laundering due to several unique aspects of art such as the subjective value of art works as well as the secrecy of auction houses about the identity of the buyer and seller.

·         Shell companies and trusts: Trusts and shell companies disguise the true owners of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true owner.

a)       A shell corporation is a corporation without active business operations or significant assets. These types of corporations are not all necessarily illegal, but they are sometimes used illegitimately, such as to disguise business ownership from law enforcement or the public.

b)       A shell company is one that primarily or solely exists on paper only, effectively meaning it is not a 'real' operating business. This means that there will be no significant assets linked to the shell company and it will deliver no goods, services or other business functions to generate revenue for itself and will employ no staff.

c)       It will have no functional physical office and if it has a registered address this will most likely be a mailbox or an address that is shared by up to hundreds of other shell companies.

d)       Primarily shell companies are used to move or hold assets in a manor where it is not immediately obvious who the ultimate beneficiary is. To further obscure this, shell companies are often set up by a third party, be it a lawyer, accountant or a private citizen

·       Round Tripping: it is found in stock trading, banking, among others. For example, money is deposited in a controlled foreign corporation offshore, preferably in a tax heaven where minimal records are kept, and then shipped back as a foreign direct investment, exempt from taxation. A variant on this is to transfer money to a law firm or similar organization as funds on account of fees, then to cancel the retainer and, when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of litigation.

·    Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.

·        Invoice Fraud: An example is when a criminal contacts a company saying that the supplier payment details have changed. They then provide alternative, fraudulent details in order for you to pay them money.

·     Casinos: In this method, an individual walks into a casino and buys chips with illicit cash. The individual will then play for a relatively short time. When the person cashes in the chips, they will expect to take payment in a check, or at least get a receipt so they can claim the proceeds as gambling winnings.

·      Other gambling: Money is spent on gambling, preferably on high odds games. One way to minimize risk with this method is to bet on every possible outcome of some event that has many possible outcomes, so no outcome(s) have short odds, and the bettor will lose only the vigorish (part of the juice at the bottom meaning the profit or fee ) and will have one or more winning bets that can be shown as the source of money. The losing bets will remain hidden.

·     Black salaries: A company may have unregistered employees without written contracts and pay them cash salaries. Dirty money might be used to pay them.

·       Tax amenities: For example, those that legalize unreported assets and cash in tax havens.

·       Transaction Laundering: When a merchant unknowingly processes illicit credit card transactions for another business. It is a growing problem and recognised as distinct from traditional money laundering in using the payments ecosystem to hide that the transaction even occurred (e.g. the use of fake front websites). Also known as "undisclosed aggregation" or "factoring".