Monday, January 18, 2021

How to Launder Money

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Over the last few decades, the funds involved in money laundering has continued to increase with the United Nations Office on Drugs and Crime (UNODC) estimating illegal funds from criminal proceeds amount to 3.6% of global GDP, with 2.7% (or USD 1.6 trillion) being laundered as 2009. 

It is very difficult to determine the size of money laundering due to the illicit nature of these transactions.

Despite the anti-money laundering regulations, money launderers are always on the lookout to circumvent these regulations.  Factors below aid money launderer;

  • Countries with a high level of corruption
  • Countries or business sectors with low risk of detecting money laundering
  • Countries with ineffective anti-money laundering programmes and regulations
  • The globalisation of financial markets and financial flows.
  • Inconsistencies between countries anti-money laundering regulations
  • Advancement in technology means transactions can occur very rapidly.

While the factors above encourage money launderers, professional specialists who understand the complex processes that anonymize the source of criminal funds hold the key to combating or reducing the attractiveness of money laundering. 

Many professionals are at risk of being involved in money laundering either intentionally or unintentionally, but professions like lawyers, accountants, and investment bankers are mostly at risk of being involved in money laundering ventures.

After the chaotic collapse of Soviet Union, launderers searched out weak spots in Europe, where watchdogs were ill-equipped. They looked for banks that might be poorly supervised or even open to being complicit. Torrents of cash were channeled into banks in Cyprus and Malta.

Baltic nations Estonia and Latvia, which have central roles in the emerging tale of dirty Russian money, became big players as passageways to the West. The former Soviet states had an added draw because Russian is widely spoken, and Scandinavian lenders rushed to get into the high-growth markets.

By way of western correspondent banks, funds could be further cleansed and moved around with less scrutiny. Denmark’s Danske Bank A/S has acknowledged that much of about $230 billion that flowed through its tiny Estonian outpost may have been dirty.

How to launder money through Real Estate

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Laundering money using real estate works at the final stage of the process: integration. At this stage, dirty money has been cleaned, so criminals can buy items relatively suspicion-free.

So, the property is purchased using illicit money. Then, the money just sits under the property for as long as the criminal owns it. Until it is sold, people can enjoy the assets they bought illegally using laundered money. When they decide to sell, they gain squeaky-clean money from the buyer, and nobody suspects a thing.

This happens because real estate is less regulated than organisations like banks. For example, the U.K allows overseas organisations to buy landed properties with limited checks. In addition, they can do so without an in-country presence. Furthermore, because of data protection laws, their names cannot be published.

So in theory, launderers can forge their own offshore businesses and relevant documents and use the proceeds of crime to purchase property in the UK.

How to launder money through Gambling

The online market now comprises more than one-third of the UK gambling industry. The amounts of cash flowing through digital sportsbooks’ and online casinos’ coffers are astronomical.

One strategy favored by money launderers is to deposit a large amount of money in a betting account. They then place a few small bets for appearances’ sake, before emptying the whole account.

This process is even harder to detect if the criminals are patient enough to break their loot down into small amounts.

They can then set up dozens of betting accounts, with deposits well below a benchmark likely to attract attention. After a short while, they withdraw their money.

In these instances, any paper trail will look innocent and legitimate.

The FBI has admitted that even licensed sites offer an opportunity to transfer high volumes of money in and out of different accounts.

And this is an industry in which dozens of unlicensed sites are launched every day – some of them in jurisdictions with weak or non-existent supervisory regimes.

Insurance Money Laundering

Money launderers can exploit many insurance products to launder ill-gotten wealth.

  • A customer borrows against the cash surrender value of permanent life insurance policies, particularly when payments are made to apparently unrelated third parties.
  • A customer purchases a product that appears outside the customer’s normal range of financial means or estate planning needs.
  • A customer purchases insurance products using a single, large premium payment, particularly when payment is made through unusual methods such as currency or currency equivalents.
  • A customer purchases products with termination features without concern for the product’s investment performance.
  • Policies are purchased that allow for the transfer of beneficial ownership interests without the knowledge and consent of the insurance issuer. This would include secondhand endowment and bearer insurance policies.
  • A customer is known to purchase several insurance products and uses the proceeds from an early policy surrender to purchase other financial assets.
  • A customer uses multiple currency equivalents, such as cashier’s checks and money orders, from different banks and money service businesses to make insurance policy or annuity payments.
  • A customer terminates an insurance product early, including during the free-look period.
  • A customer designates an apparently unrelated third party as the policy’s or product’s beneficiary.

eBay Money Laundering

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Ecommerce sites are not exempted from money laundering schemes. A popular site such as eBay provides good opportunities for money launderers to clean dirty money.  Unsuspicious customers are pulled into these schemes without the knowledge of helping criminals launder their ill-gotten gains.

One way that unscrupulous people are trying to transact with dirty money is to set up fake listings on eBay. It looks like a real transaction, but the price is usually astronomically inflated for the type of item, and the sales price does not make sense. Here is how it works:
Let’s say Jim has a customer who wants to buy something illegal, such as drugs, stolen property, or weapons. Rather than create a transaction with cash, Jim tells his customer he will set up a listing on eBay for a particular item at a very inflated price. He will then send a link to the item to the client. This is called a “prearranged sale.”
 
No one will actually buy the grossly overpriced item, and Jim’s client will purchase it, sending the money through Paypal. Also, eBay gets its fees and Paypal gets its fee of 3 percent. Jim ships a box of rocks or some insignificant item to the client’s address and no one is the wiser. 
 

Once the transaction has taken place on eBay, and the money is in Jim’s account, he meets up with his client to deliver the actual goods which again maybe drugs, weapons, or some sort of contraband. The transaction takes place, the money has changed hands, the illegal goods are delivered, and all of this is done under the radar.

Money Laundering Professional Enablers

Lawyers, and other professionals, can act as professional enablers of economic crime and corruption. This can be by creating criminal systems or failing to detect and prevent the flow of suspicious funds – either through wilful negligence or through outright incompetence. These problems are particularly notable in relation to lawyers’ role in cases of corruption and money laundering.

ADVISING HOW TO MOVE SUSPECT FUNDS

An undercover investigation by Global Witness in 2016 exposed the role lawyers can play in advising how to move suspect funds into the US. Wearing a hidden camera, an investigator posing as an adviser to a foreign government minister met with 13 New York law firms.

He asked the lawyers how to anonymously move large sums of money that should have raised suspicions of corruption. In all but one case, the lawyers provided suggestions on how the minister might get the money into the US without detection.

HANDLING CORRUPT CASH

Lawyers have also handled corrupt or suspicious funds on behalf of their clients, avoiding the antimoney laundering checks that banks are supposed to do on their clients. According to a US Senate inquiry, from 2004 to 2008, Teodorin Obiang, son of the President of Equatorial Guinea, used U.S. lawyers to move tens of millions of dollars of suspect funds into the United States.

Two lawyers helped Obiang circumvent U.S. anti-money laundering controls by allowing him to use attorney-client, law office, and shell company accounts as conduits for his funds and without alerting the bank to his use of those accounts.

Global Witness investigations have revealed how Teodorin enjoyed multi-million dollar spending sprees – a $35 million Malibu mansion, speedboats and a fleet of fast cars – whilst earning a ministerial salary of between $4,000-5,000 a month.

Obiang was recently found guilty of corruption by a French court, ordering the confiscation of assets worth around £100 million.

At the same time, three-quarters of the people of Equatorial Guinea are living in poverty, despite the country’s huge oil wealth.

Summary

Money Laundering is a criminal offence with severe punishment. Read here for latest cases and prosecution of money launderers across the globe.

The Reference Shelf
  • Money to Launder – How they do it
  • Real Estate money laundering  – Here
  • Gambling money laundering – Here
  • Insurance money laundering – Here
  • Ebay money laundering – Here
  • Money laundering Enabler – Here

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