Money laundering is a process to conceal the illegal activity and present it as legal. The profits obtained with an illegal way by criminals are maintained from different ways. Some actions behind the illegal activity considered MLA contraventions include:
• Assets’ exchange or transfer with hiding or dissimulating of the illegal source to avoid judgment and punishment,
• Hiding or dissimulating the origin of the place, circulation, property, or rights of the assets,
• Having the knowledge of the origin of the assets’ funds, using and storing, is obtained by the illegal proceeds.
Criminals have various methods to launder dirty money obtained by illegal activities.
Launderers’ initial desire is to enter cash into the financial system. To maintain their aim of cash entrance, launderers would prefer to transport capital to another country. The country they prefer is the one where detecting and reporting large cash transactions to the authorities within the financial institutions is less controlled. Structuring is performing of varying a financial transaction to prevent reporting obligations by law such as Bank Secrecy Act. The definition of smurfing is mentioned by Financial Transactions and Reports Analysis of Canada as, ‘the act of using runners to perform multiple financial transactions to avoid the currency reporting requirements’. The structuring activity includes cash deposits which each is less than the minimum cash reporting obligations. According to Bank Secrecy Act, the regulation for Canada is as follows: ‘For the purposes of reporting the importation or exportation of currency or monetary instruments of a certain value under subsection 12(1) of the Act, the prescribed value is $10,000’. This regulation is accepted by European and North American countries including USA, Canada, and Turkey.
Offshore Centers and Shell Corporations
Offshore centers and free zones have the advantage for money launderers in banking secrecy act, taxing, and its legal immunities.
Shell corporations could build to launder money as well. These organizations only exist on paper and perform undersized businesses or no businesses at all. Launderers both use offshore zones and shell corporations to launder money in layers easily. For instance, money launderers can buy real estate and assets and sell them to one’s own shell corporation. After that, they can pass the funds with the original price to a third party corporation that has no relationship with the launderers.
Casinos and Other Gambling Alternatives
Casino and Other Gambling alternatives maintain an approachable way for launderers to move money from one source to another. Clients in casinos purchase chips with cash. During or after the gambling, the chips of the customers’ are traded in for a check by the casino.
Lottery and horse racing also can be considered as gambling. ‘Winning tickets bought at a slight premium, allowing the winner to collect money without tax liability and enabling the launderer to collect a check from the track’ (Reuter,. 2004). Lotteries are similar to horse tracks in the way of purchasing the winning tickets from the winners at the time they arrive to the lottery offices to collect their money. As an example given in FATF’s website in 2002, a professional gambler who had the checks for the winnings opened 14 different bank accounts under 10 different third party identities. Those identities mostly belonged to robbers and other criminals with different crimes.
The most difficult stages for criminals to launder money could be listed as:
• Entering cash to the bank
• Transferring money into and out from the financial institutions
• Taking the cash over the borderline
These activities are maintained within the financial institutions by launderers. Therefore, criminals need to manage the process well to deceive bank employees or managers that the source of the money is legal. (See Figure 2.1. Money Laundering Activities in Money Laundering Stages)
Figure 2.1. Money Laundering Activities in Money Laundering Stages
Source: BCM Training programme- in Turkey 2005
The banks are chosen as the prime money laundering settings. The reason is related with banks’ ability to transfer the capital or generated assets in large quantities in a short time to the overseas countries. The speed is vital for the money launderers. Criminals’ urgent motivation is to move as soon as possible. By the help of using the three stages of money laundering, placement, layering, and integration, money launderers can easily make illegal evidences disappear. Launderers can also launder money with using alternative methods like:
• Internet banking,
• False identification, and
• Credit card payments
Internet banking is an easy way to collect funds. Financial institutions have established strict regulations to prevent fraud within financial systems. However, customers can transfer large quantities of money easily. The clients could transfer funds to domestic or external accounts as greatly as they want. However, the repetition of money transfers could make tracking difficult. To control those types of activities, employees in financial institutions should know the customers’ account history and their businesses well.
False identification of customers could mislead financial institutions and create an easier environment for laundering money. The forms of false identification could also include fake accounts, debit and credit capacities, and assets.
Another method that launders can achieve their goals is using credit cards. A credit card holder can make large payments with a credit card to a bank. Regarding to this transaction, the bank pays the difference between the loan of the customer and the received payment by a check. The launderer who also is the credit card holder receives the clean money and deposits it into the cash.
Acquisition of Property and Assets
Purchasing goods is a very attractive field for money launderers. For instance, gold is a very preferred element by launderers because of its internationally accepted store value and moving availabilities through countries. Launderers can also purchase real estate or vehicles abroad. Criminals accomplish laundering activities by third parties or dealers. Dealers purchase the goods launderers sell and resell the received goods to launderers.
Technology is one of the methods that launderers chose to manipulate the flow of the money. Criminals would always search for a weakness of the AML procedures and systems in financial institutions. Digital AML regulations are one of the financial institutions’ weaknesses. Some methods that launderers take advantage of in technology are as follows:
• Digital Smurfing:
Launderers mostly prefer to transfer dirty money where financial institutions are not strict about reporting large cash deposits to the authorities. ‘The type of activity that involves large fund transfers is called ‘Bulk cash smuggling’’ (Rietbroek, 2009). Bulk cash smuggling is a challenge because the value of the smuggled products such as drugs, is heavier than the transferred cash itself. For instance, launderers use vehicles to transport drugs as a return for their large cash transfers. Therefore, cash money needs to be deposited in bank accounts and converted into a electronic funds.
• Digital Currency Accounts:
Digital Currency Accounts create an opportunity for launderers to move dirty money across countries. Digital currencies include the materials with internationally accepted values such as gold or silver. These types of accounts can be opened online. The only difference between digital precious metal accounts and bank accounts is their types of funds. In digital metal accounts funds are held in valuable metals, whereas most bank accounts are held in various currencies. Use of the digital currency method is mostly preferred by launderers because of the vastly pervasive digital currency industry. Another reason for launderers’ attention on the digital currency account is the minimal customer identification process. Unlike traditional bank accounts, digital currency accounts can be funded anonymously. In addition, these accounts allow individuals to carry out multiple digital currency transactions over a short time. ATM’s are available to launderers around the world when the currency funds can be converted and transferred to prepaid cards.
Rietbroek (2009) describes various ways to avoid such money laundering methods. However, she adds that some countries’ government agencies are often short of funds to follow new trends and techniques and act too slowly. Besides government agencies, financial institutions face additional expenses to improve their detecting and monitoring methods to prevent money laundering crimes arise from the use of technology.