January 11, 2018

About money laundering

As we have suggested for some time, the Trump story may well involve money laundering more than election collusion with Russians. Real estate, of which Trump owns more than a bit, is a major factor in money laundering. Among those involved in money laundering are illegal drug dealers, a trade roughly the size of the legal pharmaceutical industry, but which needs to do its business in cash. Here is some useful information about money laundering

Jorge Lancerio, Quora  - Say you’re a multinational drug kingpin that wants to hide $10 million by buying up a penthouse in San Diego. You have all of this money in cash, but you don’t want to draw any unnecessary attention to yourself. You can do what a lot of other seasoned criminals do- set up a series of shell companies to conceal your identity.

You call up a firm in Belize, for example, and you tell them you want to set up Company A. For a fee you’ll receive a certificate of incorporation, minutes of board meetings, and this firm will even give you a list of people to add to your company’s board of directors.

You then set up Company B in another country and arrange for Company A to be its parent. Then you set up company C, D, E, and perhaps you have Companies F and G partner to own company H. You can coordinate this funnel however you choose until you’re satisfied with the results. Once you are, you can open up a bank account using Company H and transfer the $10 million you’ll be using to buy that penthouse in San Diego. Once you’ve purchased it, you hold it for a year or so, and once that period has lapsed, you can sell the property. Just like that, your money is clean. Of course, there are a few other nuances, but that’s the idea.

Wikipedia =  Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, and illegal gambling is "dirty" and needs to be "cleaned" to appear to have been derived from legal activities, so that banks and other financial institutions will deal with it without suspicion. Money can be laundered by many methods which vary in complexity and sophistication.

Money laundering involves three steps: The first involves introducing cash into the financial system by some means ("placement"); the second involves carrying out complex financial transactions to camouflage the illegal source of the cash ("layering"); and finally, acquiring wealth generated from the transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending upon the circumstances. For example, non-cash proceeds that are already in the financial system would not need to be placed.


Money laundering can take several forms, although most methods 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, this 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, with 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. 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 salons, car washes, and casinos.
  • Trade-based laundering: This involves under- or over-valuing invoices to disguise the movement of money.
  • 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. Sometimes referred to by the slang term rathole, though that term usually refers to a person acting as the fictitious owner rather than the business entity.
  • Round-tripping: Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven 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.
  • 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 and will have one or more winning bets that can be shown as the source of money. The losing bets will remain hidden.
  • Real estate: Someone purchases real estate with illegal proceeds and then sells the property. To outsiders, the proceeds from the sale look like legitimate income. Alternatively, the price of the property is manipulated: the seller agrees to a contract that underrepresents the value of the property, and receives criminal proceeds to make up the difference.
  • 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 amnesties: For example, those that legalize unreported assets and cash in tax havens.
  • Life insurance business: Assignment of policies to unidentified third parties and for which no plausible reasons can be ascertained.


William Boyd said...

Wow, Sam. Thanks for the link to this primer.

Anonymous said...

If overfortunes were outlawed because everyone had learned why they are unjust and extremely harmful to everyone's everything, anyone who still managed to grab an overfortune would stick out like a sore thumb and would not be able to keep it. It is indeed possible to prevent people doing harm by going after an overfortune. There is no point in going after one if everyone is wise to the reasons not to go on allowing unlimited personal fortunes. Humans can go on reacting to the myriad negative consequences of allowing no limits on fortunes or they can strike the root, crunch the numbers, define pay justice and outlaw overfortunes. The latter is our only sane course of action.