Money laundering is the act of hiding the source and/or destination of illegally obtained funds. Money laundering is usually performed so that the profits of criminal activity – be it theft, drug sales, or some other crime – will appear to have originated from a legitimate transaction.
The Money Laundering Process
The first step is called placement. This is the act of moving the ill-gotten funds into a financial institution. The institution may be anything from a brokerage house or bank to a casino or insurance company. Placement can take place via cash deposit, wire transfer, check, money order, or other methods. This represents the most dangerous step for the criminal, as the government is always looking to account for such large deposits.
The second step is layering. This is a series of complex financial transactions meant to throw anyone who comes looking off the trail of the money. The removal of funds from one institution will coincide with the addition of funds to another, but if one step goes unnoticed, tracing the origin of the money becomes difficult.
The final, and most important, step in the process is integration, also called ‘cleaning’ the money. In integration, the illegal funds are accounted for by adjusting a legitimate transaction. For instance, ordinary goods may be sold for a particular price, but the invoice will value them much higher. Then, the money obtained from the sale of these goods is deposited into the account with the dirty money. The false invoice would then account for both the legitimate profits and the illegal funds.
Prominent Money Laundering Case
Two California men were convicted in 2002 of money laundering when their tax evasion ring was broken. The owners of Anderson’s Ark were using offshore trusts to launder millions of dollars for U.S. citizens to help them avoid paying taxes.
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