Money laundering, in its most basic form, is the transfer of illegally obtained funds into a legal institution, such as a bank. Money is obtained through criminal activity and carefully channelled into legitimate organizations and businesses to conceal its true origin and avoid alerting authorities.
Money laundering occurs when someone attempts to conceal or disguise the nature, location, source, ownership, or control of criminal proceeds, according to the law. Money laundering typically involves two crimes: the initial crime from which criminals profit, and the subsequent crime of attempting to legitimize those proceeds through the use of financial institutions.
What is Money Laundering?
Money laundering is an illegal process that hides the origin of money obtained illegally by going through a complex sequence of bank transfers and commercial transactions. The overall scheme of this process returns “clean” money to launderers in an ambiguous and indirect way.
One of the issues of criminal activity accounts for revenue without raising suspicions of law enforcement. Considerable time and effort may be put into strategies that make it safe.
Phases of money laundering:
Money laundering typically occurs in three phases:
- The first entry or placement is to first transfer the amount of money earned from the criminal activity to a legitimate financial network or institution.
- Hierarchy is the continuous transfer of money through multiple transactions, forms, investments, or businesses, making it virtually impossible to track money to illegal sources.
- At the final place integration is the legal freedom to use the money without the need to hide it anymore.
1. Preliminary arrangement
A lawbreaker or his company have a genuine restaurant business. Money received from illegal ways is gradually invested in banks through restaurants. The restaurant reports much higher daily cash sales than it receives.
For example, suppose a restaurant receives $1,000 in cash a day. $1,500 from illegal action was included in that volume, and the restaurant misleadingly reports that it received $3,500 in cash transactions that day. The money is currently deposited in the restaurant’s legitimate bank account and appears as a regular deposit in the restaurant business.
2. Collect money
That is to address tax issues, to avoid high taxes on restaurants because of recording more income than they generate, and to further hide the source of the extra money added. In addition, restaurants may invest money in other legal businesses such as real estate. The situation is further hidden from the authorities by using a shell or holding company that manages several companies where money laundering may occur.
“Hierarchy” often involves passing money through the way of multiple transactions, accounts, and businesses. Offshore tax shelters that pass-through nightclubs, pretend to be gambling prizes, pass one or more currency exchanges, are invested in financial markets, and are ultimately subject to much less scrutiny and regulation of banking transactions. It will be transferred to your account, multiple pass-throughs from one account or one company to another make it increasingly difficult to track money and tie it to the original illegal source.
3. Final integration
In the final stage of money laundering, integration, funds are invested in legitimate business or personal investments. It may be used to purchase luxury items such as jewelry and automobiles. It will also be used to make a new unit which will be used to wash the future illegal income.
On this stage, money laundering is well done so that criminals or criminal firms can use it freely without resorting to criminal policies. Money is usually invested legally or exchanged for costly holdings such as property.
Banks also plays a vital role in money laundering:
Major financial organizations such as banks are often utilized for money laundering. All that is needed is for the bank to loosen the reporting procedure. With no regulatory implementation, criminals can deposit large amounts of cash without telling the payment to central banking or government officials.
Making money legal by investments:
Business marketplaces provide criminals with a range of tactics to convert “unclean” income into “clean” income. One of the most basic and commonly used methods is to use foreign investors to bring criminally obtained cash into a genuine financial system.
For example, suppose a criminal organization has $1 million in cash needed for money laundering. Contact foreign investors and criminal organizations will trade, using investors from other countries is just another way to help obscure the source of money.
Criminals give shareholders a million dollar in cash. After receiving a percentage of the money as a service fee, foreign investors finance the rest in justifiable domestic corporations, often owned by shell companies, criminal gangs.
A shell company is a company that produces a huge amount of money but is not clearly involved in a particular company that sells goods or services. The funds are used to invest in other businesses, usually other genuine businesses owned by criminal corporations.
Agencies investigating money laundering
Many different legal authorities regularly investigate suspicious money laundering activities. In the United States, the FBI and IRS are the two big organizations that manage money laundering investigations.
Money laundering has become a massive concern and worldwide organizations have been specifically set up to combat it. The International Money Laundering Information Network (IMLIN) is a United Nations-funded investigation center formed to help law implementation agencies around the world to identify and track money laundering operations.