Crimes of Persuasion

Schemes, scams, frauds.


The amount of energy and expense that will be put into an effort to multiply the levels of cover and obscure the trail will depend on an assessment of how serious and effective police probes are likely to be in that jurisdiction.

Tax Havens and Offshore Banks

Launderers tend to move their activity to jurisdictions where there are few or weak money-laundering countermeasures.

A main resource in money-laundering are the financial havens and offshore centres which started out as a business to service the needs of a privileged few.

An "offshore bank" can be a bank anywhere in the world that accepts deposits solely on behalf of non-residents.

While we generally think of the Caribbean when referring to offshore banks there are dozens of locations right around the world which are just as accommodating.

Offshore banking centres are home to more than $5,000 billionin assets - $1,000 billion in bank deposits and $4,000 billion held in the form of stock, bonds, real estate and commodities.

The Cayman Islands, for example, one of the most important offshore jurisdictions, is generally judged to be the fifth largest financial centre in the world behind London, New York, Tokyo and Hong Kong. There are over 570 banks licensed there, with deposits of over $500 billion.

During the last decade, many countries, drained of foreign exchange and with limited natural resources and no prospects of significant economic opportunities, have realized gains in economic and financial strength by becoming safe havens for foreign tax and law evaders.

They freely offer low or non-existent tax rates that are attractive to investors, company owners and ordinary citizens anxious to reduce their tax burdens for they do not regard tax evasion in another country as a crime.

These havens also offer tools, available only to non-residents and only to be used offshore, which are designed to defeat the laws of other countries.

Bank Secrecy Laws as a Layering Tool

In many cases, these havens enforce very strict financial secrecy, effectively shielding foreign investors from investigations and prosecutions from their home countries.

Money-laundering can still occur without bank secrecy and some depositors actively avoid it precisely because it acts as a red flag.

Professional launderers advise their clients that the only really effective form of secrecy is keeping their mouths shut.

Corporations and Shell Companies as a Layering Tool

Any reasonably sophisticated money launderer will establish a bank account in a financial haven as a corporation rather than as an individual with a "numbered account". To increase the appearance of legitimacy it is preferable that such a company already have a history of actual activity.

Once the corporation is set up, a bank deposit is then made in the haven country in the name of that offshore company.

The incentive for businesses to be registered in offshore havens is to escape the severe tax and registration regulations on domestic companies.

They can funnel large amounts of capital to and from offshore countries without the need to declare the transactions to domestic fiscal authorities.

On the condition that it do no business where it is set up, having an international business (IBC) or "offshore" corporation enables its owners to act with complete anonymity and not pay taxes.

In many jurisdictions it is not even required to keep corporate books or records and thus is perfect for concealing the origin and destination of goods in international commerce.

Companies can even be capitalized with bearer shares, so that while there is no owner on record anywhere, the person who physically possesses the share certificates owns the company.

Use of Trusts as a Layering Tool

In many jurisdictions, trusts and IBCs are administered by unregulated trust companies. Many laundering schemes then devise another layer of cover where control of the company is transferred to the offshore trust.

The trustees then simply give the owner instant access and control over the assets while hiding true ownership.

The unregulated trust companies can help conceal assets by moving the shares of a corporation from one account to another, by changing corporate names, by merging corporations and by changing trust documents on the instruction of the account holder.

They have also been known to manufacture false paper trails and false documentation to assist money launderers and they have routinely provided invoices, receipts and other documents to help fool the customs and tax authorities of other countries.

Offshore trusts may have an additional level of insulation in the form of a "flee clause" that compels the trustee to shift the location of the trust whenever the trust is threatened by war, civil unrest, or more likely, the activities of law enforcement officers or litigious investors and consumers.

Use of Walking Accounts as a Layering Tool

In some instances, criminals will open an account in one jurisdiction but with instructions for any incoming funds to be transferred immediately to another location. Additionally, the bank will be instructed that, in the event of inquiries, bank officials in the second location must be informed.

Once they are informed, they in turn have instructions to transfer the money elsewhere.

These schemes, known in law enforcement circles as "walking accounts", pose serious problems for efforts aimed at seizing dirty money.

The first account is simply the initial depository, and money moves in to it and then immediately moves out.

The function of the account is, essentially, to act as an early warning mechanism to identify any inquiries by law enforcement and to set off further countermeasures to protect the money.

Establishing a Self-Owned "Instant Bank" as a Layering Tool

The trail can be further complicated if the launderer purchases their own "instant bank" in one of several jurisdictions that offer such facilities.

He then just makes sure that his "bank" is one of those through which his money passes so he can either close the bank or destroy the records to evade authorities.

On just one of the haven islands there are approximately 300 banks operating with only about ten actually maintaining physical banking offices there.

The others are operated by management firms for absentee owners or exist only as accounts in other banks.

Use of Intermediaries as a Layering Tool

Money launderers frequently use various lawyers along the route so that they will also be protected by the confidentiality of the lawyer/client relationship.

There is also an increasing reliance in offshore centres on brokers and agents to generate customers, to act as intermediaries in establishing accounts, trusts, and the like, and to act as an additional layer of insulation and confidentiality.

These professional launderers include accountants, lawyers and private bankers who, while offering money-laundering services to a wide range of criminals, are adept at not asking questions that would require them to refuse business or even to report their clients or potential clients to the authorities.

They are aware that those who fail to comply with professional "best standards" might be liable under the "want of probity" principle.

Some offshore financial institutions will generate false invoices, bills of lading, end-user certificates and other forms of documentation to give the appearance of legitimacy to a variety of illicit transactions.

Over-invoicing using false documents can be an excellent cover for moving the proceeds of drug trafficking and other crimes, while false invoices, bills and receipts can be used for a variety of tax frauds.