Money Laundering and Hiding Proceeds of Fraud Crimes
Criminals with large cash inflows, from drug traffickers to stock and telemarketing fraudsters, must launder the money made from their crimes in order to hide the evidence trail and protect it from investigation and seizure, before cycling it back for personal or business use.
This generally involves a series of multiple transactions used to disguise the source of the financial assets as they try to transform the monetary proceeds derived from illicit activities into funds with an apparently legal source.
Due to the clandestine nature of money laundering, rough estimates can only place the annual worldwide value in the range of $300 billion to $1 trillion. The illegal movement of funds is estimated at between $5 and $17 billion in and through just Canada each year.
Steps Involved in Money Laundering
There are three elements to the complete laundering of funds:
: getting currency into the financial system so as to convert illicit funds from cash straight into a financial instrument or a bank account;
: the movement of funds from institution to institution to hide the source and ownership of the funds, obscure the audit trail, and sever the link with the original crime;
: the reinvestment of those funds in an ostensibly legitimate business so that no suspicion of its origins remains and to give the appearance of legitimizing the proceeds.
A criminal's objective in laundering illicit proceeds is to: Get it out; cover it up; bring it back.
The more successful a money-laundering apparatus is in imitating the patterns and behaviour of legitimate transactions, the less the likelihood of it being exposed.
HEADWAY IN EFFORTS TO COMBAT MONEY LAUNDERING
Canada and the U.S. traditionally cooperate closely on law enforcement matters and have a mutual legal assistance treaty and a customs mutual assistance agreement. While Canada has seized record amounts of currency in recent years, actual forfeitures are negligible by comparison because Canadian law requires proof of a direct link between seized property or currency and specific drug transactions.
The international narcotic trade launders a minimum of $200 billion a year. Law enforcement efforts in the best of years recovers amounts in the range of $100 million to $500 million. In most cases, law enforcement investigations start with an identified crime and follow the money trail.
Laundered money is most vulnerable to detection at the placement stage. Methods to make it difficult to place illicit funds without detection are measures such as suspicious transaction reporting requirements, cross-border monetary declaration requirements, and "know your customer" rules for those accepting cash deposits.
Sophisticated anti-money laundering strategies have driven the cost to launder money — the percentage fee charged by the launderer - from approximately six to twenty-five percent in the last fifteen years.
Criminals, thwarted by these tougher anti-money laundering measures in the United States, are now increasingly attempting to smuggle cash to foreign countries and launder money overseas.
Successful prosecutions however are not frequent. This is partly because of the complexity of dealing with other jurisdictions.
When success involved international cooperation, it was facilitated by the fact that authorities knew exactly where to go and what kind of financial information they needed to obtain.
In the majority of cases, the offshore financial institutions are unknown or uncooperative and the success rate of investigations is very low.
Efforts are being made to make it more difficult for criminals to assume that after "integration" they have successfully protected their money from the law.
Although lawyers have told clients that they can retain control of offshore trust assets, the U.S. government states that you can't be in control of the assets if you try to use foreign asset protection trusts to hide money from them.
There has been growing international recognition that bank secrecy rules must give way to permit law enforcement agencies to review financial records in cases where there is an active criminal investigation pertaining to the source of the funds.
Off-Shore Money Laundering Example
Offshore banks sometimes stretch the rules when assisting wealthy individuals ( commonly telemarketers ) in concealing their income from the IRS.
Assuring them that their money would remain secret from the IRS, one bank routinely set up accounts for individuals using fictitious names and shell corporations so that the true owners of the accounts would be disguised.
They would receive payments from the U.S. and, in return, would provide false and inflated sales invoices to create the appearance that legitimate goods and services were being purchased which allowed the depositors' businesses to then take fraudulent tax deductions.
They would also issue VISA gold credit cards that permitted access to the offshore account without revealing the existence or ownership of the bank account.
They will also assist in the creation of Dutch Corporations which allow depositors to secretly borrow mortgage funds from their own deposits.
The Dutch Corporations are created to issue sham mortgages that are designed to give the appearance that the depositor is borrowing money from a legitimate foreign lender.
Such mortgage loans have the threefold fraudulent benefit of allowing the depositors use of the unreported income, providing a sham tax deduction for interest on the mortgage which they were paying back to themselves, and the re-deposit of the mortgage interest into the secret offshore account.
In this fashion they helped one businessman conceal nearly $6 million in income from the IRS.
The International Compliance Association www.int-comp.org supports and educates compliance professionals in the fight against terrorist financing, corruption, money laundering and financial crime.