MONEY-LAUNDERING

1. BACKGROUND OF MONEY-LAUNDERING

Money laundering as a crime only attracted interest in the 1980s, essentially within a drug

trafficking context. It was from an increasing awareness of the huge profits generated from this

criminal activity and a concern at the massive drug abuse problem in western society which

created the impetus for governments to act against the drug dealers by creating legislation that

would deprive them of their illicit gains.

Governments also recognised that criminal organisations, through the huge profits they earned

from drugs, could contaminate and corrupt the structures of the state at all levels.

Money laundering is a truly global phenomenon, helped by the International financial

community which is a 24hrs a day business. When one financial centre closes business for the

day, another one is opening or open for business.

As a 1993 UN Report noted: The basic characteristics of the laundering of the proceeds of crime,

which to a large extent also mark the operations of organised and transnational crime, are its

global nature, the flexibility and adaptability of its operations, the use of the latest technological

means and professional assistance, the ingenuity of its operators and the vast resources at their

disposal.

In addition, a characteristic that should not be overlooked is the constant pursuit of profits and

the expansion into new areas of criminal activity.

The international dimension of money laundering was evident in a study of Canadian money

laundering police files. They revealed that over 80 per cent of all laundering schemes had an

international dimension. More recently, "Operation Green Ice" (1992) showed the essentially

transnational nature of modern money laundering.

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2. INTRODUCTION OF MONEY-LAUNDERING

Money is the prime reason for engaging in almost any type of criminal activity. Money-

laundering is the method by which criminals disguise the illegal origins of their wealth and

protect their asset bases, so as to avoid the suspicion of law enforcement agencies and prevent

leaving a trail of incriminating evidence.

Terrorists and terrorist organizations also rely on money to sustain themselves and to carry out

terrorist acts. Money for terrorists is derived from a wide variety of sources. While terrorists are

not greatly concerned with disguising the origin of money, they are concerned with concealing

its destination and the purpose for which it has been collected. Terrorists and terrorist

organizations therefore employ techniques similar to those used by money launderers to hide

their money.

The ability to prevent and detect money-laundering is a highly effective means of identifying

criminals and terrorists and the underlying activity from which money is derived. The application

of intelligence and investigative techniques can be one way of detecting and disrupting the

activities of terrorists and terrorist organizations.

Because they deal with other people's money, financial institutions rely on a reputation for

probity and integrity. A financial institution found to have assisted in laundering money will be

shunned by legitimate enterprises. An international financial centre that is used for money-

laundering can become an ideal financial haven. Developing countries that attract "dirty money"

as a short-term engine of growth can find it difficult, as a consequence, to attract the kind of solid

long-term foreign direct investment that is based on stable conditions and good governance, and

that can help them sustain development and promote long-term growth. Money-laundering can

erode a nation's economy by changing the demand for cash, making interest and exchange rates

more volatile, and by causing high inflation in countries where criminals are doing business.

Most disturbing of all, money-laundering fuels corruption and organized crime. Corrupt public

officials need to be able to launder bribes, kick-backs, public funds and, on occasion, even

development loans from international financial institutions. Organized criminal groups need to

be able to launder the proceeds of drug trafficking and commodity smuggling. Terrorist groups

use money-laundering channels to get cash to buy arms. The social consequences of allowing

these groups to launder money can be disastrous. Taking the proceeds of crimes from corrupt

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public officials, traffickers and organized crime groups is one of the best ways to stop criminals

in their tracks.

Who launders money?

Criminals launder money. Money launderers are to be found in all walks of life, many acting

entirely innocently. However, anyone who helps a criminal to launder the proceeds of his crime

is, in most jurisdictions, also a money launderer. This means bankers, lawyers, accountants, car

dealers and others are money launderers if they allow their businesses to be used by someone

else to launder the proceeds of a crime. Generally, the only defence is that the businessman was

unaware of what was happening. This defence will not stand as the burden of proving innocence

will be on the defendants. Persons possessing assets out of the proceeds of crime are also money

launderers. A girlfriend of a criminal who knows that her boyfriend used proceeds of criminal

conduct to buy her a car is a striking example in this regard. So an accountant who recommends

a tax evasion scheme is himself a money launderer. Tax evaders launder money and hide it in

banks’ numbered and “benami” accounts. Banks are regarded as safe hiding places for slush

funds.

How is money laundered?

To understand money laundering as it is practised today on a global basis, one has to appreciate

money as a commodity. Professional money launderers differ little in this respect from corporate

money managers. A corporate money manager enters the money markets of various countries

where the corporation will need national currencies during the next year and buys/sells

currencies in a constant effort to improve the manager’s average position at the time of payment.

Similarly, money launderers use a bidding system to buy/sell drug proceeds, especially US

dollars. Just as a sound investment portfolio will contain stocks, bonds and other monetary

instruments, the money brokers vary their holdings. The Cali Cartel, for example, minimizes risk

by selling a substantial portion of the drug proceeds it earns from the sale of cocaine in the

United States. Mexican traffickers in heroin, cocaine and marijuana do the same, often selling to

the same money brokers on behalf of Cali or for their own account. These brokers will convert

proceeds for a fee, or, they will buy the proceeds at a discount. Given the high profit margins of

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the drug trade, discounts of 7-10 per cent or even higher, depending upon risk, are common. At

the end of the day, Cali and other trafficking groups may own or control 50 per cent or less of the

initial drug proceeds. The textile trade is a typical cover. For example, a South American

clothing manufacturer working with Cali obtains a permit to export $20 million in drug proceeds

in New York and returns it to Colombia, covered by an export licence.

• Supposing Cali Cartel is moving $100 million from the US to Mexico.

• The bulk of the $100 million will be deposited in Mexican banks, after which a number of

schemes can be used.

• Money will be wire-transferred to accounts in the United States. The Mexican banks will then

issue cheques drawn on its US accounts, payable to individuals or corporations.

• These cheques can be batched for resale in Latin America, or deposited into foreign bank

accounts.

• Enforcement officials believe that as much as $10 billion in Mexican bank drafts is laundered

through such schemes each year in Panama alone.

• While some of the trade is in contraband goods, these certificates of deposit, cheques and other

financial instruments have also been used to pay for legitimate shipments.

• Gold trade in the Aruba Free Zone amounts to more than $200 million a year.

• The Mexican banks will also issue their own dollardenominated cheques upto a level which

they think will not cause inquiries.

• One recent transfer reportedly involved $78 million which went through a US bank in a single

transaction.

• These transactions are designed to fall outside the scope of Treasury and other reporting. For

example, US banking law does not require reports on bank to bank transfers. Transactions in

bulk conducted outside traditional foreign exchange venues are probably escaping conventional

monitoring systems.

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• Dollar settlements are accomplished through reciprocal balances. For example, a Mexican

bank wires $50 million to a bank in New York, which gives the Mexican bank instant credit on

the latter’s New York account because the Mexican bank has simultaneously given the New

York bank credit for $50 million at the latter’s Mexican facility.

• The grey market enables Latin businessmen to buy US goods and services here, or in a free

zone like Cologne and pay for it in dollars (or dollars converted to cheques and other monetary

instruments) which originated in the US drug market.

Financial institutions and gambling operations face the loss of licences and significant financial

penalties if they are caught. All financial transactions of US $10,000 and above must be reported,

and the Treasury Department’s GTO programme attempts to monitor suspicious transactions. In

New York, limits of US $750 have been placed on small exchange offices, which have in the

past transferred money for the drug cartels. Enormous size of American financial markets and

the high volume of transactions make any effort to eradicate this activity impossible.

More than anything else, banks and big business are keen to get their hands on the proceeds –

laundered – of organised crime. Apart from the traditional activities of drugs, racketeering,

kidnapping, gambling, procuring (women and children), smuggling (alcohol, tobacco,

medicines), armed robbery, counterfeiting and bogus invoicing, tax evasion and

misappropriation of public funds, new markets are also flourishing. These include smuggling

illegal labour and refugees, computer piracy, trafficking in works of art and antiquities, in stolen

cars and parts, in protected species and human organs, forgery in arms, toxic and nuclear

products, etc.

How does money laundering help to fight crime?

1. Money laundering is anarchical in nature. Good governance is the death warrant of criminal

activity. 2. A close scrutiny of financial transaction records leads not only to the discovery of

hidden assets but also unmasks the criminals and their groups.

3. The criminally generated funds can be forfeited. This will hit the criminal hard and break the

cycle of criminal activity.

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3. WHY MONEY-LAUNDERING IS DONE?

Criminals engage in money laundering for three main reasons:1

1. First, money represents the lifeblood of the organization that engages in criminal conduct for financial gain because it

covers operating expenses, replenishes inventories, purchases the services of corrupt officials to escape

detection and further the interests of the illegal enterprise, and pays for an extravagant lifestyle. To spend

money in these ways, criminals must make the money they derived illegally appear legitimate.

2. Second, a trail of money from an offense to criminals can become incriminating evidence. Criminals

must obscure or hide the source of their wealth or alternatively disguise ownership or control to ensure

that illicit proceeds are not used to prosecute them.

3. Third, the proceeds from crime often become the target of investigation and seizure. To shield ill-gotten

gains from suspicion and protect them from seizure, criminals must conceal their existence or,

alternatively, make them look legitimate.

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4. OBJECTIVES OF THE GLOBAL PROGRAMME AGAINST MONEY-

LAUNDERING, PROCEEDS OF CRIME AND THE FINANCING OF

TERRORISM

Within the context of United Nations standards, the Global Programme against Money-

Laundering, Proceeds of Crime and the Financing of Terrorism aims:

To assist in the achievement of the objective set up by the General Assembly at its twentieth

special session for all States to adopt legislation that gives effect to the universal legal

instruments against money-laundering and countering the financing of terrorism

To equip States with the necessary knowledge, means and expertise to implement national

legislation and the provisions contained in the measures for countering money-laundering

adopted by the General Assembly at its twentieth special session 

To assist beneficiary States in all regions to increase the specialized expertise and skills of

criminal justice officials in the investigation and prosecution of complex financial crimes,

particularly with regard to the financing of terrorism 

To enhance international and regional cooperation in combating the financing of terrorism

through information exchange and mutual legal assistance

To strengthen the legal, financial and operational capacities of beneficiary States to deal

effectively with money-laundering and the financing of terrorism.

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MONEY-LAUNDERING

5. THE MONEY-LAUNDERING PROCESS

Money laundering is not a single act but is in fact a process that is accomplished in three basic

steps. These steps can be taken at the same time in the course of a single transaction, but they

can also appear in well separable forms one by one as well. The steps are:-

a. Placement;

b. Layering; and

c. Integration.

There are also common factors regarding the wide range of methods used by money launderers

when they attempt to launder their criminal proceeds. Three common factors identified in

laundering operations are;

· the need to conceal the origin and true ownership of the proceeds;

· the need to maintain control of the proceeds;

· the need to change the form of the proceeds in order to shrink the huge volumes of cash

generated by the initial criminal activity.

1. Placement

At this stage, the launderer inserts the dirty money into a legitimate financialinstitution.

This is often in the form of cash bank deposits. This is the riskiest stage of thelaundering

process because large amounts of cash are pretty conspicuous, and banks arerequired to

report high-value transactions.

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2. Layering

In the course of layering, there is the first attempt at concealment or disguise of the source of the

ownership of the funds by creating complex layers of financial transactions designed to disguise

the audit trail and provide anonymity. The purpose of layering is to disassociate the illegal

monies from the source of the crime by purposely creating a complex web of financial

transactions aimed at concealing any audit trail as well as the source and ownership of funds.

Typically, layers are created by moving monies in and out of the offshore bank accounts of

bearer share shell companies through electronic funds' transfer (EFT). Given that there are over

500,000 wire transfers - representing in excess of $1 trillion - electronically circling the globe

daily, most of which is legitimate, there isn’t enough information disclosed on any single wire

transfer to know how clean or dirty the money is, therefore providing an excellent way for

launderers to move their dirty money. Other forms used by launderers are complex dealings with

stock, commodity and futures brokers. Given the sheer volume of daily transactions, and the high

degree of anonymity available, the chances of transactions being traced is insignificant

3. Integration

The final stage in the process. It is this stage at which the money is integrated into the legitimate

economic and financial system and is assimilated with all other assets in the system. Integration

of the "cleaned" money into the economy is accomplished by the launderer making it appear to

have been legally earned. By this stage, it is exceedingly difficult to distinguish legal and illegal

wealth.

Methods popular to money launderers at this stage of the game are:

a) the establishment of anonymous companies in countries where the right to secrecy is

guaranteed. They are then able to grant themselves loans out of the laundered money in

the course of a future legal transaction. Furthermore, to increase their profits, they will

also claim tax relief on the loan repayments and charge themselves interest on the loan.

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b) the sending of false export-import invoices overvaluing goods allows the launderer to

move money from one company and country to another with the invoices serving to

verify the origin of the monies placed with financial institutions.

c) a simpler method is to transfer the money (via EFT) to a legitimate bank from a bank

owned by the launderers, as ‘off the shelf banks’ are easily purchased in many tax

havens.

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6. METHODS OF MONEY-LAUNDERING.

Structuring ("smurfing")

Smurfing is possibly the most commonly used money laundering method. It involves many

individuals who deposit cash or buy bank drafts in amounts under $10,000. This method is

common to both Canada and the United State

Bank complicity

A criminally co-opted bank employee may facilitate money laundering. Given the Canadian

Bankers Association's policy, procedures and training, it is becoming increasingly difficult for

criminals to employ this method.

Currency exchanges

Currency exchanges provide a service that permits individuals to buy foreign currency that can

then be transported out of the country. Money can also be wired to offshore bank accounts

anywhere in the world by these exchanges.

Securities' brokers

A stock broker may take in large quantities of cash and issue securities in exchange.

Asset purchases with bulk cash

Money launderers purchase big ticket items such as cars, boats, planes, or real estate. In many

cases, launderers may use the asset but will distance themselves by having assets registered in a

friend's name.

Telegraphic transfer of funds

Wiring money from one city or country to another without actually carrying the money.

Postal money orders

Exchange cash for money orders, then shipping them out of the country for deposit.

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Travel agencies

Exchanging cash for travel tickets. This is a common method of moving money from one

country to another.

Credit cards

Overpaying credit cards and keeping a high credit balance that can be turned over to cash at any

time and place.

Gambling in casinos

Cash may be taken to a casino to purchase chips. After gaming and placing normal bets, chips

are redeemed at the cashiers cage where a casino cheque is issued.

Refining

Individuals change small bills into large. This is easily done by visiting a number of banks so as

not to arouse suspicion. The purpose of refining is to decrease the bulk of larger cash quantities.

Legitimate business / commingling of funds -

Criminals take over and/or invest in businesses that customarily handle a high cash-transaction

volume mixing the illicit proceeds with that of the legitimate business. Criminals will, from time

to time, purchase businesses that generate gross receipts from cash sales such as restaurants,

bars, night clubs, hotels, currency exchange shops, vending machine companies, car washes and

other retail sales for this purpose.

Reverse flip

A money launderer may find a cooperative property seller who agrees to a reported purchase

price well below the actual value and then accepts the difference "under the table". This way, the

launderer can purchase a $2 million dollar property for $1 million,

secretly passing the balance to the cooperative seller. After holding the property for a period of

time, the launderer sells it for its true value of $2 million.

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7. THE EFFECTS OF MONEY-LAUNDERING

It varies between agencies, but the amount of money laundered every year is between

$500billion and $1 trillion worldwide. This causes devastating effects in social, economic and

security terms. Considering the social effects, successfully laundering money means that

criminal activity actually does pay off. This success encourages criminals to continue their illicit

schemes because they get to spend the profit with no repercussions. This means more fraud,

more corporate embezzling (which means more workers losing their pensions when the

corporation collapses), more drugs on the streets, more drug-related crime, law-enforcement

resources stretched beyond their means and a general loss of morale on the part of legitimate

businesspeople who don't break the law and don't make nearly the profits that the criminals do.

The economic effects are on a broader scale. Developing countries often bear the brunt

of modern money laundering because the governments are still in the process of establishing

regulations for their newly privatized financial sectors. This makes them a prime target. In

the1990s, numerous banks in the developing Baltic states ended up with huge, widely rumored

deposits of dirty money. Bank patrons proceeded to withdraw their own clean money for fear of

losing it if the banks came under investigation and lost their insurance. The banks collapsed as a

result. Other major issues facing the world's economies include errors in economic policy

resulting from artificially inflated financial sectors. Massive influxes of dirty cash into particular

areas of the economy that are desirable to money launderers create false demand, and officials

act on this new demand by adjusting economic policy. When the laundering process reaches a

certain point or if law-enforcement officials start to show interest, all of that money will

suddenly disappear without any predictable economic cause and that financial sector falls apart.

Some problems on a more local scale relate to taxation and small-business competition.

Laundered money is usually untaxed, meaning the rest of us ultimately have to make up the loss

in tax revenue. Also, legitimate small businesses can't compete with money-laundering front

businesses that can afford to sell a product for cheaper because their primary purpose is to clean

money, not turn a profit. They have so much cash coming in that they might even sell a product

or service below cost. In terms of security, the majority of global investigations focus on two

prime money-laundering industries: drug trafficking and terrorist organizations. The effect of

successfully cleaning drug money is clear: more drugs, more crime, and more violence. The

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connection between money laundering and terrorism may be a bit more complex, but it plays a

crucial role in the sustainability of terrorist organizations. Most people who financially support

terrorist organizations do not simply write a personal check and hand it over to a member of the

terrorist group. They send the money in roundabout ways that allow them to fund terrorism while

maintaining anonymity. On the other end, terrorists do not use credit cards and checks to

purchase the weapons, plane tickets and civilian assistance they need to carry out a plot. They

launder the money so authorities can't trace it back to them and foil their planned attack.

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8. PREVENT MONEY-LAUNDERING

The primary purpose of organised crime is to make profits. Like any business, the purposes of

profit are to enjoy it and re-invest it in future activity. For the organised criminal, however, profit

close to the source of the crime represents a particular vulnerability and unless the criminal can

effectively distance himself or herself from the crime which is the source of the profit they

remain susceptible to detection and prosecution. Hence the need to launder their illicit profits to

make them appear legitimate.

The biggest source of illicit profits comes from the drugs' trade and it was drug trafficking that

provided the initial catalyst for concerted international efforts against money laundering. The

drugs' industry is a highly cash intensive business and "in the case of cocaine and heroin the

physical volume of notes received is much larger than the volume of drugs themselves". In order

to rid themselves of this large burden it is necessary to use the financial services industry and in

particular, deposit-taking institutions.

The Financial Action Task Force (FATF) on Money Laundering has identified certain ‘choke’

points in the money laundering process that the launderer finds difficult to avoid and where he is

vulnerable to detection. The initial focus has to be on these areas if the war against the launderer

is to proceed successfully.

The choke points identified are:

I. entry of cash into the financial system;

II. transfers to and from the financial system; and

III. cross-border flows of cash.

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The entry of cash into the financial system, known as the ‘placement’ stage is where the

launderer is most vulnerable to detection. Because of the large amounts of cash involved it is

extremely hard to place it into a bank account legitimately.

The UK’s system of reporting suspicious transactions to the authorities along with the

procedures adopted by deposit-takers are powerful weapons against money launderers. In

particular, the emphasis being placed on the importance of deposit-taking institutions ‘knowing

their customer’ has severely curtailed this activity to such an extent that one of the favourite

methods for money launderers to ‘place’ their money is to smuggle the money out of the country.

There are penalties attached to the various money laundering offences for the deposit-taking

institutions and these have provided for a powerful incentive for reporting suspicions to the

National Criminal Intelligence Service (NCIS).

However, cross-border flows of cash is one of the areas mentioned above where the launderer is

vulnerable to detection. In the UK, legislation provides the police and customs service with the

power to seize cash they believe could be the proceeds of drug trafficking. Part III of the

Criminal Justice (International Co-operation) Act 1990 (CJICA) introduced the powers for

customs and police officers to seize cash being brought into or out of the United Kingdom,

where they have reason to believe that such money represents the proceeds of drug trafficking or

is intended to be used in drug trafficking. The power operates in respect of consignments of cash

of £10,000 or more.

Additionally, the courts are empowered to order the confiscation of such cash, where they are

satisfied, on the balance of probabilities, of the alleged link with drug trafficking.

These measures overcome the difficulty of custom officers coming across large amounts of cash

with no reasonable explanation for their export/import but, at the same time, with no hard

evidence of links to drug trafficking it allows the detention of the cash pending an investigation.

Due to this, couriers limit the amount they carry out of the country at any one time and the risk is

seen as being less than passing the money into a financial institution.

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The reporting of suspicious transactions is not limited to cash in the UK. Transfers to and from

the financial system are also under the umbrella of ‘reporting of suspicious transactions’ and this

can provide useful information on the ‘layering’ stage of the money laundering process. The

keeping of comprehensive transaction records (part of the procedures) by financial organisations

provides a useful audit trail and gives useful information on people and organisations involved in

laundering schemes once discovered.

It is important, therefore, to ensure that complacency does not creep into our financial

institutions at this stage, now that the measures are in place to deny money launderers open

access to these same institutions.

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9. MONEY-LAUNDERING PARTNERSHIPS

The Global Programme against Money-Laundering, Proceeds of Crime and the Financing of

Terrorism (GPML) co-operates - and frequently acts in partnership - with international and

regional organizations involved in anti-money-laundering/countering the financing of terrorism

(AML/CFT) activities, in order to complement ongoing activities and avoid duplication of work. 

GPML works closely with and has conducted numerous joint activities with the World Bank,

International Monetary Fund (IMF), Commonwealth Secretariat, Organization for Security and Co-

Operation in Europe (OSCE), Asian Development Bank (ADB), Egmont Group of Financial

Intelligence Units, UN Counter-Terrorism Executive Directorate (CTED), UN Counter-Terrorism

Implementation Task Force (CTITF), INTERPOL, regional development banks, European Union,

United Nations Commission on International Trade Law (UNCITRAL), as well as the US

Department of Justice (OPDAT), US Department of Treasury - Office of Technical Assistance

(OTA), Inter-American  Drug Abuse Control Commission of the Organisation of American States

(OAS/CICAD), FATF-Style Regional Bodies (FSRBs) and a number of individual country technical

assistance providers. Collaboration avoids duplication of efforts and helps ensure that technical

assistance is delivered in a structured manner.

GPML is active in its observer status with the Financial Action Task Force (FATF) and the following

eight FSRBs: Asia/Pacific Group on Money-Laundering (APG), Caribbean Financial Action Task

Force (CFATF), Council of Europe - MONEYVAL, Eastern and Southern Africa Anti-Money-

Laundering Group (ESAAMLG), Eurasian Group (EAG), Middle East and North Africa Financial

Action Task Force (MENAFATF), Inter-Governmental Action Group Against Money-Laundering &

Terrorist Financing in West Africa (GIABA) and the Financial Action Task Force of South America

(GAFISUD). These Bodies help set up systems to protect members' financial systems from the

crimes of money-laundering and the financing of terrorism, promote mutual legal assistance and

facilitate the adoption and effective implementation and  enforcement of  internationally 

accepted standards against money-laundering and the financing of terrorism.

GPML's internal partners in UNODC are: the Treaty and Legal Assistance Branch; Terrorism

Prevention Branch; Law Enforcement, Organized Crime and  Anti-Money Laundering Unit; Justice

and Integrity Unit and Anti-Human Trafficking and Migrant Smuggling Unit.

10. BUSINESS PRONE TO MONEY - LAUNDERING

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1. Banking.

"If you want to steal, then buy a bank".-Bertolt Brecht

The best method of both stealing and laundering money is to own a bank. And though banks are

an at risk group in relation to their main functions of deposit taker and opening of accounts, what

can be done against this crime if the bank is international and in complicity with vast numbers of

its depositors. When the CIA moved money via the BCCI it called it "facilitating the national

interest". When the Mafia and the Libyans do it, it is called money laundering.

The BCCI affair was a major scandal involving allegations of corruption, bribery, money

laundering, etc.. One investigator quotes in the Kerry Report:

"It had 3,000 criminal customers and every one of those 3,000 criminal customers is a page 1

story. So if you pick up any one of [BCCI’s] accounts you could find financing from nuclear

weapons, gun running, narcotics dealing and you will find all manner and means of crime around

the world in the records of this bank".

As Powis (1992) said, "money laundering becomes a relatively easy thing to do when a banking

institution and a number of its key officials co-operate in the laundering activity".

2.futures

The UK experience showed that the futures market, through Capcom Commodities, a BCCI-

related institution was another area that money launderers were taking advantage of for their

money laundering schemes. Because of the ‘anonymous’ nature of the trading strategies, all

brokers trading as principals and

3. Professional advisors

Accountants/Solicitors/Stockbrokers

If involved in investment activity, this group is covered in the Regulations. For example, their

clients’ account can be used as a bank account by clients and can put him at risk under s93

CJA93.

4. Finance houses/building societies

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As with banks, any suspicious transactions must be reported. Money deposits in these institutions

are where the placement stage usually takes place so vigilance is called for by staff. Any unusual

change in regular customers depositing habits need to be investigated and lenders also have to be

aware that money laundering techniques can also involve paying off a debt faster than income

would support. You would already know a customer’s declared income on the loan application.

5. Financial transmitters

Bureau de change/international money transmitters/travel agents.

All offer a wide range of services that can be used by the money launderer. Airline tickets,

foreign currency exchanges in the form of cash and travellers cheques, are recognised as being

widely used techniques. Money transmitting services in the form of wire, fax, draft, cheque or by

courier exist for people unable to use traditional financial institutions. Customer not in their

client's name, the true identity of the beneficial owner is not known. Commodities therefore are a

‘zero sum’ game, which means you can only buy if someone is willing to sell, and vice versa.

Launderers can take advantage by a strategy of buying and selling the same commodity, thereby

taking a small hit for the commission charged by the broker. They pay the losing contract out of

dirty money and receive a cheque that legitimises their profits and creates a paper trail for any

one who asks where the money came from.

anonymity is a primary feature of such transmissions which identifies the inherent level of risk.

Covered under the Regulations if they offer currency exchange facilities.

6. Casinos

Casinos and gambling establishments are particularly attractive to money launderers. Cash can

be deposited with a casino in exchange for chips or tokens. After a few turns at the table the

player can cash in the remainder for a cashier’s cheque which can be deposited in their account.

Another method is to buy winning tickets from people in bookmakers and saying you have won

making bookmakers vulnerable to being used.

7. Antique dealers/jeweller’s/designer goods suppliers

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Any area that possesses the characteristics which represent high value goods that possess great

portability and in many cases are used to being paid in cash is an attractive area for money

launderers. All the above satisfy these criteria and owners and staff have to be aware of their

obligations under the legislation if they are to avoid being unwittingly used in a money

laundering

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11. MONEY-LAUNDERING OFFENCES

There are now five basic money-laundering offences:

i. assisting another to retain the benefit of crime;

ii. acquiring, possession and use of criminal proceeds;

iii. concealing or transferring proceeds to avoid prosecution or a confiscation order (also

called Own Funds money laundering).

iv. failure to disclose knowledge or suspicion of money laundering;

v. tipping off.

I. Assisting another to retain the benefit of crime.

Assistance occurs where a person is involved in an arrangement with another person, and knows

or suspects that the other person is, or has been involved in, or has benefited from drug

trafficking or criminal conduct if the arrangement helps the other person to retain or control

proceeds directly or indirectly or enables the other person to use the proceeds or to invest them

for his benefit. The legislation allows ‘disclosure to a constable’ which is normally to the FIU of

the NCIS. This covers terrorist related activities as well. The penalty for commission of an

offence under this section is imprisonment of up to six months, or a fine not exceeding the

statutory maximum, or both, on summary conviction. On conviction on indictment, the penalty is

imprisonment of up to 14 years, or a fine, or both.

II. Acquisition, possession or use of criminal proceeds.

Acquisition is the offence of use or possession of property which you know or have reasonable

grounds to suspect to be the proceeds of drug trafficking or criminal conduct and have acquired

at less than full value. The aim of the offence is to prevent criminal proceeds being passed on by

criminals to be enjoyed by third parties. Here, the reference is to ‘property’, rather than to ‘funds

or investments’ as in section 93A (‘property’ including money).

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The penalty for commission of an offence under this section is the same as for assisting another

to retain the benefit of crime.

III. Concealing or transferring proceeds to avoid prosecution or a confiscation order (also

called Own Funds money laundering).

Concealing is disguising, removing or transferring proceeds (directly or indirectly) of drug

trafficking or criminal conduct for the purpose of avoiding or helping someone else avoid

prosecution. The offence is committed by a person who assisted in the offence if s/he knows or

has reasonable grounds to suspect the nature of the property.

Concealing or disguising any property includes concealing or disguising its nature, source,

location, disposition, movement or ownership or any rights with respect to it.

The penalty for commission of an offence under this section is exactly the same as for the

assisting and acquisition offences.

IV. Failure to disclose knowledge or suspicion of money laundering.

This offence only relates to drug trafficking and terrorism and not to proceeds of crime in

general. A person is guilty of an offence if, as a result of something he learns in the course of his

trade, profession or employment, he does not report a suspicion to a police or customs officer.

There is a question as to whether disclosure is a waiver of professional privilege or a breach of

any express or implied duty of confidentiality owed to a customer or client. For example, legal

privilege for solicitors. If there is a criminal transaction then disclosure to the police will not

constitute a waiver of professional privilege nor will it give actionable grounds for a claim for

breach of confidence.

The penalty for commission of an offence under this section is imprisonment of up to six

months, or a fine not exceeding the statutory maximum, or both, on summary conviction. On

conviction on indictment, the penalty is imprisonment of up to five years, or a fine, or both.

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V. Tipping off.

The requirement to report suspicions is not much use if the suspected person is tipped off to the

fact that s/he is under investigation. In order to preserve the integrity of an investigation, the

offence of ‘tipping off’ occurs when information or any other matter which might prejudice the

investigation is disclosed to the suspect of the investigation (or anyone else) by someone who

knows or suspects (or, in the case of terrorism, has reasonable cause to suspect) that: a police

investigation into money laundering has begun

or is about to begin, or the police have been informed of suspicious activities, or a disclosure has

been made to another employee under internal reporting procedures.

The penalty for tipping off is the same as for the failure to disclose offence.

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12. TECHNIQUES AND TRENDS OF MONEY-LAUNDERING

Drug trafficking and other criminal organizations have developed a series of highly specialized

techniques and methods designed to remove the taint from the money and to place it out of the

reach of law enforcement. The conducive conditions are: 1. Multiple entry points in the global

financial system. 2. Rapid transmission of funds making the task of investigators difficult. 3.

Lack of proper monitoring of movement of huge funds through banks and other financial

transactions. 4. Temptation of bribery and corruption in the illicit financial world. 5. Existence of

parallel/informal economies outside the control of government.

In many cases, money has already been layered and even integrated before it goes into the

financial system – it is already disguised as licit proceeds of legitimate business. This can be

done through import-export schemes in which there is an over-invoicing for the goods, cash-

based businesses such as restaurants, casinos, and card clubs.

Using 1996 statistics, these percentages would indicate that money laundering ranged between

US Dollar (US$) 590 billion and US$ 1.5 trillion. The lower figures is roughly equivalent to the

value of the total output of an economy the size of Spain. Currency smugglers use a variety of

techniques to take money out of the country. However, four main avenues have been identified

as being most favored by the smugglers, viz. air, sea, land and mail.

Air

Airlines are used for currency smuggling because:

I. the smugglers can stay close to their money during the transportation process;

II. destinations can be reached quickly and easily; and

III. pre-planning is kept to a minimum

Passengers can smuggle currency concealed on their persons, in hand luggage or in

unaccompanied baggage.

Colombian economists conservatively estimate that about US $4.5 billion is repatriated

annually to Colombia by drug traffickers. It is also known that Colombian traffickers

have purchased a fleet of large planes, such as Boeing 727s, Caravels and the Turboprop

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Lockheed Electra. They use these planes to transport tonnes of cocaine to Mexico,

Canada, Portugal and West Africa for sale in the United States and Europe.

Land

Smuggling currency across land, although lacking in speed and the ability to reach many

international destinations, is still a relatively easy way to transport cash. US customs

presence tends to be less at outbound stations. Inspections tend to be infrequent as they

interfere with the flow of traffic and at times cause massive traffic congestion. Another

advantage of land border crossings is that vehicles in which to conceal the currency are

easy to obtain.

Customs officials have found currency in obvious locations such as seats, trunks, false

compartments, dashboards and door panels.

Sea

Although smuggling by sea can have the advantage of reaching many destinations, it can

be, at times, a cumbersome exercise. For example, it may require the use of other parties

such as exporters or ship personnel and the smuggler may be physically separated from

the currency for long period. At the same time, however, smuggling by sea offers certain

advantages. The main advantage is that ship cargo typically involves large containers

within which currency is very easy to conceal and difficult to detect.

In one inspection, inspectors at New York seaport seized $763,240 that had been

concealed beneath the floor of a refrigeration unit in a ship bound for Colombia. They

also seized $7,1785,161 from two 20-foot containers loaded with dried peas, again on a

vessel destined for Colombia. According to US customs this seizure represented

approximately one month’s drug profits.

mails

The US postal service and FinCEN (Financial Crimes Enforcement Network) maintain

that, although, the extent of mail smuggling cannot be measured, the US mail and private

couriers are being used to send currency illegally out of the country. The names on the

money orders are left blank. The funds are sold to “casas de cambios” or money

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changing houses for cash that will be deposited into a trafficker’s account. The money

orders are then sold and resold through the network of casas and are finally redeemed

outside of Colombia.

In addition to the increase in currency smuggling the emergence of new payment

technologies has presented new challenges. For many years the banking and financial

services industry has been developing new methods of cash payments. One of these

methods is generally referred to as “cyber payments”. A significant feature of the new

cyber payments is that they include a new form of currency. Cyber payments also

comprise other payment components, which emulate current payment systems. For

example, already in use are cyber-cheques, cyber-credit and cyber debit. Cyber-currency,

therefore, includes the attributes of conventional currency, which are: a store of value; a

medium of exchange; and ease of use. However, it has one very important added feature

– almost instant electronic transfers from point to point.

There are also common factors regarding the wide range of methods used by money

launderers when they attempt to launder their criminal proceeds. Three common factors

identified in laundering operations are:

• The need to conceal the origin and true ownership of the proceeds;

• The need to maintain control of the proceeds;

• The need to change the form of the proceeds in order to shrink the huge volumes of

cash generated by the initial criminal activity.

The layering and integration stages of money laundering are using more sophisticated

money laundering techniques. Cash is now being held in bulk or placed into the financial

system through exchange houses and other non-bank financial institutions. Not only is it

moved through wire transfers but also through innumerable varieties of licit and illicit

financial instruments, including letters of credit, bonds and other securities, and prime

bank notes and guarantees, without a parallel increase in the capability of the far-flung

elements of the world’s financial system to verify the beneficiaries or authenticity of

such instruments.

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13. THE WALKER MODEL ON GLOBAL MONEY-LAUNDERING

As per the Walker Model of Global Money Laundering:

1. Money laundering is a flow of funds.

2. There is essentially a place where the money is generated and a place where it is laundered.

3. The money may be laundered in the same country in which it was generated or be sent to

another country (or other countries) for laundering.

4. It may flow on from its first placement to other countries, and may often return eventually to

the originating country so that the offenders can invest this money into legitimate enterprises in

their home country.

After the initial point of laundering, the onwards transactions have all the legitimacy of ordinary

monetary flows. In statistical terms, we would be double counting if we followed hot money all

the way round its circuitous path from the scene of the crime to that of the final investment, and

counted the same money each time it moved. If $1 million is earned from crime in Australia and

sent, say, to a Hong Kong bank for laundering, and from there via Switzerland to the Cayman

Islands, from where it is returned “cleansed” to Australia, it is wrong to say that these four

moves amount to $4 million of money laundering.

The quantity of money laundering generated in each country is dependent upon:

• the nature and extent of crime in that country,

• an estimated amount of money laundered per reported crime, for each type of crime, and

• the economic environment in which the crime and the laundering takes place.

The potential of money laundering is high in crimeinfested countries. The destination of slush

funds will be based on the following considerations:

1. The presence or absence of banking secrecy provisions: Countries with banking secrecy and

poor governance are attractive destinations.

2. Government attitude to money laundering.

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3. Levels of corruption and regional conflict: high level of corruption favours money launderers.

Too much corruption can prove fatal for launderers.

4. Geographical, ethnic or trading proximities between the origin and destination countries.

5. There will be higher frauds of laundered funds between places of geographical proximity and

strong trading or community lines.

6. Strict government regulations will discourage flow of funds, hence money laundering. The

quantity of money laundering attracted by a country will depend upon:

• That foreign countries with a tolerant attitude towards money laundering (e.g. those with

banking secrecy laws or uncooperative government attitudes towards the prevention of money

laundering) will attract a greater proportion of the funds than more vigilant countries.

• That high level of corruption and/or conflict will deter money launderers, because of the risks

of losing their funds.

• That countries with high levels of GNP/capita will be preferred by money launderers, since it

would be easier to ‘hide’ their transactions.

• That other things being equal, geographic distance, and linguistic or cultural differences, work

as deterrents to money launderers.

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14. CONCLUSION

Money laundering is a captivating method of wealth fabrication adopted on a large-scale mainly by

drug dealers, fraudsters, smugglers, arms dealers, terrorists, extortionists and tax-evaders. The crime of

money laundering, however, is my no means beyond the reach of a common who too can launder illegal

proceeds depending on his resources. The sheer applicability of the crime of laundering money makes it one of

the largest businesses in the world today. Criminals throughout history have had to hide the source of newly

acquired wealth in order to escape prosecution for the predicate crime. However, the scale of the problem has

escalated out of all proportion.

Money laundering is a burgeoning threat to the international economy. The practice of money laundering is

essentially based on a few defined principles of the crime which remains largely invariable, but the

technological developments related to the modes of laundering money are increasingly becoming more and

more sophisticated and meandering, which makes the task of authorities prone to curb money laundering,

virtually impossible. The largely unchecked growth of the Internet presents what has been described as

the "Armageddon scenario of banking on the `Net - criminals could have money transferred without any

audit trail"

It is essential for requisite authorities to ensure that the legislation related to money laundering is continually

updated and kept abreast of the latest development related to the modes of laundering money.

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WEBLIOGRAPHY

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