The first thought to hit my mind when I think of money laundering or “dirty money,” is the scene from the 1983 drama Scarface, where sacks of cash were brought through the front door of a quote-unquote, reputable bank, by known drug dealers, who ostensibly pass as legitimate businessmen.
It may or may not be the wild “cocaine cowboy” days of circa 1980, but money laundering continues in a big way. How can this happen in this day and age of technology? While most countries and all the world’s major banks have controls in place to flag suspicious funds coming into the financial system, it appears that in the short-term, criminals can stay one step ahead of the authorities. Let’s take a look at how this happens.
Creation of Shell Companies: While these companies are basically known entities, as they must be incorporated in some sort in a furtive location, they are what experts call the “layering phase” of money laundering, in which funds are shoveled around multiple times to make them harder to track. Places like the Cayman Islands, Panama, the Bahamas, et al., are all destinations of off-shore money laundering.
However, these felonies are not limited to foreign domains, as Delaware and Nevada permit corporations to be set up in anonymity. So now you basically have a shell game of corporations established that perform no, or little, legitimate business other than transferring money between them to make tracking it very difficult. One such example, the Troika Laundromat scheme involved at least 75 shell companies that generated a total of $8.8 billion in transactions through made-up deals. Incredible.
Complicit Locations: While making a case that laundering through a bank is not known to the bank itself seems unlikely, in places like Malta and Cyprus, officials either looked the other way or were in cahoots with the launderers. Time probably could be better spent investigating dirty Russian money via places like these that eventually end up in the west. Denmark’s Danske Bank A/S has acknowledged that much of about $230 billion that flowed through its tiny Estonian outpost may have been dirty. Really? Hard to believe.
Trading the Financial Markets: Trading the international markets regardless of your location is a known quantity. Institutions like some mutual funds have limits on the amount of stock they can hold in one country. Real world scenarios like this are used by money launderers, making it all the more difficult to detect. Deutsche Bank AG helped clients move about $10 billion out of Russia from 2011 to 2015 by executing mirror transactions in its offices in Moscow and London. They were fined an amount that was a slap on the wrist, however U.S. criminal investigations are ongoing. Good luck getting the guilty parties back to the U.S.
Utilizing Clean Businesses: This technique again gives me a cinematic visual. The crime thriller Casino in 1995, depicted the operations of a Las Vegas Casino, a legitimate business that deals mainly in cash, and can mix so-called clean money with money that is laundered. China and Canada in particular of being targets of casino money laundering. The expansion of online gaming and sports betting, where identities are easy to conceal, provide new opportunities, as do cryptocurrencies.
Create Multiple Small Accounts: To fall under the radar of regulatory guidelines that require a bank to disclose any deposit of $10,000 or more, money launderers will open multiple accounts of less than $10,000 to avoid triggering banking flags. This process is referred to as ‘smurfing.” As with all crime, the costs associated with prevention can be large, and will, of course, be passed on to you, the innocent taxpayer.
Editor’s note: As a former intelligence officer in the counternarcotics business, I have some familiarity with money laundering. Money laundering is done by some of the most creative people in the business, from $5 TV’s and $550 razors, to shipments of a solid ton of cash in a Beechcraft King Air, the money makes it where the narco’s want it to be.
This is an unfortunate problem that makes trafficking problem, DEA and FinCen are always a year behind on techniques.
However, privacy, speed, efficiency and the avoidance of shakedowns are also important in doing international business. Knowing these techniques and the legal methods that accompany them, can be an important skill for a company.