Many fundamental commercial challenges for big, organized criminal organizations end up with vast quantities of cash. It is something that they must conceal to escape legal authorities conducting investigations. Such vast sums of money also do not want to have to declare as income, resulting in massive income tax liabilities. That is why money laundering is appear.
To address the issue of having cash earned through unlawful operations, many criminals devise methods of washing the money to conceal how it was obtained. In summary, money laundering seeks to unlawfully obtain funds by transferring them into a legitimate financial system, such as a bank or firm.
Definition of Money Laundering
When money is gained through illegal activities such as drug trafficking or unlawful gambling, it is dirty money. This money may appear suspicious if placed directly into a bank or other financial institution. Because the owner of the money must have financial documents that prove where the money originated from. In another word, the money must be cleaned.
As a result, money laundering entails passing money through several legal firms before depositing it. Because the conduct is expressly meant to conceal unlawfully obtained funds, it is also prohibited. It is a clear definition of money laundering. Which it is referring to money that has not passed a legal mechanism to get.
Money Laundering Mechanism
Money laundering performs through a common mechanism. The initial flow of money gained via illegal activities into a lawful financial network is the initial placement.
Layering is the continuous movement of funds through various transactions, forms, or investments. It makes it nearly difficult to trace the funds back to their origin. Final integration occurs when the money may be freely utilized legally.
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Money Laundering Methods
There are several money laundering methods. The methods consist of the following points.
Structuring
It is a type of placement in which cash is broken down into smaller amounts of money to minimize suspicion of money laundering and to bypass anti-money laundering reporting requirements. It uses smaller quantities of cash to acquire bearer instruments, such as money orders and then deposits those in smaller amounts.
Bulk Cash Smuggling
It is physically transporting money to another country and depositing it in a financial institution, such as an offshore bank. It provides more bank secrecy or less stringent money laundering regulations.
Trade-Based Laundering
It is one of the most recent and complicated types of money laundering. It includes undervaluing invoices to conceal money flow. Usually, an art market is a perfect way for money laundering. It is due to numerous unique elements of art and confidentiality concerning the identities of the buyer and seller.
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Trusts and Shell Companies
It conceals the actual owners of money. Depending on the jurisdiction, trusts and corporate ways are not required to declare their genuine owner. It is typically referring to a person acting as the false owner.
Invoice Fraud
It occurs when a criminal calls a firm and claims that the supplier’s payment information has changed. They then present false information for you to pay them money.
Casinos
In this strategy, a person enters a casino and purchases chips with illegal currency. The individual will then play for a brief period. When the individual cashes in the chips, they will expect to get money in the form of a check that allows them to claim the funds as gambling wins.
Transaction Laundering
It occurs when a merchant unintentionally handles unauthorized credit card transactions for another company. It is a rising problem that is distinguished from traditional money laundering by the use of the payments ecosystem to conceal the fact that the transaction happened.
Online Work Marketplaces
This method is by using Freelancer.com and Fiverr to collect client payments and keeps them in escrow to pay freelancers. A money launderer can advertise a job on one of these sites and submit the money to be held in escrow by the site. The launderer (or his collaborator) can then register as a freelancer (using a separate account and IP address), accept and finish the project, and receive payment.
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Closing and Conclusions
Money laundering is a broad term that relates to financial transactions in which criminals, particularly terrorist groups, seek to conceal the proceeds and origins of their illegal activity. It supports a wide range of significant underlying criminal acts and can endanger the financial system’s integrity.
Professional money laundering syndicates are used by organized criminals to disguise the illegitimate origin of cash derived from criminal operations. These include human trafficking, child exploitation, drug trafficking, cybercrime, fraud offenses, and other financial crime.
It can be seen above that money laundering generally involves three steps: placement, layering, and integration. Placement inserts illegal money into the lawful financial system. Layering conceals the source of the money through a series of transactions and bookkeeping methods. In the last phase, integration, the laundered money is removed from the legal account to be utilized for whatever reasons. In real-life scenarios, this template may differ. Money laundering may or may not entail all three processes, or they may be mixed or performed several times.
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