Examples Of Money Laundering [Part-5]

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Examples Of Money Laundering [Part-5]

There are several common types of money laundering, including casino schemes, cash business schemes, smurfing schemes, and foreign investment/round-tripping schemes. 

A complete money laundering operation will often involve several of them as the money is moved around to avoid detection. For example, proceeds from cash businesses can be gambled, just as the “success” of a cash business that has been infused with placed cash can be used to justify investments or loans that, in fact, come from cash placed offshore. 

Each of the examples below includes how the money behaves during the placement, layering and integration stage. 

The Casino Scheme

The casino scheme works by funneling the money through gaming. The money is converted to casino chips, which are then briefly played and then transferred back into cash. The chips may be converted by the launderer or by a proxy.

In many cases, the casino where the money is being laundered is in a different nation than the launderer’s nation of origin. This makes it difficult for law enforcement in either country to gather evidence that might reveal proof of money laundering. 

Placement: The placement stage occurs when the money is delivered to the proxy who will take payment in cash and then exchange it into chips. In some countries, travel agencies provide casino chips as part of their packages. Paying for these packages in cash can be an effective way to place the cash without electronic records.   

Layering: When the money is laundered through gambling, the layering stage takes place when the cash (or chips purchased through an intermediary) is carried into the casino and used for gambling. In most cases, very few of the chips are used for gambling because of the risk of loss. Instead, the chips are lightly used for several hours and then converted back into cash. 

The receipts from the cashout are used as evidence of the cash’s legitimacy. There is no record of how many chips were carried into the casino, so the launderer can plausibly claim that small amounts were carried in and the larger sum comes from winnings. 

Integration: Money laundered through casinos is relatively easy to integrate. Once the winnings have been reported and any taxes have been paid, the money can be used for any other purposes. 

The Cash Business Scheme

The cash business scheme is one of the most classic schemes for laundering large amounts of physical cash. Even today, there are many businesses who handle most of their transactions in cash. Illicit cash can be inserted into these transactions at a fast or slow pace.

Laundering money through cash-intensive businesses was the preferred method of the famous gangster Al Capone. He evaded investigators for years by funneling the money his crimes generated through his small empire of laundromats. The term “money laundering” was coined by the agents investigating him. 

Placement: Placement for a cash-intensive business scheme involves direct cash payments to the owner or manager of the establishment. The money to be laundered for the day is brought to the premises of the business. It stays in a safe location until it can be added to profits for the day through one of several methods.  

Layering: When the money is laundered through cash businesses, such as car washes and strip clubs, the layering stage takes place when dozens of fake transactions are slipped into the books throughout the day. These transactions may take the form of fake customers, or through extra services tacked onto legitimate transactions, with the difference added from the placed money.

Integration: Cash-intensive business schemes often extract the money through daily profits. This scheme requires the money to be laundered somewhat slowly, but some amount is ready every day, making it more liquid for the launderer. Taxes are paid on the reported profits, and the money can now be used to any purpose. 

The Smurfing/Structuring Scheme

Smurfing refers to the practice of distributing small amounts of a larger cash horde to a series of partners who then deposit the money in incremental amounts. Smurfing is used to get around the currency reporting requirements that banks are required to observe in many countries. Small amounts that come from many partners are less likely to trigger an automatic report

Placement: The placement stage starts with the cash being distributed through a network of people who can be trusted to deposit the money back again on schedule. Larger criminal organizations are more likely to use this strategy because they already possess a network of compliant members.

Layering: The layering stage for this type of scheme happens as the money is deposited back into one or several accounts. More advanced smurfing schemes will attempt to ensure that the money is deposited in ways that avoid automatic detection. The cash must not only be deposited in small amounts, but in varying amounts and at different intervals. 

Integration: The money can be extracted as it is moved back into the account. While this scheme avoids automatic detection and reporting, it is not as safe as some schemes. If the deposits do come under scrutiny, it may be difficult for the launderer to explain why the deposits were made.  

The Foreign Investment Scheme

Many countries are allowed and encouraged to invest in US businesses. However, the IRS has little power to account for how the money used in these investments was accumulated. In some cases, the money comes from illicit activities. The launderer delivers the cash to the foreign investor, who then returns it by making an investment into the launderer’s own business.

Placement: Placement occurs when the cash is delivered to the foreign partner. In most successful schemes, the launderer will not appear to have any prior contact with the investor who is holding the money. For all intents and purposes, the money appears to be the property of the foreign partner. 

Layering: When the money is laundered through foreign investment, the layering stage takes place when the foreign business “invests” into the legitimate business using money that was placed with them. These amounts are usually larger than in other schemes, but difficult to prove illegitimate.

Integration: The money in this scheme can be more difficult to extract, despite the fact that large amounts can be moved. Investments into a business must be credibly used within that business. The money can be extracted from the profits that the investment generates, or from high executive salaries funded by the investment. 

Our next part of this series is based on- Famous Money Laundering Cases

Stay Tuned in because a lot to learn in this series.