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White Collar Crime 101: The Nitty Gritty of Money Laundering

Contrasted with the innocence of our everyday domestic laundry endeavors involving detergent and clotheslines, money laundering can land you in prison. What’s more, if you’re at all involved in a money laundering scheme, you could be punished. If you’ve seen the 1995 movie "Heat" with Robert De Niro and Al Pacino, you’ll understand a bit about how money laundering works (if you haven’t, put it on your list of movies to watch).

What is it? 

One of the more common types of white collar crime, money laundering involves taking “dirty money” obtained through crime and making it “clean” through often pointless, but legal, transactions, aimed to throw authorities off the trail of the person who’s doing it. (Like our laundering of clothes, but with money - though not literally.) It’s a way for professionals to benefit from illegally obtained money without anyone knowing. 

According to the U.S. Department of Justice, money laundering can be defined as “the process by which criminals conceal or disguise the proceeds of their crimes or convert those proceeds into goods and services. It allows criminals to infuse their illegal money into the stream of commerce, thus corrupting financial institutions and the money supply, thereby giving criminals unwarranted economic power.”

The term “money laundering” probably comes from gang association with laundromats back in the early 1900’s. In order to hide the origin of their profits from gambling, prostitution, and other illegal activities, the Mafia owned laundromats as a legal cover up to their schemes. Well-known criminals like Al Capone were involved in these activities. 

Money laundering appeared in a newspaper first during the Watergate scandal, and in the 1980’s became a recognizable crime. 

What kind of crimes are covered up through money laundering?

A wide variety of criminal activities can initiate a money laundering scheme. Any money obtained through an illegal activity, whether terrorist activity, tax evasion, drug deals, inside dealing, or some type of fraud, can necessitate money laundering in order to avoid attention from authorities. Politicians may have to launder money if it is obtained illegally. 

In the U.S. and world

Every year, it’s estimated that billions of dollars are laundered. Of course, you can’t know for sure how much money is being laundered because the people that do it are hiding it! But the effect is enormous, and the charges are serious - according to How Stuff Works, U.S. prosecutors won nearly 900 money-laundering convictions in 2001 with six years as the average prison sentence. 

Experts say that money laundering occurs to a large degree in Spain, which functions as an entrance point for drugs into Europe coming from North Africa and South America, according to the Gibraltar Chronicle

How it works:

Money laundering is successful because it is a complicated process by design. If not performed in a sophisticated manner, it will alert attention.

The process of laundering “dirty money” to make “clean money” occurs in three stages:

  1. Placement. Also known as “filtering,” this is when would-be money launderers rid themselves of dirty or “hot money” that they obtained through illegal activity. How this is done is by portioning out a large sum into smaller sums so the cash enters a legitimate financial institution.
  2. Camouflage/layering: Next, would-be launderers put their money through tons of transactions to confuse the trail.This may include invest moving money to offshore bank accounts, gambling, stock exchange, etc. Many people wonder why launderers would spend the money they’ve gained. Simply put, because of the profitability of illegal activity, spending some is not a loss. Often the investment rewards them anyways.
  3. Integrate: Finally, the last state is integration - putting the money into the economy, at which point the launderer can legally receive the money. 

How to stop it:

Banks have a responsibility to monitor activity for anything suspicious. They make it a process for you to open an account - because they want to stop money laundering, and they don’t want to help anyone in their scheme.

Now that you understand how money laundering works, be on the alert for people paying in huge amounts of cash. Of course, do not go around accusing your friends and family of money laundering if they pay for dinner with a $20. Rather, keep your eyes open for those gigantic sums of money in cash - whether they come through your business or personal dealings. Money laundering hurts everyone involved and can get you into a lot of trouble. Prevent it!

And if you think you’ve been involved in any illegal activity related to money laundering, or have been accused of money laundering, you should seek counsel from an attorney experienced in white collar crime defense. 


How white collar crime works: http://money.howstuffworks.com/white-collar-crime.htm

Types of fraud http://www.fbi.gov/about-us/investigate/white_collar