and Hiding Proceeds of Fraud Crimes
Criminals with large cash inflows, from drug traffickers to stock
and telemarketing fraudsters, must launder the money made from their
crimes in order to hide the evidence trail and protect it from investigation
and seizure, before cycling it back for personal or business use.
This generally involves a series of multiple transactions used to
disguise the source of the financial assets as they try to transform
the monetary proceeds derived from illicit activities into funds
with an apparently legal source.
Due to the clandestine nature of money laundering, rough estimates
can only place the annual worldwide value in the range of $300 billion
to $1 trillion. The illegal movement of funds is estimated at between
$5 and $17 billion in and through just Canada each year.
There are three elements to the complete laundering of funds:
"Placement" : getting currency into the financial
system so as to convert illicit funds from cash straight into a financial
instrument or a bank account;
"Layering" : the movement of funds from institution
to institution to hide the source and ownership of the funds, obscure
the audit trail, and sever the link with the original crime;
"Integration" : the reinvestment of those funds
in an ostensibly legitimate business so that no suspicion of its
origins remains and to give the appearance of legitimizing the proceeds.
A criminal's objective in laundering illicit proceeds is to: Get
it out; cover it up; bring it back.
The more successful a money-laundering apparatus
is in imitating the patterns and behaviour of legitimate transactions,
the less the likelihood of it being exposed.
HEADWAY IN EFFORTS TO COMBAT
Canada and the U.S. traditionally cooperate closely on law enforcement
matters and have a mutual legal assistance treaty and a customs mutual
assistance agreement. While Canada has seized record amounts of currency
in recent years, actual forfeitures are negligible by comparison
because Canadian law requires proof of a direct link between seized
property or currency and specific drug transactions.
The international narcotic trade launders a minimum
of $200 billion a year. Law enforcement efforts in the best of
years recovers amounts in the range of $100 million to $500 million.
In most cases, law enforcement investigations start with an identified
crime and follow the money trail.
Laundered money is most vulnerable to detection at the placement
stage. Methods to make it difficult to place illicit funds without
detection are measures such as suspicious transaction reporting requirements,
cross-border monetary declaration requirements, and "know your
customer" rules for those accepting cash deposits.
Sophisticated anti-money laundering strategies have driven the cost
to launder money — the percentage fee charged by the launderer
- from approximately six to twenty-five percent in the last fifteen
years. Criminals, thwarted by these tougher anti-money laundering
measures in the United States, are now increasingly attempting to
smuggle cash to foreign countries and launder money overseas.
Successful prosecutions however are not frequent.
This is partly because of the complexity of dealing with other
jurisdictions. When success involved international cooperation,
it was facilitated by the fact that authorities knew exactly where
to go and what kind of financial information they needed to obtain.
In the majority of cases, the offshore financial institutions are
unknown or uncooperative and the success rate of investigations
is very low.
Efforts are being made to make it more difficult for criminals to
assume that after "integration" they have successfully
protected their money from the law. Although lawyers have told clients
that they can retain control of offshore trust assets, the U.S. government
states that you can't be in control of the assets if you try to use
foreign asset protection trusts to hide money from them.
There has been growing international recognition that bank secrecy
rules must give way to permit law enforcement agencies to review
financial records in cases where there is an active criminal investigation
pertaining to the source of the funds.
Off-Shore Money Laundering Example
Offshore banks sometimes stretch the rules when assisting wealthy
individuals ( commonly telemarketers ) in concealing their income
from the IRS.
Assuring them that their money would remain secret from the IRS, one
bank routinely set up accounts for individuals using fictitious names
and shell corporations so that the true owners of the accounts would
They would receive payments from the U.S. and,
in return, would provide false and inflated sales invoices to create
the appearance that legitimate goods and services were being purchased
which allowed the depositors' businesses to then take fraudulent
They would also issue VISA gold credit cards
that permitted access to the offshore account without revealing the
existence or ownership of the bank account. They will also
assist in the creation of Dutch Corporations which allow depositors
to secretly borrow mortgage funds from their own deposits.
The Dutch Corporations are created to issue sham mortgages that
are designed to give the appearance that the depositor is borrowing
money from a legitimate foreign lender. Such mortgage loans have
the threefold fraudulent benefit of allowing the depositors use of
the unreported income, providing a sham tax deduction for interest
on the mortgage which they were paying back to themselves, and the
re-deposit of the mortgage interest into the secret offshore account.
In this fashion they helped one businessman conceal nearly $6 million
in income from the IRS.
The International Compliance Association www.int-comp.org supports
and educates compliance professionals in the fight against terrorist
financing, corruption, money laundering and financial crime.
Counter Money Laundering
Laundering Info from the Financial Action Task Force
Money Laundering Report - United Nations