Financial Investigations

Money Laundering

CJ 365 Financial Investigations

Research Paper

Contents

I. Introduction

II. A Little bit of History

III. "Dirty Money" -What is Money Laundering

IV. The Wash Cycle - Placement, Layering and Integration

V. The Global Spin Cycle - "Follow the Money"

VI. The Dryer Ð'- Effects of Money Laundering

VII. The Ironing - Legislation

VIII. Hang it in the Closet Ð'- Success Stories

IX. The Way forward

X. Conclusion

XI. Works Cited

I. Introduction

Working in the banking industry for several years exposed me to a process of form completion that I did not fully understand. Authorities bombarded us daily with regulations and their emphasis focused on what would happen to us if we did not comply. Afraid of going to jail we followed the rules never understanding the reasons behind what we were doing. We never thought to question the authorities because of the manner in which they instilled these laws.

Meanwhile, in my quest for higher learning I have come to understand the reasons behind the anxiety of our authorities at the time. In this paper, we will unravel what I have learned regarding the very interesting concept of money laundering and how it affects everyone in his or her daily lives. Together we will discover where this concept originated from, what it is, how it works and affects everyone on a global scale. Then we will discuss money-laundering legislation. We will also look at the role of technology and the challenges that it creates in efforts to curb criminal activities.

Because money laundering is a process and a continuous cycle, and for the purpose of this paper we will compared it to a cycle used when washing laundry. This is ironic because we are refering to "dirty" money that is being "cleaned"

II. A History Lesson

From the mid-1920's organized crime in the city of Chicago was controlled by Al Capone. His associate an intelligent young Welshman named Murray Llewellyn Humphrey expanded the Capone organization's interest into a number of new fields. Humphreys' greatest coup was the takeover of the laundry business. He began by buying two legitimate laundries. These provided him with a legal source of income and enabling him to recycle profits from extortion and bootlegging hence the expression "money laundering." "In 1928, Capone's laundry racket took in $10 million rising to $50million by 1931" (Lunde pg 40)

Today, like in the past the acquisition of legitimate business enterprises is that motivation of organized crime. For criminals however, how they deal with accumulated wealth is a further challenge. "The process of concealing funds, transforming "dirty money" into "clean" money, reinvestment, all these tax the ingenuity of organized criminals. But in a world where financial transactions are becoming increasingly complex, transnational and through digital and virtual technology, new opportunities continually arise" (Lunde pg 44)

On the other hand without a crime there is no money laundering. "So money laundering investigations always have to start off by determining the crime behind the money". (Mathers) This process of money laundering has evolved into a multi million-dollar industry.

III. "Dirty Money" - What is Money Laundering?

The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. According to the FBI, this process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source. Illegal arms sales, smuggling, and the activities of organized crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to "legitimize" the ill-gotten gains through money laundering.

Therefore, when a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.

However, we need to keep in mind that criminals are not the only people committing these acts of money laundering and that money that earned legitimately sometimes follows this process. The reason for this is simple, to evade paying taxes, which is a criminal offense. These funds find their way to family member's accounts or other countries where there are few or no tax laws. Legal money usually just travels around avoiding the IRS.

IV. The wash cycle - Placement, Layering and Integration

There are three stages in money laundering firstly, the initial - or placement - stage of money laundering, where the launderer introduces his illegal profits into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (checks, money orders, etc.) that are then collected and deposited into accounts at another location. It is the process of placing unlawful proceeds into financial institutions.

After the funds have entered the financial system, the second Ð'- or layering Ð'- stage takes place. Here the process of separating the proceeds of criminal activity from their origin using layers of complex financial transactions takes place. The funds might be channeled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. This process is also known as "disguising the audit trail"