Money laundering is the in plain language known as cleaning of money. It is a practice that involves specific financial transactions with an objective of concealing identity, source and destination of money. Money laundering or dirty money is called so because it describes the illegal and dirty money that goes through cycle of transaction to come out on the other end as clean money. It is an underground economy operation as it has certain repercussions and many countries deem it illegal. Money laundering in the past was regarded as a financial transaction related to organized crime.
Recently, United States has expanded the scope of definition to cover any financial transaction that leads to generation of an asset as a result of an illegal act. Such acts as defined from the office of currency Comptroller in U. S include false accounting or tax evasion. Money laundering is carried out by individuals, corrupt officials, small and large businesses, intelligence agencies and members of organized crimes such as cults (Lindner Daniel, 2007). The origin of money laundering is associated with Mafia ownership of Laundromats in U. S.
Gangsters from mafia ownership earned huge amounts of money in cash from gambling, prostitution, bootleg liquor and extortion. It was demanded that these gangsters should show legitimate source of their money and this could be done through purchasing of legitimate businesses then mix their dirty money with earnings from these businesses. Al Capone is said to be one of the main owner of Laundromats but was convicted for tax evasion and created room for other hard-core criminals to take offer the business. Meyer Lansky also known as the mobs accountant was affected by Al Capone conviction because of tax evasion.
He sought other means of cleaning the money to avoid being convicted like his associate. The crime of money laundering in the context of drug trafficking attracted interest owing to huge profits recognized by drug dealers in 1980’s. The criminal activities of money laundering led to contamination and corruption of structures within states (Elizur Lawrence, 2001). Money laundering is a global phenomenon helped by international financial institutions. The process of money laundering involves taking proceeds of criminal activity that make it appear legal. Money laundering is a global problem that has seen many nations such as U.
S looses a lot of money. The activities involved in money laundering include illegal sale of narcotics but of late a new class of criminal activities have been used to launder money. This class has led to an increase in the rate of money laundering activities in a professional way as it incorporates the services of lawyers, accountants and bankers. The reason for cleaning money by criminals is to provide ways through which money can move freely within society without fear of being traced. Countries that are subjected to money laundering practices have strict laws that follow out the criminal acts of money launderers.
Police confiscate funds from criminals as is provided by legal systems and criminals clean their money to avoid arrest. There are usually there steps involved in money laundering such as placement, layering and integration. Placement involves the act of criminals to deposit funds in financial institutions with an aim of converting cash into negotiable instruments. It is one of the most difficult steps in money laundering process as Federal Bank Secrecy Act provides that all financial institutions to report deposit of more than $10,000 made within a day.
Criminals have tried to avoid the trap of financial institutions and opt to disguise the criminal activity through check cashing service or engaging in jewelry business. Another major option at disposal is to convert the cash into negotiable instruments such as traveler’s checks, money orders or cashier checks. Engaging in these activities by criminals ensures that the money is clean for use and it is a protective mechanism. The second step is layering, which involves wire transfer of funds from one account to another with an objective of hiding true origin of funds.
The criminals or money launderer operate a series of accounts outside United States with less strict bank secrecy laws. Once the money is deposited in foreign accounts, it becomes easy to move the funds through corporations accounts purposely designed for that purpose. The wire transfers of funds are made in large volumes and this makes it hard for law enforcers to trace originality of the transactions. Law enforcement agencies have no power to follow financial transactions made outside their jurisdictions and this makes it possible for money launderers too use the technique of operating foreign accounts.
Lanskey was a criminal involved in drug trafficking and operated a number of foreign accounts. This made it hard for law enforcers to trace the original activities related to criminality. Wire transfers used by money launderers such as Lanky make it hard for an individual to differentiate dirty money from money obtained in a legitimate means (Levi Michael, 2005). It is a way of ensuring that integration is achieved through import-export schemes, which involves over-invoicing for goods and cash based transactions in casinos and restaurants.
The third step is integration, which involves movement of layered funds to criminal activities, as they cannot be traced. The money is moved into financial world and is mixed with funds for genuine use. The clean money is used to finance criminal activities and the process is repeated making it hard for law enforcement agencies to trace the criminals. Criminals involved in money laundering have devised highly specialized techniques that help to clean money and make it hard for law enforcers to trace the criminal activities.
One major technique is exploitation of global financial system with several points of entry, rapid capacity to transfer funds, informal economic systems that are not under government control, and susceptible workers to corruption and bribery (Komisar Lucy, 2001). The criminals coordinate with specialists found within criminal organizations but working in legitimate financial institutions and other legal works. These specialists provide sophisticated methods of money laundering including other financial services. In addition, they provide financial advice to the criminals and drug traffickers engaged in money laundering activities.
This makes it hard for this illegal action to cease as specialists provide cover up. Another major technique is the use of cash business such as restaurants or casinos. These two avenues have been used by major criminals to clean their money. Although there are clear regulations, regarding the activities carried within organizations it is an area that has promoted the business of money laundering. New banking practices such as allowing customers to directly process their accounts through the use of computers have led to increased rates of money laundering.
The legitimacy of a customer is never identified as transactions are carried out in countries where little attention is given to money laundering. References Lindner Daniel, 2007, Money Laundering between States: a Comparison of International Money Laundering Control Mechanisms, Defense Counsel Journal. Elizur Lawrence, 2001, The Dilemma of Dirty Money, World Policy Journal, Vol. 18. Levi Michael, 2005, Drugs and money: Managing the Drug Trade and Crime Money in Europe, Routledge. Komisar Lucy, 2001, After Dirty Air, Dirty Money: The BUSH ADMINISTRATION IS BLOCKING EFFORTS TO REIN IN OFFSHORE BANKING, the Natio
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