3iie3705, ML, AML, aml

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//-->3Money Laundering:Methods and MarketsMoney laundering is usually described as having three sequential elements—placement, layering, and integration—as defined in a report by the Board ofGovernors of the Federal Reserve System (2002, 7):The first stage in the process is placement. The placement stage involves the phys-ical movement of currency or other funds derived from illegal activities to a placeor into a form that is less suspicious to law enforcement authorities and more con-venient to the criminal. The proceeds are introduced into traditional or nontradi-tional financial institutions or into the retail economy. The second stage is layering.The layering stage involves the separation of proceeds from their illegal source byusing multiple complex financial transactions (e.g., wire transfers, monetaryinstruments) to obscure the audit trail and hide the proceeds. The third stage in themoney laundering process is integration. During the integration stage, illegal pro-ceeds are converted into apparently legitimate business earnings through normalfinancial or commercial operations.Not all money-laundering transactions involve all three distinct phases,and some may indeed involve more (van Duyne 2003). Nonetheless, thethree-stage classification is a useful decomposition of what can sometimesbe a complex process.In contrast to most other types of crime, money laundering is notable forthe diversity of its forms, participants, and settings. It can involve the mostrespectable of banks unwittingly providing services to customers withapparently impeccable credentials. For example, Richard Scrushy, chair-man and CEO of HealthSouth, a major health care corporation, wasindicted on 85 counts, including fraud and money laundering. His finan-cial executives pleaded guilty to using false earnings reports to misleadbanks into providing a $1.25 billion credit line. Scrushy himself is alleged25Box 3.1Laundering methods of a drug trafficker“Rick” launched his own drug trafficking operation using the funds of the cartel he onceserved. With the help of former associates, he used several methods to launder the pro-ceeds. Cash shipments arrived by boat or plane and were promptly placed by couriersinto a range of bank accounts (a process known as “smurfing”), an activity that corre-sponds to the placement phase of money laundering. An agent then moved the funds tothe personal accounts of overseas intermediaries, each of whom arranged to transfer thefunds back into the country into accounts at the national central bank, which grantedauthorization.At this point, Rick would call the intermediary to cancel the transfer. The funds werethen withdrawn in cash from the intermediary’s account and wired back in country toother accounts, using the authorization from the national central bank to explain theorigin of the funds. Without knowing it, the central bank was giving legitimacy to drugmonies.After this layering phase, Rick purchased real estate with the funds, using lawyers, bankmanagers, and other professionals, which moves the process to the integration phase. Heoffered unusually high commission rates (3 to 5 percent) to gain the cooperation of the pro-fessionals with whom he was doing business. The real estate purchases were usuallymade in the names of other individuals or companies.Eventually, several of the banks noticed that his account activities were rather odd andnotified the national financial intelligence unit. An investigation revealed that Rick’sscheme had laundered tens of millions of dollars over several years.Source:Egmont Group (2000).to have used personal checks, cashiers’ checks, and wire transfers to pur-chase nearly $10 million worth of high-value goods and real estate duringthe layering phase of this laundering operation.Money laundering can also involve small nonfinancial businesses know-ingly providing similar services to violent criminals, as in the case of truck-ers smuggling large bundles of currency out of the country for drugtraffickers.Money laundering does not require international transactions; there areinstances of purely domestic laundering.1Nonetheless, a large number ofcases do involve the movement of funds across national borders. Thoughgovernments have unique police powers at the border, those same borderscan impede the flow of information. Thus the description and analysis in thischapter place heavy emphasis on the international dimensions of moneylaundering.1. Just to cite one example, in theUnited States v. Clyde Hood et al., Central District of Illinois,anindictment returned on August 18, 2000, charged the defendants with fraud for collectingchecks from investors, who were promised a 5,000 percent return. Funds were deposited inchecking accounts and used to incorporate and support participants’ businesses, as well as topurchase real estate, all within the Mattoon, Illinois, area.26CHASING DIRTY MONEYBox 3.2Embezzlement and (self–) money launderingSeveral officials of the Washington, DC Teachers Union (WTU), including presidentBarbara A. Bullock, were implicated in a recent scandal involving the theft of $4.6million.The astonishingly simple scheme had several concurrent elements. One involvedBullock’s chauffeur, Leroy Holmes, who in February 2003 pleaded guilty to launderingmore than $1.2 million. Many of the more than 200 checks Holmes cashed were made outto creditors such as Verizon or the DC Treasurer, with the original payee’s name crossedout and replaced with Holmes’ name. He often left Independence Federal Savings Bankwith his pockets stuffed with as much as $20,000 worth of bills. The bank never filed eitherthe required currency transaction report or suspicious activity report and may face inves-tigation for colluding in the union’s money-laundering plan.In addition, the WTU made several payments totaling $450,000 for the “consulting ser-vices” of a phony company called Expressions Unlimited. One of the company’s partners,Michael Martin, claimed to be Bullock’s hairdresser but has since pleaded guilty to money-laundering conspiracy charges.Union credit cards were used to buy expensive clothing, electronic equipment, art-work, and other costly items. As of February 2004, Bullock had been sentenced to nineyears in prison following a guilty plea, and four others had been indicted.Source: Washington Post(various editions, 2003 and 2004).Boxes 3.1 through 3.4 are examples of money laundering that illustratethe variety of clients, providers, and methods involved. The chapter thengoes into more detail about the “market” for money laundering—what isknown about the providers and prices they charge. The final section pre-sents a typology of offenses intended to provide a structure for policyanalysis in dealing with the heterogeneous set of offenses that engendermoney laundering.Laundering MechanismsA striking feature of money laundering is the number of different meth-ods used to carry it out. Some of the major mechanisms described beloware associated with only one of the three phases of money laundering,while others are usable in any of the phases of placement, layering, andintegration.Four methods of money laundering—cash smuggling, casinos and othergambling venues, insurance policies, and securities—are described belowin some detail. A number of others that may be of importance are listed inbox 3.5. The descriptions draw heavily on the FATF’s annual typologiesreports, which list notable cases that illustrate the variety of launderingtechniques used.MONEY LAUNDERING: METHODS AND MARKETS27Box 3.3 “Underground” banking that finances humansmugglingA South Asian man ran a small business with an annual turnover of around $150,000.His banks were understandably surprised to see that between $1.7 million and $3.5 mil-lion flowed annually through his private accounts for three years. Their suspicious trans-action reports triggered investigations that revealed that the suspect’s business was theheadquarters of an international “underground bank” with “branches” in several CentralAsian and European countries. Along with small amounts intended to support relativesin the transferring parties’ home countries, this illegal banking system was used to trans-fer large sums for smuggling people into Europe. In May 2000, the suspect and one ofhis branch managers were arrested. He had squirreled away around $140,000 in cashin a safe and had purchased his home for $400,000 in cash shortly before his arrest.Source:FATF (2002b).Cash SmugglingOne of the oldest placement techniques, common smuggling of currency,seems to be on the rise. Bulk shipments are driven across the border orhidden in cargo, even though it is illegal to export more than $10,000 incurrency from the United States without filing a Report of InternationalTransportation of Currency or Other Monetary Instruments (CMIR). Cri-minals have even been known to purchase shipping businesses so that theycan store cash inside the goods. Individual couriers transport cash inchecked or carry-on baggage or on their persons. Smugglers can also sim-ply use the mail or a shipping company such as UPS or FedEx. US customsofficials spend most of their resources inspecting people and cargo comingintothe United States, so it is relatively easy to ship currency to anothercountry.2Also, cash stockpiling (allowing cash to accumulate while wait-ing for a smuggling opportunity) is thought to have increased, particularlyin port or border regions. If cash smuggling has grown overall, it may bepartially attributed to the success of banks’ antilaundering measures.Casinos and Other Gambling VenuesCasinos.Chips are bought with cash, then after a period of time duringwhich gambling may or may not take place, the chips are traded in for acheck from the casino, perhaps in the name of a third party. When a casino2. The authority to search in the United States does not distinguish between entry and exit.However, historically there has been more interest in preventing the entry than the exit ofinappropriate goods and people. Nonetheless, the US Customs Service does occasionally useits authority for exit inspections.28CHASING DIRTY MONEYBox 3.4Pilfering by a media baronFlamboyant Czech-born British businessman Robert Maxwell used theNew York DailyNewsas a money-laundering device, funneling nearly $240 million through the tabloid’saccounts during the nine months he owned the newspaper. In an audacious embezzle-ment endeavor, he siphoned pension funds from Maxwell Group Newspaper PLC inLondon and deposited them in accounts controlled by theDaily News’sparent companyin the United States. Within days, wire transfers would move the money to hundreds ofother companies that only he could access. Maxwell engineered several bank loans tothe newspaper, large portions of which never showed up on the publication’s ledgers.After his mysterious drowning death in November 1991, allegations surfaced thatMaxwell also laundered money from weapons sales to Iran.Source:Robinson (1996).has establishments in different countries, it may serve as an unwittinginternational launderer if a customer requests that his or her credit be madeavailable in a casino establishment in another country. In addition, tokensthemselves may be used to purchase goods and services or drugs.Horse racing.Winning tickets are bought at a slight premium, allowingthe winner to collect his or her money without tax liability and enabling thelaunderer to collect a check from the track. Relevant taxes will be deductedfrom this amount.Lotteries.As at horse tracks, winning tickets are purchased from the win-ners as they arrive at the lottery office to collect their winnings. In a casebelieved to be a common type of operation, a launderer placed many low-risk bets at various bookmakers within his city, ending up with a long-term7 percent loss rate—an unusual pattern and poor record for a professionalgambler. He had the checks for the winnings made out to 14 bank accountsin the names of 10 different third parties, some of whom happened to bearmed robbers and their immediate families (FATF 2002b).Insurance PoliciesSingle premium insurance policies, for which the premium is paid in anupfront lump sum rather than in annual installments, have increased inpopularity. Launderers or their clients purchase them and then redeemthem at a discount, paying the required fees and penalties and receiving a“sanitized” check from the insurance company. Insurance policies can alsobe used as guarantees for loans from financial institutions. Many insuranceproducts are sold through intermediaries; consequently, insurance com-panies themselves sometimes have no direct contact with the beneficiary.MONEY LAUNDERING: METHODS AND MARKETS29 [ Pobierz całość w formacie PDF ]