Most thoughts of money laundering conjure up anti-hero leads of modern TV dramas, funneling money through businesses or “mules” for their latest scheme-of-the-episode. In the real world, money laundering is a serious problem. According to the 2018 report, National Money Laundering Risk Assessment created by several agencies of the US government, laundered funds potentially total up to $300 billion per year.
The unfortunate truth is that many people accused of money laundering crimes were unwittingly involved, either through being schemed or by the nature of their work. Regardless of intent, if convicted you can face severe punishment including imprisonment and steep fines of up to $500,000 or twice the amount of the illicit funds.
By understanding how these schemes work, you can look out for the warning signs to protect yourself or your business from falling into a money laundering trap.
What is money laundering?
The definition of money laundering may be unclear to those outside financial positions. To put it simply, money laundering is when funds gained through illegal means are reintroduced to the financial systems in a way that avoids the attention of banks or law enforcement.
It’s referred to as “laundering” because the dirty funds—ones obtained outside the law—are funneled through other means to appear legitimate or “clean.”
Generally, this is done through three main steps: placement, layering, and integration.
The first step is to move illegally obtained money back into the financial system. This is the most difficult step, and the majority schemes are caught at this level. Since the culprit is moving large sums of money, it is introduced into the financial system slowly to not raise suspicion through small deposits.
One way this is done is through a “front” business, where they report higher daily sales than actually obtained to gradually work the illicit funds in. Another way is through “smurfing,” where accomplices assist in making small deposits to multiple accounts.
Once the funds have been introduced, they must be slowly concealed by moving the funds to blur their original source. Illicit gains may be hidden in investments, shell corporations, or through purchase of luxury goods.
Now that the money is legitimized, funds can be cautiously withdrawn through stock dividends, cash outs, and asset sales. At this point, it is difficult for officials to determine the original source of the funds, but there is still a level of risk as banks continue to monitor deposits and report potential fraud.
Alternate means of laundering funds
While the three steps to money laundering are the most well-known way that funds are cleaned and moved around, there are other variations as well.
Money is transferred either using currency exchanges, shell companies, wire transfers, or even smugglers across international lines.
Cryptocurrency and online currency
This is a relatively new method of money laundering that involves converting funds into cryptocurrencies like Bitcoin or credits in online games before being converted back to actual funds.
In spring of 2020, a New York man was charged for a Bitcoin scheme which totaled more than $94 million. His scheme involved stealing credit card and personal information online, selling it on the dark net, and laundering the money through Bitcoin, banks, and cash transactions.
Who is at risk?
When you look at the definitions for money laundering in print, it seems fairly cut and dry. If you aren’t trying to commit a white collar crime, you aren’t at risk, right?
Unfortunately, it isn’t as simple as it seems. Many law-abiding citizens are unwittingly pulled into money laundering scams and schemes. Though they may have thought they were simply doing business, work, or getting a new job, these schemes can lead to potential legal troubles.
Small business owners are especially at risk of becoming targets for money laundering schemes. It is thought that most small business owners lack the time, resources, or expertise to understand a risky business relationship.
When working with clients and businesses, be on the lookout for potential red flags, such as:
- Unrelated or unusually large transactions
- Large one-time transactions
- Representatives that are dodgy when providing business information or explaining their professional activities
- Non-profit organizations state an activity that is not represented in their transactions
Financial workers are accustomed to handling large transactions but must remain vigilant to protect themselves. While banking institutions have robust anti-fraud measures, it’s important to follow proper reporting law and keep a watchful eye while conducting business.
Some potential red flags in the financial sector are:
- Transactions that don’t match a client’s personal or business means
- Inaccurately or improperly documented transactions
- Requests to send proceeds from investment sales to a third party
- Large payments from abroad
- Currency purchased significantly above or below value
- Companies that appear to have no real business purpose
A form of money laundering scheme that has risen with the popularity of the internet are too good to be true “work at home” scams. These job postings draw in unsuspecting folks to process payments through their personal bank account. Normally, the employer claims to be a foreign national.
To protect yourself from online schemes, be sure to:
- Understand that positions transferring money would never ask to use your personal bank account
- Do thorough research on any work at home opportunity
When to consult a lawyer
Money laundering crimes are a serious offense that can bring federal charges, imprisonment, and steep fines. If you find yourself under investigation or victim of a scheme, contact an attorney with experience in money laundering and criminal defense immediately.
Money laundering law is a complex matter that requires legal advice and guidance throughout the process. The lawyers at Wampler & Passanise have the experience and expertise to provide the counsel you need. For more information, click here or call 417-427-6800.