General Money Laundering Information
Money Laundering is habitually an over-looked part of our financial system; generally it is not something that is often conferred about on the financial news network. However that some might not consider laundering a large scale economic and financial problem, a brief look at recent statistics reveals evidence of a situation that is quite the contrary. Even though laundering occurs outside of the normal range of economic statistics, there are still rough estimates that have been taken. In U.S. dollars, 590 billion and 1.5 trillion is laundered per year, that’s two to five percent of the world’s gross domestic product. The lower figure is roughly equivalent to the value of the total output of an economy the size of Spain. There are two main types of laundering, one old and physical, the other new and generally unexplored, entertaining the electronic, and providing lucrative opportunities for criminal activities to disguise illegally gained funds. In order to understand any of the methods that are used, some terms and general processes need to be discussed.
There are three main steps to launder money correctly: Placement, Layering, and Integration. These are the steps that lay the basis; they are the groundwork from which more advanced methods are built from.
Placement is the primary step in the laundering cycle, it is where the monies are put into the financial system, placed into the retail economy, or smuggled out of the country. Generally, in this stage we are looking to shift the money out of it’s origin of location, in the best case scenario changing it into a varying asset form such as checks or orders.
Layering is the second step in the process. Generally, it is the first attempt to conceal the origins of the large quantity of funds. One will create complex layers of financial transactions, making it possible to remain anonymous. Audit trails get more and more complex, and it becomes more and more difficult to trace the source of funds.
Integration is the last part of the laundering process. It is where it is wished to make the money a legal asset, where the money is “integrated” into the legitimate economy, weaving it with officially permitted assets. In aggregate, we are trying to make it so that the money appears to have been earned. If the money has made it this far, it is very difficult to assert whether the money has been gained by legal or illegal means.
From this foundation, it is possible to build up more complex methods. Obviously, the above methods don’t provide any type of concealment, they are just the wiring that is in place that holds the procedure together, they don’t describe any exact methods. The following five are common, often used terms and processing cogs of laundering.
5 Basic Terms And Processing Cogs of Laundering
Smurfing is taking multiple small units of cash deposits out of a larger quantity. All of these deposits are a certain amount under the miniumum cash requirement that would otherwise require that the deposit be recorded and reported to a banking authority.Misinvoicing
Misinvoicing of exports and falsification of import letters of credit and customs declarations can conceal cross-border transfers.Bartering
Trading of stolen property (e.g., antiques or automobiles), across national borders or domestically, for illegal substances.Parallel Credit Transactions
Parallel Credit Transactions can be used to avoid the formal economy, except for the final use made of the net proceeds of illegal activity to purchase legally marketed goods and/or services.
Interbank Wire Transfers
Interbank Wire Transfers may not be subject to reporting on money laundering. Bribery of bank officials can thus make it easier to conceal large illegal transfers between accounts.
Derivatives that replicate insider trading opportunities (i.e. a synthetic version of a company stock subject to merger or takeover) can be used to avoid detection of an unusual change in a listed stock price.