The Old Methods
There are 6 basic methods and processing cogs of money laundering
Local company establishment
Offshore company establishment
Local company establishment is the age old technique of simply starting some type of business which is cash based. I can simply add cash to the drawer of my business, and as long as it is nothing that is extravagant or copious, there will not be any type of investigation or trepidation as to the origin of the money.
This method is most common throughout drug syndicates. Multiple, smaller transactions in the drug trade will result in the accumulation of multiple small bills, which can be an issue when trying to push financial assets into a singular account.
Banks are restricted also with respect to multiple privacy laws. All banks that are in this nation are limited by The Banking Secrecy Act. This allows your bank to exempt you from filling out currency transaction reports (CTRs) if your deposits or withdrawals of currency fall into any of the following categories (see 31 C.F.R. 103.22(b)(2)(1992)):
1) They are made from an existing bank account, and you are an established U.S. depositor who operates a “retail type of business”. This means that you sell consumer goods for which payments are substantially in the form of currency, just as long as you are not an automobile, aircraft, or boat dealer.
2) They are made from an existing bank account, and you are an established U.S. depositor who operates a sports arena, race track, amusement park, restaurant, hotel, check cashing service licensed by state or local governments, vending machine company, theater, regularly scheduled passenger carrier, or public utility.
3) You are a local, state or United States governmental agency or instrumentality.
4) They are made from an existing bank account, and you are an established U.S. depositor who regularly withdraws more than $10,000 to pay your employees in currency.
Offshore company establishment is one of the oldest methods of money laundering, it involved investing money in companies in specific countries where the secrecy relating to that company is guaranteed. In another legal transaction following, they can simply take out loans from that company, draining out the dirty money. This is also a very methods because of the nature of the loans. There can be interest charged on the loan (with the loan being your money) allowing them to gain tax relief on the loan repayments. An example of a company that used the offshore company establishment method (not specifically a loan oriented company) was the Bronfman family of Canada.
Exporting alcohol to the U.S. was not illegal in Canada; it was only illegal to import it from the U.S. side. Naturally those writing checks to pay for imported Canadian booze didn’t like to be so obvious as to make them out to Bronfman. So the Bronfmans opened up an account at the Bank of Montreal under the fictitious name “J. Norton”. Since no one knew anything at all about J. Norton, money could be wired to this account from the U.S. Or U.S. cash or checks could be used to purchase a bank draft made out to “J. Norton” at any branch of the Bank of Montreal. These drafts could then be deposited into the bank account of any Bronfman-controlled company. The company treasurer would see the name “J. Norton” and credit the payments to the company’s U.S. account.
Export-import invoices are another method used by money launderers. By overvaluing goods, the launderer can move financial assets from one company in a certain country to another. Then, the financial institutions that the money is being transferred to have a paper trail to follow which is completely legal. Cash can also be deposited into a legitimate bank.
Smurfing involves the use of multiple cash deposits. Basically, for a large sum of money, the bank when receiving the deposit has to record it. If the size of the amount being deposited is under the referencing requirement, then there is no reason for the bank to be concerned about where the origin of the money is from. Also, there are multiple laws which protect consumers against banks investigating consumers income (as stated in the portion of this essay above). With the use of multiple accounts spread across an arbitrary distance, each under the cash requirement, there is a good chance that financial assets can be hidden.
Bartering stolen goods is another method. Taking a highly desired, luxury item such as an automobile or rare objects and exchange them for illegal substances. This can be within national borders, or it can be a domestically desired transaction.
The last method, bank falsification, requires either a huge amount of primary investment, or connections to someone that has taken the step to institute the aspects of this method. Basically, there needs to be bank owned by launderers, which is not that uncommon. Banks that are off the shelf are often purchased in varying tax havens. Money is primarily deposited into the corrupted bank, and then can anytime be transferred over to a legitimate bank. The paper trail at this point is not even an issue, as the bank create any paper trail that they wanted because they are in complete control of the bank.