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Money laundering is the disguising of the existence, nature, source, ownership, location,
and disposition of property derived from criminal activity. The criminal is trying to disguise
that the funds exist, where they came from, how he acquired them, who owns them, and where
they are located. That is the essence of money laundering -- hiding and disguising illegal
funds.
Money laundering consists of three stages – placement, layering, and integration.
Placement of funds into a financial institution is the initial step in the process. It is
at this step that legislation has been developed to prevent launderers from depositing or converting
large amounts of cash at financial institutions or taking cash out of the country.
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If the placement of the initial funds goes
undetected, financial transactions can be designed in complex patterns in order to prevent
detection. This stage of the process is referred to as layering and represents the most difficult
area of detection. The more layers, the harder it is to trace the funds, particularly if
the money is moved offshore.
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It’s also hard to store and transport large amounts of cash.
That’s why many criminals seek to launder their ill-gotten gains.
For example, purchasing a $50,000 automobile
using cash would arouse suspicion, and the transaction would have to be reported by the
car dealer to the government. However there are other instances where an
individual seeks to launder funds just to disguise the location.
For example, if you want to hide funds from your spouse pending a divorce,
hide money from judgment or bankruptcy creditors.
Laundering can also be used to make many types
of illegitimate income (such as through fraud; kickbacks, bribery; securities manipulation)
appear legitimate.
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The objective of money laundering is to get illegal funds back into a legitimate financial system.
This is not as simple as a criminal taking profits from the illegal activity,
and depositing them in the local bank. That simple path would likely result in the capture
of the criminal and the end of the activity. Inherent in the laundering process, is the
requirement that the origin and ownership of the funds or assets be concealed.
As a forensic investigator, you have to understand the intent to disconnect the funds from the
origin and owner. At the same time, the owner has to maintain control the funds, so an indirect
connection will continue to exist. Another laundering issue is the physical presence
of the cash or asset. Part of the laundering process involves storage and transport of
currency and other valuables. Earlier today, we discussed a large cash confiscation that
weighed over 4500 pounds, or over 2000 kilograms. As in investigator, it is important that you
understand what you are looking for – if you are looking for US currency, each note
weighs approximately 1 gram. Other currencies, such as the Euro, vary in weight by the bill
size and denomination. While smaller denominations are easier to disseminate back into circulation,
larger bills are easier to use when concealing large values for laundering.
To be charged with money laundering, in general, you must meet several criteria.
First, is the source of the money an SUA?
- A Specified Unlawful Act?
If the source is not a specifically listed SUA, there is no violation.
Second, does the perpetrator know the source of the proceeds? Willful blindness is not
a defense but in some cases, a party to the money laundering act does not know its source.
Third, did the money launderer conduct, or attempt to conduct a financial transaction.
Although overly simplistic, the financial transaction is the attempt move the money
in such a way to make it appear to come from legitimate sources.
Finally, did the money laundering use the laundered funds to promote the SUA, evade
taxes, avoid currency reporting requirements
or conceal the nature, source, ownership or
control of the money.
As an example consider – Joe…
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Joe is indicted for arson and mail fraud
He burned his commercial building
He filed a claim with the insurance company
The claim was mailed
As part of the claim he stated he did not
know how the fire started.
He stated he did not cause the fire.
He received the check from the insurance company
He deposited the check into his bank account
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Now, let’s examine the four criteria:
First, are the proceeds from an S.U.A.?
Yes – mail fraud and arson are both SUAs
Second, did Joe know the proceeds were from an illegal activity?
Dr. Richard Riley, Ph.DLouis F. Tanner Distinguished Professor of Public Accounting
Dr. Richard Dull, Ph.DGoMart Professor in Accounting Information Systems
John Gill, J.D., CFEVice President - Education
