How does money laundering work Delena D. Spann
As one of the most notorious gangsters
in history,
Al Capone presided over a vast
and profitable empire of organized crime.
When he was finally put on trial,
the most he could be convicted of
was tax evasion.
The nearly $100 million a year,
that’s 1.4 billion in today’s currency,
that Capone had earned from
illegal gambling,
bootlegging,
brothels,
and extortion,
would have served as evidence
of his crimes.
But the money was nowhere
to be found.
Capone and his associates had hidden it
through investments in various businesses
whose ultimate ownership
couldn’t be proven,
like cash-only laundromats.
In fact, those laundromats are part of
the reason for the name of this activity,
money laundering.
Money laundering came
to be the term for any process
that cleans illegally obtained funds
of their dirty criminal origins,
allowing them to be used within
the legal economy.
But Capone wasn’t the first
to launder money.
In fact, this practice is about
as old as money itself.
Merchants hid their riches from
tax collecters,
and pirates sought to sell their bounty
without drawing attention
to how they got it.
With the recent arrival
of virtual currencies,
offshore banking,
the darknet,
and global markets,
schemes have become much more complex.
Although modern money laundering
methods vary greatly,
most share three basic steps:
placement,
layering,
and integration.
Placement is where illegally obtained
money is converted into assets
that seem legitimate.
That’s often done by depositing funds
into a bank account
registered to an anonymous corporation
or a professional middleman.
This step is where criminals are often
most vulnerable to detection
since they introduce massive wealth
into the financial system
seemingly out of nowhere.
The second step, layering, involves
using multiple transactions
to further distance the funds
from their origin.
This can take the form of transfers
between multiple accounts,
or the purchase of tradable property,
like expensive cars,
artwork,
and real estate.
Casinos, where large sums of money
change hands every second,
are also popular venues for layering.
A money launderer may have their
gambling balance made available
at a casino chain’s locations
in other countries,
or work with employees
to rig games.
The last step, integration, allows clean
money to re-enter the mainstream economy
and to benefit the original criminal.
They might invest it into a legal business
claiming payment by producing
fake invoices,
or even start a bogus charity,
placing themselves
on the board of directors
with an exorbitant salary.
Money laundering itself
wasn’t officially recognized as a federal
crime in the United States until 1986.
Before that point, the government
needed to prosecute a related crime,
like tax evasion.
From 1986 on, they could confiscate
wealth simply by demonstrating
that concealment had occurred,
which had a positive effect on prosecuting
major criminal operations,
like drug traffickers.
However, a legal shift has raised concerns
involving privacy
and government surveillance.
Today, the United Nations,
national governments,
and various nonprofits
fight against money laundering,
yet the practice continues to play
a major role in global crime.
And the most high-profile instances
of money laundering
have involved
not just private individuals,
but major financial institutions
and government officials.
No one knows for sure the total
amount of money
that’s laundered on a yearly basis,
but some organizations estimate it to be
in the hundreds of billions of dollars.