What is Money Laundering? A Complete Guide with Examples
Criminals get large sums of money through financial crimes such as trafficking drugs or corruption, and they clean “illegally obtained money” by mixing it with authentic and clean money; the Process is called money laundering.The primary motivation behind money laundering is not submitting taxes on earnings obtained through illicit activities, and they try to escape from detection.The main reason for money laundering is to avoid getting caught or paying taxes earned through illegal activities.By hiding its origin, they create the notion that money comes from a legitimate source. They show that money comes from the businesses they invest in or own a business.This article, which provides examples of money laundering, will assist you in understanding the concept and techniques of money laundering in detail.
What is money laundering with example?
FinCEN states, “Money laundering involves disguising financial assets so they can be used without detecting the illegal activity that produced them. Through money laundering, the criminal transforms the monetary proceeds from criminal activity into funds with a legal source.”
Criminals exploit different financial platforms considered legitimate, such as “banks or businesses,” to integrate illicit funds.
Money laundering seems to be a black market technique, but many collar criminals are also involved.Influential people such as politically exposed persons (PEPs) are categorized as high-risk entities as they are expected to be involved in illicit activities.
Examples of Money Laundering
Examples of money laundering are mentioned below
Casino-Based Money Laundering
Crimals misuse the casinos for their dirty aims, like money laundering, by buying chips using cash. They create an illusion in the casino that they are here for gambling purposes, and they get engaged for a short duration.They cash out the remaining chips, and the casino issues a receipt showing its gambling income, which is legal. Thus, they make it legitimate and can show authorities legitimate sources, making tracing criminal activity challenging.
Shell Companies and Offshore Accounts
Criminals make an illusion by setting shell complines which dont exist in actuality. They only exist on paper.This money laundering scheme used by criminals assists them in transferring dirty money to mask the origin of funds using different ways, like offshore accounts.For example, a PEP transfers his money obtained through corruption into a shell company registered in another country and then withdraws it as income gained through business.
Real Estate Laundering
Real estate is an attractive business for money laundering used by criminals.They invest in real estate to make the dirty money appear legitimate. Dubai real estate is a favorite spot for PEPs and RCAs for money laundering. Another money laundering example is a criminal who buys properties with illegal money, sells them for big profits, and declares them as profit gains.
Trade-Based Laundering
Trade-Based Money laundering and what is laundering with example. Criminals use the international trade system to mask the origin of illicit funds,They generate invoices of other high-value value to mask the illegal money.A difference between the actual value and the invoice value of goods is laundered money transferred across the countries without causing tension.
Cryptocurrency Laundering
Criminals find another money laundering scheme; they use modern and digital platforms such as cryptocurrency exchanges to move and transfer the laundered money quickly. Cryptocurrency exchanges are easy to exploit as criminals convert illegal funds into cryptocurrency, transfer them into different wallets, and cash out in other currencies.
Process Of Money Laundering
Three stages are considered to be performed in the process Of Money Laundering.
Placement
In the first stage of money laundering, illicit money is introduced into legitimate financial systems, such as criminals depositing cash in banks or investing in high-value assets such as art or real estate.Criminals bypass AML regulations by depositing cash into the bank through different small transactions.
Layering
The purpose of this stage is mainly to mask the origin of funds through the service of complex transactions. For example, a criminal transfers funds through a bank, withdraws and buys real estate, and then invests in a business.
The layering process can be explained by a money laundering scheme where a person transfers money from a foreign country and withdraws it.
Later, he converted this money into a different currency and created a layer of source of funds.
Integration
The Last stage of integration is to reintroduce dirty money as clean money. Funds may be used to buy an asset, invest in a business, or buy a luxury property. Thus, illicit money looks legitimate.
Steps in Anti-Money Laundering (AML)
The Anti-Money Laundering (AML) process allows authorities to prevent and detect illicit activities like money laundering.Financial institutions and regulated businesses are mandated to comply with AML regulations and laws by FATF.
Know Your Customer (KYC)
The first Step in AML is to perform the Know Your Customer, which allows financial institutions to verify clients’ identities by collecting and verifying information such as full name, address, etc. CDD allows to asses risks associated with clients.
Enhanced Due Diligence (EDD)
EDD is conducted to evaluate high-risk clients such as PEPs.
Transaction Monitoring
Financial organizations transaction monitoring in reality to detect suspicious transactions that deviate from regular patterns.
Suspicious Activity Reporting (SAR)
A suspicious activity report is generated and submitted to the authority for further investigations.
The report covers details of clients and transactions.
Ongoing Monitoring and Review
AML compliance is not a time process; continuous monitoring of transactions is necessary to review clients’ accounts regularly, especially High-risk clients are monitored regularly to detect risks,
Training and Compliance
Financial organizations must arrange training workshops for staff to make them understand AML policies and procedures so that they regularly identify suspicious transactions and can report,
Regular internal audits are necessary to review.