Money Laundering

In America, wire fraud is any intentional scheme meant to deprive another individual of property or services via wire communication.

The full statute reads what anyone who devises or intends to devise a scheme to defraud through false pretenses or promises, transmits electronically with the intention of carrying out the plan will be imprisoned for up to twenty years. If the target of the fraud is a bank, credit union or other financial business, the individual perpetuating the scheme will be fined not more than $1 million, imprisoned for not more than thirty years — or both.

While mail fraud applies to domestic mailings within the U.S., wire fraud has been legislated by Congress to include foreign wire communication or connections through such means as an email server, telephone switch or radio communication.

One relatively recent development in money laundering involves the purchase and resale of real estate. An individual will set up an LLC that acts on behalf of the holders’ interests. While an LLC can own property, enter into agreements and create accounts, it also avoids the tax obligations that go with being a corporation as well as the legal filing requirements.

Through the protection of the LLC, the individual will purchase property, usually in cash which has been generated by illegal activities, and then resell, or “flip” it, as soon as the closing is completed. Once the resale is completed, the original buyer now has their financial assets compartmentalized from criminal activity, and it can be placed in the traditional financial market.

Some of the criteria that investigators look for:

1. The finances come from a region and country that is known for weak anti-money laundering laws
2. A Limited Liability Corporation (LLC) or partnership is used to hid the identity of the individual controlling the property
3. Names should be checked against the OFAC
4. The deal in question undervalues the property
5. Cash is brought to the closing
6. Buyer pays all cash, and the amount doesn’t meet their personal characteristics or occupation
7. The purchaser resells the property almost immediately
8. The buyer does not take time to see the property and/or is not interested in the property’s features

Money laundering as an integrate part of terrorism stepped into the spotlight in America after 9/11. To make sure there was a sufficient amount of monitoring by financial institutions, the US Government made sure to include clauses in the USA Patriot Act which dealt with the financing of terrorism and anti-money laundering laws. The law also reached outside of American borders and American banks requiring extra-territorial banks to upgrade their processes.

At first, the focus of the regulatory efforts was non-profit groups and unregistered money service businesses. The Financial action Task Force developed specific recommendations, and these nine recommendations have become the standard for global banking.

Funds can be laundered online through fraudulent auctions, online sales, gambling websites and online gaming. A current example of laundering is Liberty Reserve (LR). LR allowed cyber crooks to launder illicit funds in large amounts — some law enforcement agencies put the total at over $6 billion (USD).

Other methods of payment that have the potential to be utilized by cybercriminals seeking to launder money are Bitcoin, Second Life’s online currency, and the Linden dollar. Others also use prepaid payment cards, various kinds of e-money, PayPal accounts and payments made over mobile phones.

The laundering of money over through the Internet and cellular services is easy because of the increasing demand for peer-to-peer financial transactions where finances are transferred directly from individual to individual without going through a financial institution. Even if funds did go through a third-party, such as a bank, the funds won’t always alert the detection software.

Illicit funds can be moved around the globe quickly and cyber-criminal proceeds get laundered or delivered to terrorist organizations in ways that escape the attention of law enforcement.

A raid on money laundering sites in Los Angeles in 2012 focused attention on alternatives to financial institutions for laundering drug money. Law enforcement officers in Los Angeles arrested nine people and seized over $70 mill in cash during raids on several businesses in the cities’ Fashion District.

As more restrictions are put on financial institutions, more traffickers are avoiding the need to carry large amounts of US cash across the border or having to channel the funds through banks. Using businesses, such as those in the Fashion District, helps avoid drawing the attention of law enforcement.

Corporations can launder money in many of the same ways as individuals. However, most corporate money laundering does take different forms that can be categorized into one of a few types. The most common are:

■ Structuring. Also known as smurfing, structuring is a means of dirty money placement where cash is split into smaller deposits so as to defeat suspicion of money laundering. Corporations also use a sub-component of smurfing that makes use of smaller amounts of cash to invest in bearer instruments such as money orders that are then deposited, again in small quantities.

■ Bulk Cash Smuggling. Physically smuggling currency to another jurisdiction using existing corporate shipping methods and ultimately depositing the funds in an offshore bank.

■ Cash-Intensive Business. A cash intense business may use its accounts to mix and depositing both legal and illegal money and claim all of it as legitimate earnings. Service businesses, which have no varying costs, are best for this method. Detecting variables between revenue and cost can be difficult as well, thus enhancing the money laundering efforts.

■ Trade-based Laundering. Trade-based laundering calls for the corporation to either over or under value invoices and disguise the transfer of currency.

■ Round-Tripping. Finances are deposited in an offshore company where minimal records are maintained. The money is then shipped back as a direct investment which makes it exempt from taxes. One variation is to send financial assets to a law firm as funds on account and then cancel the retainer. When the money is returned, the money launderer can say the funds received from the attorneys are proceeds from litigation.

Tax evasion and money laundering go hand-in-hand. Naturally, if someone — or a business — is laundering money, they won’t report the extra income to the Internal Revenue Service. Tax evasion is a deliberate underreporting of revenue.

Tax evasion is most likely first to be spotted during an audit. The auditor can either penalize with a fine or refer the case to the Internal Revenue Service’s Criminal Investigation Division, or CID.

Depending on the unique situations of each case, prosecutors have been known to forego money laundering charges and pursue tax evasion charges as the latter, sometimes, is easier to prove.

Al Capone, one of America’s most notorious mobsters during prohibition, was finally sentenced to 11 years in federal prison for — tax evasion.

Insurance fraud is another crime that is often found co-existing with money laundering. With the numerous schemes available matched with the large dollar amounts, insurance fraud is an increasingly favorite way to turn illegal dollars into legitimate finances.

One scheme is staged collisions where the money launderer uses a vehicle to stage an accident. Usually, there are several fraudsters in the vehicle that makes an unexpected move which causes an innocent individual to collide with the fraudsters car. Each of the fraudsters files insurance claims for injuries that are usually a whiplash or other soft tissue injuries.

With the help of a hired “doctor,” the insurance pays off the claim, the proceeds are mixed with laundered money and then transferred into the legitimate economy.