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Examples of money laundering

Currently, criminals use different ways to carry out illegal activities that are associated with money laundering and terrorist financing in this article we will give examples of the methods of money laundering.

Drug traffickers, smugglers or people who are associated with criminal organizations use different modalities to launder money and prove their profits as legal to evade the authorities. We have written an article how money laundering affects the financial system of a country in turn show the risks that are associated with this.

To avoid falling into this type of business that often has the appearance of legality. It is important that you be well informed so that you are not a victim of the crime of laundering.

Examples of money laundering

1. Fictitious service exports

They pretend service sales justifying the difficulty of quantification , with this they argue the refund of foreign currency that once legalized to the local currency is distributed to natural persons incurring money laundering. Example of the method of money laundering is the Moldavian scheme.

 

In 2016, 23 billion dollars were laundered from Russia through commercial banks of Moldova . This is how the circuit works.

 

The conditional Russian company KhlebMoloko enters into a contract with the foreign firm BurgersPivo for the supply of bread and milk from Russia to another country. The agreement prescribes the resolution of conflicts through the court or by settlement.

 

KhlebMoloko did not bring the order, therefore Burgers of Beer make a claim and demand their money and forfeit back. BreadMilk agrees with the claims and offers to compensate for the loss with money. Further the court, writ of execution and bailiffs. All the money went to BurgersBeer. At the same time, “Bread, Milk, Burgers and Beer” are all interested parties and participate in the same scheme.

A distinctive feature of the scheme is the presence of a guarantor in the person of a citizen of Moldova. Since a Moldovan citizen is present in the transaction, the case is pending in a Moldovan court. The bribe judge makes a decision obliging the Russian company KhlebMoloko to pay off the debt to the foreign company BurgersPivo. After that, a bailiff employee, who is a participant in the scheme, opens an account with a private bank Moldindconbank, where the HlebMoloko company transfers money, automatically legalizing it.

 

According to the Central Bank, in 2012-2014, according to the Moldovan scheme, about 23 billion dollars were laundered from Russia.

2. Acquisition and real estate construction

This consists of the purchase and construction of various types of properties, from residential buildings, to luxury hotels.

With this method, they meet the objective of  legalizing their income, stating that they are coming from their constructions. Under this measure, unusual operations are also generated   in the invoices, having as allies construction companies and material distribution companies.

The hotels located in tourist places are the most striking, since it is where there are high volumes of visitors and it is where more “income” can be registered. Therefore, it is not only financial institutions should take care of these types of crimes. Real estate companies should also have a money laundering and terrorist financing prevention system  .

Example an investigation by The New York Times in 2015 showed that shell companies that did not disclose customer data owned a huge amount of luxury real estate in the United States. Sellers are not interested in the source of funds, as this is not required by law. As journalists found out, 37% of elite apartments in the multifunctional complex Time Warner Center in New York belong to foreigners. These are residents of Russia, China, Colombia and Mexico.

This does not mean that all these apartments were purchased for the purpose of money laundering, but the ability to hide their data when buying real estate guarantees the movement of shadow income there

3. Purchase of lotteries or fictitious prizes or casinos 

The criminal organizations are always looking for winners of these millionaires awards in order to contact them and offer them buying the winning ticket in exchange for sums to pay higher money they will receive from the entity in charge of the game.

Once the winner accepts this exchange, what they receive in exchange are goods or money associated with money laundering and sometimes prizes of lies that were granted abroad and would have legal provenance to be admitted to the country.

It is very common for ordinary people to enter the casino with bad money to dump it into the financial system. If I find a certain amount of cash, I’m going to find a way to convert it and try to introduce it to the financial service, because one of those means is undoubtedly the casino sector. In what way? a casino with my cash and I change that money in exchange for chips. They give me the chips, I have to play and after a while I give the chips with a margin of loss so that I am not too suspicious. The casino gives me a check and at the moment I have a financial instrument in my hands, hypothetically I already washed money because I managed to introduce it to the legal system. On the part of casino users, this is the most common way to launder money. 

For example, I am a drug dealer and I have 50 million dollars that I want to launder, I process a permit, I put my casino and since a lot of money is handled, I can make casinos the screen company to justify the income that comes from illicit . What we have to make clear that per se, the game activity is not bad as long as it is lawful, because it generates income and jobs. Now, it should be better monitored when the problem is that it is known that casinos are used, like other companies, for washing Because a continuous washing activity, generates the worst that a country can have, such as the high risks of economic instability.

4. Transfers

In this modality people lend their name and documents to make numerous remittances a year for amounts of money not too high to avoid suspicion, by doing this they earn a commission. They are commonly known as “smurfs.”

5. Fictitious exports of goods

The number of exports that are made are lower than those actually being declared. In some cases what they do is register the sale , but in reality it was never carried out.

 

6. Illicit funds

Most of the time criminals look for recognized and reputable organizations, but are presenting financial problems to offer them help and share illicit capital with money that comes from legal business , in order to rescue them from their financial problems.

 

7. Infiltration in organizations

Organizations dedicated to money laundering infiltrate legally constituted companies to intervene in the operation and in the financial system, allocating resources for the creation of new companies.

8. Fictitious Foreign Investment

Local companies that are having financial problems receive financial support from organizations abroad to carry out charitable projects . The company that is receiving the aid obtains the currencies through exchange intermediaries and legalizes them to the local currency. This money is used for payments that have nothing to do with the proposed objectives. About $ 15 trillion of foreign direct investment (FDI) in the world is fictitious, according to a joint study by the IMF and the University of Copenhagen. This amount is comparable to the annual GDP of China and Germany.

It is indicated that fictitious FDI accounts for almost 40% of the total global direct investment, this amount grew by 10% in less than a decade.

According to the study, a significant part of fictitious FDI is concentrated in well-known tax havens: Luxembourg, the Netherlands (almost half of the volume of fictitious PIDs is concentrated in these two countries), Hong Kong, the British Virgin Islands, Bermuda, the Cayman Islands, Switzerland, Ireland and Mauritius For the most part, the concentration of fictitious FDI in these places is connected with a well-thought-out political strategy, which is to attract as many foreign investments as possible, in particular, due to a zero or very low corporate tax rate, experts say.

9. Substitution of external debt

Companies with the ability to export locally and that have portfolio problems abroad obtain aid from criminal organizations that buy the debt at a discount, once this happens, the company’s financial institution receives a payment order from abroad. The buying organization receives the currencies through intermediaries of the exchange market and converts them into local currency.

10. Broker weight

A financial intermediary contacts an illegal company abroad with a natural person in the country requesting foreign exchange. The criminal organization does the job of putting the currencies and the person makes resources available to the local company.

11. Hawala

 

The history of this term goes back many centuries. Translated from Arabic, “Hawala” means a bill or receipt – the word appeared in the eighth century before the birth of the banking system. In essence, this is shadow banking. The main feature is that all financial transactions occur at a confidence level. Hawala is popular in Africa, Asia and the Middle East. In India, such translations are called Hundi. It works as follows.

 

A person comes to a broker to transfer money to another country. The broker gives him the secret code. Previously, it could be anything, for example, a drawing or a symbol. Now they often use the numbers from the bill and transmit them by phone or email. Next, the person reports the code to the trustee. It comes to the right broker, reports the code and receives the money. Sometimes in this way money does not even leave the country, and settlements between brokers are carried out by mutual settlements. Such transfers cannot be traced in any way.

 

In 2013, the FATF (International Anti-Money Laundering Organization) released a report that talked about the impact of the Hawala system and similar ones on the money laundering industry. Tracking Hawala is almost impossible; according to the FATF report, it can take from 10% to 50% of the total mass of cash transactions. To find out its role in money laundering for this reason is also problematic.

After the terrorist attack of September 11, 2001, the United States paid close attention to Hawala and suspected this scheme of supporting and financing terrorist organizations.

12. Use of border money changers

The currencies enter the country in cash and it is handed over to the money changers so that they can then transfer them to dollars, once this task is done they are changed to dollars and deposited in the accounts of non-existent companies. This money is withdrawn through the issuance of checks, used for sending transfers under the argument of payment of suppliers.

13. Tax havens 

Increasingly scarce, these paradises are places that most washing machines dream of reaching. There are no taxes paid by foreign investors or those with agreements with any entity of that origin. Nor do visitors who create bank accounts, allowing their money to be protected and without legal implications.

One of the aspects that motivates scrubbers to use this strategy is that there is a great absence in the supervision of individual assets .

 

14. Creation of “ghost” companies

The creation of these companies is a solid strategy for criminals. There are washers that create companies, pass monthly income reports and pay some taxes, which allows them to be established as a stable and functional company .

But the surprise is that many of these do not open in years, as they are only facades to show that income is being generated from the sale of a good or service and expenses from the purchase of new material or payroll payments to employees.

15. The washer

The washers who have considerable sums of money, but not exorbitant, are those who use this modality.

The testaferrate allows criminals to  distribute their money among several people , usually friends or family, so that they can create bank accounts with the amount given to them. In order not to generate suspicion,  care is taken that the accounts do not exceed the limits of money that must be declared by each nation.

The washer is mainly used by those who start in the business.

16. Art

Art is practically not regulated by law , its prices can be flexible, and the buyer can remain anonymous.

In 1982, the Brazilian banker Edemar Cid Ferreira brought to John F. Kennedy International Airport in New York a parcel with a painting worth $ 100. Soon, law enforcement agencies found out that this painting “Hannibal” was authored by the American artist Jean-Michel Basquiat worth eight million dollars. Thanks to the criminal scheme hidden behind interest in art, Edemar laundered more than $ 50 million and collected a collection of 12 thousand paintings. In 2006, Ferreira was sentenced to 21 years in prison for fraud, tax evasion and money laundering.

In the United States, work is underway to return the illegally acquired art to its homeland. For example, actor Nicolas Cage agreed to return to Mongolia a dinosaur skull illegally exported from there. And in 2015, the painting by American artist Jean-Michel Basquiat “Hannibal” returned to Brazil.

Since US banks must report any manipulations worth more than ten thousand dollars to the government, when buying works of art, they use a lot of deposits worth less than ten thousand dollars or offshore accounts.

 

17. Virtual currencies

In 2014, the FATF published a report on the impact of virtual currencies on money laundering. It is mainly devoted to clarifying the concept of virtual money and potential risks in the field of legalization of shadow income. It also talks about the complexity of controlling and tracking virtual currencies for law enforcement.

Liberty Reserve is an online payment system registered in Costa Rica. Its main function is to transfer funds. Registration required a name, email and date of birth. There was no user verification, which attracted many participants. At the time the service was closed, more than a million people registered in it. During the existence of the project, more than 55 million operations were carried out, and inside the system, its own currency, Liberty Dollars / Euro, was functioning, tied to the dollar and euro.

In 2013, U.S. prosecutors filed a lawsuit against seven Liberty Reserve executives for money laundering and remittance transfers without a license. According to the investigation, more than six billion dollars were laundered with the help of Liberty Reserve.

The U.S. Treasury Department disconnected Liberty Reserve from the U.S. finance system, and in May 2016, service founder Arthur Budowski was sentenced to 20 years in prison.

At the moment, the fight against money laundering does not bring much success. Despite the fact that the phenomenon of this criminal sphere has been more than 80 years old, regulation at the legal level appeared a little more than 30 years ago. The FATF is actively working on this issue, but its reports mostly come down to clarifying the situation of money laundering in the world. In turn, the development of the Internet, cryptocurrencies and the popularity of offshore zones have modernized money laundering schemes, complicating the process of tracking and solving crimes in this industry.

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