Money laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.
There are three steps involved in the process of laundering money: placement, layering, and integration. Placement refers to the act of introducing dirty money (money obtained through illegitimate, criminal means) into the financial system in some way; layering is the act of concealing the source of that money by way of a series of complex transactions and bookkeeping gymnastics; and integration refers to the act of acquiring that money in purportedly legitimate means.
One of the more common ways that laundering takes place is when a criminal organization funnels their illegally obtained cash through a cash-based business, slightly inflating the daily take. These organizations are often referred to as “fronts.” In the popular television series “Breaking Bad,” the methamphetamine dealer funnels his earnings from selling illicit drugs through a series of car-wash businesses.
Other common forms of money laundering include smurfing, where a person breaks up large chunks of cash and deposits them over an extended period of time in a financial institution, or simply smuggles large amounts of cash across boarders to deposit them in offshore accounts where money laundering enforcement is less strict.
Some estimate the size of the problem of money laundering as being over $500 billion annually. Although the act of money laundering itself is a victimless white-collar crime it is often connected to serious and sometimes violent crime. Being able to stop money laundering is in effect, being able to stop the cash flows of international organized crime.
In 1989, the Global 7 formed an international committee called the Financial Action Task Force in an attempt to fight money laundering on an international scale. In the beginning of the 2000’s its purview was expanded to combating the financing of terrorism.
The United States passed the Banking Secrecy Act in the 1970’s requiring financial institutions to report types of transactions to the Department of the Treasury, like cash transactions above a $10,000, or any transactions they deem suspicious on a report called an SAR (suspicious activity report).
The information that these banks provide to the Department of the Treasury is then used by the Financial Crimes Enforcement Network (FinCEN), where it can then be sent to domestic criminal investigators, international bodies, or foreign financial intelligence units. While these laws were helpful in tracking criminal activity through financial transactions, money laundering itself wasn’t made illegal in the U.S. until 1986 with the passage of the Money Laundering Control Act. The new law removed limits on the amount of money involved, and it also removed individual intent to give the federal government more room to prosecute money laundering.
In many ways, the new frontier of money laundering and criminal activity lays in crypto-currencies. While not totally anonymous, these forms of currencies are increasingly being used as currency blackmailing schemes, drug trade, and other criminal activities due to their anonymity compared to other forms of currency.
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