Money Laundering a Primer

Outside of the traditional and regulated world of commercial methods of money transfer a vast underworld exists wherein wealth in fungible form is moved geographically and illegally. Forging resistance to the destructive outcomes of uncontrolled money laundering, the Congress of the United States passed the Money Laundering Act of 1983 and began an ongoing and vital war between governments and criminal enterprise. The purpose of money laundering is to disguise the origin of money and move it into the mainstream of financial dealings. It is the process of disguising origins and morphing value (money) into regulated and transferable depositories of value and wealth. There are a vast number of agencies and treaties and undertakings by and between governments to uncover and combat money launderers. In the United States a most commonly seen example of money laundering are the expensive private residences in New York, New York, Miami, Florida and (surprisingly and of recent note) luxury waterfront properties in Palm Beach and Boca Raton, Florida.

An alphabet soup of governmental sponsored agencies exist now. To name a few there is FATF (Financial Action Task Force) created by the G-7 Summit of 1989, FinCen (Financial Crimes Enforcement) FSA (Financial Services Enforcement) The Bank Secrecy Act, The PATRIOTS

Act, and an almost endless list of non-governmental organizations and regulatory agencies in the finance industry, real estate and banking.

The purpose of money laundering is to launder dirty money so it comes out clean: clean meaning used to buy and own things of value. Money Laundering is easier to understand if you see the process of laundering money. For understanding purposes think: step one is money that comes from a crime. Crimes include the obvious ones of drug trafficking and murder for hire, but includes Russian oligarchs who were gifted the assets of the Soviet Union when it decomposed from State ownership of the means of production to private non-government ownership. Now the money is “placed” which means moving the money into the financial system. Next comes “layering” which is the process of disguising the origin by creating a series of paths and transfers that make it impossible or just plain difficult to trace and track the manifold movements. Disguising ownership through legal entities with no existence is part of the process of layering, or laying on confusion. The final step is “integration” when the laundered money is used to buy things like homes, financial instruments, a competitor’s company, corporate assets, jet planes…anything that money can buy.

Those who work in the field are considered Anti Money laundering professionals. Banks, Casinos, money changers, auto agencies in fact any entity which buys, sells or transfers money across international borders. There is also a burgeoning field of money laundering known as “Trade Based Money Laundering”. This is an alternate remittance route where trade and money cross. An easily understood example of Trade Based Money Laundering is when someone sells a house that has a fair market value of $200,000 to a buyer who pays two million dollars. Or, a company that exports used cars which are paid in a foreign currency at prices that have no relation to the worth or value of the used cars or trucks. Think of me buying your used car from Boca Raton (let’s say it’s a Nissan worth $10,000.00) and I pay you $50,000.00 for the title.

The Anti Money Laundering industry is effective because it can inflict substantial and painful penalties on all involved from an innocent bank teller in Fort Lauderdale who accepts a cash deposit at their bank window to a real estate agent in Boca Raton who shows and sells an expensive house in Palm Beach, Florida. Not only does the money laundering original source lose its transaction, but the bank can be fined millions of dollars for not having an effective Anti Money Laundering internal program. Then after that comes those who work for the conduit entity. For example in 2017 a retired bank officer from Miami, Florida who retired up the road in Boca Raton was fined one million dollars (his own savings and person net worth) and after spending over $350,000 litigating it in Federal Court in Miami lost his fight and had to pay out the one million dollars from his bank in Boca Raton, Florida. Then, and it gets very painful, those who work in the bank can and often are arrested and prosecuted and sent to a federal prison: not for money laundering itself but for doing a negligent or in-attentive job at their work responsibilities. The bottom line here is that if you work or are in any business you must be mindful of the increasingly complex and somewhat intrusive things you need to be aware of and mindful of to avoid becoming a criminal defendant in Federal criminal court.