MONEY-LAUNDERING

1. BACKGROUND OF MONEY-LAUNDERING

Money laundering as a crime only attracted interest in the 1980s, essentially within a drug trafficking context. It was
from an increasing awareness of the huge profits generated from this criminal activity and a concern at the massive
drug abuse problem in western society which created the impetus for governments to act against the drug dealers by
creating legislation that would deprive them of their illicit gains.
Governments also recognised that criminal organisations, through the huge profits they earned from drugs, could
contaminate and corrupt the structures of the state at all levels.
Money laundering is a truly global phenomenon, helped by the International financial community which is a 24hrs a
day business. When one financial centre closes business for the day, another one is opening or open for business.
As a 1993 UN Report noted: The basic characteristics of the laundering of the proceeds of crime, which to a large
extent also mark the operations of organised and transnational crime, are its global nature, the flexibility and
adaptability of its operations, the use of the latest technological means and professional assistance, the ingenuity of
its operators and the vast resources at their disposal.
In addition, a characteristic that should not be overlooked is the constant pursuit of profits and the expansion into
new areas of criminal activity.
The international dimension of money laundering was evident in a study of Canadian money laundering police files.
They revealed that over 80 per cent of all laundering schemes had an international dimension. More recently,
"Operation Green Ice" (1992) showed the essentially transnational nature of modern money laundering.

2. INTRODUCTION OF MONEY-LAUNDERING

MONEY-LAUNDERING

Money is the prime reason for engaging in almost any type of criminal activity. Money-laundering is the method by
which criminals disguise the illegal origins of their wealth and protect their asset bases, so as to avoid the suspicion
of law enforcement agencies and prevent leaving a trail of incriminating evidence.
Terrorists and terrorist organizations also rely on money to sustain themselves and to carry out terrorist acts. Money
for terrorists is derived from a wide variety of sources. While terrorists are not greatly concerned with disguising the
origin of money, they are concerned with concealing its destination and the purpose for which it has been collected.
Terrorists and terrorist organizations therefore employ techniques similar to those used by money launderers to hide
their money.
The ability to prevent and detect money-laundering is a highly effective means of identifying criminals and terrorists
and the underlying activity from which money is derived. The application of intelligence and investigative
techniques can be one way of detecting and disrupting the activities of terrorists and terrorist organizations.
Because they deal with other people's money, financial institutions rely on a reputation for probity and integrity. A
financial institution found to have assisted in laundering money will be shunned by legitimate enterprises. An
international financial centre that is used for money-laundering can become an ideal financial haven. Developing
countries that attract "dirty money" as a short-term engine of growth can find it difficult, as a consequence, to attract
the kind of solid long-term foreign direct investment that is based on stable conditions and good governance, and that
can help them sustain development and promote long-term growth. Money-laundering can erode a nation's economy
by changing the demand for cash, making interest and exchange rates more volatile, and by causing high inflation in
countries where criminals are doing business.
Most disturbing of all, money-laundering fuels corruption and organized crime. Corrupt public officials need to be
able to launder bribes, kick-backs, public funds and, on occasion, even development loans from international
financial institutions. Organized criminal groups need to be able to launder the proceeds of drug trafficking and
commodity smuggling. Terrorist groups use money-laundering channels to get cash to buy arms. The social
consequences of allowing these groups to launder money can be disastrous. Taking the proceeds of crimes from
corrupt public officials, traffickers and organized crime groups is one of the best ways to stop criminals in their
tracks.

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Who launders money?

Criminals launder money. Money launderers are to be found in all walks of life, many acting entirely innocently.
However, anyone who helps a criminal to launder the proceeds of his crime is, in most jurisdictions, also a money
launderer. This means bankers, lawyers, accountants, car dealers and others are money launderers if they allow their
businesses to be used by someone else to launder the proceeds of a crime. Generally, the only defence is that the
businessman was unaware of what was happening. This defence will not stand as the burden of proving innocence
will be on the defendants. Persons possessing assets out of the proceeds of crime are also money launderers. A
girlfriend of a criminal who knows that her boyfriend used proceeds of criminal conduct to buy her a car is a striking
example in this regard. So an accountant who recommends a tax evasion scheme is himself a money launderer. Tax
evaders launder money and hide it in banks numbered and benami accounts. Banks are regarded as safe hiding
places for slush funds.
How is money laundered?
To understand money laundering as it is practised today on a global basis, one has to appreciate money as a
commodity. Professional money launderers differ little in this respect from corporate money managers. A corporate
money manager enters the money markets of various countries where the corporation will need national currencies
during the next year and buys/sells currencies in a constant effort to improve the managers average position at the
time of payment. Similarly, money launderers use a bidding system to buy/sell drug proceeds, especially US dollars.
Just as a sound investment portfolio will contain stocks, bonds and other monetary instruments, the money brokers
vary their holdings. The Cali Cartel, for example, minimizes risk by selling a substantial portion of the drug proceeds
it earns from the sale of cocaine in the United States. Mexican traffickers in heroin, cocaine and marijuana do the
same, often selling to the same money brokers on behalf of Cali or for their own account. These brokers will convert
proceeds for a fee, or, they will buy the proceeds at a discount. Given the high profit margins of the drug trade,
discounts of 7-10 per cent or even higher, depending upon risk, are common. At the end of the day, Cali and other
trafficking groups may own or control 50 per cent or less of the initial drug proceeds. The textile trade is a typical
cover. For example, a South American clothing manufacturer working with Cali obtains a permit to export $20
million in drug proceeds in New York and returns it to Colombia, covered by an export licence.
Supposing Cali Cartel is moving $100 million from the US to Mexico.
The bulk of the $100 million will be deposited in Mexican banks, after which a number of schemes can be used.

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Money will be wire-transferred to accounts in the United States. The Mexican banks will then issue cheques drawn
on its US accounts, payable to individuals or corporations.
These cheques can be batched for resale in Latin America, or deposited into foreign bank accounts.
Enforcement officials believe that as much as $10 billion in Mexican bank drafts is laundered through such
schemes each year in Panama alone.
While some of the trade is in contraband goods, these certificates of deposit, cheques and other financial
instruments have also been used to pay for legitimate shipments.
Gold trade in the Aruba Free Zone amounts to more than $200 million a year.
The Mexican banks will also issue their own dollardenominated cheques upto a level which they think will not
cause inquiries.
One recent transfer reportedly involved $78 million which went through a US bank in a single transaction.
These transactions are designed to fall outside the scope of Treasury and other reporting. For example, US banking
law does not require reports on bank to bank transfers. Transactions in bulk conducted outside traditional foreign
exchange venues are probably escaping conventional monitoring systems.
Dollar settlements are accomplished through reciprocal balances. For example, a Mexican bank wires $50 million
to a bank in New York, which gives the Mexican bank instant credit on the latters New York account because the
Mexican bank has simultaneously given the New York bank credit for $50 million at the latters Mexican facility.
The grey market enables Latin businessmen to buy US goods and services here, or in a free zone like Cologne and
pay for it in dollars (or dollars converted to cheques and other monetary instruments) which originated in the US
drug market.
Financial institutions and gambling operations face the loss of licences and significant financial penalties if they are
caught. All financial transactions of US $10,000 and above must be reported, and the Treasury Departments GTO
programme attempts to monitor suspicious transactions. In New York, limits of US $750 have been placed on small
exchange offices, which have in the past transferred money for the drug cartels. Enormous size of American financial
markets and the high volume of transactions make any effort to eradicate this activity impossible.
More than anything else, banks and big business are keen to get their hands on the proceeds laundered of
organised crime. Apart from the traditional activities of drugs, racketeering, kidnapping, gambling, procuring

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(women and children), smuggling (alcohol, tobacco, medicines), armed robbery, counterfeiting and bogus invoicing,
tax evasion and misappropriation of public funds, new markets are also flourishing. These include smuggling illegal
labour and refugees, computer piracy, trafficking in works of art and antiquities, in stolen cars and parts, in protected
species and human organs, forgery in arms, toxic and nuclear products, etc.

How does money laundering help to fight crime?

1. Money laundering is anarchical in nature. Good governance is the death warrant of criminal activity. 2. A close
scrutiny of financial transaction records leads not only to the discovery of hidden assets but also unmasks the
criminals and their groups.
3. The criminally generated funds can be forfeited. This will hit the criminal hard and break the cycle of criminal
activity.

3. WHY MONEY-LAUNDERING IS DONE?

Criminals engage in money laundering for three main reasons:1
1. First, money represents the lifeblood of the organization that engages in criminal conduct for financial gain because it covers operating
expenses, replenishes inventories, purchases the services of corrupt officials to escape detection and further the interests of the
illegal enterprise, and pays for an extravagant lifestyle. Tospend moneyin these ways, criminals must make the money they derived illegally
appear legitimate.

2. Second, a trail of money from an offense to criminals can become incriminating evidence. Criminals must obscure or hide the
source of their wealth or alternatively disguise ownership or control to ensure that illicit proceeds are not used to prosecute
them.

3. Third, the proceeds from crime often become the target of investigation and seizure. To shield ill-gotten gains
from suspicion and protect them from seizure, criminals must conceal their existence or, alternatively, make them
look legitimate.

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4. OBJECTIVES OF THE GLOBAL PROGRAMME AGAINST MONEY-LAUNDERING,

PROCEEDS OF CRIME AND THE FINANCING OF TERRORISM
Within the context of United Nations standards, the Global Programme against Money-Laundering, Proceeds of
Crime and the Financing of Terrorism aims:

To assist in the achievement of the objective set up by the General Assembly at its twentieth special session
for all States to adopt legislation that gives effect to the universal legal instruments against money-laundering and
countering the financing of terrorism

To equip States with the necessary knowledge, means and expertise to implement national legislation and the
provisions contained in the measures for countering money-laundering adopted by the General Assembly at its
twentieth special session

To assist beneficiary States in all regions to increase the specialized expertise and skills of criminal justice
officials in the investigation and prosecution of complex financial crimes, particularly with regard to the financing of
terrorism

To enhance international and regional cooperation in combating the financing of terrorism through
information exchange and mutual legal assistance

To strengthen the legal, financial and operational capacities of beneficiary States to deal effectively with
money-laundering and the financing of terrorism.

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5. THE MONEY-LAUNDERING PROCESS

Money laundering is not a single act but is in fact a process that is accomplished in three basic steps. These steps
can be taken at the same time in the course of a single transaction, but they can also appear in well separable forms
one by one as well. The steps are:a.

Placement;

b.

Layering; and

c.

Integration.
There are also common factors regarding the wide range of methods used by money launderers when they attempt to
launder their criminal proceeds. Three common factors identified in laundering operations are;

the need to conceal the origin and true ownership of the proceeds;

the need to maintain control of the proceeds;

the need to change the form of the proceeds in order to shrink the huge volumes of cash generated by the
initial criminal activity.

1. Placement
At this stage, the launderer inserts the dirty money into a legitimate financialinstitution. This is often in the
form of cash bank deposits. This is the riskiest stage of thelaundering process because large amounts of cash
are pretty conspicuous, and banks arerequired to report high-value transactions.

2. Layering

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In the course of layering, there is the first attempt at concealment or disguise of the source of the ownership of the
funds by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity.
The purpose of layering is to disassociate the illegal monies from the source of the crime by purposely creating a
complex web of financial transactions aimed at concealing any audit trail as well as the source and ownership of
funds.
Typically, layers are created by moving monies in and out of the offshore bank accounts of bearer share shell
companies through electronic funds' transfer (EFT). Given that there are over 500,000 wire transfers - representing in
excess of $1 trillion - electronically circling the globe daily, most of which is legitimate, there isnt enough
information disclosed on any single wire transfer to know how clean or dirty the money is, therefore providing an
excellent way for launderers to move their dirty money. Other forms used by launderers are complex dealings with
stock, commodity and futures brokers. Given the sheer volume of daily transactions, and the high degree of
anonymity available, the chances of transactions being traced is insignificant
3. Integration
The final stage in the process. It is this stage at which the money is integrated into the legitimate economic and
financial system and is assimilated with all other assets in the system. Integration of the "cleaned" money into the
economy is accomplished by the launderer making it appear to have been legally earned. By this stage, it is
exceedingly difficult to distinguish legal and illegal wealth.
Methods popular to money launderers at this stage of the game are:
a) the establishment of anonymous companies in countries where the right to secrecy is guaranteed. They are
then able to grant themselves loans out of the laundered money in the course of a future legal transaction.
Furthermore, to increase their profits, they will also claim tax relief on the loan repayments and charge
themselves interest on the loan.
b) the sending of false export-import invoices overvaluing goods allows the launderer to move money from one
company and country to another with the invoices serving to verify the origin of the monies placed with
financial institutions.
c) a simpler method is to transfer the money (via EFT) to a legitimate bank from a bank owned by the

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launderers, as off the shelf banks are easily purchased in many tax havens.

6. METHODS OF MONEY-LAUNDERING.

Structuring ("smurfing")
Smurfing is possibly the most commonly used money laundering method. It involves many individuals who deposit
cash or buy bank drafts in amounts under $10,000. This method is common to both Canada and the United State
Bank complicity
A criminally co-opted bank employee may facilitate money laundering. Given the Canadian Bankers Association's
policy, procedures and training, it is becoming increasingly difficult for criminals to employ this method.

MONEY-LAUNDERING

Currency exchanges
Currency exchanges provide a service that permits individuals to buy foreign currency that can then be transported
out of the country. Money can also be wired to offshore bank accounts anywhere in the world by these exchanges.
Securities' brokers
A stock broker may take in large quantities of cash and issue securities in exchange.
Asset purchases with bulk cash
Money launderers purchase big ticket items such as cars, boats, planes, or real estate. In many cases, launderers may
use the asset but will distance themselves by having assets registered in a friend's name.
Telegraphic transfer of funds
Wiring money from one city or country to another without actually carrying the money.
Postal money orders
Exchange cash for money orders, then shipping them out of the country for deposit.
Travel agencies
Exchanging cash for travel tickets. This is a common method of moving money from one country to another.
Credit cards
Overpaying credit cards and keeping a high credit balance that can be turned over to cash at any time and place.
Gambling in casinos
Cash may be taken to a casino to purchase chips. After gaming and placing normal bets, chips are redeemed at the
cashiers cage where a casino cheque is issued.
Refining
Individuals change small bills into large. This is easily done by visiting a number of banks so as not to arouse
suspicion. The purpose of refining is to decrease the bulk of larger cash quantities.
Legitimate business / commingling of funds -

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Criminals take over and/or invest in businesses that customarily handle a high cash-transaction volume mixing the
illicit proceeds with that of the legitimate business. Criminals will, from time to time, purchase businesses that
generate gross receipts from cash sales such as restaurants, bars, night clubs, hotels, currency exchange shops,
vending machine companies, car washes and other retail sales for this purpose.
Reverse flip
A money launderer may find a cooperative property seller who agrees to a reported purchase price well below the
actual value and then accepts the difference "under the table". This way, the launderer can purchase a $2 million
dollar property for $1 million,
secretly passing the balance to the cooperative seller. After holding the property for a period of time, the launderer
sells it for its true value of $2 million.

7. THE EFFECTS OF MONEY-LAUNDERING

It varies between agencies, but the amount of money laundered every year is between $500billion and $1 trillion
worldwide. This causes devastating effects in social, economic and security terms. Considering the social effects,
successfully laundering money means that criminal activity actually does pay off. This success encourages criminals
to continue their illicit schemes because they get to spend the profit with no repercussions. This means more fraud,
more corporate embezzling (which means more workers losing their pensions when the corporation collapses), more
drugs on the streets, more drug-related crime, law-enforcement resources stretched beyond their means and a general
loss of morale on the part of legitimate businesspeople who don't break the law and don't make nearly the profits that
the criminals do. The economic effects are on a broader scale. Developing countries often bear the brunt of modern
money laundering because the governments are still in the process of establishing regulations for their newly
privatized financial sectors. This makes them a prime target. In the1990s, numerous banks in the developing Baltic
states ended up with huge, widely rumored deposits of dirty money. Bank patrons proceeded to withdraw their own
clean money for fear of losing it if the banks came under investigation and lost their insurance. The banks collapsed
as a result. Other major issues facing the world's economies include errors in economic policy resulting from
artificially inflated financial sectors. Massive influxes of dirty cash into particular areas of the economy that are
desirable to money launderers create false demand, and officials act on this new demand by adjusting economic
policy. When the laundering process reaches a certain point or if law-enforcement officials start to show interest, all
of that money will suddenly disappear without any predictable economic cause and that financial sector falls apart.
Some problems on a more local scale relate to taxation and small-business competition. Laundered money is usually
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untaxed, meaning the rest of us ultimately have to make up the loss in tax revenue. Also, legitimate small businesses
can't compete with money-laundering front businesses that can afford to sell a product for cheaper because their
primary purpose is to clean money, not turn a profit. They have so much cash coming in that they might even sell a
product or service below cost. In terms of security, the majority of global investigations focus on two prime moneylaundering industries: drug trafficking and terrorist organizations. The effect of successfully cleaning drug money is
clear: more drugs, more crime, and more violence. The connection between money laundering and terrorism may be
a bit more complex, but it plays a crucial role in the sustainability of terrorist organizations. Most people who
financially support terrorist organizations do not simply write a personal check and hand it over to a member of the
terrorist group. They send the money in roundabout ways that allow them to fund terrorism while maintaining
anonymity. On the other end, terrorists do not use credit cards and checks to purchase the weapons, plane tickets and
civilian assistance they need to carry out a plot. They launder the money so authorities can't trace it back to them
and foil their planned attack.

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8. PREVENT MONEY-LAUNDERING

The primary purpose of organised crime is to make profits. Like any business, the purposes of profit are to enjoy it
and re-invest it in future activity. For the organised criminal, however, profit close to the source of the crime
represents a particular vulnerability and unless the criminal can effectively distance himself or herself from the crime
which is the source of the profit they remain susceptible to detection and prosecution. Hence the need to launder their
illicit profits to make them appear legitimate.
The biggest source of illicit profits comes from the drugs' trade and it was drug trafficking that provided the initial
catalyst for concerted international efforts against money laundering. The drugs' industry is a highly cash intensive
business and "in the case of cocaine and heroin the physical volume of notes received is much larger than the volume
of drugs themselves". In order to rid themselves of this large burden it is necessary to use the financial services
industry and in particular, deposit-taking institutions.
The Financial Action Task Force (FATF) on Money Laundering has identified certain choke points in the money
laundering process that the launderer finds difficult to avoid and where he is vulnerable to detection. The initial focus
has to be on these areas if the war against the launderer is to proceed successfully.
The choke points identified are:

I.
II.
III.

entry of cash into the financial system;

transfers to and from the financial system; and
cross-border flows of cash.

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The entry of cash into the financial system, known as the placement stage is where the launderer is most vulnerable
to detection. Because of the large amounts of cash involved it is extremely hard to place it into a bank account
legitimately.
The UKs system of reporting suspicious transactions to the authorities along with the procedures adopted by
deposit-takers are powerful weapons against money launderers. In particular, the emphasis being placed on the
importance of deposit-taking institutions knowing their customer has severely curtailed this activity to such an
extent that one of the favourite methods for money launderers to place their money is to smuggle the money out of
the country. There are penalties attached to the various money laundering offences for the deposit-taking institutions
and these have provided for a powerful incentive for reporting suspicions to the National Criminal Intelligence
Service (NCIS).
However, cross-border flows of cash is one of the areas mentioned above where the launderer is vulnerable to
detection. In the UK, legislation provides the police and customs service with the power to seize cash they believe
could be the proceeds of drug trafficking. Part III of the Criminal Justice (International Co-operation) Act 1990
(CJICA) introduced the powers for customs and police officers to seize cash being brought into or out of the United
Kingdom, where they have reason to believe that such money represents the proceeds of drug trafficking or is
intended to be used in drug trafficking. The power operates in respect of consignments of cash of 10,000 or more.
Additionally, the courts are empowered to order the confiscation of such cash, where they are satisfied, on the
balance of probabilities, of the alleged link with drug trafficking.
These measures overcome the difficulty of custom officers coming across large amounts of cash with no reasonable
explanation for their export/import but, at the same time, with no hard evidence of links to drug trafficking it allows
the detention of the cash pending an investigation. Due to this, couriers limit the amount they carry out of the country
at any one time and the risk is seen as being less than passing the money into a financial institution.
The reporting of suspicious transactions is not limited to cash in the UK. Transfers to and from the financial system
are also under the umbrella of reporting of suspicious transactions and this can provide useful information on the
layering stage of the money laundering process. The keeping of comprehensive transaction records (part of the
procedures) by financial organisations provides a useful audit trail and gives useful information on people and
organisations involved in laundering schemes once discovered.

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It is important, therefore, to ensure that complacency does not creep into our financial institutions at this stage, now
that the measures are in place to deny money launderers open access to these same institutions.

9. MONEY-LAUNDERING PARTNERSHIPS

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The Global Programme against Money-Laundering, Proceeds of Crime and the Financing of Terrorism (GPML) cooperates - and frequently acts in partnership - with international and regional organizations involved in anti-moneylaundering/countering the financing of terrorism (AML/CFT) activities, in order to complement ongoing activities and
avoid duplication of work. GPML works closely with and has conducted numerous joint activities with the World
Bank, International Monetary Fund (IMF), Commonwealth Secretariat, Organization for Security and Co-Operation in
Europe (OSCE), Asian Development Bank (ADB), Egmont Group of Financial Intelligence Units, UN Counter-Terrorism
Executive Directorate (CTED), UN Counter-Terrorism Implementation Task Force (CTITF), INTERPOL, regional
development banks, European Union, United Nations Commission on International Trade Law (UNCITRAL), as well as
the US Department of Justice (OPDAT), US Department of Treasury - Office of Technical Assistance (OTA), InterAmerican

Drug Abuse Control Commission of the Organisation of American States (OAS/CICAD), FATF-Style

Regional Bodies (FSRBs) and a number of individual country technical assistance providers. Collaboration avoids
duplication of efforts and helps ensure that technical assistance is delivered in a structured manner.
GPML is active in its observer status with the Financial Action Task Force (FATF) and the following eight FSRBs:
Asia/Pacific Group on Money-Laundering (APG), Caribbean Financial Action Task Force (CFATF), Council of Europe MONEYVAL, Eastern and Southern Africa Anti-Money-Laundering Group (ESAAMLG), Eurasian Group (EAG), Middle
East and North Africa Financial Action Task Force (MENAFATF), Inter-Governmental Action Group Against MoneyLaundering & Terrorist Financing in West Africa (GIABA) and the Financial Action Task Force of South America
(GAFISUD). These Bodies help set up systems to protect members' financial systems from the crimes of moneylaundering and the financing of terrorism, promote mutual legal assistance and facilitate the adoption and effective
implementation and enforcement of internationally accepted standards against money-laundering and the financing
of terrorism.
GPML's internal partners in UNODC are: the Treaty and Legal Assistance Branch; Terrorism Prevention Branch; Law
Enforcement, Organized Crime and

Anti-Money Laundering Unit; Justice and Integrity Unit and Anti-Human

Trafficking and Migrant Smuggling Unit.

10. BUSINESS PRONE TO MONEY-LAUNDERING

1. Banking.
"If you want to steal, then buy a bank".-Bertolt Brecht
The best method of both stealing and laundering money is to own a bank. And though banks are an at risk group in
relation to their main functions of deposit taker and opening of accounts, what can be done against this crime if the
bank is international and in complicity with vast numbers of its depositors. When the CIA moved money via the
BCCI it called it "facilitating the national interest". When the Mafia and the Libyans do it, it is called money
laundering.
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The BCCI affair was a major scandal involving allegations of corruption, bribery, money laundering, etc.. One
investigator quotes in the Kerry Report:
"It had 3,000 criminal customers and every one of those 3,000 criminal customers is a page 1 story. So if you pick up
any one of [BCCIs] accounts you could find financing from nuclear weapons, gun running, narcotics dealing and
you will find all manner and means of crime around the world in the records of this bank".
As Powis (1992) said, "money laundering becomes a relatively easy thing to do when a banking institution and a
number of its key officials co-operate in the laundering activity".
2.futures
The UK experience showed that the futures market, through Capcom Commodities, a BCCI-related institution was
another area that money launderers were taking advantage of for their money laundering schemes. Because of the
anonymous nature of the trading strategies, all brokers trading as principals and
3. Professional advisors
Accountants/Solicitors/Stockbrokers
If involved in investment activity, this group is covered in the Regulations. For example, their clients account can be
used as a bank account by clients and can put him at risk under s93 CJA93.
4. Finance houses/building societies
As with banks, any suspicious transactions must be reported. Money deposits in these institutions are where the
placement stage usually takes place so vigilance is called for by staff. Any unusual change in regular customers
depositing habits need to be investigated and lenders also have to be aware that money laundering techniques can
also involve paying off a debt faster than income would support. You would already know a customers declared
income on the loan application.
5. Financial transmitters
Bureau de change/international money transmitters/travel agents.
All offer a wide range of services that can be used by the money launderer. Airline tickets, foreign currency
exchanges in the form of cash and travellers cheques, are recognised as being widely used techniques. Money
transmitting services in the form of wire, fax, draft, cheque or by courier exist for people unable to use traditional
financial institutions. Customer not in their client's name, the true identity of the beneficial owner is not known.

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Commodities therefore are a zero sum game, which means you can only buy if someone is willing to sell, and vice
versa. Launderers can take advantage by a strategy of buying and selling the same commodity, thereby taking a small
hit for the commission charged by the broker. They pay the losing contract out of dirty money and receive a cheque
that legitimises their profits and creates a paper trail for any one who asks where the money came from.
anonymity is a primary feature of such transmissions which identifies the inherent level of risk. Covered under the
Regulations if they offer currency exchange facilities.
6. Casinos
Casinos and gambling establishments are particularly attractive to money launderers. Cash can be deposited with a
casino in exchange for chips or tokens. After a few turns at the table the player can cash in the remainder for a
cashiers cheque which can be deposited in their account. Another method is to buy winning tickets from people in
bookmakers and saying you have won making bookmakers vulnerable to being used.

7. Antique dealers/jewellers/designer goods suppliers

Any area that possesses the characteristics which represent high value goods that possess great portability and in
many cases are used to being paid in cash is an attractive area for money launderers. All the above satisfy these
criteria and owners and staff have to be aware of their obligations under the legislation if they are to avoid being
unwittingly used in a money laundering

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11. MONEY-LAUNDERING OFFENCES

There are now five basic money-laundering offences:
i. assisting another to retain the benefit of crime;
ii. acquiring, possession and use of criminal proceeds;
iii. concealing or transferring proceeds to avoid prosecution or a confiscation order (also called Own Funds
money laundering).
iv. failure to disclose knowledge or suspicion of money laundering;
v. tipping off.

I. Assisting another to retain the benefit of crime.

Assistance occurs where a person is involved in an arrangement with another person, and knows or suspects that the
other person is, or has been involved in, or has benefited from drug trafficking or criminal conduct if the arrangement
helps the other person to retain or control proceeds directly or indirectly or enables the other person to use the
proceeds or to invest them for his benefit. The legislation allows disclosure to a constable which is normally to the
FIU of the NCIS. This covers terrorist related activities as well. The penalty for commission of an offence under this
section is imprisonment of up to six months, or a fine not exceeding the statutory maximum, or both, on summary
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conviction. On conviction on indictment, the penalty is imprisonment of up to 14 years, or a fine, or both.

II. Acquisition, possession or use of criminal proceeds.
Acquisition is the offence of use or possession of property which you know or have reasonable grounds to suspect to
be the proceeds of drug trafficking or criminal conduct and have acquired at less than full value. The aim of the
offence is to prevent criminal proceeds being passed on by criminals to be enjoyed by third parties. Here, the
reference is to property, rather than to funds or investments as in section 93A (property including money).
The penalty for commission of an offence under this section is the same as for assisting another to retain the benefit
of crime.
III. Concealing or transferring proceeds to avoid prosecution or a confiscation order (also called Own Funds
money laundering).
Concealing is disguising, removing or transferring proceeds (directly or indirectly) of drug trafficking or criminal
conduct for the purpose of avoiding or helping someone else avoid prosecution. The offence is committed by a
person who assisted in the offence if s/he knows or has reasonable grounds to suspect the nature of the property.
Concealing or disguising any property includes concealing or disguising its nature, source, location, disposition,
movement or ownership or any rights with respect to it.
The penalty for commission of an offence under this section is exactly the same as for the assisting and acquisition
offences.
IV. Failure to disclose knowledge or suspicion of money laundering.
This offence only relates to drug trafficking and terrorism and not to proceeds of crime in general. A person is guilty
of an offence if, as a result of something he learns in the course of his trade, profession or employment, he does not
report a suspicion to a police or customs officer.
There is a question as to whether disclosure is a waiver of professional privilege or a breach of any express or
implied duty of confidentiality owed to a customer or client. For example, legal privilege for solicitors. If there is a

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criminal transaction then disclosure to the police will not constitute a waiver of professional privilege nor will it give
actionable grounds for a claim for breach of confidence.
The penalty for commission of an offence under this section is imprisonment of up to six months, or a fine not
exceeding the statutory maximum, or both, on summary conviction. On conviction on indictment, the penalty is
imprisonment of up to five years, or a fine, or both.
V. Tipping off.
The requirement to report suspicions is not much use if the suspected person is tipped off to the fact that s/he is
under investigation. In order to preserve the integrity of an investigation, the offence of tipping off occurs when
information or any other matter which might prejudice the investigation is disclosed to the suspect of the
investigation (or anyone else) by someone who knows or suspects (or, in the case of terrorism, has reasonable cause
to suspect) that: a police investigation into money laundering has begun
or is about to begin, or the police have been informed of suspicious activities, or a disclosure has been made to
another employee under internal reporting procedures.
The penalty for tipping off is the same as for the failure to disclose offence.

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12. TECHNIQUES AND TRENDS OF MONEY-LAUNDERING

Drug trafficking and other criminal organizations have developed a series of highly specialized techniques and
methods designed to remove the taint from the money and to place it out of the reach of law enforcement. The
conducive conditions are: 1. Multiple entry points in the global financial system. 2. Rapid transmission of funds
making the task of investigators difficult. 3. Lack of proper monitoring of movement of huge funds through banks
and other financial transactions. 4. Temptation of bribery and corruption in the illicit financial world. 5. Existence of
parallel/informal economies outside the control of government.
In many cases, money has already been layered and even integrated before it goes into the financial system it is
already disguised as licit proceeds of legitimate business. This can be done through import-export schemes in which
there is an over-invoicing for the goods, cash-based businesses such as restaurants, casinos, and card clubs.
Using 1996 statistics, these percentages would indicate that money laundering ranged between US Dollar (US$) 590
billion and US$ 1.5 trillion. The lower figures is roughly equivalent to the value of the total output of an economy
the size of Spain. Currency smugglers use a variety of techniques to take money out of the country. However, four
main avenues have been identified as being most favored by the smugglers, viz. air, sea, land and mail.
Air
Airlines are used for currency smuggling because:
I.
II.
III.

the smugglers can stay close to their money during the transportation process;
destinations can be reached quickly and easily; and
pre-planning is kept to a minimum
Passengers can smuggle currency concealed on their persons, in hand luggage or in unaccompanied
baggage.
Colombian economists conservatively estimate that about US $4.5 billion is repatriated annually to Colombia
by drug traffickers. It is also known that Colombian traffickers have purchased a fleet of large planes, such as
Boeing 727s, Caravels and the Turboprop Lockheed Electra. They use these planes to transport tonnes of
cocaine to Mexico, Canada, Portugal and West Africa for sale in the United States and Europe.

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Land
Smuggling currency across land, although lacking in speed and the ability to reach many international
destinations, is still a relatively easy way to transport cash. US customs presence tends to be less at outbound
stations. Inspections tend to be infrequent as they interfere with the flow of traffic and at times cause massive
traffic congestion. Another advantage of land border crossings is that vehicles in which to conceal the
currency are easy to obtain.
Customs officials have found currency in obvious locations such as seats, trunks, false compartments,
dashboards and door panels.
Sea
Although smuggling by sea can have the advantage of reaching many destinations, it can be, at times, a
cumbersome exercise. For example, it may require the use of other parties such as exporters or ship
personnel and the smuggler may be physically separated from the currency for long period. At the same time,
however, smuggling by sea offers certain advantages. The main advantage is that ship cargo typically
involves large containers within which currency is very easy to conceal and difficult to detect.
In one inspection, inspectors at New York seaport seized $763,240 that had been concealed beneath the floor
of a refrigeration unit in a ship bound for Colombia. They also seized $7,1785,161 from two 20-foot
containers loaded with dried peas, again on a vessel destined for Colombia. According to US customs this
seizure represented approximately one months drug profits.
mails
The US postal service and FinCEN (Financial Crimes Enforcement Network) maintain that, although, the
extent of mail smuggling cannot be measured, the US mail and private couriers are being used to send
currency illegally out of the country. The names on the money orders are left blank. The funds are sold to
casas de cambios or money changing houses for cash that will be deposited into a traffickers account. The
money orders are then sold and resold through the network of casas and are finally redeemed outside of
Colombia.
In addition to the increase in currency smuggling the emergence of new payment technologies has presented
new challenges. For many years the banking and financial services industry has been developing new
methods of cash payments. One of these methods is generally referred to as cyber payments. A significant
feature of the new cyber payments is that they include a new form of currency. Cyber payments also
comprise other payment components, which emulate current payment systems. For example, already in use
are cyber-cheques, cyber-credit and cyber debit. Cyber-currency, therefore, includes the attributes of

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conventional currency, which are: a store of value; a medium of exchange; and ease of use. However, it has
one very important added feature almost instant electronic transfers from point to point.
There are also common factors regarding the wide range of methods used by money launderers when they
attempt to launder their criminal proceeds. Three common factors identified in laundering operations are:
The need to conceal the origin and true ownership of the proceeds;
The need to maintain control of the proceeds;
The need to change the form of the proceeds in order to shrink the huge volumes of cash generated by the
initial criminal activity.
The layering and integration stages of money laundering are using more sophisticated money laundering
techniques. Cash is now being held in bulk or placed into the financial system through exchange houses and
other non-bank financial institutions. Not only is it moved through wire transfers but also through
innumerable varieties of licit and illicit financial instruments, including letters of credit, bonds and other
securities, and prime bank notes and guarantees, without a parallel increase in the capability of the far-flung
elements of the worlds financial system to verify the beneficiaries or authenticity of such instruments.

13. THE WALKER MODEL ON GLOBAL MONEY-LAUNDERING

As per the Walker Model of Global Money Laundering:
1. Money laundering is a flow of funds.
2. There is essentially a place where the money is generated and a place where it is laundered.
3. The money may be laundered in the same country in which it was generated or be sent to another country (or
other countries) for laundering.
4. It may flow on from its first placement to other countries, and may often return eventually to the originating
country so that the offenders can invest this money into legitimate enterprises in their home country.
After the initial point of laundering, the onwards transactions have all the legitimacy of ordinary monetary flows. In
statistical terms, we would be double counting if we followed hot money all the way round its circuitous path from
the scene of the crime to that of the final investment, and counted the same money each time it moved. If $1 million
is earned from crime in Australia and sent, say, to a Hong Kong bank for laundering, and from there via Switzerland
to the Cayman Islands, from where it is returned cleansed to Australia, it is wrong to say that these four moves
amount to $4 million of money laundering.
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The quantity of money laundering generated in each country is dependent upon:

the nature and extent of crime in that country,
an estimated amount of money laundered per reported crime, for each type of crime, and
the economic environment in which the crime and the laundering takes place.
The potential of money laundering is high in crimeinfested countries. The destination of slush funds will be based on
the following considerations:
1. The presence or absence of banking secrecy provisions: Countries with banking secrecy and poor governance are
attractive destinations.
2. Government attitude to money laundering.
3. Levels of corruption and regional conflict: high level of corruption favours money launderers. Too much
corruption can prove fatal for launderers.
4. Geographical, ethnic or trading proximities between the origin and destination countries.
5. There will be higher frauds of laundered funds between places of geographical proximity and strong trading or
community lines.
6. Strict government regulations will discourage flow of funds, hence money laundering. The quantity of money
laundering attracted by a country will depend upon:
That foreign countries with a tolerant attitude towards money laundering (e.g. those with banking secrecy laws or
uncooperative government attitudes towards the prevention of money laundering) will attract a greater proportion of
the funds than more vigilant countries.
That high level of corruption and/or conflict will deter money launderers, because of the risks of losing their funds.
That countries with high levels of GNP/capita will be preferred by money launderers, since it would be easier to
hide their transactions.
That other things being equal, geographic distance, and linguistic or cultural differences, work as deterrents to
money launderers.

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14. CONCLUSION
Money laundering is a captivating method of wealth fabrication adopted on a large-scale mainly by drug dealers, fraudsters,
smugglers, arms dealers, terrorists, extortionists and tax-evaders. The crime of money laundering, however, is my no means
beyond the reach of a common who too can launder illegal proceeds depending on his resources. The sheer applicability of the crime
of laundering money makes it one of the largest businesses in the world today. Criminals throughout history have had to hide the
source of newly acquired wealth in order to escape prosecution for the predicate crime. However, the scale of the problem has
escalated out of all proportion.
Money laundering is a burgeoning threat to the international economy. The practice of money laundering is essentially based on a few
defined principles of the crime which remains largely invariable, but the technological developments related to the modes of
laundering money are increasingly becoming more and more sophisticated and meandering, which makes the task of authorities prone
to curb money laundering, virtually impossible. The largely unchecked growth of the Internet presents what has been described
as the "Armageddon scenario of banking on the `Net - criminals could have money transferred without any audit trail"
It is essential for requisite authorities to ensure that the legislation related to money laundering is continually updated and kept abreast
of the latest development related to the modes of laundering money.

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WEBLIOGRAPHY

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