Money laundering schemes

Money laundering is the process of obscuring the origins of illegally-obtained cash, so that it appears to be legitimate. By using money laundering, one can avoid the risk of having cash appropriated by the government. The basic concept behind money laundering schemes is to shift illegally-obtained cash into a different entity, usually in another country, and then convert it into legal assets. The process works best when the cash is shifted through a series of other entities in multiple countries, thereby making it more difficult to ascertain the origins of the cash. Once the cash has been shifted through the bank accounts of a sufficient number of enterprises, it is invested in an entity that is entirely legitimate, such as a restaurant, office building, farm, or manufacturing facility.

The best money laundering schemes involve shifting funds through numerous people, thereby making it more difficult for anyone to associate funds obtained by one party as being the funds now held by someone else. The risk to the money launderer is that one of these parties will abscond with the cash, so hefty fees or commissions are allowed as money shifts through the various entities that are laundering money.

The basic steps in a money laundering scheme are as follows:

  1. Placement in financial institution. Cash is deposited in bank accounts. This can be difficult, since banks are required to notify the government of large cash deposits. Accordingly, deposits are made in small and irregularly-sized amounts, using a variety of accounts at different banks. Also, bank officials may be bribed to not report these cash deposits.

  2. Cash movement. Once deposited, the cash is transferred in differing amounts to many other accounts in banks in several other countries, with the intent of making the transfers as difficult to follow as possible. Examples of the ways in which this cash movement is conducted are:

    • Underground banking. There are undocumented "underground banking" systems in some countries that do not report their transactions to the government. Money is shifted into and out of these banking systems.

    • Shell companies. Fake companies are created that offer fake goods and services in exchange for cash. Once received, this cash is the property of the shell company, which is likely to be under the control of the original cash owner or an associate.

    • Legitimate businesses. Cash is injected into a legitimate business by having that business bill for additional revenues and paying it with laundered cash.

  3. Cash conversion. Once the origins of the cash have been sufficiently obscured, it is used to purchase assets, varying from commodities to real estate. This represents the "cleaned" version of the cash - it cannot be traced, and it appears to be legitimate.

Money laundering operations can be quite complex, requiring the services of lawyers, bankers, and accountants to continually dream up new laundering schemes and keep track of the flow of money.

Related Courses

Fraud Examination 
Money Laundering