Definition of Money Laundering
Video- MBA Online- Money Laundering: https://www.youtube.com/watch?v=1ObJPaSZxCs
As highlighted by the preceding video, Money laundering is the process by which criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities. This definition covers a wide range of activity and you need to understand how people launder money so that you can identify money laundering and know how to help prevent it.
Criminal Activities include:
- Drug Trafficking
- Tax evasion
- Smuggling of: Arms/People/Good
- White Collar Crimes (Insider Trading)
Example 1: Courtesy the Trinidad Guardian Online- Fifa corruption: Documents show details of Jack Warner 'bribes' (2015)
A BBC investigation has seen evidence of the $10m sent from Fifa to accounts controlled by former vice-president Jack Warner.
The funds, sent on behalf of South Africa, was meant to be used for its Caribbean diaspora legacy programme. But documents suggest Mr Warner used the payment for cash withdrawals, personal loans and to launder money. In the three transactions - on 4 January, 1 February and 10 March 2008 - funds totalling $10m (£6.5m) from Fifa accounts were received into Concacaf accounts controlled by Jack Warner. Reports revealed that JTA Supermarkets, a large chain in Trinidad, received $4,860,000 from the accounts.
The money was paid in instalments from January 2008 to March 2009. The largest payment was $1,350,000 paid in February 2008. US prosecutors say the money was mostly paid back to Mr Warner in local currency.
Example 2: Courtesy Stabroeknews Online-Pilot held with US$620,000 has private hangar at Timehri (2014)
The aircraft on which US$620,000 was found in Puerto Rico last week was registered in the United States but it was based in a private hangar at the Cheddi Jagan International Airport (CJIA), Timehri owned by businessman/pilot implicated in the haul, Kem Khamraj Lall.
Lall, who is also a businessman and owns a gas station in Guyana, is now detained in a Puerto Rican jail following his initial court appearance before Magistrate Judge Marcos E. Lopez. During the hearing he was provided with a copy of the complaint and another hearing was set for December 1st where it would be determined whether Lall, a US citizen, was to remain in custody.
The charge against Lall reads that he knowingly concealed more than US$10, 000 in currency; to wit over US$600,000 and other monetary instruments in a plastic trash bag covered with a blanket under an exit seat of the plane and in an article of luggage, and attempted to transport and transfer such currency and monetary instruments from San Juan, Puerto Rico, a place within the US, to Guyana.
How Money Laundering Works
There are countless ways to launder money. Generally, it can be broken down into three stages:
STAGE 1: PLACEMENT – the initial entry of illicit money into the financial system
- The Placement stage is the most challenging stage of the laundering process, at this stage the launderer can be caught trying to get rid of their illicit proceeds. Some methods used are loan repayment, currency exchange and gambling. An example of the placement stage is Smurfing.
- Smurfing/Structuring: This is the process of breaking up the transaction into smaller amounts. For example: A Source of Funds Declaration Form must be completed for all transactions over the threshold (TT$90,000). The launderer will try to circumvent this process by breaking up the transaction into smaller amounts and finding persons who would assist in this process. (The TT$90,000 would now be 10 transactions at TT$9,000 each).
STAGE 2: LAYERING – the process of separating the funds from their source
- The Layering stage is most complex, the launderer attempts to confuse the original source of the funds, in many instances money service businesses are used to transfer these funds to other countries in an attempt to confuse the money trail.
STAGE 3: INTEGRATION – the money is returned to the criminal from legitimate-looking source.
- The Integration stage is when the funds are being converted to what appears to be a legitimate business. After the launderer is successful in placing the money into the financial system and confusing the process by layering, they can now do what appears to be everyday business.
- MONEY LAUNDERING PROCESS:
Definition: Terrorist financing is the provision of financing for terrorist activity. This may involve legitimate funds, such as personal donations, subscriptions and profits from businesses and charitable organizations, as well as funds from criminal sources, such as the drug trade, the smuggling of weapons and other goods, fraud, kidnapping and extortion.
Terrorist activity involves acts that use or threatened use of violence (terror) in order to achieve a political, religious, or ideological aim.
Terrorist activities include:
With the spate of terrorist attacks around the world, countering terrorism financing has become a major focus of governments, regulators and financial entities- like Massy United. It encompasses all efforts put in place to stop the financing of terrorism. It also provides terrorists an opportunity to disrupt or destroy networks and computers. The result is interruption of key government or business-related activities.
Unlike money laundering which is always preceded by an unlawful activity, TERRORISM MAY ALSO BE FINANCED FROM THE PROCEEDS OF LEGAL ACTIVITIES; such as humanitarian organisations, various associations, donations. This makes detection of terrorist financing very difficult, even more so if we bear in mind the fact that transaction amounts involved in terrorist financing often tend to be smaller than the amounts that under law have to be reported under money laundering. As the measures taken to prevent money laundering are not sufficient in the fight against terrorist financing, they have to be supplemented by special measures prescribed by competent international bodies.
How Terrorist Financing Works
NOTE: the acquisition of goods and funds can be from legal or illegal activities.
Similarities & Difference between ML & TF
Money Laundering and Terrorist Financing are linked. For both the nature of funded activity and the funding activity are concealed.
On the other hand, the major differences in ML & TF are highlighted below:
Difference between Money Laundering & Terrorist Financing
The source of funds tends to be illicit
The source of funds may be licit or illicit
It’s purpose is not to increase profit or maintain it but rather to hide and disguise the source.
It has an ideological purpose
It’s used to hide the illicit source of funds
It’s used to finance illicit activities
SOURCE of funds must be verified
The DESTINATION of the funds must be verified
PREVENTION: KNOW YOUR CUSTOMER
PREVENTION: KNOW YOUR CUSTOMER
Place the stages of Money Laundering in the Correct order: