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Money Laundering 101
Over the years, some clients and advisors have asked us about how to detect possible money laundering activities. To do so, an explanation of the basics is required. Money laundering is the process in which criminals obscure the origins of illegally obtained cash to make it appear legitimate. Money laundering gets its name because it is the process of making illegally-gained proceeds (i.e., “dirty money”) appear legal (i.e., “clean”). This is to avoid having the cash seized by the government. Money laundering is used to facilitate crimes and adversely impacts the global economy as a whole.
Money laundering first begins with the placement of illegally obtained cash within a financial institution. This can be accomplished in a variety of manners. This includes loan repayment (paying off loans using the illegal funds), gambling by using the illegal funds, currency smuggling (bringing the money across the border), currency exchange (using the illegal funds to purchase foreign currency), blending funds (mixing illegal money and legitimate money together).
After placing the money into the system, criminals begin moving the funds between different banks, financial institutions, and countries in order to create confusion and hide the paper trail of the origins of the money. Ways criminals move the funds can be through underground banking (underground banking systems which do not report transactions to the government), shell companies (fake companies offering fake goods/services for cash), or legitimate businesses (having a legitimate business bill for additional revenues and paying with the illegal cash).
Finally, the criminal will remove funds from the financial system as they are now disguised as legitimate funds from being moved through different financial institutions. Criminals will use the funds to purchase assets and is extremely hard to trace back.
Some warning signs to help spot money laundering include inconsistent information, reluctance to share information, frequent transactions under the bank’s reporting limit, etc. In 2021, the US Anti-Money Laundering Act (AMLA) was enacted to expand coordination and information sharing among agencies and financial institutions to better detect money laundering. The AMLA essentially helps the government better identify and fight against money laundering.
If potential money laundering violations have occurred, our office conducts investigations and assists in responding to government investigations regarding possible violations.
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