Money Laundering Examples

Posted in Anti-Money Laundering (AML) on July 10, 2023
Money Laundering Examples

What are the money laundering examples? There are several common types of money laundering, including cash business schemes, casino schemes, and smurfing schemes. 

A complete money laundering operation will often involve several as the money is moved around to avoid detection. For example, proceeds from cash businesses can be gambled, just as the “success” of a cash business infused with placed cash can be used to justify investments or loans from cash placed offshore. 

Money Laundering Examples

Criminals engage in money laundering because their illegal activities generate large amounts of money that cannot be explained or hidden. These illegal funds must be disguised as legitimately obtained funds for criminals to gain access to them without detection and retaliation from relevant authorities.

Each of the examples we will look at includes how the money behaves during the placement, layering, and integration stage.

Money Laundering Examples

Cash Business Scheme

Let’s start by looking at the Cash Business Scheme. The cash business scheme is one of the most classic schemes for laundering large amounts of physical cash. Even today, many businesses handle most of their transactions in cash. Illicit cash can be inserted into these transactions quickly or slowly.

Laundering money through cash-intensive businesses was the preferred method of the famous gangster Al Capone. He evaded investigators for years by funneling the money his crimes generated through his small empire of laundromats. The term “money laundering” was coined by the agents investigating him. 

Placement for a cash-intensive business scheme involves direct cash payments to the owner or manager of the establishment. The money to be laundered for the day is brought to the business’s premises. It stays in a safe location until it can be added to the day’s profits through of several methods.  

When the money is laundered through cash businesses, such as car washes and strip clubs, the layering stage occurs when dozens of fake transactions are slipped into the books throughout the day. These transactions may take the form of fake customers or through extra services tacked onto legitimate transactions, with the difference added from the placed money.

Cash-intensive business schemes often extract the money through daily profits. This scheme requires the money to be laundered somewhat slowly, but some amount is ready every day, making it more liquid for the launderer. Taxes are paid on the reported profits, and the money can now be used for any purpose. 

Casino Scheme

Secondly, let’s look at the casino scheme. The casino scheme works by funneling money through gaming. The money is converted to casino chips, briefly played, and then transferred back into cash. The chips may be converted by the launderer or by a proxy.

In many cases, the casino where where money laundering occurs is in a different nation than the launderer’s country of origin. It makes it difficult for law enforcement in either country to gather evidence that might reveal proof of money laundering. 

The placement stage occurs when the money is delivered to the proxy, who will take payment in cash and then exchange it for chips. In some countries, travel agencies provide casino chips as part of their packages. Paying for these packages in cash can be an effective way to place the cash without electronic records.   

When the money is laundered through gambling, the layering stage occurs. This stage takes place when the cash or chips purchased through an intermediary are carried into the casino and used for gambling. In most cases, very few of the chips are used for gambling because of the risk of loss. Instead, the chips are lightly used for several hours and then converted back into cash. 

The receipts from the cash out are used as evidence of the cash’s legitimacy. There is no record of how many chips were carried into the casino, so the launderer can plausibly claim that small amounts were carried in and the larger sum comes from winnings. 

Money laundered through casinos is relatively easy to integrate. Once the winnings are reported, and taxes are paid, the money can be used for other purposes.

Smurfing Scheme

Last but not least, let’s look at the Smurfing Scheme. Smurfing refers to distributing small amounts of a larger cash horde to a series of partners who then deposit the money in incremental amounts. Smurfing is used to get around the currency reporting requirements that banks must observe in many countries. Small amounts from many partners are less likely to trigger an automatic report.

The placement stage starts with the cash being distributed through a network of people who can be trusted to deposit the money back again on schedule. Larger criminal organizations are more likely to use this strategy because they already possess a network of compliant members.

The layering stage for this scheme happens as the money is deposited back into one or several accounts. More advanced smurfing schemes will attempt to ensure that the money is deposited in ways that avoid automatic detection. The cash must not only be deposited in small amounts but in varying amounts at different intervals. 

The money can be extracted as it is moved back into the account. While this scheme avoids automatic detection and reporting, it is not as safe as some schemes. If the deposits come under scrutiny, it may be difficult for the launderer to explain why the deposits were made.

Final Thoughts

Money laundering is a method of hiding illegally obtained funds. Money laundering works by transferring money through elaborate and complicated financial transactions that deceive anyone who attempts to trace and review the transactions. The goal is to make identifying the original party to the transaction, known as the launderer, difficult. The funds, however, eventually return to the launderer at the end of the convoluted scheme.

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