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Money Laundering using Non-financial Business

by | Feb 17, 2021 | Financial Crime Academy, Money Laundering (ML)

Non-financial businesses can be a good opportunity for criminals and money launderers as well, but, in comparison, require a different strategy or setup. Non-financial businesses are less often seen in the bigger money laundering cases. With the exception of some casinos, which can be a misused for laundering larger sums as well.

Casinos

First of all, let’s explore a moment about casinos. There are actually a few different money laundering methods involving casinos. In one method the criminal walks into a casino and buys chips with illicit cash.

The criminal will then play for a relatively short time, lose some money, win some money, and eventually cash in the chips. The criminal will then receive a check and a receipt, so the proceeds can simply be claimed as gambling winnings.

This method has gotten a lot harder in some jurisdictions due to tighter controls and regulations, but it still can have and had in the past a preposterous scale. In Canada for example, criminals laundered millions and millions of Dollars through casinos.

When they investigated the footage of the video cameras at some point, they saw the criminals coming in with suitcases stuffed full with money. And believe it or not, some even came in with these large hockey bags to haul the cash.

Cash-intensive businesses 

The second method involves various forms of cash-intensive businesses. In this method, a business that typically expects to receive a large proportion of its revenue as cash, uses its accounts to deposit criminally derived cash as well. Such enterprises often operate openly and in doing so generate cash revenue from incidental legitimate business in addition to the illicit cash.

In such cases the business will usually claim all cash received as legitimate earnings. Service businesses are best suited to this method, as such enterprises have little or no variable costs or at least a large ratio between revenue and variable costs.

This makes it very difficult to detect discrepancies between officially claimed revenues and claimed costs. Examples for these cash-intensive businesses are parking structures, strip clubs, tanning salons, car washes, arcades, bars, and restaurants.

Believe it or not, but this method is actually very-well exemplified in the Netflix TV series Ozarks. The main character, who is tasked with laundering the proceeds of a Mexican drug cartel, purchases legitimate, cash-intensive businesses and argues that these purchases are capital investment.

He then commingles the cash-revenue from the business itself with the cash from the Cartel’s illegal activities. Other than that one would expect these activities to trigger at least some suspicious transaction alerts, the money laundering scenarios in this TV series are both plausible and very creative.

Car Dealerships

The third method involves vehicle or car dealerships. In a typical scenario a money launderer would approach a car dealership and offers to provide the cash to purchase vehicles, typically at the asking price.

The money launderer may then resell the car to claim the proceeds are from selling the car.

Real Estate

Last but not least, another lookout in the world of real estate. Money laundering through real estate integrates the criminal funds into the legal economy, while providing a safe investment. It allows criminals to enjoy assets and derived funds having camouflaged the origin of the money used for payment.

A number of techniques are used in this method, namely cash or opaque financing schemes, overvalued or undervalued prices, or non-transparent companies, trusts and third parties that act as legal owners on behalf of the criminals.

To be a bit more precise on one of the techniques used to launder money through real estate is as follows. So the technique foresees that the criminal purchases a real estate property with a loan. Obviously, the criminal needs to make payments on the loan and he does this in smaller portions and in cash.

This can be a rather slow method until the loan is paid back, but it really depends on the structuring of the loan. Eventually, the criminal resells the property after a short while and, under the assumption of a stable real estate market, the criminal has more or less laundered the value of the redemption payments that the criminal has made.

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