Money Laundering: Predicate Crimes, Laundering Techniques and the AML Response

Money Laundering: Predicate Crimes, Laundering Techniques and the AML Response

by Jeff Simser

Money laundering has generally been defined as a process under which "dirty money" produced by criminal activity is turned into "clean money" and moved into the economy in places less likely to attract the attention of criminal authorities. The following EIA explores the crimes involved in money laundering, steps taken to effectuate the conversion of dirty money to clean money, and Canadian efforts to combat these endeavors.

Excerpt:

The acquisition of, and control over, wealth is the motivation for most serious crimes involving premeditation.

Money laundering or ML is a technique used to disguise the origin of tainted property, shielding that property from law enforcement, victims and criminal predators. Estimates suggest that global ML involves between $500 billion and $1 trillion a year. One commentator has suggested that the most authoritative estimate is a decade old and has a $1 trillion deviation between the high and low end of the scale. In my country, Canada, between $5 billion and $15 billion (Cdn) is estimated to be laundered annually. We clearly lack an accurately quantified understanding of ML. This isn't surprising. A truly successful money launderer is a covert figure hoping never to be discovered. Laundered money is not meant to be counted by financial institutions, authorities or statisticians. We know, through typologies, prosecutions and financial intelligence unit analysis, that ML is a serious problem which governments and international bodies have grappled with for the past twenty-five years. An industry devoted to anti-money laundering or AML efforts has resulted. AML efforts are targeted at conventional laundered money (drug proceeds, for example) as well as countering the financing of terrorism (CFT) efforts. This paper focuses primarily in two areas: the predicate crimes that lead to ML and the techniques that launderers use. In concluding, the paper takes a brief look at AML systems and the consequent enforcement mechanisms to deal with ML.

What is Money Laundering?

Canada's financial intelligence unit defines money laundering as:

"the process whereby "dirty money", produced through criminal activity, is transformed into 'clean money' whose criminal origin is difficult to trace. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention."

Generally, money laundering is thought to have three steps: one, money enters the financial system, a step often referred to as placement (sometimes called loading); the launderer then takes steps, commonly known as layering, to obfuscate the source of the money; finally the apparently cleansed money is organized under the patina of legitimacy, a step known as integration. As we shall see, these steps are not always followed or even present. A fraudster will often take victim money from within the financial system and has no need to worry about the placement step; by way of contrast, a drug dealer runs a cash business and placement is a critical ML step.

A hypothetical money laundering transaction might begin with the sale of illegal drugs. Let's say a dealer sells cocaine in Toronto for $100,000. The buyer deals with street transactions and gets paid in cash. So our hypothetical dealer now has $100,000, likely in lower denomination bills. The dealer could retain a few trusted associates and instruct them to make bank deposits, all of which will be under $10,000, into various institutions. Ideally our dealer may have set up a sham (or a real) cash business like a restaurant or a Laundromat, to facilitate the deposits. The drug dealer then moves the money from those accounts into others, hoping to hide his tracks. There are lots of techniques available to our dealer. The dealer could cut a cheque from an account in the name of his "cash" business to ostensibly settle an invoice from a shell company in his or her control. Once the dealer is satisfied that the money trail has been appropriately obscured, the money can be moved back to his own Toronto account; that $100,000 in cocaine wealth now has the patina of a legitimate provenance. Our drug dealer now presents to the community as a legitimate businessperson. As we shall see, money laundering techniques are limited only by the imagination.

Money laundering is, in and of itself, a crime. [footnotes omitted]

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Jeff Simser holds law degrees from Queen's University at Kingston and Osgoode Hall Law School. He is an asset forfeiture specialist and has worked with jurisdictions in North America, Europe, Africa and Asia. He's the author of numerous publications in the AML field and his most recent (co-authored) book Civil Asset Forfeiture in Canada is about to be published by Canada Law Book. A companion volume on Criminal Asset Forfeiture in Canada is currently in production. While this article represents his personal views, not those of his employer, Jeff is a legal director with the Ministry of the Attorney General in Ontario. Jeff can be reached at jeffsimser@yahoo.ca.