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.
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
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 email@example.com.