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Visit the Help Center for further assistance. Money laundering is the act of concealing the transformation of profits from illegal activities and corruption into ostensibly “legitimate” assets. The dilemma of illicit activities is accounting for the origin of the proceeds of such activities without raising the suspicion of law enforcement agencies. Some countries treat obfuscation of sources of money as also constituting money laundering, whether it is intentional or by merely using financial systems or services that do not identify or track sources or destinations. Other countries define money laundering in such a way as to include money from activity that would have been a crime in that country, even if the activity was legal where the actual conduct occurred.
The concept of money laundering regulations goes back to ancient times and is intertwined with the development of money and banking. Money laundering is first seen with individuals hiding wealth from the state to avoid taxation or confiscation or a combination of both. In China, merchants around 2000 BCE would hide their wealth from rulers who would simply take it from them and banish them. In addition to hiding it, they would move it and invest it in businesses in remote provinces or even outside China. Over the millennia many rulers and states imposed rules that would take wealth from their citizens and this led to the development of offshore banking and tax evasion. In the 20th century, the seizing of wealth again became popular when it was seen as an additional crime prevention tool.
The first time was during the period of Prohibition in the United States during the 1930s. This saw a new emphasis by the state and law enforcement agencies to track and confiscate money. In the 1980s, the war on drugs led governments again to turn to money-laundering rules in an attempt to seize proceeds of drug crimes in order to catch the organizers and individuals running drug empires. It also had the benefit from a law enforcement point of view of turning rules of evidence upside down. The September 11 attacks in 2001, which led to the Patriot Act in the US and similar legislation worldwide, led to a new emphasis on money laundering laws to combat terrorism financing.
Placing “dirty” money in a service company, where it is layered with legitimate income and then integrated into the flow of money, is a common form of money laundering. The conversion or transfer of property, the concealment or disguising of the nature of the proceeds, the acquisition, possession or use of property, knowing that these are derived from criminal activity and participate or assist the movement of funds to make the proceeds appear legitimate is money laundering. Some of these steps may be omitted, depending upon the circumstances. Typically, it involves three steps: placement, layering, and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Money laundering can take several forms, although most methods can be categorized into one of a few types.
These include “bank methods, smurfing , currency exchanges, and double-invoicing”. Structuring: Often known as smurfing, this is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement. Cash-intensive businesses: In this method, a business typically expected to receive a large proportion of its revenue as cash uses its accounts to deposit criminally derived cash.
Trade-based laundering: This involves under- or over-valuing invoices to disguise the movement of money. Shell companies and trusts: Trusts and shell companies disguise the true owners of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true owner. Sometimes referred to by the slang term rathole, though that term usually refers to a person acting as the fictitious owner rather than the business entity.