Money Laundering is a technique of cleaning the dirty money that was acquired illegally or from criminal activity such as drug-related crimes, embezzlement, and terrorist funding. Black money can also be acquired through running a legitimate business to avoid detection by disguising dirty money as legal profit. Money laundering illegally makes large amounts of money by hiding the real source from where it was generated. Furthermore, it involves the hiding of large amounts of money illegally to make it look like it was generated from a legitimate source. However, money laundering is a serious crime that imposes heavy penalties including prison.
In the digital age where almost every money launderer is one step ahead of financial authorities, it has become a widespread issue in the financial industry and very hard to eliminate. People can’t just spend a large amount of money without showing their real source if they want to stay compliant with federal regulations. There are numerous ways to launder money such as real estate laundering, casino laundering, bank laundering, trade-based laundering, layering, structuring, shells, mules, etc. Later in the article, we’ll be discussing the most common money laundering techniques used in the modern era.
Smurfing Structuring
Structuring so-called smurfing is a technique of money laundering where the splitting of large cash into smaller chunks is done and then deposited into different bank accounts, making it untraceable. The process involves multiple individuals and multiple transactions for making cash deposits. Criminals often use the technique of structuring in money orders and cashiers but multiple deposits in a short period may also trigger the suspicion of money laundering.
Real-Estate Laundering
Real estate laundering is a common technique involving large cash amounts and legitimate financial systems such as banks and mortgage companies. In the procedure of real estate laundering, criminals used to buy heavy real estate assets using cash acquired from illegal activity, after buying the assets they further sell it, depositing the earned money into a legitimate bank account. The whole activities may include a third party buying the property or using properties to make any purchase in between. Once the properties have been sold, the tracing of the origin of purchasing funds becomes more difficult. However, buying or selling any real estate through cash transactions is not illegal but the involvement of multiple cash in real estate deals is suspicious to law and may impose heavy penalties and prison.
Smuggling Out Cash Currencies
Smuggling out cash currencies is the oldest placement technique in which bulk shipments are taken across the border hidden in the cargo or carried in person by individuals even though exporting Indian rupees is strictly prohibited for non-Indian residents and residents of India can travel abroad with up to Rs. 25,000 only. There is no limit to how much foreign currency can be taken out of India, but a declaration is required if it crosses the prescribed threshold.
Layering
Layering is another popular and effective way for the money launderer to clean their illegal funds. The idea of layering is a technique of cleaning dirty money from its illegal origin by sending it through numerous transactions and various forms. The entire cash can be converted into different forms such as cash can be converted into gold, then become real estate, and then become casino chips. The technique of layering usually revolves around money around the globe, entering multiple countries and going through multiple transactions.
Bank Laundering
Another way of efficient money laundering method is through bank laundering. Bank laundering can be done by owning a financial institution to clean illegal funds on a large scale. For example, if a money launderer owns a bank, mortgage company or stock trading company, they can easily move their money to another financial institution through their organisation. This was the main reason behind implementing the Bank Secrecy Act which imposed a law on the financial institutions to follow certain reporting requirements to combat with money launderer.
Casino Laundering
Over the recent few years, casino laundering has gained a good reputation for laundering illegal funds easily. In casino laundering, people come with large funds of cash in the form of dirty money and then cash in chips and walk out with clean cash. Most of the organised crime has been associated with gambling as they use large amounts of dirty money to make them white.
Hawala
Hawala is a traditional method that originated in South Asia that involves a transfer of money without actually involving real money. Money transfer in Hawala is arranged through a network of havildars or hawala dealers. The term “Hawala” signifies trust where the hawala dealers don’t have to maintain the infrastructure like banks and assure more secrecy and no paper trials.
Extended Benefit in Money Laundering
Some of the applications of the extended benefit provision in money laundering cases are highlighted below.
Drug trafficking offences are classified as significant money laundering offences. In these situations, the assumption is specifically misapplied; nevertheless, if the defendant is found guilty of conspiracy to commit one of these drug trafficking offences, then the assumptions are applicable.
The court can only profit from the offence for which the defendant is convicted if he is found guilty of a substantive money laundering offence, conspiracy to commit such an offence or any of the associated money laundering offences.
Conviction of these offences cannot result in a drug trafficking investigation, nor may a confiscation order be issued if none of the associated money laundering offences is a drug trafficking offence.
Right in the modern era, money laundering is a big issue of government and it affects about 2% to 5% of the global GDP. The most common business that involves huge money laundering cases are restaurants, nightclubs, charity trusts, casinos, and others. So, preventing money laundering is now a big concern to keep the GDP unaffected.
To mitigate the huge flow of cash from money laundering, the Bank Secrecy Act of 1970 was imposed. The law is also known as name of Currency and Foreign Transactions Reporting Act, intended to prevent the huge flow of cash from financial institutions to launder their illegal funds.
The law regulates certain steps such as providing currency transaction reports to regulators or the submission of suspicious activity reports when clients are involved in suspicious transactions. Furthermore, FinCEN holds all the power to set regulations, monitor financial institutions, regulate compliance, and impose and collect fines for violations.
Money Laundering is a pressing issue that affects businesses of all sizes. Usually, laundered money is transacted from various accounts to show their legitimate source and looks like it came from a legal source. It is a serious white-collar crime that imposes heavy penalties for violating regulations. So, to put a stop to money laundering, it is necessary to check and monitor AML compliance. If you are also looking to enhance your AML compliance and further reduce the money laundering risks, make sure to consult CA. Manoj K Pahwa. He is one of the top FEMA consultants who offers strong and personalised solutions to the user's needs. His prominent team take care of every small thing to combat sophisticated money laundering and adhere to AML compliance.