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Investigation into Laundered Money

We live in an increasingly globalized world, with increasing integrated financial systems and institutions. While there are many benefits to this, there are also challenges that come with this. Crime has always existed, but the specifics of crime, and the tactics used by criminals to profit from their crimes continue to evolve.

One important tool that criminals utilize in order to profit from their crimes, especially crimes relating to fraud, is money laundering. Money laundering is the process whereby the proceeds of crime are transformed into supposedly legitimate money or other assets. By doing this, criminals seek to avoid suspicion regarding the means by which they acquired their money.

Money Laundering is a single process that generally has three main stages. The first phase is the placement phase. In this phase, criminals seek to place the “dirty” money into legitimate financial systems. This is done to relieve the criminals of holding large amounts of physical money or other assets; it also begins the process of enabling the criminal to utilize their illegal proceeds. This first step is also the phase in which the criminals are most vulnerable to detection, as placing large amounts of cash into financial systems often gets undesired attention from authorities. Because of this vulnerability, criminals employ a variety of means to place money into the financial system without raising suspicion; this often includes utilizing other individuals to place the money in smaller amounts into various accounts.

The vulnerability of this phase is revealed by the famous “Benex Scandal” of the 1990’s. From 1994 to 1999, seven to nine billion dollars of dirty money from Russia was laundered through banks in the United States via accounts associated with a private company named Benex Worldwide. This money was then moved through various financial institution in Europe (a process known as layering, which will be explained in detail below) before being returned to Russia through supposedly legitimate means. While massive amounts of money was laundered for several years, the money laundering scheme was eventually discovered when one of the banks noticed unusually large wire transfers entering their bank from Russia. When this occurred, they alerted authorities, who were ultimately able to arrest the criminals involved. This example shows the difficulty of the placement phase, as significant amounts of money being placed into financial systems can raise suspicion.

After the initial phase of placement is complete, criminals then engage in the layering phase. In this phase, the illicit money is moved around rapidly within the financial system with the goal of separating the money from its source. This makes illegal money difficult to track, and is intended to destroy any links between the money and the original crime. This phase often involves international movements of money and investments.

The final phase is the integration phase. In this phase the money is returned to the criminals through supposedly legitimate forms. The first two steps seek to establish money as a legitimate part of the financial system, and the final step is intended to enable to criminals to have access to that money again, and to gain that access in a way that does not arouse suspicion.

Because of the global and massive scale that money laundering often occurs on, and because of the rapidly changing methods used by money launderers, those fighting money laundering must constantly evolve their tactics. As one Middle Eastern leader involved in anti-money laundering efforts put it “We must therefore move in tandem with the speed of change to counter any AML/CFT risks to the financial system.”

One example of the evolving nature of money laundering is the case of Liberty Reserve, an online digital currency service which was shut down in 2013 by the United States government for allegedly being used to launder $6 billion in criminal proceedings. Liberty Reserve allowed individuals around the world to open accounts without verifying any personal information, allowing criminals to create accounts with complete anonymity. This made it easy for criminals to move money without risk of detection, and allowed laundering to occur with relative ease. The founders of Liberty Reserve were arrested and charged with conspiracy to commit money laundering, among other things. This shows the continually changing nature of money laundering, and importance of fighting money laundering on a wide scale.

In order to fight money laundering, financial institutions must take intentional steps to detect money laundering as early as possible by complying with anti-money laundering policies, and reporting suspicious activities to the proper authorities. Once a case is being investigated, the prosecution of criminals depends on the ability to prove illegal proceeds, something that is often very difficult (because it is the very thing criminals are seeking to hide by money laundering). Investigators should seek to accomplish this by tracing the illegal funds through careful audit steps. By focusing on the points of payment and receipt that illicit funds travel through the steps of money laundering, proving guilt can be done. In addition to carefully auditing, turning an inside witness can be a vital piece of evidence in the efforts to convict criminals.

Money laundering has widespread ramifications, and enables criminals to access the proceedings from their illicit activities. While more attention has recently been given to this damaging international crime, more efforts must be made if anti-money laundering laws are to be enforced and this crime curtailed.

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