Money laundering is the illegal process of converting money earned from illegal activities into “clean” money – that is, money that can be freely used in legitimate business operations and does not have to be concealed from the authorities. Money laundering operations deal with trillions of dollars worldwide each year; therefore, money laundering activities exert a substantial impact on major national economies. One of the most commonly used and simpler methods of “washing” money is by funneling it through a restaurant or other business where there are a lot of cash transactions. In the United States, the FBI and the IRS are the two primary agencies that handle money laundering investigations. Using an investor from another country is just another way to help obscure the origin of the money. One of the most basic and widely used schemes is to utilize a foreign investor to get illegally-obtained cash into the legitimate financial system.
To deal with the problem of having millions of dollars in cash obtained from illegal activities, criminal enterprises create ways of “laundering” the money to obscure the illegal nature of how it is obtained. All of that makes it very difficult for investigating authorities to have any hope of tracing the money back to its original source – the illegal activities of the criminal organization. The multiple pass-throughs from one account, or one enterprise, to another make it increasingly difficult for the money to be traced and tied back to its original illegal source. Layering is the continuing transfer of the money through multiple transactions, forms, investments, or enterprises, to make it virtually impossible to trace the money back to its illegal origin. In the final phase of money laundering – integration – the money is placed into legitimate business or personal investments. Final integration is when the money is freely used legally without the necessity to conceal it any further. The “layering” often involves passing the money through multiple transactions, accounts, and companies – it may pass through a casino to be disguised as gambling winnings, go through one or more foreign currency exchanges, be invested in the financial markets, and ultimately be transferred to accounts in offshore tax havens where banking transactions are subject to much less scrutiny and regulation.
To deal with tax issues – that is, to avoid having the restaurant incur too large a tax bill as a result of recording more revenue than it generates – and to further disguise the criminal source of the extra deposited funds, the restaurant may invest the money in another legitimate business, such as real estate. The criminals now have their cash, received from an apparently “clean” source – the foreign investor – and the two companies used to wash the cash through now no longer exist. The lack of regulation enforcement enables criminals to deposit large sums of cash without triggering the deposits being reported to central bank authorities or government regulatory agencies. In the recent past, prestigious financial institutions, such as Danske Bank and HSBC, have been found guilty of assisting or enabling money laundering by failing to properly report large deposits of cash. The recipients of such large amounts of cash also do not want to have to acknowledge it as income, thereby incurring massive income tax liabilities. It may even be used to create yet another business entity through which future amounts of illegal cash will be laundered. A major business problem of large, organized criminal enterprises – such as drug smuggling operations – is that they end up with huge amounts of cash that they need to conceal in order to avoid attracting investigations by legal authorities.
The International Money-Laundering Information Network (IMoLIN) is a United Nations-sponsored research center that was created to assist law enforcement agencies throughout the world in the identification and pursuit of money laundering operations. The money has now been deposited in the restaurant’s legitimate bank account and appears as an ordinary deposit of restaurant business proceeds. Money obtained from illegal activities is gradually deposited into a bank through the restaurant. At this stage, the money has, ideally, been sufficiently laundered so that the criminal or criminal enterprise can use it freely without resorting to any criminal tactics. A criminal or criminal organization owns a legitimate restaurant business. Having defaulted on its loan, the receiving company may declare bankruptcy and go out of business. That company can then – after passing the cash back to the criminals – default on the loan, creating a loss for the shell company that can be used to reduce taxes owed. The loan default may also cause the shell company to fold up. The restaurant reports daily cash sales much higher than what it actually takes in. Say, for example, that the restaurant takes in $2,000 in cash in one day. For example, assume that a criminal organization has a million dollars in cash that it needs to launder.