The Straight Dope: How would I go about laundering money?

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The Straight Dope - Fighting Ignorance Since 1973
Cecil Adams, the world's smartest human.



How would I go about laundering money?
January 9, 2009

Dear Cecil:
Being the fount of all knowledge, could you tell me the best way to
launder money? The information may come in useful one day.
 Ben Vicken, somewhere in Asia

Cecil replies:

I'm confident you're not contemplating anything illegal, Ben. However,
it's helpful for us law-abiding folk to understand the workings of the
criminal mind. So let's start at the beginning. Suppose you have a
couple grocery bags full of ill-gotten cash. What do you do?

You sure as hell don't just spend it  Al Capone learned that the hard
way when he was convicted of tax evasion. Modern bad guys understand
that when large sums are involved, it's important to make the loot
appear to have been legally acquired. Money laundering accomplishes
this in three steps: (1) getting the money into the financial system,
called "placing," (2) moving it around to hide the illegal taint, or
"layering," and (3) commingling it with legitimate funds, known as
"integrating."

Casinos used to make it easy to do this. In the 1970s, one organized
crime figure went into an Atlantic City casino with nearly $1.2
million in small bills (authorities figured it must have filled a
sizable duffel bag), gambled some of it away, then cashed in $800,000
in chips for $100 bills (these would fit comfortably in an attache
case), and, some days later, dumped the money into a Swiss bank.

This kind of stunt would now likely attract unwanted attention, as
current federal law requires casinos and other operations handling
large amounts of cash to report suspicious transactions. Instead, you
might try an approach called "smurfing"  you break up your boodle
into sums below the reporting threshold and arrange for proxies, or
"smurfs," to deposit these into different checking accounts. In one
infamous smurfing case a ring of middle-aged women placed over $25
million of Florida drug money into assorted California banks.

Another common approach is to mix up nonkosher funds with the assets
of a front company: any above-ground business that handles a lot of
cash, such as a check-cashing service, travel agency, grocery store,
car wash, or coin laundry. Alternatively, you might use a business
with a hard-to-value inventory  precious metals, jewelry, antiques,
art, etc. Since law enforcement can't be sure how much money the
business is supposed to have, the fake invoices or receipts you use to
conceal your swag aren't conspicuous.

As a variation on the phony-invoicing trick, you can arrange to
purchase property well below market value and slip the cash difference
to the seller. You then resell a few months later at the true value,
getting that cash back as a perfectly legal profit  any capital gains
tax is just the cost of doing business. The cash you gave the original
seller is his problem.

The stock market is another good place to wash money. You invest small
amounts of cash in the market, several times a day, through different
brokerage firms. Brokers don't routinely talk to each other, so
multiple accounts with different firms won't attract suspicion. If you
use your front company to buy the stock, there's yet another level of
complexity for the investigators to try to unwind.

Once the money's in a bank, you want to further obscure the trail.
Wire the cash to an offshore account somewhere with no tax on business
or investment income and strict secrecy laws  the Cayman Islands, the
Channel Islands, Bermuda, Luxembourg, etc. Then your U.S. front
company can take a "loan" from your Cayman Islands bank account. If
the FBI asks where you got the million dollars, you tell them
truthfully it's a bank loan, and you've got legal loan documentation
to prove it. The money isn't taxable (it's a loan); when you repay the
interest, you pay it to yourself and deduct it as a business expense
while shipping even more money out of the country.

So let's imagine a typical money-laundering scenario: (1) Make
numerous below-the-radar deposits to accounts in different banks. (2)
Consolidate the funds via wire transfer in a single account in, say.
Tampa. (3) Wire that to a London bank. (4) Convert the funds to
certificates of deposit. (5) Use those as collateral for a loan from a
bank in the Cayman Islands. (6) Transfer the loan proceeds back to
your front company in Tampa. Result: a confusing trail for the feds to
follow, most of it electronic, with no need for small unmarked bills
or other crime-fiction cliches.

In short, money laundering has become a species of high finance. Some
claim it's the third largest business in the world, behind legitimate
currency transactions and the auto industry. It conceals some nasty
enterprises  criminal-finance experts estimate that more than two
thirds of U.S. money-laundering prosecutions involve illegal drug
dealing, and terrorists shuffle their share of cash as well. Then
again, knowing what we do about many legal global transactions of
late, you'd have to say it's not just the criminals in the financial
marketplace who are up to no good.

 Cecil Adams