How do Money Laundering Schemes operate?
Money laundering is often described as occurring in three stages: placement, layering, and integration.
- Placement: refers to the initial point of entry for funds derived from criminal activities.
- Layering: refers to the creation of complex networks of transactions which attempt to obscure the link between the initial entry point, and the end of the laundering cycle.
- Integration: refers to the return of funds to the legitimate economy for later extraction.
Examples:
Cash transactions and deposits of more than a certain dollar amount are required to be reported as "significant cash transactions" to the Financial Crimes Enforcement Network (FinCEN), along with any other suspicious financial activity. Methods to conceal the source are therefore required.
Irregular funding:
One method of keeping these transactions private would be for an individual to give money to an intermediary who is already legitimately taking in large amounts of cash. The intermediary would then deposit that money into an account, take a premium, and write a check to the individual. Thus, the individual draws no attention to himself, and can deposit his check into a bank account without drawing suspicion.
Captive business:
Another method involves establishing a business whose cash inflow cannot be monitored, and funneling the small change into this business and paying taxes on it. Such shell companies usually deal directly with the public, perform some service-related activity as opposed to providing physical goods, and reasonably accept cash as a matter of business.
Corrupt politicians and lobbyists also launder money by setting up personal non-profits to move money between trusted organizations, so that donations from inappropriate sources may be illegally used for personal gain.
What are the penalties for Money Laundering?
In the United States, Federal law provides (in part):
"Whoever . . . knowing[ly] . . . conducts or attempts to conduct . . . a financial transaction which in fact involves the proceeds of specified unlawful activity . . . with the intent to promote the carrying on of specified unlawful activity . . . shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both."
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