Money Laundering

There are many ways to launder money, ranging from simple to complex. One of the most common ways to launder money is through a legitimate cash-based business owned by a criminal organization. For instance, if the organization owns a restaurant, it might inflate the daily cash receipts to funnel its illegal cash through the restaurant and into the bank. Then they can distribute the funds to the owners out of the restaurant’s bank account. These types of businesses are often referred to as “fronts.”

Another common form of money laundering is called smurfing, where a person breaks up large chunks of cash into multiple small deposits, often spread out over many different accounts, to avoid detection. Money laundering can also be done through the use of currency exchanges, wire transfers, and “mules” or cash smugglers, who smuggle large amounts of cash across borders to deposit them in offshore accounts where money-laundering enforcement is less strict. Other money-laundering methods involve investing in commodities such as gems and gold that can be easily moved to other jurisdictions, discretely investing in and selling valuable assets such as real estate, gambling, counterfeiting and creating shell companies.

While traditional money-laundering methods are still used, the internet has put a new spin on an old crime. The use of the internet allows money launderers to easily avoid detection. The rise of online banking institutions, anonymous online payment services, peer-to-peer transfers using mobile phones and the use of virtual currencies such as Bitcoin have made detecting the illegal transfer of money even more difficult. Moreover, the use of proxy servers and anonymizing software makes the third component of money laundering, integration, almost impossible to detect, as money can be transferred or withdrawn leaving little or no trace of an IP address.

In many ways, the new frontier of money laundering and criminal activity lays in cryptocurrencies. While not totally anonymous, these forms of currencies are increasingly being used in currency blackmailing schemes, drug trade and other criminal activities due to their anonymity compared to other forms of currency.

Money can also be laundered through online auctions and sales, gambling websites and even virtual gaming sites, where ill-gotten money is converted into gaming currency, then transferred back into real, usable and untraceable “clean” money.

Anti-money-laundering laws (AML) have been slow to catch up to these types of cybercrimes, since most AML laws attempt to uncover dirty money as it passes through traditional banking institutions. As money launderers attempt to remain undetected by changing their approach, keeping one step ahead of law enforcement, international organizations and governments are working together to find new ways to detect them.

The government has become increasing vigilant in its efforts to combat money laundering over the years by passing anti-money-laundering regulations. These regulations require financial institutions to have systems in place to detect and report suspected money-laundering activities.

In 1989, the Group of Seven (G-7) formed an international committee called the Financial Action Task Force (FATF) in an attempt to fight money laundering on an international scale. In the early 2000s, its purview was expanded to combating the financing of terrorism.

The United States passed the Banking Security Act in 1970, requiring financial institutions to report certain transactions to the Department of the Treasury, such as cash transactions above $10,000 or any transactions they deem suspicious, on a suspicious activity report (SAR).

The information these banks provide to the Treasury Department is used by the Financial Crimes Enforcement Network (FinCEN), where it can then be sent to domestic criminal investigators, international bodies or foreign financial intelligence units.

While these laws were helpful in tracking criminal activity through financial transactions, money laundering itself wasn’t made illegal in the United States until 1986, with the passage of the Money Laundering Control Act. This law removed limits on the amount of money involved and individual intent to give the federal government more room to prosecute money laundering.

Shortly after the 9/11 terrorist attacks, The USA Patriot Act strengthened money-laundering prevention by allowing the use of investigative tools designed for organized crime and drug trafficking prevention for terrorist investigations. Title III of the Patriot Act, called the “International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001,” seeks to prevent the exploitation of the American financial system by parties suspected of terrorism, terrorist financing and money laundering. The law imposes strict bookkeeping requirements and also authorizes the Secretary of the U.S. Treasury to develop regulations that encourage better communication between financial institutions with the goal of making it more difficult for money launderers to hide their identities. The Treasury can also halt the merger of two banking institutions if both entities have a history of failing to put adequate anti-money-laundering procedures in place.

The Association of Certified Anti-Money Laundering Specialists (ACAMS) offers a professional designation known as a Certified Anti-Money Laundering Specialist (CAMS). Requirements to gain CAMS certification include obtaining 40 qualifying credits based on education, work experience and other professional certifications, and passing the CAMS examination. Professionals who earn CAMS certification may work as brokerage compliance managers, Bank Secrecy Act officers, financial intelligence unit managers, surveillance analysts and financial crimes investigative analysts.