Money laundering is not a novelty. People have been doing this for centuries. Fraud has been around since money came into being. And money laundering is its close companion. Why is this crime ‘necessary’? It enables fraudsters to enjoy their illicit gains.

Making money illegally is one thing. However, being able to use it is a different matter. And here is where fraudsters need to put their creativity and knowledge at work. Laundering money is not easy. Nonetheless, there are many ways to do this. Further on, we will look into some of them. 

Money laundering means turning dirty money into clean earnings. To do this, you need to introduce it in the legal, financial circuit. For example, you can buy something with cash. Once you use the money, you gain products. And you are free of the dirty money, which is now in the circuit. 

However, the problem is usually the amount. More than often, fraudsters need to launder a lot of money. This makes it impossible to spend it all in cash. Therefore, they need to come up with other ideas. There are many ways to wash money, from shell companies to offshore accounts and cryptocurrency investments. So, let’s see how money laundering typically works. 

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 Money Laundering – a Quick Overview

To introduce the money in the legitimate financial system, they need a vehicle. This can be a company, an investment, commodities, etc. Usually, money laundering involves three phases:

1) The Initial Placement

To place money in a business, criminals need to owe one. This is not a problem. Many criminal organizations also operate legal companies. Therefore, they can use them as money laundering vehicles. They can wash money in any business. However, some are most suitable for this purpose. Usually, those that allow high profits and large numbers of clients.

Casinos, for example, work well. Here, lots of people spend hefty amounts. Naturally, the casino always wins. Therefore, it can absorb illegal gains. Restaurants and bars are also good examples. Here too, people spend cash. Moreover, if it’s a luxury restaurant, owners apply steep prices. This helps justify their profits.

Finally, regardless of the niche, the purpose is to take cash. And you can do this if you deal with clients directly. Then, at the end of the week or month, the cash goes into a bank account as business proceeds. 

2) Layering 

In the second stage, fraudsters further obscure illicit money. They don’t want to draw the authorities’ attention. Therefore, they can’t run all the cash through one business alone. So, they open other firms. Shell companies are usually the solution. Alternatively, some invest in real estate. 

3) Integration

In the final stage, the money finally reaches its owners. This is when it appears to be legitimate. After passing through multiple businesses or transactions. It comes out as profit. Therefore, criminals can withdraw it into personal accounts. Also, at this stage, they can start using it on luxury items. This is when illegal tactics cease. The money is officially part of the legal system.  

The Most Common Money Laundering Strategies 

There are multiple money laundering techniques. So, let’s just focus on the most popular ones.

Cash Smuggling

This is one of the oldest money laundering methods. However, it is evergreen. So, fraudsters still rely on it. Cash smuggling involves physical cash transfers. This practice is very dangerous. But it’s the easiest way to deal with dirty money. 

Usually, the purpose is to transfer money abroad. Especially in a fiscal paradise country. Once the money gets there, it’s easier to use. Many foreign countries are quite permissive in this regard. Also, foreign citizens face less scrutiny. Hence, they can live a life of luxury. All this, without accounting for their money. 

Real Estate

Luxury estate often shelters illicit money. There are anti-money laundering rules in this domain. Yet, it is also very flexible. Anyone with money can purchase real estate. And criminals often rely on shell companies. These companies only exist on paper. But they can hold funds and perform transactions. Often, owners register them abroad. Large amounts of money often hide in these opaque companies. By purchasing expensive real estate, some of it becomes clean. 

Securities 

The securities industry is a prolific field for money laundering. These trading activities follow anti-money laundering rules too. However, experienced traders know to bypass them. One common money laundering method is stock options trading. Fraudsters purchase securities with illicit money. Then, they wait for its value to increase. They can close the transaction to make it look profitable. Hence, they justify the gains. 

Bottom Line

Large criminal organizations usually end up with a big problem. They’ve got huge amounts of money. However, they must hide it. They can’t use it on lavish expenses. This would attract the authorities’ attention. 

Therefore, they need to wash the money. And more than often, they deal with millions of dollars. There are usually three money laundering stages: placement, layering, and integration. Moreover, there are multiple ways to wash illegal cash.