There’s a good reason why it can be hard to understand what money laundering is and how it works. News stories about money laundering are usually hard to follow, and that’s exactly the point of money laundering. Typically, the harder it is to follow, the better the money has been laundered.
Simple money laundering schemes
Money laundering is using financial transactions with the goal of hiding the money’s role in illegal activity. If done well, dirty money used for crimes soon comes out of the wash apparently legal and clean.
Perhaps the simplest methods, and so the methods most useful in understanding what money laundering is all about, are trade-based schemes.
Zander does about $2 million worth of murder and arson for Albert. Luckily, Zander is also a watercolor painter and Albert decides Zander’s new painting is worth $2 million. So, Zander gives Albert a painting and gets $2 million in return. The dirty money now seems plausibly clean.
And in fact, the art world has come under scrutiny recently for similar reasons. Real estate is also field known to be used for money laundering because, like art, it’s a market where subjective, volatile, inexplicable opinions sometimes play a major role in how its products are priced.
Certain mostly cash-based businesses also offer simple-to-understand methods, especially when cash seems to appear out of nowhere with few lasting products having changed hands. Some casinos, strip clubs, parking garages and, appropriately, car washes have been known to launder money. Cash just moves around, and it seems silly to ask why.
More advanced schemes
Slightly more complex is moving cash across international borders to countries with convenient laws about reporting money when it’s deposited in a bank. deposited money. Wads of cash might be taped to someone’s body or hidden in vehicles, etc.
Similarly, even in the United States, one might try to split a big sum of money into small enough amounts (a few thousand here and there) that banks might not be triggered to report the deposits to authorities.
Hidden ownership of basically fictional companies, and trusts with hidden owners are sometimes used by sophisticated criminals to hide the origins and destinations of funds.
In places with lax enough laws or enforcement, banks themselves can simply be taken over one way or another. Such “bank captures” allow money launderers to function freely.
Even in countries like the United States where banking is highly regulated and closely watched, money laundering can easily go unnoticed, at least for a while. According to the FBI, “The sheer volume of business that banks handle on a daily basis exposes them to significant money laundering risks.”