Money Laundering

Paper Instructions

First, read the following information about how legitimate business ownership may be used for money-laundering methods.

Dirty money can be added to the cash revenues of a legitimate business enterprise, particularly those that are already cash intensive, such as restaurants, bars, and rental stores. The extra money is simply added to the till. The cost for this laundering method is the tax paid on the income. With companies whose transactions are better documented, invoices can be manipulated to simulate legitimacy. A used car dealership, for example, may offer a customer a discount for paying cash, and then report the original sale price on the invoice, thus explaining the existence of the extra illicit cash. A slightly more sophisticated scheme may allow a criminal to profit twice in setting up a publicly traded front company with a legitimate commercial purpose—first from the laundered funds commingled with those generated by the business, and second by selling shares in this company to unwitting investors.

Then, compose an essay that analyzes the following issue.

What legitimate criminal justice procedures may be used to interrupt the money-laundering methods described herein?

In your answer, be sure to describe how organized crime entities use legitimate businesses as financial fronts. Also, analyze and argue your proposed procedures addressing both the positive and negative consequences of their implementation.

Chapter Excerpt from Textbook

MONEY LAUNDERING

Money laundering refers to making clean or washing “dirty money” (illegal funds). A classic task of organized crime syndicates has been to somehow convert large amounts of illegally gotten funds into usable money that appears to come from legitimate sources. Drug traffickers are particularly faced with the problem of laundering huge amounts of ill-gotten currency.

Various countries, most notably Switzerland, the Bahamas, Panama, and other tax havens, have created bank secrecy laws that generally forbid the disclosure of the financial affairs of account holders. Some accounts were those of drug traffickers and organized criminals. The U.S. Congress passed the Money Laundering Act of 1986, which made money laundering a federal crime carrying substantial penalties (Weinstein, 1988). A growing number of countries are passing such laws (Gramckow, 1992).

The easiest way to launder money is to take a suitcase full of it to an unscrupulous bank. This bank may recycle the currency to other countries such as Argentina, where the dollar is used because the local currency is subject to hyperinflation. Other methods may include purchasing luxury goods at inflated prices from a coconspirator who transfers the excess proceeds to the purchaser’s account. Proceeds from legitimate businesses such as restaurants can be augmented with illegal funds (Melloan, 1991). Money laundering is a three-step process:

1. Placement—Collect the dirty money and move it into the financial system.
2. Layering—Disguise the money trail by transferring the money into the bank account of phony companies, creating false invoices and enterprises using offshore banks and wire transfers.
3. Integration—The now-clean money can be used for investments, political campaign donations, and the infiltration of legitimate enterprise.

Bank personnel are often bribed to accept large deposits without reporting them. These are then wired (transferred) to overseas accounts. The money can also be converted to cashier’s checks and money orders or hidden in export items such as cars or televisions. The large-scale interconnections between drug traffickers and money launderers are illustrated by the BCCI (Bank of Credit and Commerce International) scandal, which first unraveled in 1989 (Lohr, 1992). BCCI, which operated in over 70 countries, was controlled by Middle Eastern investors and was heavily involved in the laundering of drug money, worldwide fraud and bribery, and the secret ownership of American banks including First American, whose director was Clark Clifford.