Professional Money Laundering Networks
What are they, and how serious a threat are they?
This week, Canada got its fall economic statement, included in which were a number of amendments to our anti-money laundering / counter-terrorist financing regime. Today, in our inaugural “primer”, we’re taking a look at professional money laundering networks. These primers are intended to explain illicit finance and intelligence issues to the broader public, so will be freely available. We see this as part of our role in enhancing the public dialogue on these issues in Canada, and globally. If you find what you’re reading interesting, please share it with a colleague, and consider subscribing!
Professional money laundering networks are networks of individuals involved in the laundering of funds for criminals. This is a service provided for criminal entities — anyone who needs to illicit move funds or create the illusion of legitimacy. The professional money launderers themselves are rarely involved in proceeds-generating criminal activity. Instead, their criminal activity is the actual laundering of funds. Professional money laundering networks arose as an adaptation to anti-money laundering regulations.
While money launderers have been around a long time, they have professionalized their services and expanded them beyond a single client. Now, the relationship between money launderers and their clients is often market-based, rather than based on criminal organization. There is an absence of obligations between parities, other than the fulfillment of the terms stipulated in their agreements.
Have you seen the TV show Ozark? The main character, Marty, is a money launderer for a cartel. But he’s not part of a professional money laundering network. At best, he’s working to establish his own. If you’ve seen the show, you know the limitations of being a solo-launderer, and can probably imagine why being part of a broader, professional network would be of interest.
The main purpose behind these networks is to solve the problem of “cash bottlenecks”. These bottlenecks arise because illicit economic transactions are often cash-based (think drug dealing). This leaves criminals with the problem of spending large amounts of cash. This can attract the attention of authorities, and because of existing anti-money laundering rules, it can make purchasing luxury goods with cash difficult, if not impossible.
The professionals involved in these activities are often accountants and bookkeepers (to fix the books), lawyers (the use of escrow accounts and forgeries are common services they provide), as well as bankers (trusted insiders who can avoid reporting transactions to authorities). Increasingly, business people in the trading business (import/export companies) and money service businesses are used, often in combination. These businesses are often co-located, or might even be the same corporate entity.
The network aspect is important: no single money launderer can succeed for very long without partners. Think about things like the hawala system: you need individuals in other countries willing to do business with you and receive your funds. Without those important contacts and networks, you are unable to effectively move money, and your laundering methods are curtailed.
Professional money laundering networks are transnational, and often involve people with different nationalities. (From a disruption perspective, this can complicate investigations as it requires international coordination.) Recently, a professional money laundering network was shut down in Italy and Spain involving 33 people from Italy, Albania, Croatia, Morocco and Syria.
These networks often use companies to launder funds. Money launderers prefer companies that deal in high-value goods, and small, high-value goods are even more preferred. For instance, electronics companies are often used as a front.
They use methods such as trade-based money laundering to clean the illicit funds. There are many different types of money laundering techniques, some of which involve real estate transactions, front companies, and even charities. One popular method is the black market peso exchange. In this drugs scheme, drug producers provide drugs to buyers (drug dealers) without payment (credit). The buyers/dealers then sell the drugs. The profits from these sales are picked up by brokers who introduce the cash into companies (the placement stage). Companies are used to order goods from China, and those goods are shipped to the United States and onward to Colombia, where the goods are sold on the open market. The profits from the sale of these goods are provide back to the drug producers.
In this way, there is no international transfer of funds that might alert authorities to the activities, and the producers receive a clean source of funds for the drugs they produced.
Professional money laundering networks use a variety of tools:
Cryptocurrency: to move money internationally, as well as an investment. Crypto can also be used in the placement stage of money laundering by having smurfs (many individuals with only a minor role in the criminal activity) deposit funds at crypto ATMs, purchase different currencies, and then transfer the currency (or share account info) with the ultimate beneficiary
Banks: cash can be placed in bank accounts through a similar smurfing process. Bank accounts are also useful in different jurisdictions because after a few transactions, the original source of funds is obscured
Companies: front companies (and even real companies) are part of different money laundering schemes, providing cover for large cash deposits, trade-based transactions, and many other elements
Cash couriers: sometimes funds simply need to be moved across borders outside of the financial system, and cash couriers are used for this purpose. The couriers might use cash, or they might use high value goods (luxury goods), or even precious metals, or the password to a cryptocurrency wallet
Real estate: real estate is a high value good that has a subjective value, which makes it useful for money laundering or transferring funds / value between different people. It’s also a place to live or conduct business, so it has multiple purposes
Hawala / underground bankers: organized into networks, these professionals play a vital role in money laundering and moving funds into and out of the financial system, and internationally
Any criminal activity can make use of professional money laundering networks. This can include kleptocracy, corruption, and other “white collar” crimes. Hiding the source and destination of funds is important for anyone who fears seizure. This also includes people trying to evade sanctions. Other criminal activity that makes use of these networks includes drug producers and traffickers, organized crime and motorcycle gangs, and other criminals who rely on these services to circumvent global anti-money laundering regulations.
One of the main challenges in disrupting professional money laundering networks is the issue of the predicate offence. In some jurisdictions (perhaps many), the criminal activity has to be directly tied to the laundering of the funds in order for the latter to be a crime. Increasingly, states (including Canada) are seeking to amend their laws so that the simple act of laundering funds, even if we can’t prove a criminal offence, becomes a crime. This then opens the door to having to prove what constitutes money laundering, which some states have found challenging even when it’s tied to a clear predicate offence.
On the other hand, these networks provide important sources of intelligence, so if they can be infiltrated, either through technical or human means, they can yield a treasure trove of intelligence on the business activities of many different criminals.
Interested in learning more about terrorist and illicit financing? Our course on terrorist financing analysis is open now! It closes in early 2024, so don’t miss out on your opportunity to take this course!
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