Money laundering is a serious crime- a global crime that encompasses all races. Statistics on money laundering reported that 2-5% of the global GDP is laundered every year. In 2020, out of 64,565 cases reported to the US Sentencing Commission, 755 of them were cases of money laundering. Also, 79.5% of money laundering offenders were found to be men, 34.8% were White, 34.7% were Hispanic, 20.8% were Black and 9.7% were other races. This goes to say that money laundering affects all.
We will discuss the basics of money laundering including the different examples of money laundering, and how to prevent it. The article also featured 5 major real-life examples of money laundering cases from all over the world. First, let us understand what money laundering is.
Understanding Money Laundering- How Money Laundering Works.
Money laundering is the process of disguising the source of illegally acquired money. Why do people do this? Simple- to evade prosecution or task. They get the money from illegal activities such as theft or trafficking and try to ‘put’ or ‘smuggle’ the money into a legitimate financial system, in the process “cleaning” the money. This can be through a business that requires a huge amount of money such as casinos, cryptocurrency or through the bank.
There are several examples of real-life examples of money laundering, but first, let's look at the common ways criminals launder money.
3 Common Money Laundering Methods
Money launderers launder money in different ways, however, there are 3 common ways money can be laundered among all races:
1. Cash Business Money Laundering Method:
Cash Businesses such as restaurants and laundromats deal heavily with physical currency, making them a target for criminals to get their dirty money into the financial system. How do they do this?
- Sales Inflation: If a money launderer owns a restaurant, they can inflate their daily sales figure artificially either by adding fake customers to receipts or recording a higher amount for existing customers. This allows them to ‘mix’ their dirty money with legitimate income from real customers and in the process ‘wash’ their dirty money.
- Structuring: Another example of money laundering through cash business is structuring. Criminals break down large amounts of money into smaller deposits below the depositing thresholds so that banks do not suspect any illegality.
- False Sales: Another means of cash business money laundering is false sales. Cash businesses can create false sales records by purchasing overpriced goods or services with it.
2. Real Estate Money Laundering Method:
The real estate business deals with huge money as people purchase properties with large sums of money. Criminals do take advantage of this business to purchase real estate with illegal funds converting them into ‘legitimate assets’.
Criminals can also establish shell companies (businesses with minimal real activities) to purchase properties. Illegal money is used in funding these purchases, making it seem like the shell company acquired the property legitimately.
Another example of money laundering using real estate is when criminals purchase properties with dirty money and then rent them out to create a seemingly legitimate source of income through renting.
3. Gambling Money Laundering Method
Because of the anonymity that surrounds gambling, criminals find it easy to disguise the source of their ill-gotten money and integrate it into the legitimate financial system through gambling.
How does Gambling Money Laundering Work? These are also known as the 3 stages of money laundering:
A. Placement:
This first step is where the ‘dirty ’ money enters the gambling system. They break down large sums of money into smaller deposits (smurfing) or use several payment methods like prepaid cards, stolen credit cards, or even cryptocurrencies to make deposits so as not to raise suspicion.
B. Layering:
Next, these criminals try to make the money trail difficult to follow by placing numerous bets, winning or losing strategically, and exchanging chips for cash numerous times, thereby creating a complex chain of transactions that ‘covers’ the source of the money. This is called layering in money laundering.
C. Integrate:
Lastly, they make the laundered money appear legitimate by cashing out their wins or using them to purchase assets like expensive goods or chips in high-roller areas. This gives the dirty money the appearance of legitimate gambling profits.
There are other types of money laundering you may want to read about.
Real-Life Examples of Money Laundering Cases
There are several examples of money laundering cases in Malaysia, India, the UK, and all over the world. These are 5 major examples of money laundering cases gathered from all over the world.
1. The Russian Laundromat: A $20.8 Billion Money Laundering Case
Between 2010 and 2014, a massive money laundering scheme dubbed the "Russian Laundromat," funnelled over $20.8 billion out of Russia. This complex web involved over 9,000 transactions that channelled the money through companies in Moldova, Latvia, and the UK. Ultimately, these funds reached over 5,140 companies across a staggering 96 countries.
The investigation exposed a disturbing truth: Moldovan judges and other officials actively participated in facilitating this laundering activity.
2. Malaysia Development Berhad (1MDB) Money Laundering Case:
The intended purpose of the fund was to boost Malaysia's economic development. However, investigations revealed misappropriation of funds exceeding US$4.5 billion. The stolen money was funnelled through various financial systems, including Singapore's.
After a two-year investigation, Singapore's Monetary Authority of Singapore (MAS) fined eight banks nearly S$30 million for failing to comply with anti-money laundering regulations.
3. Troika Laundromat: A $4.8 Billion Money Laundering Case (2006-2013)
From 2006 to 2013, the "Troika Laundromat" scheme functioned as a complex web for laundering over $4.8 billion. This illicit network relied on offshore companies to move funds through a series of fake loans between them. Investigators revealed that the source of this money came from criminal activity, tax evasion, and corruption.
4. The Wachovia Bank and Mexican Drug Cartels: A $380 Billion Money Laundering Case
Wachovia Bank, once a U.S. giant, faced a $160 million settlement for its role in facilitating money laundering for Mexican drug cartels. The investigation revealed a staggering sum: Wachovia processed a total of $378.4 billion in funds from Mexico, failing to implement proper anti-money laundering measures. Further investigation uncovered that some of this laundered money was used to purchase aircraft, likely used for further drug trafficking activities.
5. Danske Bank Estonia: A $229 Billion Money Laundering Scandal
In 2007, Danish financial giant Danske Bank acquired Sampo Bank, inheriting its Estonian subsidiary. Just months later, red flags emerged - both Russia's central bank and Estonia's finance minister raised concerns about the Estonian branch handling unusually large transactions.
Despite these warnings, no immediate action seems to have been taken. It wasn't until an internal audit in 2018 that the issue resurfaced. The investigation revealed a massive scandal: a staggering 200 billion euros (approximately US$229 billion) had been laundered through the Estonian branch between 2007 and 2015.
The fallout was significant. In December 2022, Danske Bank agreed to forfeit US$2 billion to settle an investigation by the US Justice Department. They were also fined heavily by Danish authorities (3.5 billion Danish krone, approximately S$0.7 billion) and had further profits confiscated (1.25 billion Danish krone).
How to Prevent Money Laundering
Anti-money laundering policy is the policy set in place to detect and prevent money laundering, terrorist financing and other financial crimes. The basic but effective ways of preventing money laundering may include:
1. Know Your Customer (KYC) and Due Diligence
This simply means knowing who you are transacting with and the origin of their funds, especially if it involves huge amounts of money and high-risk transactions. It is a process used by banks to obtain information about the identity and address of the customers during the onboarding process.
Also, conducting proper due diligence, during onboarding will help businesses detect potential money launderers without interrupting legitimate transactions
2. Anti-Money Laundering (AML) Compliance
Establishing an effective AML compliance program will help to safeguard the integrity of financial institutions and businesses. Balancing rigorous compliance with fostering customer trust is a unique challenge for financial institutions. However, there are compliance providers in place that can help banks and businesses stay compliant.
These compliance providers offer AML screening, biometric authentication, identity verification, address verification, transaction monitoring, and KYC AI-powered solutions. If you find yourself or your businesses a potential victim of criminals who are into any of these examples of money laundering, you can easily contact a trusted compliance solution provider like Youverify.
Conclusion
Money laundering is a serious global issue that requires vigilance and effective prevention measures from businesses and financial institutions. Criminals can use any of the above examples of money laundering to ‘clean’ their illegal money.
Businesses, banks and individuals need to stay vigilant and ensure they comply with anti-money laundering regulatory requirements to avoid penalties and safeguard their business. Contact a trusted compliance solution provider today! Book a demo to start your compliance journey with Youverify.