Money Laundering Scam

the transmission of funds through the financial system (although money laundering relates to where the money has come 1 from , and terrorist financing relating to where the money is going to ). 2

3.1

Money Laundering Methods

3

Money laundering is commonly defined as occurring in three steps: the first step involves introducing cash into the financial 4 system by some means ("placement"); the second involves carrying out complex financial transactions to camouflage the 5 illegal source ("layering"); and the final step entails acquiring wealth generated from the transactions of the illicit funds 6 ("integration"). Some of these steps may be omitted, depending on the circumstances; for example, non-cash proceeds that 7 are already in the financial system would have no need for placement. 15 8

Money laundering takes several different forms, although most methods can be categorized into one of a few types. These 9 include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing". 16 10

1. Structuring: Often known as smurfing , this is a method of placement whereby cash is broken into smaller deposits of 11 money, used to defeat suspicion of money laundering and to avoid anti – money laundering reporting requirements. A 12 sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and 13 then ultimately deposit those, again in small amounts. 17 14 2. Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a financial 15 institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement. 18 16 3. Cash-intensive businesses: In this method, a business typically involved in receiving cash uses its accounts to deposit 17 both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Service businesses are best suited 18 to this method, as such businesses have no variable costs, and it is hard to detect discrepancies between revenues and 19 costs. Examples are parking buildings, strip clubs, tanning beds, and casinos. 20 4. Trade-based laundering: This involves under- or overvaluing invoices to disguise the movement of money. 19 21 5. Shell companies and trusts: Trusts and shell companies disguise the true owner of money. Trusts and corporate 22 vehicles, depending on the jurisdiction, need not disclose their true, beneficial, owner. 20 23 6. Round-tripping: Here, money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where 24 minimal records are kept, and then shipped back as a foreign direct investment, exempt from taxation. A variant on this 25 is to transfer money to a law firm or similar organization as funds on account of fees, then to cancel the retainer and, 26 when the money is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of 27 litigation. 28 7. Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank, preferably in a 29 jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny. 30 8. Casinos: In this method, an individual walks into a casino with cash and buys chips, plays for a while, and then cashes 31 in the chips, taking payment in a check. The money launderer then deposits the check into a bank account, claiming it 32 as gambling winnings. 21 33 9. Real estate: Someone purchases real estate with illegal proceeds and then sells the property. To outsiders, the proceeds 34 from the sale look like legitimate income. Alternatively, the price of the property is manipulated: the seller agrees to a 35 contract that underrepresents the value of the property, and receives criminal proceeds to make up the difference. 22 36 10. Black salaries: A company may have unregistered employees without a written contract and pay them cash salaries. 37 Black cash might be used to pay them. 23 38 11. Tax amnesties: For example, those that legalize unreported assets in tax havens and cash 24 39

15 Reuter, Peter (2004). Chasing Dirty Money . Peterson. ISBN 978-0-88132-370-2.

16 Lawrence M. Salinger, Encyclopedia of white-collar & corporate crime: A – I, Volume 1 , page 78, ISBN 0-7619-3004-3, 2005.

17 National Drug Intelligence Center (August 2011). "National Drug Threat Assessment". p. 40. Retrieved 20 September 2011.

18 National Money Laundering Threat Assessment". December 2005. p. 33. Retrieved 3 March 2011.

19 Baker, Raymond (2005). Capitalism's Achilles Heel . Wiley.

20 Financial Action Task Force. "Global Money Laundering and Terrorist Financing Threat Assessment". Retrieved 3 March 2011.

21 "National Money Laundering Threat Assessment". December 2005. p. 33. Retrieved 3 March 2011.

22 Financial Action Task Force. "Global Money Laundering and Terrorist Financing Threat Assessment". Retrieved 3 March 2011.

23 "Underground Economy Issues. Ontario Construction Secretariat".

24 "Tax amnesties turn HMRC into 'biggest money-laundering operation in history'". Retrieved 14 June 2013.

The Money Laundering Enforcement Scam

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Copyright Sovereignty Education and Defense Ministry, http://sedm.org Form 05.044, Rev. 10-2-2013

EXHIBIT:________