What exactly is money-laundering and why are people involved in this practice?

Question

Must say, I don't exactly know, but am curious only because it makes many news headlines.

Answer 1

Money Laundering = Getting rid of Dirty Money, and making it clean and useable.

Al Capone was never tried and proved guilty for any of his horrible crimes. However, and FBI forensic accountant found that he had not declared all his income to the IRS and that case stuck, putting him into jail. The FBI introduced partial evidence of all his other crimes to the judge, when sentencing time came, so the judge gave him the heaviest sentence he could. This is how the “Untouchables” caught Al Capone.

Ever since then the criminal organizations have had to watch out about where their money comes from and they must declare as much of it as legally possible. The rub is that if they declare illegal income then they can be charged for that crime and put into prison for it. What good are the huge profits if you can’t spend them? If the criminal moves overseas to Europe and spends that money then the US Government will ask Interpol to investigate and they will finally nail the crook. So even when the criminal retires he has to be careful with his money and make sure that he doesn’t declare more income than he made.

Drug deals generate a huge amount of cash, cash that can't be declared. If the drug dealer's supplier tries to use those profits then he had better be able to prove how he legally got that money. If he can't, he can be put into prison. If the police can’t catch a criminal breaking the drug laws then they will try to catch them for breaking other laws.

If the drug supplier is able to run his money through another organization and mix it in with the legal money then he can "clean it." For example he can put the money into a bank in the Caiman Islands inside a secret account. The laws are written for drug dealers so the US Government can't get access to that money. This is "off shore" money. Now lets say that the drug supplier has an expensive oil rig that isn't making a lot of money. If the drug supplier can make people believe that the oil well is making a profit then he can run his drug money through it. When the money comes out the money becomes oil well profit not drug profit, which can safely be declared on his Income Taxes. If the government were to find out the actual profit from that oil well then the drug supplier would be in big trouble.

If the drug supplier doesn't launder the money, but instead buys a collection of cars or uses it in something else then the police can track that. Let's say he makes a profit of $2 million a year from his drug traffic, but only $50,000 from his real job then how can he afford all those cars? The FBI can call in the IRS to make an audit and try to find where the money to pay those cars came from. Money leaves a trail, bank records, accountant files, deposit and transfer slips etc. The IRS can back track through all this paperwork—this is the job of the Forensic Accounts. If the Forensic Account is unable to find any legal source for that money, then the FBI knows to investigate this person very hard to find where that money comes from. Meanwhile the IRS can charge this man with tax invasion. The IRS can seize ALL his assets and even put the person into prison. While the drug supplier is in this fix he can lose his business, or the FBI can find something that they can use against him. They could talk with the drug supplier’s accountants and other people to try and find where the drug profits come from. Even worse if the FBI finds a minor criminal that will testify against the drug supplier then they can “flip” that minor criminal (offer him immunity from prosecution: a “Get out of Jail Free Card” so they can prosecute the drug supplier.

Now if that drug supplier can convince the IRS that his money for his cars came from his oil well, and it was declared on his taxes, then the money is legal and the drug dealer can't be prosecuted. He continues with his business and keeps passing illegal drugs into the country.

Money laundering involves a business with a high cash flow, like a bank. The criminals then send their money through this system so that they end up with "clean" and useable money. The FBI knows this so they watch bankers. The offshore banks in the Gulf of Mexico won't let the FBI or the IRS do that so drug dealers commonly use this, but it is illegal for American Citizens to deal with these banks. So they have to find some other way to "launder" their money.

The Mafia was involved in several activities, most illegal, but many were legal ones. If they ran a Waste Management Company that somehow made big profits then the Mafia family that owns that business can push their illegal profits through that Waste Management Company to clean it. The Waste Management Company may not make much money, or may even lose money, but if they make the IRS thinks it is profitable then the mafia family is safe. However, the mafia still needs to keep track of where the money is really coming from. So mafia accounts have a second set of books that show the real accounts. If the IRS or the FBI gets its hands on this set of books then they can bust the entire family, and track down ALL the leads to each and every criminal organization run by that family and into any operations conducted with other crime families. This is like using a lever to open a crack open a wall, so you can discover what is behind it.

Jimmy Hoffa ran the treasury for a large labor union; he had access to a lot of money. The mob would run their money through the accounts he controlled to "clean it." He was well paid by the mob to do this, and to keep quiet. When he wanted more money the mob got worried. If Jimmy Hoffa went to the police then it would be the “crack in the wall” that could bring down the mob. So it was very important for Mr. Hoffa to not talk. In fact it would be best if he just disappeared. If his dead body was ever discovered then the FBI would have a lead, there might be some evidence with the body, and they could use that case to open a full murder investigation. So it is important that Mr. Hoffa's body has to never be found (if the mafia had him killed which is about 90% a sure thing). So far his body hasn't been found and it is only a Missing Persons case. If it became a murder investigation the FBI could pull in a lot of people and question them, they could investigate, get warrants to tap phones, conduct searches, trail people and do a whole lot of work. To start doing this work though the FBI or the police need a legal reason: probably cause. If that were to happen then the least mistake by the mob or any member would open that mafia family up to a whole lot of trouble.

If the FBI caught someone in a crime, or even had a good suspicion, then they would be arrested and put under heavy interrogation. The FBI would charge them with every crime that they could and make it seem like they were only going to charge that one person. That would be scary for that person. If the FBI offered him an immunity from prosecution deal, in exchange for his testimony against the rest of the organization then this would be enough to bring down the entire organization (that level making a crack in the wall idea again).

Since the Federal Government can’t always catch the bad guys in a crime, they brought in the IRS to give them a hand. This gives them a lever to use in their investigations. So tracing the money is a very important way to catch criminals. For the criminals to avoid this they launder their money by running it through a business with a high cash flow so they can claim that their illegal profits are legal profits. This is why Money Laundering is a crime.

Answer 2

Doesn't have to be through a bank offshore. You can run dirty money through many sources - anyone willing to take it and give you back clean money - after taking a hefty sum. In some states, the lottery is used. Even though the return is low, dollars can be spent without a trace and, in large enough amounts, a 50% payback can be acheived.

Answer 3

Money laundering, at its simplest, is the act of making money that comes from Source A look like it comes from Source B. In practice, criminals are trying to disguise the origins of money obtained through illegal activities so it looks like it was obtained from legal sources. Otherwise, they can't use the money because it would connect them to the criminal activity, and law-enforcement officials would seize it.

The most common types of criminals who need to launder money are drug traffickers, embezzlers, corrupt politicians and public officials, mobsters, terrorists and con artists.

Answer 4

just a rough overview: you take dirty money(made from drugs, weapon trading etc) and run it through some bank offshore for a fee...this bank makes the money look like it came from a legit place, or...some take the illegal money and run it through some sort of legit business front, and make it seem as if this "business" made the money, instead of coming from an illegal place...that way people involved in high dollar shady dealings look like legit business people, and dont get arrested for the crimes, or for tax evasion..this is just a basic overview...i hope it helps