In this fictitious scenario, Money-Man Trafficker deals in human sex trafficking, serving a major metropolitan city on the coast, in the United States, where gambling is legal. Most of his victims are underage women and he earns between $30,000 and $45,000 per month, depending on the season and if any major events are going on in the area. Mr. Money-Man launders his money through various shell companies, gambling institutions, and offshore banks to make his income appear as legitimate gambling earnings, business revenue by way of shell companies, or through trade. This scenario will illustrate how Money-Man Trafficker’s illicit profits can be laundered each of those three ways.
What is Money Laundering?
Money laundering is the process of making illegally obtained cash appear to have come from legal sources.[footnoteRef:0] In other words, it is the process of masking the origin of illegal money. Money laundering occurs in three steps: placement, layering, and integration[footnoteRef:1] Placement is the introduction of illicit cash into a financial system in small amounts to avoid raising suspicion. Layering is the process where a launderer will transfer the cash around, or move it several times through several institutions in an effort to create some distance between themselves and the true origin of the illegal cash.[footnoteRef:2] The final step, integration, is where the launderer can fully integrate their illegitimate gains into the legitimate market. For all intents and purposes, the cash would appear to have been legitimately earned at this point and can be spent at the launderer’s discretion.[footnoteRef:3] [0: ] [1: ] [2: ] [3: ]
Laundering via Gambling Winnings
Money-Man Trafficker has gained $32,000 for the month and is intending to launder the funds through a local casino. Mr. Money-Man takes $32,000 in cash and approaches a casino. He then proceeds to purchase $7,500 in chips from the casino and heads to the tables. During his stay within the casino, Mr Money-Man does some gambling and earns $100 for his efforts. He then takes his chips to a cage and requests repayment via a casino check.[footnoteRef:4] This method allows Mr. Money-Man to make his earnings appear entirely as winnings and can be repeated as needed, until all $32,000 has been laundered. By keeping each transaction amount under $10,000, Mr. Money-Man avoids certain reporting standards required by the Banking Secrecy Act of 1970 (BSA).[footnoteRef:5] [4: ] [5: ]
Another method Mr. Money-Man could utilize involves purchasing chips from another, unaffiliated “clean” player. Mr. Money-Manr would approach the “clean” player and offer to purchase $5,000 in chips for $6,000 in cash.[footnoteRef:6] This is beneficial for both parties because the “clean player” earns an extra $1,000, and Mr. Money-Man can proceed with cashing out the chips and obtaining a receipt. Mr. Money-Man could also choose to hold onto the chips and possibly use them to purchase other illicit goods for his prostitutes, such as drugs, affording Mr. Money-Man an alibi.[footnoteRef:7] [6: ] [7: ]
A third method involves mixing chips and cash to receive a single check. This method is permitted in few jurisdictions in the United States, but Mr. Money-Man conducts his business in such a jurisdiction for the purposes of this study. Mr. Money-Man purchases $5,000 in chips and proceeds to gamble. During his gambling, he earns an additional $200 and goes to cash out. Upon cashing out, Mr. Money-Man asks if he can receive his payment by check, and wishes to add $2,000 in cash to the transaction, citing that he feels a single check for the entire amount affords him some peace of mind in case of a robbery. The casino obliges, giving Mr. Money-Man a single check in the amount of $7,200. Mr. Money-Man would then deposit the money into an account and use it.
In each of these situations, the placement step was facilitated by introducing the funds to the casino. Layering was accomplished by purchasing chips, gambling, and cashing out. Integration occurs once Mr. Money-Man takes his laundered earnings to his bank for a formal deposit. Mr. Money-Man could add more to the layering phase by visiting multiple casinos over time and deposit checks from multiple different casinos to create the wanted distance. As long as Mr. Money-Man keeps his deposit amounts under the $10,000 threshold, he can avoid the hassles of additional reporting required by the BSA.
Money Laundering via Shell Corporations
Mr. Money-Man has a good month and must launder $42,000 for the month and elects to launder it through a series of shell corporations that he and his fellow traffickers have established, called Shay D. Business Associates. Shay D. Business Associates is owned by Second Ring Partners, which is owned by Third String Fellowship, which is owned by Final Stage Employers. Final Stage Employers’ apparent owner is a lawyer named Upton O’Good, who helped Mr. Money-Man and his associates set up the shell corporations.[footnoteRef:8] [8: ]
First, Mr. Money-Man makes a series of deposits into Shay D. Business’s account and generates some fake receipts for “services rendered, payment in cash”. To provide some distance between Mr. Money-Man and the origin of the funds, Shay D. Business purchases services from Second Ring Partners. Second Ring Partners turns around and purchases services from Third String Fellowship, who then purchases services from Final Stage Employers. Final Stage Employers makes a payment to Upton O’Good for legal fees, who then deposits cash into an offshore account held by Mr. Money-Man, minus a commission or retainer.
What makes shell companies attractive is that they exist entirely on paper.[footnoteRef:9] They do not own assets, rarely have a physical address, and sometimes no apparent owner. Additionally, shell companies that are set up to launder money generally have offshore accounts to avoid reporting income that would be subject to taxes. The most surprising aspect of shell corporations, is that the United States is second only to Kenya in terms of the ease of setting up such a corporation for money laundering purposes.[footnoteRef:10] [9: ] [10: ]
Money Laundering via Trade
Trade-based money laundering is a little harder to detect than other means due to how many variables a money launderer has to manipulate.[footnoteRef:11] Over- or under-invoicing commodities, carousel transactions, phantom transactions or double invoicing are just a few of the tools available to a trade-based launderer. Supposing that one of Mr. Money-Man Trafficker’s shell companies was started as an import-export business, or he has a legitimate import-export business, Mr. Money-Man could exploit that to launder his money. [11: ]
Second Ring Partners was established as a legitimate import-export company. Mr. Money-Man wants to launder $36,500 in profits for the month, so he elects to do so using phantom shipments- shipments that never occurred. Mr. Money-Man would create shipping invoices and other documentation, indicating $36,500 was paid to his firm, Second Ring Partners, to export gears to another company in another country.[footnoteRef:12] While Mr. Money-Man would have all of the necessary documentation that would normally indicate a shipment took place, no transaction would actually have occurred and Mr. Money-Man would report $36,500 as income. He could list the customer as one of his established shell companies that he is not attached to on paper, such as Third String Fellowship. Everything on paper would appear to be legitimate, and the income could go to a bank of Mr. Money-Man’s choosing. [12: ]
As shown in this case study, money can be laundered in any number of ways. These examples are by no means comprehensive, as there are a myriad of other ways to launder money so that its acquisition appears legitimate. There are methods, such as hawala remittances, that could be implemented at any stage of the money laundering process, thus generating a whole new mountain of problems for investigators to overcome in tracking down the sources of illegal revenue. Knowing what red flags tend to indicate that money laundering activities are taking place is a first step. After all, money laundering activities account for at least $1.35 trillion in the illicit economy.[footnoteRef:13] The illicit economy is not likely to shrink any time in the future, and there will always be a demand for money laundering services. [13: ]
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Financial Action Task Force. Vulnerabilities of Casinos and Gaming Sector. PDF. Paris, France: FATF, March 2009. Retrieved from https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/vulnerabilities_casinos-gaming-sector_032009.pdf
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Grabbe, J. Orlin. "Money Laundering Through Casinos." Money Laundering through Casinos. March 13, 1997. Accessed August 16, 2017. https://www.memresearch.org/grabbe/casinoml.htm.
Leefeldt, Ed. "How "shell" companies launder dirty money." CBS News. September 08, 2016. Accessed August 16, 2017. http://www.cbsnews.com/news/how-shell-companies-launder-dirty-money/.
Money Laundering. 2017. Accessed August 16, 2017. http://www.fatf-gafi.org/faq/moneylaundering/.
"Trade-Based Money Laundering." ACAMS. Accessed August 16, 2017. http://www.acams.org/aml-resources/trade-based-money-laundering/.
World Economic Forum. State of the Illicit Economy Briefing Papers. PDF. World Economic Forum, 2015. Retrieved from http://www3.weforum.org/docs/WEF_State_of_the_Illicit_Economy_2015_2.pdf
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