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Money Launderering Basics

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. Drug

traffickers are in serious need of good laundering systems because they deal almost exclusivelyin cash, which causes all sorts of logistics problems. Not only does cash draw the attention of law-enforcement officials, but it's also really heavy. Cocaine that's worth $1 million on the streetweighs about 44 pounds (20 kg), while a stash of U.S. dollars worth $1 million weighs about 256pounds (116 kg).

The basic money laundering process has three steps:

1.  Placement - At this stage, the launderer inserts the dirty money into a legitimate financialinstitution. This is often in the form of cash bank deposits. This is the riskiest stage of thelaundering process because large amounts of cash are pretty conspicuous, and banks are

required to report high-value transactions.2.  Layering - Layering involves sending the money through various financial transactionsto change its form and make it difficult to follow. Layering may consist of several bank-to-bank transfers, wire transfers between different accounts in different names in differentcountries, making deposits and withdrawals to continually vary the amount of money inthe accounts, changing the money's currency, and purchasing high-value items (boats,houses, cars, diamonds) to change the form of the money. This is the most complex stepin any laundering scheme, and it's all about making the original dirty money as hard totrace as possible.

3.  Integration - At the integration stage, the money re-enters the mainstream economy inlegitimate-looking form -- it appears to come from a legal transaction. This may involve a

final bank transfer into the account of a local business in which the launderer is"investing" in exchange for a cut of the profits, the sale of a yacht bought during thelayering stage or the purchase of a $10 million screwdriver from a company owned bythe launderer. At this point, the criminal can use the money without getting caught. It'svery difficult to catch a launderer during the integration stage if there is nodocumentation during the previous stages.

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Money laundering is a crucial step in the success of drug trafficking and terrorist activities, not tomention white collar crime, and there are countless organizations trying to get a handle on theproblem. In the United States, the Department of Justice, the State Department, the FederalBureau of Investigation, the Internal Revenue Service and the Drug Enforcement Agency allhave divisions investigating money laundering and the underlying financial structures that makeit work. State and local police also investigate cases that fall under their jurisdiction. Becauseglobal financial systems play a major role in most high-level laundering schemes, theinternational community is fighting money laundering through various means, including the

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Financial Action Task Force on Money Laundering (FATF), which as of 2005 has 33 member states and organizations. The United Nations, the World Bank and the International MonetaryFund also have anti-money-laundering divisions.