What Do People Do With Dirty Money?
They turn it into clean money, and the way that they do that is through money laundering.
“Dirty money” is money that is earned through illegal means, such as drug dealing, prostitution, or gambling. In the past, money laundering has typically been done, at least at some point in the process, with cash; however with the increased use of electronic banking, and digital currencies, such as bitcoins, there has been an increasing shift in trends in which cash plays no role.
Why Do People Launder Money?
People launder money for a variety of reasons. Some people launder money because they want to avoid paying taxes on that money. Other people launder money that has been earned through illegal fashions, and want to have a way to show legitimate earnings, while others still launder money for drug or terrorist organizations. No matter the reason, money laundering is a criminal activity.
How Do People Launder Money?
There are countless ways to launder money and there are new ways to do so popping up every day. Part of the way to effectively launder money is to do so in ways, or areas, that draw little to no speculation from government agencies or law enforcement authorities. Some methods are extremely complex, such as round tripping, which involves a complicated series of transfers through multiple countries and bank accounts, or require vast sums of money, such as capturing a bank, where criminals, typically in countries with lax banking laws, will buy up controlling interest of a bank and manipulate the accounts and documents from the inside. While these strategies abound, they are much more uncommon and deal with resources on a vast level. The two forms of money laundering that we are going to discuss in this blog are much more prevalent and on a scale that doesn’t involve millions of dollars a month in transactions. Those two forms are Smurfing and through primarily cash intensive business.
Smurfing, which is also known as layering or structuring, is a technique that involves breaking down larger sums of cash into smaller amounts. In the United States, anytime an individual deposits more than $9,999.00 into an account, the bank is required to fill out a form notifying the government. For a person who has a huge salary, or who has a legitimate reason for this deposit, this is nothing to worry about. However, if you are reporting little or no income, this typically can trigger an audit or investigation into the source of the money. By breaking down the amounts of deposit, you are less likely to trigger an audit or draw attention to yourself. This method can be effective, but only to a point, as to frequent deposits, or deposits that still reach high amounts, can still trigger concerns.
Smurfing is typically done by taking a sum of cash and purchasing money orders or other bearer instruments, such as bearer bonds, stocks, or titles, and using these to deposit into your bank account.
Another technique that can be used in conjunction with this is legalized gambling. A person who has, say, five thousand dollars from dealing cocaine can not deposit that profit into their account for very long without raising suspicions. Unless that individual has a legitimate job, they have no way to show any income and thus would be open to criminal prosecution if they were discovered. One way people have found around this would be to take the $5,000 and bring it to a casino and cash it in for chips. After a few hours, possibly playing with a small amount to avoid suspicion and detection, the individual cashes out, and can claim the cash as gambling winnings.
Another tactic that is used with gambling is sports betting. A small amount of money, say $50-100 is placed on several bets with long odds. If one of the long shots pays out, that amount of money can be said to be “earned”, while having a minimal investment. The bets that don’t win are thrown away as a cost of doing business.
After you reach a certain amount of winnings, a casino is also required to fill out paperwork but this creates a paper trail of legitimate earnings. One drawback to this is that this money will be taxed by the government, and “luxury taxes” are typically some of the highest taxes in the state.
Another technique used with smurfing is through buying and selling property or real estate. The individual who wants to launder the money pads the amount of the purchase/sale for more than the actual price. The other party will be in on the deal and often receives some type of additional compensation. This money again is declared and can be put into bank accounts, effectively washing part of the dirty money. This technique obviously requires some capital that is legitimate up front to procure the first piece of property or real estate, to begin padding sales with. There are limitations to this method as well, in the amount of money that can be padded in each transaction. The greater the number of transactions, or the larger the amount of dirty money funneled through the transaction, the greater the chance for detection.
Cash Intensive Businesses
A cash intensive business is a business that primarily deals with cash transactions and whose costs are subject to change. Car washes, strip clubs, and bars are all good examples of cash intensive businesses. These businesses are often referred to as “fronts”. A bar might serve one hundred drinks in a night, for example. However, each of those drinks is variable, it could be something that is inexpensive, say a whiskey and coke, or it could be a drink that is more expensive such as a Long Island Ice Tea or an Old Fashioned. Because most bars don’t keep detailed records on each drink ordered and sold, additional cash can be claimed as earnings from the bar. These earnings are taxed, recognized and can be used as the individual sees fit, whether that is buying a car, a home, another legitimate business or simply clothes and jewelry, without fear of being able to demonstrate where that money came from.
Dangers of Money Laundering
There are many dangers when you are involved in money laundering. Money laundering itself is an illegal activity and can result in criminal charges, regardless of if you are the individual directly benefiting from it. In recent years, money laundering has become a higher priority target for law enforcement officials. In addition to the criminal charges you can face for money laundering, failure to declare any of the money you laundered and to pay taxes on that money can result in charges for tax fraud and tax evasion. One of the most notorious examples of this is Al Capone.
If you are currently under investigation for, or have been charged with crimes relating to money laundering or tax fraud, call our office for a consultation. Our staff will work with you to dissuade any charging, and if that isn’t possible, we will do everything in our power to help defend the charges against you.