How does money laundering work? - Delena D. Spann

As one of the most notorious gangsters in history,

Al Capone presided over a vast and profitable empire of organized crime.

When he was finally put on trial,

the most he could be convicted of was tax evasion.

The nearly $100 million a year,

that's 1.4 billion in today's currency,

that Capone had earned from illegal gambling,

bootlegging,

brothels,

and extortion,

would have served as evidence of his crimes.

But the money was nowhere to be found.

Capone and his associates had hidden it through investments in various businesses

whose ultimate ownership couldn't be proven,

like cash-only laundromats.

In fact, those laundromats are part of the reason for the name of this activity,

money laundering.

Money laundering came to be the term for any process

that cleans illegally obtained funds of their dirty criminal origins,

allowing them to be used within the legal economy.

But Capone wasn't the first to launder money.

In fact, this practice is about as old as money itself.

Merchants hid their riches from tax collecters,

and pirates sought to sell their bounty without drawing attention

to how they got it.

With the recent arrival of virtual currencies,

offshore banking,

the darknet,

and global markets,

schemes have become much more complex.

Although modern money laundering methods vary greatly,

most share three basic steps:

placement,

layering,

and integration.

Placement is where illegally obtained money is converted into assets

that seem legitimate.

That's often done by depositing funds into a bank account

registered to an anonymous corporation or a professional middleman.

This step is where criminals are often most vulnerable to detection

since they introduce massive wealth into the financial system

seemingly out of nowhere.

The second step, layering, involves using multiple transactions

to further distance the funds from their origin.

This can take the form of transfers between multiple accounts,

or the purchase of tradable property,

like expensive cars,

artwork,

and real estate.

Casinos, where large sums of money change hands every second,

are also popular venues for layering.

A money launderer may have their gambling balance made available

at a casino chain's locations in other countries,

or work with employees to rig games.

The last step, integration, allows clean money to re-enter the mainstream economy

and to benefit the original criminal.

They might invest it into a legal business

claiming payment by producing fake invoices,

or even start a bogus charity,

placing themselves on the board of directors

with an exorbitant salary.

Money laundering itself

wasn't officially recognized as a federal crime in the United States until 1986.

Before that point, the government needed to prosecute a related crime,

like tax evasion.

From 1986 on, they could confiscate wealth simply by demonstrating

that concealment had occurred,

which had a positive effect on prosecuting major criminal operations,

like drug traffickers.

However, a legal shift has raised concerns

involving privacy and government surveillance.

Today, the United Nations,

national governments,

and various nonprofits

fight against money laundering,

yet the practice continues to play a major role in global crime.

And the most high-profile instances of money laundering

have involved not just private individuals,

but major financial institutions and government officials.

No one knows for sure the total amount of money

that's laundered on a yearly basis,

but some organizations estimate it to be in the hundreds of billions of dollars.