Doin' the Laundry

I suspect many people have heard the term "money laundering" but haven't really given it much thought. This post will provide links explaining what money laundering is, however it will also ask the reader to consider how the money laundering process is also a very good model for removing or at least hiding the taint from almost any tainted asset such as land or political campaign contributions. Because the process can be applied to other assets, not just currency, the term "asset laundering" will be used interchangeably with "money laundering."

There is a very simple and functional explanation of the basic laundering process at the Howstuffworks webpage in a piece titled How Money Laundering Works by Julia Layton. Again, the process steps of placement, layering, and integration described in the Howstuff works post applies to other assets as well as currency.

In its simplest terms, asset laundering is undertaken because the movement of large amounts of cash or other assets still attract unwanted law enforcement, regulatory, or public attention. "Large" is a relative term here. Any amount of dirty money that exceeds some threshold amount is dirty and needs laundering. The cash proceeds of drug transactions are often laundered to disassociate the currency from the illegal commodity. Illegally large political campaign contributions can be laundered through small mom-and-pop businesses or shell companies (e.g., Limited Liability Corporation - LLC).

Land that would be tainted if retained by one entity can appear to have the taint removed through a series of land exchanges with other groups such as a "private" non-profit organization. While the transaction may be legal, the layering of exchanges follows the asset laundering process very closely.

Though drug money is often used to demonstrate how assets can be laundered, one of the most notorious and largest asset laundering schemes was laid out in The BCCI Affair, a report to the Committee on Foreign Relations of the United States Senate by Senator John Kerry and Senator Hank Brown, December 1992, 102d Congress 2d Session Senate Print 102-140. The Bank of Credit and Commerce International - BCCI, was a founded as a criminal enterprise disguised as a lawfully operating bank.

BCCI's criminality included fraud by BCCI and BCCI customers involving billions of dollars; money laundering in Europe, Africa, Asia, and the Americas; BCCI's bribery of officials in most of those locations; support of terrorism, arms trafficking, and the sale of nuclear technologies; management of prostitution; the commission and facilitation of income tax evasion, smuggling, and illegal immigration; illicit purchases of banks and real estate; and a panoply of financial crimes limited only by the imagination of its officers and customers.

Among BCCI's principal mechanisms for committing crimes were its use of shell corporations and bank confidentiality and secrecy havens; layering of its corporate structure; its use of front-men and nominees, guarantees and buy-back arrangements; back-to-back financial documentation among BCCI controlled entities, kick-backs and bribes, the intimidation of witnesses, and the retention of well-placed insiders to discourage governmental action.

For readers who have digested the simple but clear explanation from the Howstuffworks post on Money Laundering, a more comprehensive examination will be found in the US government Money Laundering Threat Assessment Working Group report U.S. Money Laundering Threat Assessment dated December 2005. The report discusses several vehicles often used to facilitate asset laundering. They include:

• Banking
• Money Services Businesses
• Online Payment Systems
• Informal Value Transfer Systems
• Bulk Cash Smuggling
• Trade-Based Money Laundering
• Insurance Companies
• Shell Companies and Trusts
• Casinos