Money laundering is a process in which the origin of funds from illegal enterprises—drug smuggling, corruption, fraud, and other acts—is concealed. Perpetrators move the funds through various channels before reclaiming them from what appears to be a legitimate source. The International Monetary Fund estimates that laundered funds comprise 2% to 5% of the world’s gross domestic product. These estimates suggest that laundered funds total somewhere between $590 billion and $1.5 trillion each year. Despite stepped-up enforcement efforts during the 1990’s, money laundering continues to grow. According to information from the U.S. Congress, transactions have been getting larger in volume and the schemes more complicated, involving multiple shell corporations or the purchase and sales of securities.

Money Laundering Offenses
Acts prohibited by money laundering laws include:

• Assisting someone to retain the proceeds of crime.
• Acquiring, possession, and use of criminal proceeds.
• Concealing or transferring proceeds to avoid prosecution or a confiscation order, also known as “Own Funds” money laundering.
• Failing to disclose knowledge or suspicion of money laundering.
• Alerting targets of a criminal investigation.

Money laundering generally takes place in three stages:

• Placement. Funds are placed into the financial system or retail economy or are smuggled out of the country. Cash is converted into other forms such as travelers’ checks, postal orders, stocks, and other forms.
• Layering. Complex layers of financial transactions are executed to disguise the source and ownership of funds. Funds are transferred between offshore bank accounts and shell companies through electronic funds’ transfer. Trading in stocks, commodities and futures through brokerage houses also creates layers.
• Integration. The funds are integrated into the legitimate economic and financial system. Integration can be accomplished in several ways.

The establishment of anonymous companies in countries where the right to secrecy is guaranteed. Individuals then grant themselves loans from the laundered funds.

Perpetrators may also claim tax relief on the loan repayments and charge themselves interest on the loan.

Sending false export-import invoices in which goods are overvalued allows the launderer to move money from one company and country to another with the invoices serving to verify the origin of the monies placed with financial institutions.

Funds are transferred to a legitimate bank from a bank owned by the launderers. So-called off-the-shelf banks are easily purchased in many tax havens.