The most common way is through front companies, that is, “pretend” businesses controlled by the very criminal organization that wants to launder the money. Criminals take the money they’ve earned illegally (drug trafficking, counterfeiting money or tax evasion, for example) and make it look like it was earned by this company, which, on paper, has an honest activity. The scam also happens when it is not the use, and not the origin of the money, that is illegal. This is the case of churches that could not spend the money donated by the faithful buying goods for their leaders, but on charitable works. The origin of the term “money laundering” has two explanations: the first is that in the United States, in the 1920s, a network of laundries operated as a front company. The other theory is that an American group put counterfeit dollar bills in the wash. Thus, they looked old and could be used as if they were clean. :-S
– (Getty images/Superinteressante)
PAY AND LIGHT LAUNDRY
In this endeavor, shell companies are used to forge honest origin for illegal money
1) The money obtained from an illegal activity, such as drug trafficking or prostitution, for example, cannot be spent just like that – this would raise suspicions that could reveal the bandit’s activity. That’s why he needs to come up with a way to camouflage this origin and give the impression that the money was earned in an honest way.
2) The money is transferred to the account of a shell company, which exists only on paper or even exists, but for hidden purposes. This company can claim that it provided a service that never existed – and get paid for it – or lie that it had a billing above the real. A restaurant that sells one hundred meals a day, for example, does its accounting as if it had sold one hundred and fifty, and “launders” the value of the extra meals
> Many bandits choose businesses that move money in cash, such as a restaurant, because it is more difficult to show the origin of the money
> Police oblige banks to report large deposits. Therefore, criminals divide the pie into several small deposits, a tactic called “smurfing” by experts.
3) To further decouple criminals from money, the shell company performs various financial operations. The money can go to banks headquartered in tax havens or off-shore centers, where those responsible for bank transactions are guaranteed secrecy by local legislation. This phase is called “hiding” – the money changes “owners” several times to make it harder to track.
> Tax havens are territories where, in addition to having a low tax burden, there is banking secrecy: institutions are not obliged to inform the author of financial transactions
4) It is time for money, which lost its immediate link with illegal activity, to return to the criminal organization. An orange (person who serves as an intermediary in fraudulent businesses) can receive a loan from one of the institutions located in the tax haven, or another company, also a front, can receive payments from banks and companies in those countries. This is the so-called “integration” phase.
5) Now, the bandits have money that looks legal, with a controlled source, from a company that theoretically has no connection with the crime. Then the money is used by the criminal organization. For example, drug dealers often invest in personal assets and churches buy cars for their leaders.
6) But, along the way, the crooks end up leaving clues – such as movement of money incompatible with the size of the shell company, or a very large number of deposits in amounts that almost reach the minimum necessary for it to be communicated to a commission special from the Ministry of Finance.