5 Most Common Businesses Used for Money Laundering
Money laundering is a procedure that illegally generates a lump sum of money and makes it appear to originate from legitimate sources. In other words, money laundering is the practice of cleaning or hiding illegitimate sources (like human smuggling, drug trafficking, etc.) of money.
Usually, businesses that deal in high volumes of cash can be used as money laundering businesses. The top 10 money laundering businesses include casinos, real estate, life insurance, currency exchange services, cash smuggling, shell companies, and more.
Money laundering benefits terrorists, drug dealers, corrupt public officials, illegal arms dealers, and other criminal bodies to operate and expand their illicit activities. Additionally, money laundering can devastate a country’s economic, social, and security prospects.
Hence, avoiding such money laundering techniques in the disguise of renowned businesses is recommended. This guide will introduce you to the most common money laundering businesses that can make illegal money fly beyond the radar. Let’s get started.
How does Money Laundering Work?
Before you leap into common money laundering businesses you should avoid, learning how money laundering works is significant. Money laundering encourages hiding large amounts of money generated illegally to make it look like it genuinely originated.
In addition, money laundering is a serious crime, and it carries heavy penalties. Basically, money laundering involves 3 basic steps to hide the actual source of the illegally earned money:
- The Placement step brings illegal money into the financial system. Here, the responsible party behind money laundering distributes the money into numerous deposits and investments.
- The next step is Layering, which shuffles the money to keep a safe distance between the money and the offender or perpetrator.
- Lastly, the Integration step returns the money to the perpetrator as clean or legitimate.
Mules, smurfs, and shells are the most common money laundering methods to hide the illicit source of money. For example, smurf is a term to describe a money launderer who needs to avoid government scrutiny. On the other hand, money launderers hire mules to help them throughout the process.
In addition, shells or shell companies are organizations or companies that don’t acquire business operations, activities, assets, employees, or physical operations. However, many shells are legitimate business corporations that money launderers use to raise funds. Otherwise, they are fraudsters who avoid paying taxes and hide illegal activities.
Apart from these, money launderers use the following methods to avoid detection of illegally-originated money:
- Counterfeiting
- Investing in real estate and selling valuable assets
- Investing in commodities like gold and gems
- Gambling and more
Popular Money Laundering Businesses to Be Cautious of
Money laundering businesses or strategies are getting unfolded with the implementation of new regulations from law enforcement and banks. Here are the most common money laundering techniques that have become popular among money launderers.
They make use of these businesses to come out clean and make their money look like it was legally generated. Let’s review the most common businesses that help money launderers hide their money’s illegitimate sources.
1. Real Estate
This is one of the safest options for money launderers as the sector has easy regulations. Money launderers often invest in the real estate using cash from criminal activities. Next, they quickly sell those properties and deposit the money into a legitimate bank account.
Now, tracing the origin of the funds used for purchasing the property becomes comparatively more difficult. However, the Financial Crimes Enforcement Network in the United States can check out questionable transactions and take necessary steps if required.
2. Bank Laundering
Reportedly, this can be the easiest way of indulging in money laundering businesses if the money launderer owns a financial institution. Imagine how simple it will be for the money launderer if they can clean illegal funds on a large scale through their banks, stock trading companies, or mortgage companies.
They get the advantage of quickly moving the illegal money to another financial institution through their organization. On a related note, such transactions occur as currency exchanges. Thus, they become incredibly tough to get detected by regulatory agencies.
However, the Bank Secrecy Act came out to prevent bank laundering. The act says that financial institutions must follow specific reporting requirements capable of exposing money launderers.
3. Casino and Gambling
Casinos already have a bad reputation as they are the mainstream places to help money launderers clean their illegal funds. Money launderers can disguise their money as they gamble and pay for their casino chips with their illicit proceeds.
Consequently, they can easily walk out of casinos with their clean cash dressed up as winnings. Casinos and gambling have been a part of money laundering for ages. Undoubtedly, money laundering aids in casinos and their profitable businesses. Similarly, casinos offer money launderers a way to escape easily with dirty cash without being caught on the radar.
However, banks keep track of frequent deposits from gamblers to ensure that money launderers don’t utilize gambling to clean their illegitimate funds. Therefore, casino laundering might not be so fruitful for people and businesses in money laundering.
4. Life Insurance Policies
Purchasing life insurance policies and cashing them out after a specific period can be profitable for money launderers. Mostly, people or businesses invest in single-term life insurance.
Additionally, the money launderer assigns themselves or the nearest ones as the primary beneficiary. The plan is that the launderer holds the life insurance policy for a minimum period. Finally, the launderer can cash it from the insurance company or insurer. Not to mention, the dirty funds get clean meanwhile.
5. Trade-Based Laundering
The FATF or Financial Action Task Force often describes money laundering as the procedure of impersonating criminal proceeds via the use of trade transactions. What kind of activities are available under such money laundering businesses or techniques?
Reportedly, these are the trade transactions that can legitimize launderers’ illegal funds:
- Multiple invoicing of products and services
- Under- and over-invoicing of goods and services
- Under- and over-shipments of products and services
- Falsely depicted products and services
So, organizations can lie about the quality and price of imports and exports – this makes their profits look bigger than they are. Now, launderers take advantage of this practice with other money laundering strategies. Thus, the source of the illicit funds becomes difficult to trace.
Banks can go through such sales documents provided by the company. If the bank detects a sudden large increase in profits, they can label the company. Besides this, the bank can investigate the company for financial crimes.
In Conclusion…
Talking about penalties against money laundering, the U.S. regulatory bodies are quite strict. Anyone caught in money laundering businesses must pay a fine of $500,000 or twice the money of what’s being laundered. In addition, a violator can obtain 3 years of probation.
On the other hand, some might get imprisonment for their reported offenses. Violators can experience imprisonment for up to a year if law enforcement charges them with a misdemeanor. In case of a felony, the violator can face 35 years of imprisonment.
