Three bored IT workers hatch a plan to steal pennies at a time from their callous employer in Mike Judge’s comedy “Office Space.”
The unfortunate first-time burglars get rich overnight because of a little programming error — “I must have inserted a decimal point in the improper place,” one character complains. To avoid jail time, they must swiftly dispose of the cash. They hit rock bottom when one of the magazine salespeople joins their growing conspiracy based on an explanation of “money laundering” from the dictionary.
Beyond the petty vendettas of incompetent criminals, there are legitimate uses for the laundering of illegal proceeds. Drug gangs and white-collar con artists alike employ it. In fact, it’s a significant source of income for many of these companies.
What Exactly Is Money Laundering? Legal Predicates and Examples
Money laundering isn’t humorous and can have serious consequences, unlike the “Office Space” plan, which was excellent for a few chuckles at the expense of the culprits. Paul Manafort and Rick Gates, two allies of former U.S. President Donald Trump, were implicated in one of the most high-profile money laundering cases in recent years.
According to the Washington Post, in 2017, Manafort and his longtime associate Rick Gates were charged with “laundering money for nearly a decade through scores of U.S. and foreign corporations and accounts, and giving false statements to the Justice Department and others when asked about their work on behalf of a foreign entity” in an indictment brought by former special counsel Robert Mueller, who was at the time investigating Russian interference in the 2016 U.S. presidential campaign. The indictment states that Manafort and Gates used offshore accounts and dummy corporations to try to hide the origins of at least $75 million.
Manafort and Gates ultimately entered guilty pleas on some of the accusations filed by Mueller’s team. Additionally, a superseding indictment was brought against Manafort in 2018, and he was found guilty on eight of the eighteen counts. Afterward, Trump pardoned Manafort, but not Gates, who had substantially helped Mueller’s team as part of his guilty bargain.
Money Laundering: A Frequent Yet Extremely Unlawful Business Practice
Although the case involving Manafort and Gates received unprecedented media attention, the allegations against the individuals are not uncommon, regardless of the amounts involved or the political atmosphere in which the alleged crimes happened.
In an explanatory post for USA Today, Kevin McCoy stated, “Money laundering is a frequent practice employed by financial criminals and others to disguise unlawful earnings.” This was in reference to the initial Manafort-Gates accusations.
McCoy cites John Byrne, a former executive vice president of the Association of Anti-Money Laundering Specialists, who claims that there are more than 200 separate federal criminal predicates related to money laundering. What this means is that there are several ways in which one might get into legal difficulties for engaging in money laundering.
Within the next paragraphs, we will examine money laundering from a high level:
- What is money laundering and how does it operate?
- Why individuals and businesses launder money
- Money laundering: fundamental procedure
- Advanced money laundering: methods to evade detection or sustain plausible denial
State and federal (U.S.) fines are associated with money laundering.
- Notable instances of money laundering from the recent and distant past
A Classic Case of Money Laundering: The Dull Pizza Parlor
You’re not off to a good start if you have to seek up money laundering in the dictionary before putting your strategy into action. However, the absurd premise of Mike Judge’s “Office Space” does highlight an essential point: Money laundering is simple to grasp conceptually.
McCoy writes for USA Today that “money laundering” is the process of transferring illicit funds into the lawful financial system while avoiding detection by authorities. Laundering refers to the process of converting illegal proceeds into something that seems like legal ones.
This is a classic case in point. You’re the head of a tremendously profitable and extremely criminal business, like a drug distribution network. Your illegal profits in cash are too large to hide from the IRS without arousing suspicion. You next invest the money in a business that appears to be real, such as a pizza shop in your neighborhood that you own or one that you co-own with a trusted friend who will, of course, take a percentage.
Maybe from the outside, your pizzeria seems like any other successful eatery. However, this is really a front for your real source of income, which you obviously can’t reveal on official documents like tax returns or bank applications. You spend the vast majority of your drug profits on pizza shop overhead, including appliances, ingredients, supplies, and even employees.
The stolen money mixes in with the restaurant’s legal proceeds after it’s recorded in the books. The argument is moot if you can’t tell if a certain expenditure was paid for with legal or illegal means.
Uninitiated bystanders would assume that you are simply operating a highly profitable and law-abiding pizzeria. Even if the majority of the parlor’s money originated in an action that would ordinarily land you in prison, you feel confident withdrawing it since its source seems kosher.
How It Works: Three-Step Money Laundering Process
There are three steps involved in laundering money. Before the integration process is complete, the funds are still regarded as filthy (laundered).
Putting stolen money into the bank comes first. Huge-deposit reporting requirements and the concerns that inevitably arise when large quantities of money come out of nowhere make the placement phase the most vulnerable time for detection.
Deposits, withdrawals, and purchases of negotiable instruments (such as cashiers’ checks and money orders) in excess of $10,000 each day must be reported to the Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury under the Bank Secrecy Act of 1970.
There are a number of suspicious acts, such as large cash deposits made by customers who don’t often do so, that necessitate the bank keeping records or issuing reports in accordance with the act and derivative departmental advice. Participating banks must follow the anti-money-laundering (AML) guidelines outlined by FINRA, whereas the current Bank Secrecy Act advice is outlined by the Federal Financial Institutions Examination Council (FFIC).
Placing ill-gotten proceeds from cash transactions necessitates, therefore, making several very tiny bank deposits over time, typically across a number of accounts. Smurfing is a form of insider trading in which subordinates (smurfs) secretly transfer money to the bank accounts of higher-ups. Although banks and law enforcement agencies will neither be any more or any less skeptical of customers who make deposits using electronic methods like ACH and wire transfers, these constraints do not apply to cash deposits.
Some people who are trying to launder money use shadow banking networks to stay out of the public eye. Bitcoin and other cryptocurrencies are becoming increasingly popular as a means of money laundering because they are not subject to the same regulatory constraints as traditional banking systems dealing in fiat currencies.
Other traditional IVTSs include the Chinese “fei ch’ien” (which literally translates to “flying money”) and the Middle Eastern and South Asian “hawala” (which literally translates to “transfer” or “trust”). These systems are global in scope, out of the reach of national financial regulators, and leave little paper trails.
“The money is stacked, or transferred via a series of transactions meant to create uncertainty and confuse the paper trail for investigators,” writes McCoy for USA Today.
The monetary tactics involved in “layering” are sophisticated (or at least cryptic), and they require “slicing and dicing” the original investment. Methods often used for layering
- Funds transferred electronically across bank accounts, which may be held in a number of different names, at a number of different banks, and even in different countries.
- Dealing in goods or services through “shell firms,” which are technically legal businesses but serve no practical use in the economy.
- High-priced investments in things you can hold in your hands, such yachts, luxury automobiles, and gold.
- Investment property purchases, including high-end single-family houses and condos
More money means more complicated and novel strategies. USA Today reports that the accusations against Manafort and Gates include a list of 17 firms or LLCs in the United States that were allegedly owned or managed by the two men, as well as 12 organizations in Cyprus and three others in the United Kingdom or the Grenadine islands.
Those foreign corporations played an essential role in running the business. There are weak bank secrecy requirements in many countries, including Cyprus, which makes it easier for account holders to hide their names and, by consequence, the origin of potentially criminal cash. Not nearly as opaque as renowned secretive havens like Switzerland and the Cayman Islands, Cyprus ranks at number twenty-four on the Financial Secrecy Index of the world’s most secretive financial destinations.
Manafort and Gates’s accused sham firms didn’t only wait on millions in bank deposits. They invested much and bought many new things as part of the layering process. Slate has the almost hilarious example of two Cyprus-based companies owned by Manafort spending over $1 million at an antique rug store in Alexandria, Virginia.
When the process is complete, the money that was originally dirty is integrated back into the economy. Generally speaking, integration is the least risky element of the laundering process since it includes lawful transactions, but it is still subject to inspection. Some common types of integration are:
- High-priced products acquired with laundered monies may be sold or transferred.
- Real estate acquired with laundered money may be sold or transferred.
- Purchases of securities or other financial instruments in the name of the launderer or the launderer’s genuine business entity
- Transactions with legitimate legal companies owned by the launderer or their allies
The purchase of a new oven or a large order of pizza ingredients is an example of an integration transaction that may be made at the pizza shop in our simple scenario. The integration deals that Manafort made were more lucrative, if not less mundane. He used the proceeds from the laundering of criminal monies to buy and sell multiple residences and a
This is a very high-level, oversimplified explanation of how money laundering works. The Peterson Institute for International Economics observes in “Money Laundering: Methods and Markets” that some schemes involve more than three separate stages. In addition, there are an infinite number of ways that money may be laundered.
The next money laundering operation you hear about in the news will most certainly feature some novel twists and turns not covered here.
Vectors and Strategies for Money Laundering
Some prevalent money laundering channels and methods, such smurfing and informal value transfer systems, have already been discussed.
While many money laundering techniques utilize many vectors, we will explore some more ones below. Most of the information and quotations used here came from “Money Laundering: Methods and Markets,” published by the Peterson Institute for International Economics.
- Casinos and gambling establishments
Misappropriated money can be effectively cleansed through gambling. Using the stolen money, the launderer and his or her accomplice buy a stack of casino chips, sit on them for a few days (during which time they may or may not bet), and then exchange them for a check made out to the chip holder or a third party.
Multiple casinos located in various nations or regions may be involved in more intricate operations. Purchase chips in a Las Vegas casino, ask the establishment to transfer your credit to a sister property in Macau, and then have the Macau property write you a check the next time you visit if you need to transfer unlawful cash from the United States to China or vice versa.
Laundering is also common at horse racetrack. A common method of money laundering is for the launderer to purchase a winning ticket at a marked-up price and then redeem it at the cashier counter for a check written in his or her name or the name of an intermediary.
The original ticket holder benefits monetarily (and maybe legally) from this arrangement. The original holder can easily hide the gains from state and federal tax authorities if the launderer pays cash for the ticket.
- Cash Smuggling
The clichéd “suitcase full of cash” is a classic example of a means of transporting illicit funds. It’s also one of the simplest, making it a high-risk option when dealing with customs for international trade.
Still, smuggling huge sums of cash remains the simplest way for criminals and criminal organizations involved in cash-heavy economic operations, such as wholesale drug or arms trading, to physically transfer revenues without utilizing established banking networks.
Ironically, the Peterson Institute reports that the effectiveness of banks’ anti-laundering procedures has led to a rise in the incidence of cash smuggling in recent years. Even while federal officials are putting greater effort into intercepting large inbound cash shipments, it is typically easier for U.S.-based individuals and businesses to smuggle U.S. dollars out of the country.
- Policies on
Life insurance plans, because of their laxer regulation compared to other financial instruments, can be used as vehicles for money laundering. Paul Manafort laundered millions of dollars through a multimillion dollar
In a more elaborate method, the launderer may either take money out of the policy’s value (if allowed) or use it as collateral for a loan from a bank or other financial institution. Clever money launderers, says the Peterson Institute, prefer plans purchased via intermediaries, which create more distance between the policy’s buyer and the insurer. The length of time between purchasing an insurance and receiving the proceeds can be years, which further assuages regulators’ worries.
The securities business is vulnerable to fraud and abuse, including money laundering, despite the existence of statutory anti-money laundering (AML) legislation. The Peterson Institute reports that stock option transactions, wherein the same amount of money is used to buy both put options and call options expressing opposite wagers on the price movement of an asset, are a popular securities-aided laundering strategy.
One of the money launderer’s two bets should increase in value under normal conditions since the value of put and call contracts for a particular security rise and decrease in nearly inverse ratio.
At any moment before both contracts’ expiration dates, the launderer can sell the profitable contract and cancel the losing contract, resulting in a break-even (or near to it) position before transaction fees are taken into consideration. There appears to be no red flags with these funds, and the capital gains tax (if any) seems to be paid in full.
- Real Estate
Money laundering is rampant in the real estate industry because of lax regulations. Shell corporations, which are created for the sole purpose of holding other corporate entities or assets, and whose ownership may or may not be anonymous, are frequently used in money laundering transactions to hide the true identities of the buyers and the origins of the funds being used in the purchase.
Luxury real estate is frequently used as a means of wealth concealment by the affluent in authoritarian or corrupt countries like China and Russia due to the high value of the assets involved and the inherent opacity of properly executed transactions. Investment in high-end real estate in expensive markets in politically stable countries like Miami, San Francisco, or Vancouver is safer than stashing cash in home country bank accounts, especially for those who are politically active or engaged in business activities that run counter to the interests of the ruling party.
Having all of their accounts blocked or confiscated is much worse than having to sell their offshore real estate holdings at a loss.
- Currency Exchange Offices
Money launderers love currency exchange bureaus because of the low levels of oversight they face, the high volumes of cash they handle, and the frequency with which they facilitate transactions involving values in other countries.
The only major drawback for money launderers is the exorbitant exchange costs, which can reach as high as 8%, charged by currency conversion bureaus. Although this may make them less desirable for budget-conscious tourists, the little danger of money laundering makes this a minor price to pay.
Peterson Institute research indicates that exchanging significant sums of local currency for the highest-value Euro notes — €500 — is a popular currency exchange laundering tactic for transporting criminal gains out of the nation. While money launderers still need to deal with local customs authorities, they are spared the inconvenient questioning of currency exchange bureau employees.
Typical Money Laundering Use Cases
We now know the inner workings of the money laundering system. Easy enough. To what end, though, does it serve? Money laundering is generally utilized to conceal the trail of illegally obtained funds.
- Trafficking in drugs
The drug trade requires large amounts of money to operate. Its supply chain is typically illegal from production through distribution, and it may be quite sophisticated, spanning seas and various international borders.
The drug trafficking operation shown in the 1983 film “Scarface” is a good example of the intricacy at play here, while being reduced and exaggerated for the film.
Scarface, played by Al Pacino, was involved in a cocaine distribution business with a South American kingpin. The kingpin produced coca on a vast estate in Bolivia, turned it into cocaine, and used a multimodal smuggling network (airplanes, boats, and submarines) to ship it to the United States.
On the American side, Pacino’s character utilized a dodgy Miami bank to launder millions of dollars in cash earnings, which he then spent on an extravagant lifestyle in South Beach and an increasingly destructive cocaine habit. The fact that Scarface’s story ends poorly isn’t really a spoiler.
- International and Domestic Terrorism
Terrorist organizations driven by ideology use money to further their goals. Of course, terrorist groups still need money to operate. “Lone wolves” operating independently of established terrorist groups also pose a threat, but with less sophisticated methods.
There is a wide spectrum of complexity in money laundering schemes involving terrorism. An investigation by the FBI found that the most lethal terrorist strike in U.S. history didn’t set terrorists back more than $400,000.
None of the 20 hijackers had any suspicious conduct flagged by any U.S. financial institution prior to 9/11. The FBI claims that “Al Qaeda funded the hijackers in the United States primarily by three unremarkable means: wire transfers from overseas to the United States; the physical transport of cash or traveler’s checks into the United States; and the accessing of funds held in foreign financial institutions by debit or credit cards.”
Some organizations that provide direct or indirect assistance for terrorist acts also perform legal or seemingly lawful services, such as political advocacy, further complicating the issue of money laundering in relation to terrorism.
For instance, although Hezbollah’s political component has a long history and is a functional (if adversarial) presence in Lebanon’s parliament, its militant wing shamelessly launders money from Iran and abroad to buy weapons and finance war activities across the Middle East.
Most state statutes describe embezzlement as “theft/larceny of assets (money or property) by a person in a position of trust or responsibility over such assets,” as outlined by FindLaw. “[and] usually takes place in business and corporate environments.”
Embezzlement can take many forms, from stealing from a cash register in your first job to devising elaborate plans to steal from your bank’s customers. The guys in “Office Space” are a prime illustration of their disastrous plan. To make embezzled money legitimate for spending, its origin must be hidden.
- Trafficking in Arms
In the same way that drug traffickers deal in illegal substances and expensive goods, arms dealers deal in commodities that can only be bought and sold undercover. However, thousands of firearms and millions of cash are not always at issue in cases of money laundering associated with arms trafficking.
In 2015, MLive covered a less sensational example of money laundering related to the selling of weapons. A limited number of illegal automatic guns were sold on the dark web, with the proceeds from the sales being hidden by the use of bitcoin.
- Other Applications
Money laundering serves a variety of purposes because, for better or worse, there are several illicit profit centers and methods. The cases of Manafort and Gates, for example, do not fit cleanly into any of these four categories.
Allegedly, much of Manafort’s illegal earnings came from his shadowy political consulting work for foreign governments and private citizens. That’s already illegal, and it may be harder to spot for institutions that are following AML standards in good faith.
Money Laundering Penalties, Both Criminal and Civil
McCoy of USA Today points out that money laundering is a federal crime with over 200 separate elements. And that’s simply the law in the United States! Laws at the state level work in tandem with federal regulations to combat money laundering.
Although sanctions and enforcement vary widely, most countries also have legal codes addressing money laundering.
For the sake of clarity, we will focus on federal law in the United States. Penalties, both criminal and civil, for money laundering and similar actions are outlined below.
Monetary Transactions in Criminally Derived Property With Intent, 18 U.S.C. 1956
The United States Department of Justice (DOJ) states that Sections 1956 and 1957 of the United States Code cover money laundering and associated criminal activity. The Department of Justice (DOJ) identifies three distinct forms of unlawful money laundering as defined by 18 U.S.C. 1956:
- Domestic money laundering transactions: 1956(a)(1)
- 1956(a)(2): Transactions involving international money laundering
- 1956(a)(3): Undercover money laundering transactions (sometimes referred to as “stings”)
To constitute money laundering under 18 U.S.C. 1956, a transaction must be conducted with the requisite purpose. Let’s go deeper into the criminal liability guidelines for each category of money laundering covered under 18 U.S.C. 1956.
To be guilty of a crime under 1956(a)(1), the DOJ states that “the defendant conduct[s] or attempt[s] to conduct a financial transaction, knowing that the property involved in the financial transaction represents the proceeds of some unlawful activity…and the property must in fact be derived from a specified unlawful activity.”
In addition, one of the following four purposes must be met for 1956(a)(1) to apply:
- Intent to promote the commission of a specific criminal behavior, under 1956(a)(1)(A)(i). Said illegal conduct might involve the selling of contraband items, such as regulated narcotics or forbidden firearms, but could possibly involve any action that is prohibited by federal law in the United States.
- Intent to commit tax evasion or tax fraud, per section 1956(a)(1)(A)(ii). This is what got Manafort and Gates into trouble: they laundered money for the sole aim of hiding earnings from the IRS, among other reasons.
- “Knowledge that the transaction was intended to hide or mask the nature, location, source, ownership, or control of funds from the specified illicit conduct,” states section 1956(a)(1)(B)(i). This differs from 1956(a)(1)(A)(i) in that the intent to encourage illegal behavior is not necessary; simply knowledge that the transaction hides some component of the unlawful activity is required.
- Section 1956(a)(1)(B)(ii): “Knowledge that the transaction was structured to circumvent a transaction reporting requirement under State or Federal law”
The Department of Justice states, “prosecutions under 18 U.S.C. 1956(a)(2) occur when monetary instruments or monies are carried, communicated, or transferred abroad and the defendant acts with one of the required criminal intentions.”
It is important to note that 18 U.S.C. 1956(a) does not apply if there is no purpose to evade tax responsibility or to otherwise bypass U.S. tax law (2). The other three purposes are largely in line with those stated in 18 U.S.C. 1956(a) (1).
All transactions that fall under 18 U.S.C. 1956(a)(2) must include a trip outside of the country. They have to either start or end in the United States. Excluded from the scope of this section are transactions that are both completely domestic (originating and ending in the United States) and wholly international (originating and terminating in foreign markets or countries).
The Department of Justice defines “proceeds…not genuinely obtained from a true crime” as falling under this clause. Instead, “undercover payments delivered by…a Federal official with authority to investigate or punish money laundering offenses” constitute the definition of “proceeds” under 1956(a)(3).
The purpose of 1956(a)(3) is the same as that of 1956(a)(2); it does not include tax offenses. In addition, the purpose standard under 1956(a)(3)(B) and (C) is stricter.
In contrast to subsections 1956(a)(1)(B)(i) and (ii), which only require that defendant know that the transaction is designed, in whole or in part, to accomplish one of those ends, the DOJ states that the transaction “must be conducted with the intent to conceal or disguise the nature, location, source, ownership, or control of the property or to avoid a transaction reporting requirement.”
What this means is that the burden of proof rests on the government’s shoulders if you fall victim to a money laundering sting operation.
Penalties for Violations of 18 U.S.C. 1956
Infractions of Title 18, Section 1956 are punishable by up to 20 years in prison and a fine of $500,000 or double the amount involved in the transaction, whichever is larger, according to the United States Code.
Of course, not all instances of money laundering warrant the maximum punishment, especially when plea deals are involved. However, those who are found guilty of money laundering sometimes face lengthy prison terms and the forfeiture of enormous sums of money.
Civil Penalties for Violations of 18 U.S.C. 1956
Of all, the civil penalty for violating 18 U.S.C. 1956 is nothing to scoff at, even if it may seem little in comparison to the criminal sanctions for such infractions. A person or business that is found guilty of money laundering may face civil fines “not more than the greater of $10,000 or the value of the cash involved in the transaction,” as stated by the Department of Justice.
Monetary Transactions in Criminally Derived Property Exceeding $10,000, 18 U.S.C. 1957
U.S. Department of Justice: “prosecutions under 18 U.S.C. 1957 occur when the defendant intentionally performs a monetary transaction in criminally generated property in an amount higher than $10,000, which is in reality profits of a specific unlawful activity.”
To differentiate itself from its predecessor, 18 U.S.C. 1956, 1957 adds an intent requirement and increases penalties for violations.
The standard of intent in 1957 is substantially lower than that in 1956. In contrast to Section 1956(a)(1), Section 1957 does not permit the use of the four purposes. Prosecutors do not need to prove intentional intent to commit an offense under this provision if they can show that each related transaction exceeds $10,000 in value.
It must be proven, however, that the defendant had knowledge that the property in question had been obtained via illegal means and that the money in question had been obtained through illegal means, as stated by the Department of Justice.
Penalties for Violations of 18 U.S.C. 1957
The criminal penalties for violating 18 U.S.C. 1957 are less severe than those for violating 18 U.S.C. 1956, although given the severity of the latter, that’s not saying much. The Department of Justice states that those who violate Section 1957 can face “a maximum punishment of 10 years in jail and maximum fine of $250,000 or double the amount of the transaction.”
The good news for people who have been accused of money laundering is that infractions of 18 U.S.C. 1957 carry no civil penalty.
Money Laundering Case Studies
When the police discover a money laundering organization, it seldom makes headlines. Numerous offenders are able to avoid punishment. However, many are captured. These transactions are extremely well-known as examples of money laundering in the last century.
- Rick Gates and Paul Manafort, 2006-17
The initial batch of allegations against Manafort and Gates centered on their efforts to enrich themselves financially by lobbying on behalf of Ukraine, as NBC reported in 2017. From 2006 through 2016, they allegedly laundered the funds via dozens of businesses, partnerships, and banks in the United States and abroad.
According to the office of special counsel Mueller, $18 million of Manafort’s hidden wealth was an attempt to evade taxes in the United States. NBC and other contemporaneous accounts state that the accusations were filed in part to circumvent any statute of limitations problems that may have prevented the prosecution of prior offenses. In February of 2018, prosecutors issued an amended indictment charging the couple with a slew of additional financial offenses linked to their alleged money laundering operations.
Both Manafort and Gates put up a strong fight against the allegations initially, but finally gave up when the costs of fighting them (and, in Manafort’s case, his convictions) became too great to bear. They both received sentences, however former President Trump ultimately pardoned Manafort. According to CNN, after the pardon, it is doubtful that state prosecutors in New York State will pursue charges against Manafort for comparable offenses.
- Tom DeLay, 2002
Many more prominent political figures in the United States in the twenty-first century have been accused of financial wrongdoing, joining the ranks of Paul Manafort and William Gates.
Former House Majority Leader and Texan Republican Tom DeLay was charged with conspiracy to violate election law, conspiracy to commit money laundering, and money laundering in 2005, all in relation to his 2002 campaign.
Even though the conspiracy to breach election law claim was later withdrawn and the money laundering case remained, DeLay resigned from Congress in 2006 (per NPR) rather than face a protracted trial in public view.
The whole thing dragged on for an eternity. In November 2010, a Travis County, Texas, jury found DeLay guilty on the final two counts against him. ABC News reports that he was sentenced to three years in prison and ten years on probation. However, Time reports that in 2014, the criminal case against DeLay was eventually dropped when his legal team successfully appealed his verdict.
- BCCI, 1980s
The London-based Bank of Credit and Commerce International had a dubious image even back when it was at the height of its success. When BCCI’s decade-long embezzlement scam was finally exposed in 1991, a former employee said, “it was widespread knowledge within the bank that there were fraudulent loans.”
The New York Times claims that BCCI “became a personal piggy bank for its Arab and Pakistani owners and its preferred clients,” using the money of over a million depositors throughout the world. Some of the most infamous criminals and dictators of the time were among those who were given preferential treatment, such as Saddam Hussein, Manuel Noriega, and members of Pablo Escobar’s Medellin narcotics cartel.
Time Magazine reported at the time that BCCI had accounts for the CIA and the National Security Council, which used the bank’s “ask no questions” policy to fund a wide range of clandestine operations, including the now-infamous Iran-Contra crisis.
BCCI’s need to cover up its mounting losses from fraudulent loans led it to take increasingly drastic methods, including diverting customer deposits to pay interest on other loans and arranging fresh illegal loans to shareholders for the express aim of buying back shares. The bank’s assets were confiscated and its branches were closed by international authorities in the summer of 1991.
The bank’s liquidators, Deloitte & Touche, pled guilty to a number of criminal charges brought by New York prosecutors in December 1991 against bank founder Agha Hasan Abedi and an accomplice. Pakistan’s unwillingness to extradite Abedi to the United States meant that he was never brought to justice.
The financial and legal aftermath of the BCCI scandal lasted for years. After resolving a lawsuit against auditors in 1998, Deloitte & Touche spent the next decade and a half attempting to repay depositors. According to The Guardian, Deloitte ultimately wrapped up their investigation into BCCI’s demise in 2012.
- Liberty Reserve, 2008 to 2013
Liberty Reserve, a financial service located in Costa Rica that handled worldwide cash transfers and cryptocurrency conversions, provided its early advocates with more than they bargained for. Liberty Reserve’s allure lay in its low transaction costs and lack of identification verification standards, making it a prime target for cybercriminals.
According to Fox News, Liberty Reserve enabled almost $6 billion in transactions that may have been money laundering by the time the U.S. The Secret Service arrested five of the site’s masterminds in 2013.
Unfortunately, legitimate users were penalized: Fox News spoke with a Texas company owner who lost $28,000 when Liberty Reserve went bankrupt.
At least some justice was done. According to the U.S. Department of Justice, Liberty Reserve founder Arthur Budovsky pled guilty to one count of conspiracy to commit money laundering in 2016. The judge gave him a 20-year jail term.
- From 2001 through 2007, Standard Chartered
Standard Chartered, a massive British bank, devised a plan that made BCCI’s appear like a joke. The Guardian reports that throughout the 2000s, a rogue division of the bank “schemed with Iran’s government to hide more than $250 billion in unlawful transactions for over a decade.” These dealings aided high-ranking Iranian officials and other individuals in evading U.S. sanctions against Iran’s theocratic dictatorship.
The New York State Department of Financial Services (NYSDFS) published a scathing report in which it claimed that the rogue Standard Chartered division “also tried to conduct business with other U.S. sanctioned countries, including Libya, Burma, and Sudan.”
Standard Chartered paid $340 million to the NYSDFS and more than $300 million to other regulators to promptly resolve the accusations. Bank was required by settlement to adopt and strictly adhere to anti-money-laundering procedures. There was a lack of rigor in the aforementioned protocols: Standard Chartered paid an additional $300 million to satisfy claims that it violated the agreement with NYSDFS just two years after the first settlement.
- Nauru, 1990s and early 2000s
There have been cases of people coming up with daring financial plans to disguise their tracks when they’ve been up to no good. We have seen multinational financial institutions that actively promote widespread worldwide deceit and fraud. Today we’d like to introduce you to a very special kind of white-collar criminal: a country whose primary criminal activity is money laundering.
Nauru is a small island republic in the South Pacific. In 2000, the New York Times called it “one of the most inconspicuous locations on Earth.” The population has been continuously falling and is presently estimated at around 10,000, 90% of whom are jobless.
There was once a flurry of activity on Nauru. The island was home to some of the world’s largest phosphate reserves, making it a prime location for the production of commercial fertilizer. During the 20th century, the interior of the 21-square-mile island was devastated by foreign mining interests, fueling a thriving (albeit quasi-colonial) economy.
By the late 1980s, however, the island’s boom days were past, and the government was desperate for revenue. This led it to rebrand Nauru as an offshore financial hub and tax haven. The government even offered passports to foreign nationals for a high up-front fee and permitted anybody to charter a bank with a $25,000 down payment. There may have been as many as 400 banks based on Nauru at its peak, or around one for every 30 residents.
There was a lot of money in Nauru throughout the 1990s thanks to the Russian mafia, at least $70 billion. In 2001, the crisis reached a climax when Nauru became the first country to be blacklisted by the UN Financial Action Task Force on Money Laundering (FATF).
Upon realizing it was going bankrupt, Nauru’s government enacted stringent anti-laundering laws and attempted to diversify its economy by constructing a contentious but lucrative offshore detention center for the Australian government.
The Nauruan banking system has come a long way since its Wild West days, yet difficulties still exist. According to the Australian Broadcasting Corporation, the Australian banking giant Westpac cut ties with the Nauruan government in 2016 due to rising money-laundering fears.
It’s worth stressing once more that money laundering is a serious crime committed with the express intent of hiding the proceeds of other unlawful actions. The preceding should not be interpreted as a how-to guide, a cheat sheet, or a support of illegal financial practices that can ruin people’s lives and land them in jail.
In any event, there are plenty of legitimate methods to generate money, so there’s no reason to engage in unlawful activity. Use this guide to typical passive income ideas or popular side occupations that genuinely pay if you want to complement or replace your present income sources legally.