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Understanding money laundering

| Mar 15, 2018 | Federal Crimes |

Money laundering sounds like a strange term to many people in Minnesota at first. We usually think of laundering as an activity to clean dirty clothing. In a sense, money laundering is the same thing. While laundering money is not literally the same as washing it with soap and water, money laundering does mean to take formerly “dirty” money and distribute it in a way that the money appears to be clean.

According to Cornell Law School, the aim of money laundering is to obstruct, conceal or otherwise hide the illicit or illegal origins of money. Generally, there are three stages to money laundering. First, the launderer receives the illicit funds. Next, the launderer will pass the assets through a complicated series of transactions that hides who had received the money from the initial criminal activity. Finally, the transactions return the money to the launderer in a fashion that is indirect and hard to detect. In essence, the money is laundered or cleaned.

Commonly, money launderers will employ the use of a shell company to clean their money. Shell companies are incorporated companies that, while they purport to offer a legitimate service, in practice they hold no real assets and do not perform any real operations. Instead, shell companies will offer a service that generally only requires cash payments, since cash can be transacted more anonymously than through checks. The launderer will deposit the money in the shell company’s account, which will in turn be returned to the launderer or deposited into another shell outfit before going back to the launderer.  

Findlaw points out that the United States government has criminalized money laundering in a number of ways over the years. The initial money laundering laws, passed the in the 1970s, included the Bank Secrecy Act, which required financial institutions to report large transactions to the Treasury Department, or transactions believed to be suspicious in nature. Later, the Money Laundering Control Act of 1986 forbade financial transactions with money derived from particular crimes. Subsequent laws in the 1990s strengthened or clarified aspects of this law.

In the aftermath of the September 11, 2001 terrorist attacks, the Patriot Act was passed in Congress which further strengthened money laundering laws. Its provisions required companies to pick a compliance officer, conduct independent audits, and to install training programs. Additionally, the Patriot Act made it possible for companies to be held liable if they are willfully blinding themselves to money laundering schemes taking place within their own structures. Also, financial institutions are to verify their customers’ identities and check them against the identities of suspected or known terrorists listed by the federal government.