Whether it’s Al Capone or others, how does the police first suspect that someone is engaged in money laundering and then go about proving it?
Can layering make it impossible to trace the money as opposed to just requiring more work?
If someone involved in money laundering gets a “loan” from a shell company he set up, is it not rather easy to show that that company existed for little more than to “loan” him money?
Here’s one that happened right in my little home town earlier this year. The article provides some details on how the feds caught on.
I used to work in these kinds of investigations. Typically, there’s some other nefarious activity (drug dealing, in my world) that triggers an investigation. From there, you follow the money by getting legal access to bank accounts, investigating property (cars, houses, etc), and when “structuring” is suspected, using data sources such as FinCEN (Financial Crime Enforcement Network). FinCEN is the repository for Suspicious Activity Reports (SARs) and other reporting mechanisms that flag transactions that may indicate someone is trying to conceal ill-gotten gains.
It’s actually pretty straight-forward from the investigative side.
We also ran some fake businesses that offered money laundering services to the bad guys… Heh, we charged them a fee to steal their money and send them to prison. Sort of a triple-slap.
So, it’s usually Capone-like cases where LE knows but can’t prove the person is up to something and uses money laundering as an alternative?
When you follow the money, what counts as evidence that there was money laundering as opposed to just shifting money from account to account and cars/houses being bought?
We had a wannabe informant who said that his mob associated employers were laundering money through their bar. The scheme went like this: The bar/night club (which was fairly popular) would document many more drinks being sold than actually were. They would simply pour bottles of top shelf liquor down the drain during off hours and say that they sold the booze. They might go through five bottles of Stoly in a night but claim it was fifteen or twenty and put the dirty cash in the take for the night. It was now “clean” money. I don’t know if it was true or not as the snitch was a pathological liar, we couldn’t anyone else to corroborate the story and proving it would have been difficult. It seems like it would work, in theory, though.
As I understand it, the feds can simply say “we believe this is income” and then it’s a matter of preponderance of evidence to show this was a legitimate loan from a legitimate company. Then the principals of the loan company have to show up in court and explain how their business works, where they got the money, why it was a legitimate loan, and so on.
the whole process gets complicated, and as the linked article shows, the problem is in creating a viable false front. Without enough participants it’s hard to fake a functional business. one thing I read said this is why the “mob” liked to buy legit businesses like pizza places that get a decent amount of money much of it cash, and sort of layer in the illegitimate proceeds as extra sales. (Remember the scene in Breaking Bad where the wife is punching in premium price sale after sale when nobody is around.) And then, if you funnel to much in fake sales, it becomes obvious that the location is doing an unreasonable amount of business - and the feds would likely stake out the place for a while to compare observed traffic with claimed throughput.
How does that make sense? If they’re pouring expensive liquor down the drain, they’re still paying for it. The illegal profits they’re sneaking into the take will just end up being used to pay for the liquor they threw out.
But not as much as they’re taking in. $20 for a bottle of Stoli gets you 16 imaginary shots at $5 each. You’re ahead $60 on each bottle, but you’ve got plenty of empty bottles and receipts to show the investigator.
Some years ago (I can’t find a cite - sorry) the cops and HMRC staked out a big fuel station for several weeks before they rounded up several dozen people.
The fraud was that truck drivers would buy fuel and get a receipt for which they would be reimbursed. If they took, say, 200 litres and got a receipt for 300, they would pay the attendant half the cost of 100 litres (about £70 at the time). They could claim the full amount and made £35 profit.
The attendants were effectively buying fuel for half price and they needed to sell it to other drivers (mainly taxi drivers) for a discount (for cash naturally). They could then pocket the difference.
HMRC tried to prosecute a whole string of taxi drivers but failed t prove that they knew that the discounted fuel was fraudulent. The truck drivers that were investigated were prosecuted for theft. The filling station owners and many of their staff were done for tax avoidance and money laundering - many of them did time for it.
The original fraud was spotted by a truck operator who kept good records of fuel consumption on his trucks. He say how it went down when they filled up at that place and it escalated from there.
But they’re a bar. Their business is selling five dollar shots of Stoli. Every time they threw out a bottle of Stolis they were throwing out the sixty dollars of profit they would have made by serving it legitimately and replacing it with sixty dollars of illegal profits. How is that coming out ahead? They might as well quit the crime business and run a legitimate bar.
The point of money laundering is to get illegitimately obtained cash into a legitimate business. Selling fake shots of liquor allows them to get their drug money (or whatever) into the cash register and then into their bank accounts and taxed and paid out via paychecks like any other business income.
Do I understand correctly that if someone doesn’t attract the attention of the cops such that they do digging into his tax history and start asking how he got the money for his belongings, he can pretty much spend and own as much as he likes?
When it comes to one’s tax bill, it is indeed about preponderance of evidence. For criminal prosecution, the threshold is beyond reasonable doubt. That sounds like it would be a lot of difficult to prove.
They would make 60$ of profits if they had enough customers to sell it to. Failing that, they turn 80$ of dirty money into 60$ of apparently clean money.
First - the problem is that any transactions are likely to attract the attention of the IRS. The problem with illegal money, is that it is cash. Using large amounts of cash is instantly going to attract the attention of the IRS and the Secret Service. Transactions over $10,000 must be reported. Structuring activities to avoid that limit is also a crime. (I.e. 10 deposits of $9,000). Financial institutions are required to report activity that appears suspicious, too. You want to deal truckloads of meth or bricks of cocaine, how do you turn pallets of cash into bank deposits so you write cheques for your Porsche and big mansion? A plumber doing occasional jobs under the table will likely get away with it, a major drug dealer has probably already attracted the attention of the DEA at least.
Seizing the money is just the first step. Then, they investigate the chain of money. Anyone who is participating will face indictment. While legitimate businesses might be able to use offshore accounts, even the famously private Swiss banks have agreed to cooperate when money laundering for organized crime is involved. (Plus for some tax evasion schemes) How do you propose to set up a company to “loan” you money and still make that company appear legit to the authorities? Loaning money to yourself as a principle in a company is fraud and tax evasion. Which dupe is going to run your company and how long will he keep quiet when faced with jail time? A company with no legitimate purpose? Tax evasion. Deliberate tax evasion is a crime. and so on…
The thing is, the bar is selling all the drinks it can sell. If it pours extra down the drain - well, taking a 25% bath to make their money legit is a small price to pay. IIRC some articles have mentioned typically a 50% loss on money laundering - a cost of doing business. Plus, if they were greedy they could pour the booze into no-name bottles and resell, or give it to the grunt workers, etc. Why bother? Just take the legitimate money.
Banks and other financial institutions are required to file a Suspicious Activity Report, or SAR, if they see red flags that suggest wrongdoing. The feds investigate SAR filings, and it is fairly common for them to lead to prosecution. Most SARs do not involve money laundering, but some do.
Perhaps the most famous SAR was the one filed by Eliot Spitzer’s bank when he tried to conceal his use of funds to conceal a payment for prostitution. He tried to structure the payments to avoid reporting requirements, which is illegal. It is not unusual in this area for the efforts to avoid detection actually leading to detection.
I don’t understand this example, either. If I buy five bottles of liquor, pour it down the drain, and then report the sale of fifteen bottles, I haven’t accomplished anything. The investigators will look at my receipts and see five bottles bought and fifteen sold… and I’m busted. This only works if there is a disparity between the wholesale price and the resale price of the item, and I could not sell the item at the price I claim.
This is why art is huge in money laundering circles. It is far easier to launder money when the value of the product is entirely arbitrary.
Yes. This is how a bar works. You think they are selling shots at cost?
I buy a bottle of Captain Morgan for $20. I sell 20 shots for $5 each. I just made $80 profit on the bottle. I have receipts for the bottle I bought and the shots I sold so I can show $80 in profit and pay my taxes.
Now I buy ten bottles of Captain Morgan for $200. I sell 20 shots for $5 each and pour the rest down the drain and record fake sales for 180 more shots, for which I put drug money in the till. I have successfully laundered $900 in drug money. I deposit the cash in my bank and pay my taxes on my $800 net profit like a good citizen ($720 of which is illegitimate) and I have receipts showing that I bought 10 bottles and sold 200 shots.
The would legitimately sell 5 bottles - 5x16=80 shots x $5 = $400 revenue ($100 expenses).
They would then take an additional 15 bottles when nobody was around, pour them down the the drain.
15x16x$5=$1200 “revenue” and $300 expenses to provide the liquor.
Put $1200 of drug money into the till, the deposit the next morning is $400 + $1200
After paying the bills, they now have $900 of drug money that looks like profits, so turned into legitimate income.
the question is, what ratio of real to fake revenue works, before it looks too good and attracts the attention of the police? A bar is good because it’s much harder for an observer to track actual sales; with a pizza joint, for example, they could observe walk-in traffic, tap the phone and know what sales really should be.
Isnt it alot of times because the participants just get too greedy and start flashing money around?
A surprisingly huge number of people are caught that way. Every once in a while somebody says, “waitaminute, how does a guy who owns a sandwich shop afford three houses and a collection of Ferraris?”
That’s one good way. Another is to check over a Financial Institutions SAR and audit reports, that sometimes shows you someone suspicious you never thought to watch.
Banks and other Financial Institutions are tightly and heavily regulated on this and will report anything odd or suspicious. These can start an investigation.