Wash-rinse-repeat: How launderers clean ‘dirty’ money
TEN foreign nationals were charged in Singapore court on Wednesday (Aug 16) for alleged money laundering, forgery and resisting arrest. This came a day after police conducted islandwide raids of multiple Good Class Bungalows and condominiums.
Some S$1 billion in cash and assets were seized and frozen. This included 94 properties, 50 vehicles, 35 bank accounts, more than 270 jewellery pieces, at least 250 luxury bags and watches, upwards of 120 electronic devices, Bearbrick collectibles, liquor and wine bottles, and two gold bars.
The police bust was part of a massive anti-money laundering operation.
What is money laundering?
The term is said to have been coined from the Italian mafia’s use of laundromats in the US to conceal their ill-gotten gains.
Simply put, money laundering is the process of making illegally obtained funds – often from criminal activities – appear to have originated from legitimate sources.
Imagine this: Alex steals S$50 from his mother’s purse. He wants to buy a stuffed bear (note: not a Bearbrick) with the cash, but his mother will be suspicious as to how he has money. Alex decides to set up a lemonade stand. He earns S$87. At the end of the day, he adds the stolen S$50 to his lemonade stand earnings and tells his mother he took in sales of S$137 for the day.
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The United Nations Office on Drugs and Crime estimates that between 2 per cent and 5 per cent of the world’s gross domestic product is laundered every year. This equates to about US$2 trillion, or about five times Singapore’s GDP.
Why launder money?
By “cleaning” the money, criminals can deal with large sums of “dirty” money more efficiently and avoid detection by law enforcement.
Some people launder money to finance other illegal operations or to shift funds across borders around different countries. Others do it to evade taxes. Others use the money to dabble in legal transactions such as investments in properties or businesses without raising suspicion. In some cases, the money could be used to fund terrorist activities.
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How it’s done
A common method of laundering money is to funnel it through a business with many cash transactions. At its core, money laundering generally involves three steps – placement, layering, then integration.
Placement refers to the initial introduction of “dirty” money into legitimate financial networks. This is often done by breaking down large amounts of cash into smaller, less conspicuous amounts and depositing them into banks.
Take, for example, a legitimate laundromat business owned by a criminal organisation. The laundromat would report taking in higher daily cash sales than in reality and deposit the money attained illegally together with the actual amount earned. The “dirty” money is now in the laundromat’s legitimate bank account and shows up as a typical deposit of the business’ proceeds.
Layering involves the shifting of money across a complex maze of transactions, accounts, companies and countries, so that it becomes increasingly challenging to trace the money to its original illegal source.
Often, criminals set up multiple layers of shell companies – dummy corporations that exist only on paper and do not have active business operations – to further obscure the origins of the money. It could also be transferred to offshore tax havens, which are territories that allow for non-residents to set up companies and offer low taxes.
The last step is when the “dirty” money is reunited as legitimate funds with the criminal, who can now use the money freely. Launderers typically purchase high-end luxury goods such as branded bags, artwork, automobiles or jewellery.
What happens if I get caught?
In Singapore, money laundering offences carry jail terms of up to 10 years, or a fine of up to S$500,000 or both.
The Monetary Authority of Singapore said on Wednesday that it will take “firm action” against financial institutions found to have breached its requirements on anti-money laundering and countering the financing of terrorism.
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