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Criminal review: what is money laundering?

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Money laundering can be understood as the “process by which the proceeds of crime are converted into assets that appear to have a legitimate origin” (Bennett, 2002). The basic mechanism of money laundering from different forms of crime usually follows a simple pattern: one example is where different amounts of cash are produced as a result of illegal conduct, for these sums to be moved around unnoticed they are amalgamated into one lump sum and transferred to an offshore banking centre with assurances of strict banking confidentiality (Rider, 1992).

Once criminally derived assets are poured into the licit financial system and have adopted a cloak of legitimacy, “it is almost impossible for evidence to be obtained which would allow a court to establish the derivation of the money” (Rider, 1992). Therefore, it is important to recover dirty money before it becomes embedded in the legitimate world.

The laundering activities are composed of what is generally known as the “wash cycle” (so-called because the money laundering process resembles the cycles of a washing machine). The washing (laundering) can be carried out in an offshore financial centre with strong banking confidentiality laws in order for criminally derived money to be cleansed of its illegal origins.

There are three stages of money laundering: placement (immersion); layering (heavy soaping); and integration (spin drying) (Blunden, 2001). The first phase of the laundering process cleans the money by means of the physical disposal of the cash into the financial system, for example, by depositing the assets at a bank. Cunningly, the dirty money is mixed together with legitimate funds which helps to obscure any paper trail and converts the deposited money into a recoverable debt. The second cycle, layering, is when layers of transactions or withdrawals are built up to disassociate money from the criminal source, again to confuse the investigators and obscure the audit trail. According to the Journal of Money Laundering Control (JMLC), Volume 16 Issue 3, the strict confidentiality afforded to customers in offshore financial centres, layering (which includes the high speed switch of funds between banks and jurisdictions), can be carried out virtually uninterrupted, highlighting that strong banking confidentiality is a fundamental problem in obscuring the illegal proceeds of crime (Blunden, 2001). The final stage in the laundering process is that of integration, where multiple international and domestic bank transfers confuse the investigators and obscure the audit trail.

The benefit of money laundering generally speaking is that for the criminal, he can turn illegally derived assets into money that appears legitimate. Money laundering gives the proceeds of crime a facade of legitimacy and so allows the dirty money to mix anonymously with legal monies in the licit financial sector. Criminals launder money through offshore financial centres because they typically offer a more secretive place where dirty money can be washed.

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