Money laundering, part 1

Money laundering. Part 1: A brief introduction

The term ‘money laundering’ is defined as a way by which criminals hide and disguise the origin and ownership of the proceeds of their crimes in order to avoid the prosecution, conviction and confiscation of the criminal funds; the technique is basically adopted to change the dirty money into clean money.[1] Other explanation is that it is a system to provide false stories for money transfers in document by mapping out the scheme for money laundering and exposing the differences between the true reasons for the money transfers and the presented reasons, the criminality of purpose is laid bare.^[2] Thus, money laundering is the process of disguising the origins of property which has been acquired through criminal conduct.^[3]  

Traditionally, the process of money laundering consists of three stage; those are (i) placement, (ii) layering and (iii) integration.^[4] At placement, attempts are made to conceal the identity of the true owner of proceeds of crime, and illegally earned cash is deposited into the banks. Scholars are of the view that this is the stage where the launderer is most likely to be traced.^[5] Then, at layering,  the launderers setup number of transactions in order to confuse the audit trail and separate the money from its criminal origin, where these transactions have no particular purpose.^[6] Arguably, those are the just launderers’ efforts in attempt of having control to all those proceeds which were earned in the first phase.^[7] Finally, at integration, the launderers bring up the laundered money into the legitimate economy, so it appears that the money is earned legally.^[8] In other words, the launderers change the form of the proceeds in order to shrink the huge volumes of cash generated by the initial activity, most probably the criminal.^[9] Those three steps are also basics, which may occur separate or at the same time together, but more commonly they may overlap.^[10]

Historically, the term ‘money laundering’ derived of gangster Al Capone’s funnelling ill-gotten gains, through launderettes to construct the pretence of the legitimate income; Al Capone was later prosecuted and convicted for tax evasion in 1931. ^[11] It is argued that this may have been the alarm to getting the money laundering business off the ground.^[12] Whereas, in the legal context, money laundering made the formal appearance in the case United States v $4,255,625.39,^[13] in which it was considered that there should be a cause to believe that a substantial connection exists between the property to be forfeited and the criminal activity defined by the statute.^[14]

As a whole, the money laundering is a complex act in a sense that the number of definitions used for money laundering are broader, it considers all handling of money as it is derived from crime money-laundering, therefore it is complex to understand.^[15] Moreover, the way the term money laundering is described, it expands as well as limits its area, it expands because the original sources do not necessarily need to be criminal, and, it limits because there is the pretence of a non-existent legitimate source.^[16] From the performance point of view, it is an illegal monetary function, responds to the overall demand for black finance services, expressed by individual group that have committed income-producing crimes.^[17]

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^[1] Janet Ulph, Commercial fraud : civil liability, human rights, and money laundering (OUP 2006) 131; Commonwealth Secretariat,  Combating Money Laundering and Terrorist Financing (Second edn., London 2006) 6; Toby Graham, Evan Bell and Nicholas Elliott, Money Laundering (Butterworths LexisNexis UK  2003) 5

[2]Kenneth Murray, ‘Dismantling organised crime groups through enforcement of the POCA money laundering offences’ [2010] JMLC 11

^[3]  Ulph (n1) 124

[4] Gilmore (1995) in Ping He, ‘A typological study on money laundering’, [2010] JMLC 13(1) 15; Michael Pace, ‘Does PI litigation escape the requirements of the money laundering legislation (and the Terrorism Act)?’ [2004] JPIL 254

[5] Graham, Bell and Elliott (n1) 5

[6] van Duyneet (2003) in Donatto Masciandaro, Elod Takats and Brigitte Unger, Black Finance The Economics of Money Laundering (Edward Elger, Cheltenham UK 2007) 103

[7] Billy Steel, ‘Money Laundering – The Money Laundering Process’ <http://www.laundryman.u-net.com/page4_mlproc.html> accessed 8 February 2015

[8] Graham, Bell and Elliott (n1) above 5

[9] Steel (n7)

[10] Secretariat (n1) 9

[11] Masciandaro, Takats and Unger (n6) 103

[12] Steel (n7)

[13] (1982) 551 F Supp. 314. (1982 US DIST LEXIS 15918)

[14] 762 F.2d 895, 903 (11th Cir. 1985)

[15]Petrus C Van Duyne, ‘Money-laundering: estimates in fog’ [1994] JFC 59

[16]ibid

[17] Masciandaro, Takats and Unger (n6) 1