Money laundering is a financial crime that involves concealing the source of money obtained through criminal activity to make it look like it resulted from legitimate business activity. It is commonly associated with racketeering, a legal term used to describe organized crime, and drug trafficking, but it may also be associated with large-scale schemes involving offenses like insider trading or tax evasion. It is prohibited under both state and federal law.
What Is Money Laundering?
The simplest way to describe money laundering is to say that it takes money obtained from one source and makes it look like it came from another source. The purpose is to hide the true origin of the money, which is usually some sort of criminal activity, to make it look like it came from legal activity. If the money is “clean,” banks will accept it without suspicion, and law enforcement will not be able to connect it to the underlying crimes.
Did You Know?
In 2015, approximately $300 billion was laundered in the United States alone.
Money launderers generally channel money through various intermediaries. This could include depositing the money at a bank, but this is risky because banks must report large cash deposits. Money laundering can also involve a business, often known as a “shell company,” that looks legitimate and might even engage in legitimate business activities. The shell company also serves as a front for illegal activity. The company deposits the “dirty” money in its bank account and generates fake invoices or receipts to make it look like legitimate business revenue. Fans of movies about organized crime might recognize this sort of scheme.
More complicated money laundering schemes include bank deposits, followed by transfers of funds to different accounts in the U.S. and offshore. From those accounts, the funds are invested in businesses, brokerage accounts, and large assets like houses or boats. Eventually, the funds make their way back to the cash economy. By then, the original sum has been split into multiple separate accounts and investments that may be impossible to trace back to the source.
The federal money laundering statute applies to proceeds derived from specific criminal acts, including violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, drug trafficking, murder and other violent crimes, human trafficking, certain types of bank fraud, and bribery of a public official. The person charged with money laundering must have actual knowledge that the money comes from criminal activity, although the government does not have to prove knowledge of a specific crime.
The government must prove that a person had one of the following specific intents: to “promote the carrying on of specified unlawful activity,” to commit tax fraud or tax evasion, to conceal the criminal nature of the money’s source, or to avoid transaction reporting requirements under federal or state law. Penalties may include a fine of up to $500,000 or twice the value of the property at issue, whichever is greater, and up to 20 years in prison.
Did You Know?
Both individuals and institutions, such as banks, can be prosecuted for money laundering. A former U.S. bank, Wachovia, was charged with one of the greatest money laundering cases of all time. Starting in 2004, Wachovia allowed billions of dollars in transfers through Mexican exchanges into their accounts without many, if any, anti-money laundering systems in place. Unsurprisingly, the bank became a haven for international cocaine cartels. Wachovia ultimately paid $160 million to settle its case and was acquired by Wells Fargo in 2008.
State money laundering laws are similar to the federal statute, but they generally apply to a wider range of criminal activity. For example, under Texas law, a person commits the offense of money laundering if he or she acquires, holds, transfers, or invests money or other property with knowledge or belief that it consists of the proceeds of criminal activity.