Money Laundering – a Primer – Chapter 1
The term “money laundering” purportedly originates in Mafia use of ownership of laundromats in the United States to mask the provenance of receipts of large quantities of cash from extortion, prostitution, gambling and bootleg liquor. Laundromats were actually the first businesses used as fronts and the legitimate earnings of these businesses were salted with the revenues from criminal activities.
Laundromats were chosen by these gangsters because they were cash businesses.
Al Capone was a pioneer in the use of Laundromats and was ultimately convicted not for his homicides but for inability to thoroughly launder his proceeds. The final step of moneylaundering is usually taxation, where the money enters the financial systems, and is taxed. Capone was convicted of tax evasion.
Money laundering is so-called because criminal proceeds — “dirty money” — are put through a cycle of transactions, or washed, so that they emerge as legal, “clean” money.
The conviction of Capone was a signpost of the infancy of moneylaundering and the lack of sophistication in its techniques. Meyer Lansky, called “the Mob’s Accountant, — was troubled by the conviction of Capone for something as obvious as tax evasion, and he resolved that the same fate would not happen to him.
He gave the problem of money laundering and hiding money its first ponderous consideration. Lansky discovered the benefits of numbered Swiss Bank Accounts. Lansky started the first true laundering techniques, creating the “loan-back” concept, where hitherto illegal money would be disguised by “loans” provided by compliant foreign banks, which could subsequently be declared to be “revenue” if necessary, with a tax-deduction obtained into the bargain!
Had he lived in a later epoch, Lansky might have been a superb, highly paid Arthur Andersen consultant.
The term “money laundering” is relatively recent, first sighted in press reporting of the Watergate scandal in 1973. The expression first appeared in a judicial context in 1982 in the case US v $4,255,625.39 (1982) 551 F Supp.314. The term has since been widely accepted and is in popular usage throughout the world.
Money laundering only attracted interest in the 1980s, surfacing within the context of drug trafficking. It was out of an increasing awareness of the huge profits generated from this criminal activity and a concern at the massive drug abuse problem in western society that governments began to act against the drug dealers by developing legislation that would allow them to attack the illicit gains, and relieve them of the necessity of proving particular criminal activity, such as drug dealing. Governments were also frightened that the huge profits taken in by criminal organizations could permit them to contaminate and corrupt the structures of the state at all levels, which of course history proved to be correct with the creation of narco-states.
Money laundering is nearly always an international activity. The amount of energy and expense that will be invested into covering and obscuring a money trail will depend on criminal’s assessment of how serious and effective the police probes are likely to be in that jurisdiction.
