Third Party Broker To Launder The Money example essay topic

Money laundering is the routing of illegal profits from bank to bank to disguise its existence. The illegal profits are usually made through activities such as drug trafficking, prostitution rings, illegal arms sales, and various other things. Unfortunately money laundering is a serious crime that is still prevalent in the United States and other countries. The Russian mafia, the Triad or Chinese mafia, and the Columbian drug cartel are just a few of the groups that partake in money laundering. No one knows exactly how much money is laundered yearly but it is estimated to be about $100 billion in the United States. The United States is not the only country affected by these numbers.

The estimated amount of laundering is 2% - 5% of the world's GDP, between $600 billion and $1.5 trillion dollars annually. Although there are hundreds of ways in which to launder money, some are more lucrative than others. For example, the Black Market Peso exchange, gold, and digital cash are some of the more common ways to launder money. Making it harder to crack down on money laundering is the fact that many countries do not have money-laundering laws in place like the United States does.

These other countries make it possible for this illegal activity to carry on, and are only hurting themselves because money laundering creates a direct negative effect on their economy. If these nations want to fight money laundering they will need to implement laws against it. Banks could be one of the most useful tools in stopping the laundering of money. As mentioned earlier money laundering is the process of hiding profits from illegal criminal activities. The major goal of these criminal activities is to make as large of a profit as possible. The money laundering process is very important to these criminals because it allows them to enjoy their profits without revealing the source.

When one of these activities generates large profits, the group involved must find a way to disguise the funds without attracting attention towards themselves. The way they accomplish this is by moving the funds to an indiscrete place where they are less likely to attract lots of attention. This allows the group to keep the source of the profits hidden so that it is always available to them. Money laundering is usually done in countries in which they have few or very weak laws to prevent money laundering. Banks are the major targets of these operations because they can provide a variety of services that can be used to conceal the money. Most of the money laundered today is done by some sort of organized crime, whether it is a drug cartel, illegal arms sale, smuggling, prostitution rings, the Mafia, or corporations.

Organized crime has existed in the United States for many years. Some of the organized crime groups known for money laundering are: the Russian Mafia, the Triad, other wise known as the Chinese Mafia and the Yakuza. All of these groups are known for a variety of illegal activities that involve receiving substantially high profits. Some of these activities may include drug trafficking, illegal arms sale, and various other things. Recently law enforcement has discovered that corporations have been helpers in laundering money.

This discovery leads back to the Black Market Peso Exchange. These corporations do not have a direct involvement with the laundering, but are a helping hand at times. Many times corporations are the supplier of goods for the broker. The perks that go along with being the supplier entail getting an exchange rate better than the market. An example of this is if a corporation has pesos that they need to exchange back into dollars, and the exchange rate is 1,000 pesos for 1 U.S. dollar, the broker may discount the rate to 880 pesos for 1 U.S. dollar.

The initial stage occurs when a criminal, or a group of criminals, involved in an illegal activity make a substantial sum of money. The money is then put into the financial system of the world. This may be done by splitting the money up into small amounts and depositing them into a bank account at several different banks. By splitting the cash up into small amounts the criminal avoids a "smurf". A "smurf" is a blue report that must be signed by the depositor if the amount being deposited is $10,000 (Bank Secrecy Examination Manual). The "smurf is another name for a Currency Transaction Report, which was enacted by the Bank Secrecy Act.

Another way that they launder money is by purchasing a series of monetary instruments. Cashier's checks and traveler's checks are just a couple of monetary instruments that can be used. These instruments are then collected and deposited into accounts at a different location. After they have done one of these two things the next stage occurs. In this stage of the process the criminal begins to move the money around to keep the funds as far away from the source as they possibly can. The way this may be accomplished is to purchase different financial investments, or to simply wire the money between different accounts that they have at various banks around the world.

These accounts are strategically placed in countries where no laundering investigations occur. After the money has passed through the first two stages, it starts to make its way back towards the original launderer. The way the launderer gets his money back in to the United States is to start purchasing real estate, and various other luxury items. According to recent reports by law enforcement gold trade has now become the mechanism of choice. Criminals purchase gold, whether as jewelry, or even scrap, and then ship it across the border into the United States and sell it.

The resulting profits from this form of laundering are untraceable. In fact, nearly every laundering case in the United States in past few years has involved gold (Albanese). For drug cartels this has become a dumping ground of profit. The reason is because most of the gold traded today is in the form of cash, and cash is untraceable.

The majority of the gold industry is made up of small independent companies who prefer to deal with cash. Since drugs and other criminal activities are done mostly in cash, it is very simple for a person to buy a large amount of gold without anybody ever knowing the transaction took place. Now that law enforcement and customs have caught on to this form of laundering, drug cartels are beginning to disguise the gold. Today, criminals are importing gold plated bronze, while others are exporting the gold disguised as another type of metal. Another form of laundering money that is used is through the Black Market Peso Exchange. This form of laundering money into the United States is predominantly used by Columbian drug cartels.

The Black Market Peso Exchange is a system to bypass reporting requirements set in place by the Bank Secrecy Act (Albanese). This system works is a six-stage process. First, the Columbian drug cartels export the illegal narcotics to the United States. Dealers then sell the narcotics on the street for cash. The cartel then contacts a third party broker to launder the money for them. This third party broker will enter into a contract with the Columbian drug cartel.

In this contract the broker agrees to exchange pesos he controls in Columbia for U.S. dollars the cartel controls in the United States. As soon as this exchange occurs, the cartel has effectively laundered their money and is out of the Black Market Peso Exchange. The broker now uses contracts that he has established in the United States to place the drug money he has purchased form the cartel into the United States banking system. Because the broker uses these contracts he now has a large some of U.S. dollars in the United States to sell to Columbian importers. Columbian importers then contact the broker to place orders for items and make payments through the broker. The broker now uses his contacts with U.S. manufacturers and distributors that he has established in the United States to purchase the items the importer has requested.

These items are then paid for using a variety of methods, including the use of his U.S. bank accounts. The purchased goods are shipped to their destination, and then smuggled into Columbia. The Columbian importer receives his goods, having avoided paying high import and exchange tariffs, and pays the broker in pesos. The broker then takes his money that he has made from the cartel and the importer and starts the cycle all over again (Alabnese). Due to the availability of computers this day and age, a new form of money laundering has developed, called cyber laundering.

In the vast area of cyberspace, the demand for efficient consumer transactions has lead to the establishment of electronic cash (Mussing ton, Wilson, Mo lander). Electronic cash or e-cash is basically a digital replacement for physical cash. It has been defined as a series of numbers that have an intrinsic value in some form of currency. By using digital cash, actual assets are transferred by digital communication. These digital transactions are structured to avoid reporting requirements or Currency Transaction Reports. By avoiding these reporting requirements, the laundering becomes less risky, and is impossible to trace if they have no physical form.

The only things needed to do this form of laundering are: a computer, an Internet connection, and an Internet-based bank. By doing the laundering this way criminals do not have to go to a bank and have money transferred, or think of ways to disguise the money. The only thing that they have to do is to sit down at a computer and start transferring. Criminals can also launder money by means of commingling (Savona). Commingling is used in business laundering, in which funds are added in with the royalties of a legitimate business. A person needing to hide their illegal profits will purchase a failing business and then increase the gross sales with the illegal profits.

This business "front" helps hide these illegal activities. If left unchecked, money laundering can erode a nation's economy by changing the demand for cash, making interest and exchange rates more volatile, and by causing inflation in countries where criminal elements are doing business (Bank Secrecy Act / Anti-Money Laundering). Taking away billions of dollars a year from normal economic growth poses a real danger at a time when the financial health of a country affects the stability of the global market. Money laundering diminishes tax revenue and therefore harms the taxpayers.

This loss in tax revenue causes higher tax rates that would otherwise be normal. The banking systems and financial services depend highly on it operating within a framework of high legal, professional, and ethical standards. If funds from the criminal activity can easily make their way into institutions because the employees are blind or do not want to see the activity then that institution can become part of the criminals network. The potential macroeconomic consequences of unchecked money laundering can cause the International Monetary Fund to have inexplicable changes in the money demand.

This can have a profound effect on the soundness of the bank. It can contaminate the effects on legal financial transactions, and increase volatility of international capital flows and exchange rates due to unanticipated cross-border asset transfers (Savona). Money laundering schemes come in many forms. Laundering money has become a very sophisticated operation over the years.

Because of these complex schemes it is becoming harder for law enforcement to discover money laundering activities. The only groups that can help law enforcement find these schemes easier are banks. According to the Comptroller of the Currency Administrator of National Banks (web) following is a list of situations that banks should look for: Beware of activity not consistent with the customer's business Beware of unusual characteristics of activities. o Beware of attempts to avoid reporting or record keeping requirements. o Beware of certain funds transfer activities. o Beware of a customer who provides insufficient or suspicious information. o Beware of certain bank employees. o Beware of changes in bank transactions. Transactions such as these mentioned above may warrant sufficient attention.

Just because a transaction appears on the list does not mean that it is laundering. These transactions are only attention gainers. The United States has set into place many legislative and regulatory standards to deter money laundering according to the Comptroller of the Currency Administrator of National Banks. Some of these laws are The Bank Secrecy Act of 1970 which was designed to deter laundering and the use of secret foreign bank accounts. It also creates an investigative 'paper trail' for large currency transactions by establishing regulatory reporting standards and requirements (e.g. the Currency Transaction Report requirement).

The BSA imposes civil and criminal penalties for noncompliance with its reporting requirements. The Money Laundering Control Act of 1986 and part of the Anti-Drug Abuse Act of 1986 made money laundering a federal crime. It created three criminal offenses for money laundering activities. The penalties if convicted of money laundering are up to 20 years imprisonment, fines up to $500, 00 or two times the amount laundered, and forfeiture assets.

The Anti-Drug Abuse Act of 1988 reinforced anti-money laundering efforts in several ways, including: requiring identification and recording of cash purchases of certain monetary instruments, gave the Treasury Department permission to request financial institutions to file geographically targeted reports, and increasing the criminal sanction for tax evasion when money from criminal activity is involved. Section 206 of the Federal Deposit Insurance Corporation Improvement Act of 1991 gives law enforcement some latitude to disclose information obtained in the course of exercising its investigative or examination information to foreign bank regulatory or supervisory authorities. A disclosure must be appropriate, must not prejudice the interests of the United States, and must be subject to appropriate assurances of confidentiality. Title XV of the Housing and Community Development Act of 1992 (referred to as the Annuncio-Wylie Anti-Money Laundering Act) allows regulators to close or seize institutions by appointing a conservator or receiver or terminating the institutions charter. It may also suspend or remove parties who have violated the BSA or who have been indicated for money laundering. A major way to combat money laundering is to evoke a global order against it.

The U.S. and other countries that currently have regulations against money laundering must persuade the countries that do not have these regulations to develop them. There is a need to develop software that will detect any suspicious transactions via Internet banking. Internet banks need to be highly scrutinized on policy and requirements. Because organized crime is highly profitable, money laundering will never stop.

These organized crime groups have too much money and power. Bankers can help the federal government immensely in its task of defeating money laundering. The most important thing that they can do is to file the appropriate reports in a timely fashion and follow all rules and regulations set forth in the Back Secrecy Act. All banks should have a strong senior management set in place to withhold strict internal control.

Banks can establish a policy to get to know their customers on a semi-personal level. They should teach bank tellers and other employees how to recognize when large value funds are being transferred. These are just a few things that banks can do to help, just by doing these simple things they can help the federal government get one step closer to catching these criminals. Many groups of people use money laundering today, and many ways exist to launder money.

Money laundering has become more sophisticated over the years. It is much different then when Al Capone laundered his bootleg profits. The United States is doing what they can to combat this illegal activity but without the help of others it is an impossible task. Many countries have teamed up with the Unites States to help. The only way to truly combat it is to persuade the other countries to develop anti-laundering standards. Along with developing these standards, banks need to train their staff on how to catch different transactions and policies to catch money laundering.

Because laundering is so easy in these less developed countries laundering will continue, and while this illegal activity continues the activity itself will continue to destroy the economy in which it exists..