White-Collar Crime - Money Laundering

The U.S. General Accounting Office defines money laundering as "the disguising or concealing of illicit income to make it appear legitimate." Money laundering involves transferring illegally received monies into legal accounts so that when money is withdrawn from those accounts, it appears to the police or other government authorities to be legal earnings of the account or the business. When a money-laundering scheme is successful, the criminals can spend their illegally acquired money with little fear of being caught. Many of the techniques that launderers use would be perfectly legal business transactions if the source of the cash were not illegal activities.

The money-laundering scheme may be as simple as mailing a box of cash to an accomplice in another country where there is very little bank regulation. The accomplice deposits it in the local bank. The sender then writes a check on that bank and can use the money without fear of anyone knowing where the money came from. Other schemes may involve bribing a bank officer to permit illegal monies to be put in good accounts and then drawing the monies out.

Over the years, the federal government has enacted a number of laws to prevent money laundering. To prevent criminals from using financial institutions to hide or launder their illegally gained money from the authorities, the Bank Secrecy Act of 1970 required banks to report transactions involving currency of more than $10,000, the transfer of more than $10,000 into or out of the country, and any suspicious activity that may be illegal. The Money Laundering Control Act of 1986 criminalized money laundering, making it a crime to knowingly engage in any monetary transaction involving more than $10,000 obtained by criminal activity or to structure financial transactions to avoid the $10,000 reporting threshold. The Anti-Drug Abuse Act of 1988 called for banks to have stricter checks on customer identification and more stringent record keeping. The act also allowed the Treasury Department to monitor currency transactions by geographical region.

In 1994 the Money Laundering Suppression Act gave bank examiners stronger procedures for monitoring the activities of financial institutions. The Money Laundering and Financial Crimes Strategy Act of 1998 created the National Money Laundering Report, an intergovernmental national plan to coordinate all law enforcement activities against money laundering from local through federal levels. It also authorized the designation of High Intensity Financial Crime Areas, those with a high risk for money laundering or financial crimes, and Financial Crime-Free Communities, to allow law enforcement to focus their prevention efforts appropriately.

TABLE 7.3
Characteristics of convicted money laundering defendants, 2001

	Total		Laundering/racketeering (Title 18 offenses)		Monetary record and reporting (Title 31 offenses)
Defendant characteristics	Number	Percent	Number	Percent	Number	Percent
Total	1,243	100.0%	1,021	100.0%	222	100.0%
Gender
Male	912	80.0%	766	82.0%	146	70.9%
Female	228	20.0	168	18.0	60	29.1
Race/ethnicity
White non-Hispanic	593	52.3%	521	56.1%	72	35.1%
Black non-Hispanic	186	16.4	162	17.5	24	11.7
Hispanic	292	25.8	193	20.8	99	48.3
Other	62	5.5	52	5.6	10	4.9
Age
18–24 yr	55	4.9%	31	3.4%	24	11.8%
25–34 yr	286	25.3	231	25.0	55	27.0
35–44 yr	350	31.0	286	30.9	64	31.4
45–59 yr	335	29.7	289	31.2	46	22.6
60 or older	103	9.1	88	9.5	15	7.4
Citizenship
U.S. citizen	867	76.6%	761	81.9%	106	52.2%
Non-U.S. citizen	265	23.4	168	18.1	97	47.8
Prior criminal history*
No convictions	759	66.6%	596	63.8%	163	79.1%
Prior adult convictions	381	33.4	338	36.2	43	20.9
Note: Detail excludes defendants for whom a particular characteristic was not reported.
*A criminal record is limited to prior adult convictions. For some defendants in this table, it is further limited to the portion that is relevant for calculating sentences under the federal sentencing guidelines.
SOURCE: Mark Motivans, "Table 4: Characteristics of Convicted Money Laundering Defendants, 2001," in "Money Laundering Offenders, 1994–2001," in Bureau of Justice Statistics Special Report, July 2003

In 2001 the Strengthening America Act by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism, informally called the Patriot Act, strengthened laws dealing with how U.S. banks use foreign correspondent banks to transfer money into and out of the country and the financing of terrorist organizations and activities. It also outlawed bulk cash smuggling, making it illegal to take more than $10,000 in concealed cash across the border to avoid reporting requirements. In addition to these federal measures, 36 states have adopted money laundering laws since 1985.

Increased awareness of money laundering is reflected in the number of Suspicious Activity Reports (SAR) submitted by banks to the U.S. Department of the Treasury. These reports, required whenever a bank has reason to believe that a transaction of at least $5,000 involves money derived from illegal activities, increased by 206 percent from 1997 to 2001. In 2002 over 273,000 reports were filed. The states of New York, Nevada, and California had the highest SAR levels, while the highest levels for metropolitan areas were found in New York and Los Angeles.

Of the 1,243 people convicted for money laundering in 2001, 1,021 were guilty of money laundering and racketeering charges and 222 for monetary record and reporting charges. Of those convicted, 52.3 percent were white, 25.8 percent were Hispanic, and 16.4 percent were black. Males made up 80 percent of those convicted, while 76.6 percent were U.S. citizens. Two-thirds (66.6 percent) of those convicted had no prior criminal convictions. (See Table 7.3.) The average prison sentence for money laundering in 2001 was 48 months.

The GAO reported in 2001 that it estimates the amount of money laundered worldwide each year to be as high as $1 trillion. Drug traffickers launder an estimated $300 to $500 billion each year, often using supposedly respectable financial institutions. Other crimes that need money laundered are fraud offenses, securities (stocks and bonds) manipulation, illegal gambling, bribery, extortion, tax evasion, illegal arms sales, political payoffs, and terrorism. Money laundering may account for as much as 2 to 5 percent of the world's gross domestic product, according to a former Managing Director of the International Monetary Fund.

In a recent case with international scope, the FBI announced in March 2004 that they had uncovered a money laundering operation involving Colombian drug lords, a Colombian terrorist group, and criminals in at least seven countries. Beginning with the investigation of a Utah loan fraud, the FBI eventually discovered that some $5 million had been laundered through U.S. banks in eight states by an international drug ring. The FBI investigation, called "Operation Utah Powder," found that FIGURE 7.2
Retail inventory shrinkage rates, 1991–2002 Colombian cocaine money was being laundered through U.S. banks to banks overseas using wire transfers, cashier's checks, falsified business invoices, and money orders. Authorities in Spain, the Cayman Islands, Panama, Mexico, Italy, the United Kingdom, and Latvia were soon involved in the investigation. The FBI found that the drug lords had also paid protection money to the Revolutionary Armed Forces of Colombia, the military wing of that country's Communist Party, and the United Self-Defense Forces of Colombia, a right-wing terrorist group, to guard their cocaine shipments. Four Utah residents were arrested as part of the ongoing operation.

The GAO, in Money Laundering: Rapid Growth of Casinos Makes Them Vulnerable (Washington, D.C., 1996), found that gambling was expanding rapidly across the United States. Along with this growth came a large increase in the amount of cash wagered at all casinos, which totaled about $439 billion in 1996. With this much cash changing hands, casinos may be particularly vulnerable to money laundering in the form of money from illegal activities being placed into legal gaming transactions.

Money laundering is a global problem requiring collective international efforts to combat. The United States has promoted multilateral efforts to combat money laundering. The United States and over 120 other nations signed the United Nations Convention on Transnational Organized Crime in order to combat money laundering as well as other international crimes in 2000.

The State Department is required by law (the International Narcotics Control Act of 1992, PL 102-583) to identify major money-laundering countries and to provide certain specific information for each country. The Department of State works with agencies of the Departments of the Treasury and Justice to put this information together. Countries are categorized by the degree to which they are at risk of money-laundering activities. Canada, Cayman Islands, Colombia, Germany, Hong Kong, Thailand, the United Kingdom, the United States, and Venezuela are examples of the countries placed on the high priority list.