Money Laundering 101

How’s that for a catchy title for a blog post?

My friend Richard says that I remind him of Barry the Money Launderer, one of the characters in his favorite TV series, Burn Notice.  I am not an expert in money laundering. I know next to nothing about it.

This afternoon I ran into an overview of money laundering on the Cornell University Law School Legal Information Institute website. I thought I would share this information with my readers, some of whom are apparently admirers of Barry the Money Launderer.

“Money laundering refers to a financial transaction scheme that aims to conceal the identity, source, and destination of illicitly-obtained money.  The money laundering process can be broken down into three stages. First, the illegal activity that garners the money places it in the launderer’s hands.  Second, the launderer passes the money through a complex scheme of transactions to obscure who initially received the money from the criminal enterprise.
Third, the scheme returns the money to the launderer in an obscure and indirect way.”

This article then goes on to discuss the relationship of money laundering to tax evasion. The two seem to go hand-in-hand.

“Tax evasion and false accounting practices constitute common types of money laundering.  Often, criminals achieve these objectives through the use of shell companies, holding companies, and offshore accounts.  A shell company is an incorporated company that possesses no significant assets and does not have any significant business activities.

To launder money, the shell company purports to perform some service that would reasonably require its customers to pay with cash.  Cash transactions increase the anonymity of customers and therefore decrease the government’s ability to trace the initial recipient of the unlaundered money.  Money launderers commonly select beauty salons and plumbing service providers as shell companies.  The launderer then deposits the money with the shell company, which deposits it into its accounts. The company then creates fake invoices and receipts to account for the cash.

Such transactions create the appearance of propriety and clean money.  The shell company can then make withdrawals and either return the money to the initial criminal or pass the money on to further shell companies before returning it to further cloud who first deposited the money.”

None of my former or current clients are hairdressers or plumbers and I have never had a client whom I suspected of engaging in this type of activity.

In 1970 Congress enacted the Bank Secrecy Act which requires banks to report cash and currency transactions of over $10,000.  Money laundering is a federal crime under the Money Laundering Control Act of 1986.

– Mark S Gleason CPA
www.matson-cpa.com

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