Money laundering
Money Laundering - any action intended to prevent the tracking, identification, or confiscation of assets that are known or presumed to have come from a crime (Swiss Criminal Code, art. 305bis, 2015). It may involve activities and techniques such as: buying companies that can be used to channel money, acquiring easily transportable goods, moving money out of the country, transfer pricing and use of so-called “under-ground banks” (Levi, Reuter, 2006).
Historical and research background
The scale of the problem with money laundering was first emphasized by Michel Camdessus, French director of the International Monetary Fund (IMF) in 1998. He estimated that between two and five percent of the world's gross domestic product (GDP) is being laundered (Tiwari et al., 2020). In the same year, the report by Stanley Morris (retiring director of OECD’s Financial Action Task Force) was published, in which at least four areas of reasonable demand for quantitative metrics of money laundering were noted:
- Understanding the magnitude of the crime, so that national lawmakers, international organizations, and law enforcement agencies can agree on where anti-money-laundering programs should be placed within national and global enforcement and regulatory agendas.
- Understanding the effectiveness of anti-money laundering efforts, by offering a starting point and a scale for measurement, allowing for the evaluation of specific programs or approaches.
- Understanding money laundering macroeconomic effects, especially the damaging impact of money laundering on economies and different financial institutions. For example, changes in money demand, effects on tax collection.
- Understanding money laundering procedures, since even a thorough investigation of the measurement components should result in a deeper comprehension of the connections and distinctions between the many elements of the phenomenon in reference to money laundering (Walker, 2007).
Two important remarks should be made here:
- A nation that does not have a high rate of crime or whose economy does not yield sizable profits for illicit organizations cannot produce a lot of money that can be used for money laundering. Money laundering obviously has a larger chance of occurring in nations with high crime rates or those where crime is highly profitable.
- What is considered a crime in one country might not necessarily be so in another. In certain countries, the most lucrative crimes might not be profitable in others. Criminals may decide to spend their proceeds in certain countries while choosing to launder them in others.
Among others, these factors may explain the difficulty in creating a single model explaining the money laundering (Walker, 2007).
Money laundering techniques
This section is based on F. Teichmann (2017) findings in which he described twelve methods of money laundering. His empirical research revealed that gold, jewelry, antiquities, art, real estate market, raw diamonds, consulting businesses, mergers and acquisitions (M&A), banks located in Dubai, private cash deals, deposit boxes, official and unofficial exchanges of currencies are popular assets and tools for money laundering. For the purpose of the article only a few methods will be explained in a more detailed way. According to the author the literature divides the money laundering process into three main stages: 1) placement, when illicitly obtained assets are purified of all but the most overt indications of illegality, 2) layering, creating an accounting origin for these assets, 3) integration, these assets eventually become a part of a legal economy.
Gold investments
Both the placing and stacking stages of the laundry process seem to favor gold significantly. It is extremely challenging to determine where assets that have been obtained illegally came from since money can be converted into gold, which can then be melted down. Money launderers may claim that the gold in their hands was an inheritance from long ago. Private collectors may sell gold that can be bought, melted, and kept on deposit in Switzerland without cost. Money launderers can sell their gold deposits for a profit if gold prices rise since ownership rights in gold can be transferred without removing it from the location of deposit. However, documenting the origin of gold is a significant problem for money launderers.
Jewelry businesses and purchases
Jewelry is also suitable for placement and layering. In contrast to gold, it is anonymous and does not have set prices. It retains value and is simple to convert to cash. Two possible routes can be taken if one wants to use the jewelry industry as a means of money laundering. One can first simply purchase jewelry from stores with cash and then claim that it was inherited a long time ago. Since vintage jewelry frequently lacks registered serial numbers, it would be especially ideal. Authorities will have a difficult time demonstrating that the jewelry was not inherited in this situation. Alternatively, one can run a jewelry business and increase legitimate profits using assets obtained illegally by fabricating fictitious customers. Both of these methods may require a certain expertise in the jewelry industry, this can be achieved personally or with external help of others.
Mergers and acquisitions
Another well-liked layering and integration technique appears to be mergers and acquisitions. It is because of the ability to manipulate cash flow analyzes which in fact, make the transaction prices subjective. The acquisition of struggling businesses, which are simple to locate and whose worth can be determined by a corrupted accountant, can be utilized to produce practical paper trails. For instance, a group of "angels" in overseas business may agree to act as beneficial owners. Due to the conflict of interest with the bank, businesses that have been supported by that institution but are having trouble would seem to be ideal for these angel investors. The bank may have to write down its loans to the faltering company if it rejects the angel investors' money over compliance issues. However, money launderers run the danger of having their transactions thoroughly examined by tax authorities and business regulators. Money launderers also run the danger of losing funds on their “investment” portfolios.
