Since the beginning of time, there have been bad guys! They have profited through illegal means. The bad guys figured out a way to make the “dirty money” look clean. What is money laundering? It’s the process of making money made through illegal means look legitimate.
So how do the bad guys do it? In my line of work, one always worries about spilling the beans to the bad guys. Trust me, there is nothing in this article that the bad guys don’t already know. So back to the question, how do the bad guys launder money? Why with smurfs of course! Not the little blue creatures we know from TV and the movies. Well, not exactly anyway.
For those who are familiar with the fictional characters, they are about 3 inches tall, and were always pitted against an evil wizard. Somehow the little guys always banded together to beat the big foe. This concept has been applied to laundering money. In this context, smurfing money is the process of splitting large transactions into many small transactions to avoid detection. Smurfing money is also known as structuring.
The goal of laundering is to make bad money look good. Think of it as a classic shell game. The money goes in under one of the shells, and then gets shuffled around. The criminal hopes they can get the money out from under the shells without the banks being able to follow along.
Just like the shell game, laundering money is a three stage process. First the criminal puts the money on the table. Because of the AML regulations, this stage often involves smurfing money. Transactions above $10,000 are reported to the government, so the money launder must break this down into many smaller transactions to avoid detection in the placement stage. After the dirty money is placed, the goal of the money launderer is to hide the source of funds.
In the shell game this is the stage where the shells are moved around to confuse the mark. In the same way, the money launder conducts a series of transactions called layering. The hope is that these transactions will confuse the bank so that the original source of transactions is lost. The last stage of the shell game is letting the mark try to find the original object.
In money laundering the last stage is integration. The money launderer’s goal in this stage is to extract the money from the financial system as legitimate funds. In many cases, integration involves moving the funds to banks in foreign countries, or using shell companies to benefit from the proceeds. Once the money has been integrated, it is considered clean.
Of course, at every step of the way, the banks are using every means at their disposal to fight money launderers. Banks are actually on the front lines of the war on terror and the war on drugs. By making it more difficult for the bad guys to use their illegal gains banks play an important role.
It should be clear that those adorable blue characters aren’t criminals. Their names were adopted because of their small size and their ability to band together. This represents structuring a technique in the first stage of money laundering. Banks combat money laundering at all stages of the process, but it is most critical to limit the criminal’s ability at the placement stage. By making it more difficult to make “dirty money” look clean, we make it more difficult for criminals to benefit from their crimes.