With whom do you bank? Do you own any stocks? Move money across borders? What methods do you use to move money? Do you donate to charity? Do you declare all of your earnings on your tax return? Give gifts to anyone whose position of power could benefit you? Ever transferred money on someone else’s behalf? Or to the sender that notified you of your Nigerian lottery winnings? Are these financial crimes or legitimate practices? Financial crimes have been around since the beginning of “I want what he has”.
Money laundering is the process of disguising the flow of funds that originate in or are destined for use in a criminal act, There are three steps in the process of money laundering: 1.Placement 2.Layering 3. Integration.
Placement: The most difficult stage of the money laundering processes as this is where criminals are most likely to be caught. Why—because of the source of the money. In this stage, criminals attempt to integrate the money into the formal financial system. This is typically done by breaking up the sum of money into smaller increments, often referred to as “structuring”. There are many regulations that prevent the insertion of cash, checks and wire transfers over specific amounts and these regulations, along with best practices in various financial institutions, make the placement of dirty funds extremely difficult, but not impossible.
Layering is further disguising the dirty money; this is usually achieved by transferring the funds to different jurisdictions, countries, banks, etc. It is essentially “muddying” the trail.
Integration is to bring the money out of a financial institution in order to use it for the purchase of financial instruments (e.g. stocks, bonds) or fixed assets (e.g. property). This makes the trail less traceable, because of their conversion into tangible assets. The entire process mixes the dirty money with money that is from a legitimate or non-criminal source.
Terrorism financing is intentional. Many methods employed by terrorist groups allow for people to unintentionally fund terrorism, but the acquisition of funds by a terrorist group and the movement of those funds to commit an act of terrorism is considered terrorism financing. Methods employed by terrorist organizations to raise money include non-profit organizations, religious groups, direct donations, trafficking of weapons, humans, and narcotics, etc.
Tax evasion is just as it sounds. Evading payment of taxes. Though, for this to be considered a criminal act, the evasion must be intended. It’s not infrequent that newspapers report celebrities’ evasion of taxes and sentences for this action can be quite substantial, just ask Martha Stewart. But how does one intentionally evade paying taxes? On either the individual or corporate level, this involves misrepresenting one’s income. Money can also be stored in offshore accounts or hidden by other means. Not all offshore accounts are illegal; neither is the storage of funds in foreign accounts with fewer taxes or higher interest rates. This would be the semantic difference: “tax evasion” versus “tax avoidance”. Tax avoidance is the legal use of the financial system to reduce the amount of tax owed. It is easiest to spot tax evasion when a citizen has illegal income that is unreported on tax returns as required. An example of simple tax evasion would be the overstatement of a charitable donation, allowing for that extra income to be reported as tax deductible.
There are many ways to specify financial fraud. Mortgage fraud, credit card fraud, medical fraud, insurance fraud, securities fraud; the list goes on. Financial fraud is the intentional deception for financial gains. There are many ways to commit fraud, such as scams and ponzi schemes to name a few.
Bribery, in some nations, is more common and visible than others. But bribery is clear: the taking or giving of money or gifts in exchange for a change in the behavior of the bribee. In Russia, officials are often bribed; in the USA, there are laws in place specifically to prevent the bribery of government officials, but to say that bribery does not happen would be deceptive. Often aligned with corruption, bribery could be considered rampant throughout many parts of the world.
In embezzlement, a person misappropriates funds with which they have been entrusted. This can be to use the funds to make personal purchases or to increase personal wealth. Unlike fraud, these funds are legally acquired but the funds are then misused or abused by their handler.
Racketeering and terrorism financing could fall into the same criminal category. Racketeering is the committal of an illegal act in order to benefit a criminal organization. This includes trafficking of weapons, humans, and narcotics similarly to terrorism financing, but this can also include extortion, bribery, blackmail, etc. It at times may be difficult to differentiate racketeering from terrorism financing, but let’s set them apart from each other: terrorism financing is the movement of funds intended for terrorist purposes; racketeering is the committal of acts to benefit a criminal organization, terrorist or other.
So, take a moment before you wire money. The next time you receive that email from the Nigerian lottery or a lost cousin in Malawi, make sure to check the source and consider the true purpose of those funds; make sure you can actually buy a government employee that coffee; and assure that your favorite small town charity is legitimate. To recognize the signs of financial crimes is to be more knowledge about about where one’s money might be going and save oneself a call to the bank to rectify any unauthorized charges.