Money laundering is the process where profits that are derived from criminal activities are given the appearance of coming from a legitimate source. Money laundering generally involves three steps: placing illicit proceeds into the financial system; layering, or the separation of the criminal proceeds from their origin; and integration, or the use of apparently legitimate transactions to disguise the illicit proceeds.
In a recent Statement by an FBI Chief, some key money laundering threats are identified, as well as the FBI efforts to counter these threats.
Money laundering threats
Criminals employ a host of methods to launder the proceeds of their crimes. Those methods range from the use of cash, to more modern innovations that make use of emerging technologies.
Cash is conducive to money laundering as it is portable, used around the world, and difficult to trace. It can relatively easily be smuggled in packages or vehicles, which can also take place across borders.
The most significant single source of illicit cash is drug smuggling, due to cash being used by customers to purchase drugs at a street level, as well as by dealers and other distributors who also purchase drugs from wholesalers using cash.
Trade-based money laundering (TBML)
Drug trafficking organisations also use money brokers to facilitate TBML. In complex TBML schemes, criminals move merchandise, falsify its value, and misrepresent trade-related financial transactions, often with the assistance of complicit merchants, in an effort to simultaneously disguise the origin of illicit proceeds and integrate them into the market. Once criminals exchange illicit cash for trade goods, it is difficult for law enforcement to trace the source of the illicit funds.
Misuse of banks
Banks face significant money laundering risks, and in most money laundering cases, criminals employ banks at some point to hold or move illicit funds. For example, “money mules” may be recruited by criminals to receive proceeds of crime into their bank accounts and assist in the laundering process.
Obscured beneficial ownership
This refers to masking the nature, purpose, or ownership of accounts and sources of income through the use of front companies, shell companies, or nominee accounts with unknown beneficial owners.
Misuse of money services businesses (MSBs)
Some MSBs may fail to comply with anti-money laundering regulations and register with the proper authorities, thereby acting as unlicensed MSBs and making it more likely that money laundering will go undetected.
Prepaid access cards
Prepaid access cards provide access to funds that have been paid in advance, and can be manipulated by criminals in a variety of ways such as converting drug cash to prepaid debit cards, to obscure the illicit nature of the funds.
Virtual currencies such as Bitcoin offer yet another alternative to cash. Criminals use virtual currencies to conduct illicit transactions because these currencies offer greater anonymity.
Purchase of real estate and other assets
Criminals also engage in money laundering through purchasing real estate and other assets.
How does the FBI counter money laundering threats?
The FBI utilises a variety of methods and also collaborates with domestic and international partners in the global fight against money laundering. Some key initiatives include:
Working groups and task forces
The FBI’s AML efforts are housed in the Criminal Investigative Division’s Money Laundering, Forfeiture, and Bank Fraud Unit (MLFBU). The MLFBU is responsible for supporting all cases that have a money laundering aspect, which may have originated in other divisions, for example the Cyber Division.
The MLFBU, and its Money Laundering and Asset Recovery Section (MLARS), work together with domestic and international law enforcement partners to pursue complex, international money laundering and asset forfeiture investigations.
A key objective for the FBI is to target money laundering facilitation (MLF) and professional facilitators who provide the laundering service for a fee. Professional money launderers may work as accountants, lawyers or brokers, whilst complicit financial institutions can include banks, hedge funds and MSBs.
A specific focus has also been placed on targeting large-scale corruption by foreign government officials with the Kleptocracy Asset Recovery Initiative, with the aim of protecting the U.S. financial system from corruption and returning stolen funds where possible.
The FBI also participates in several inter-agency task forces and is a member of the following groups:
- Organized Crime Drug Enforcement Task Forces (OCDETF) – targeting drug trafficking and other transnational criminal organisations that often seek to launder illicit drug proceeds through the U.S. financial system. The OCDETF combines the resources and expertise of its 10 federal agency members, including the FBI and the DEA.
- S. delegation to the Financial Action Task Force (FATF) – the inter-governmental body responsible for developing and promoting policies to protect the global financial system against money laundering and other threats.
- Five Eyes Law Enforcement Group’s Money Laundering Working Group (FELEG MLWG) – comprised of members from the Australian Federal Police, Australian Criminal Intelligence Commission, New Zealand Police, the Royal Canadian Mounted Police, the United Kingdom’s National Crime Agency, the DEA, the IRS, HSI, and the FBI.
Use of BSA filings
The Bank Secrecy Act (BSA) is the primary U.S. anti-money laundering (AML) law, which stipulates a number of reporting requirements including Suspicious Activity Reports (SARs), Currency Transaction Reports (CTRs) and Reports of International Transportation of Currency or Monetary Instruments (CMIRs).
Financial intelligence generated by BSA reporting is of critical importance to law enforcement when investigating and prosecuting both criminal activities and matters of national security, allowing for the identification of leads and advancement of investigations.
For existing cases, the FBI has created a BSA Alert System that searches subjects’ names, dates of birth, Social Security numbers, telephone numbers, e-mail addresses and other identifying information across BSA filings, automatically e-mailing the results to case agents.
Outreach to financial institutions
Since the FBI relies heavily on BSA data, it works closely with financial institutions and banks to ensure open lines of communication and operational efficiency.
Key challenges in combating money laundering
The FBI faces a number of key challenges in money laundering cases.
Opaque corporate structures
The use of front companies, shell companies, nominees, or other means to conceal the true beneficial owners of assets is one of the greatest loopholes in the AML regime of the U.S., and is exploited by criminals to launder proceeds of crime.
Under the existing regime, corporate structures are formed pursuant to state-level registration requirements, and while states require varying levels of information on the officers, directors, and managers, none requires information regarding the identity of individuals who ultimately own or control legal entities—also known as beneficial ownership—upon formation of these entities.
Evidence collection involving foreign entities
Money laundering is often conducted by moving money across multiple borders. International law enforcement cooperation is therefore essential in successfully investigating and prosecuting transnational money laundering cases.
The FBI is also focused on combating the use of smaller-dollar transactions to move illicit funds. While often used as a method of funding terrorist activities, these transactions are also used by individuals and organisations to launder money.
For example, In July 2016, Karen Kupai, of Hawaii, was convicted of money laundering. Kupai was a police lieutenant who stole $75,000 of “drug buy money” from the department. The case was initiated based on information related to structured deposits of under $10,000.