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Money Laundering is an illegal activity that criminals use to make large amounts of money generated by illicit activities, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. The term “launder” come from the criminal activity of trying to appear clean.
How does it work? Criminals' attempt to deposit proceeds generated from illegal activity into a legitimate financial institution. After the proceeds have been deposited, they conceal the source of the funds through the completion of multiple transactions. Once this is complete the criminals can then utilize the funds, which appear legitimate.
Types of Transactions:
- Structuring – Illegally obtained cash is deposited into multiple accounts, with very small deposits being made.
- “Mules” – Illegally obtained cash is smuggled across borders and deposited into foreign accounts.
- Investing in Commodities – Criminals invest in items such as gold or gems that can be moved to other jurisdictions without raising concern.
- Buying and selling – Illegally obtained cash being used for the purchase of various assets like real estate, cars, etc.
- Gambling – Using casino transactions to launder money.
- Shell Companies – Setting up corporations that have no assets or business operations in place.
There are multiple policies and programs to help combat money laundering, these include:
- Anti-Money Laundering (AML) – Policies and procedures that exist to help financial institutions combat money laundering to prevent criminal activity and transactions used to hide the illegal obtained funds.
- Financial Action Task Force (FATF) – Leads global action to tackle money laundering, terrorist, and proliferation financing. They set international standards to ensure national authorities can effectively go after illicit funds linked to drug trafficking, the illicit arms trade, cyber fraud, and other serious crimes.
- Bank Secrecy Act (BSA) - Establishes program, recordkeeping and reporting requirements for national banks, federal savings associations, federal branches, and agencies of foreign banks. Banks are required to create an AML compliance program, as well as be part of a customer identification process known as Know Your Customer (KYC).
- The Travel Rule – Mandates financial institutions obtain and share information about the originator and beneficiary of transactions over a certain threshold. This provides transparency about the transactions being made as well at traceability.
Criminal organizations are fueling the fentanyl crisis we are experiencing here in the United States by being able to move the illicit proceeds of fentanyl sales across borders. Law enforcement and financial institutions have seen very complex methods used to launder the proceeds. These major transnational criminal organizations and professional money launders have created roadblocks for law enforcement, which hinders their ability to control the flow of fentanyl.
Organized crime groups are using their expertise to disguise the nature of the funds they are transferring. By hiding the origin of their proceeds, criminals can transfer the funds they’ve made from fentanyl without raising red flags. Fentanyl is an inexpensive drug to produce – between the low cost of production and, the ability to transport across borders; it’s a highly attractive market for criminals. As criminal organization profit from this illegal activity, the more attainable fentanyl becomes in the United States.
Cryptocurrency is increasingly being utilized to launder the money of illicit activities from organized criminal groups. In the past, money laundering in cryptocurrency has been related to crimes such as the darknet market or ransomware operations. Now, criminals are increasingly utilizing cryptocurrency to launder the proceeds from illicit activities such as drug trafficking. For example, a drug cartel can pay a distributor using cryptocurrency between two known exchanges instantly from anywhere in the world. This would be considered a service-to-service transfer raising no flags on the origin of the funds being exchanged.
What is Cryptocurrency? Cryptocurrency is a digital form of currency that operates through a computer network. It has no ties to a government or financial institution meaning it has no authority managing the overall operations. The majority of cryptocurrencies operate by using blockchain technology. Blockchain technology is a database that securely records transactions across a network of computers and maintains the information.
Although Cryptocurrency opens another avenue for money laundering, it also has the capability to uncover illicit activity. With the correct tools and data, investigators can use blockchain technology to identify the laundering of money from illegal activities such as the sale of fentanyl.
A major issue has become the Chinese money launderers who are helping the fentanyl epidemic through the laundering of proceeds from the sales of fentanyl. Chinese money launderers have partnered with large transnational criminal organizations to launder the proceeds of fentanyl trafficking. This has become possible through the Chinese underground banking and money exchange system.
What is Underground Banking? Underground banking is an informal arrangement that operates outside the boundaries of a formal banking system. It is an informal banking system that runs without the bureaucracy and regulations of a traditional financial system. These underground banks are found in countries such as Hong Kong, Paraguay, Canada, and Nepal. Although these systems can provide convivence and flexibility for involved parties, they also cause a lot of risks. A perfect example of their risk is what’s happening with Chinese money laundering and its ties to fentanyl trafficking.
According to the Financial Times, the fentanyl crisis, which is one of the biggest killers of Americans under 50 years old, is being fueled by Chinese money laundering. Drug cartels have found very successful ways to operate their money laundering schemes throughout the United States. The Chinese money launderers have learned how to take over the entire drug trafficking system across the U.S.
The problem investigators are running into in the U.S. comes from the integrated systems these criminal organizations have in place to successfully launder the proceeds from fentanyl sales. For example, investigators find a business they suspect is laundering funds, but there are multiple businesses layered in the company's structure. Having those multiple businesses, illicit drug proceeds can then be layered via the numerous businesses. The funds are then dispersed across multiple accounts which makes it harder to identify the illegal activity, which is going on behind the scenes.
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