Money laundering is a way for criminals to hide the cash proceeds of their illegal schemes. There are several ways to do this. They include using shell companies, small bank deposits, and regular, consistent bank deposits.
One of the most common ways to perform money laundering may be creating a shell company or business. This type of business is usually set up so that it is difficult to monitor cash flow. Businesses that provide services instead of selling physical goods may be able to circumvent the need to provide receipts or reports of money gained and spent. The business would typically be one in which accepting cash as a form of payment is not uncommon. Examples may include mechanics, landscapers, or hairstylists.
Instead of creating a shell company, an alternative for money laundering may be to invest in a legitimate business, such as a casino or bar. The launderer can combine his illicit funds with the real income of the business or use the company's bank accounts to conceal the funds.
Another method of money laundering involves making steady, consistent, legitimate deposits at a bank before the actual laundering occurs. This helps to establish a track record for the individual or business, so that when a similar amount of illicit funds are deposited, no suspicion is aroused.
Bank tellers are usually trained to be aware of very large deposits and withdrawals. In the U.S., for example, transactions involving amounts over $10,000 (USD) must be reported to the Financial Crimes Enforcement Network, or FinCEN, as “significant cash transactions.” To avoid such detection, it is generally a common money laundering method to make small deposits and withdrawals across several bank accounts. This method is sometimes referred to as “structuring” or “smurfing.”
Other money launderers may use offshore banks, or banks in other countries, to avoid detection in their own country. In years past, Switzerland was often considered an ideal source for storing laundered money due to its stringent secrecy laws. Due to pressure by the U.S. government, however, it is now easier to keep watch over transactions that occur at Swiss banks. Other banks that may be used in money laundering can be found in places such as Hong Kong, Aruba, Ghana, and other countries.
Rather than make deposits in legitimate banks, some money laundering schemes use "underground" banks. These banks are not investigated by the government, and leave no paper trail. Such banks must therefore operate on a trust system among those who use them. Two underground banks include the Chinese “fie chen” system and Pakistan's “hawala” system.
