In addition to conspiring against the United States and failing to report foreign bank accounts, Paul Manafort, President Donald Trump’s ex-campaign manager, is charged with laundering more than $18 million and sending more than $75 million through offshore accounts. (Manafort’s lawyer has called the charges “ridiculous.”)
Of course, that’s a lot of money, but money laundering is so prevalent worldwide that Manafort’s alleged scheme makes him look like small potatoes, said Jeffrey Robinson, author of “The Laundrymen.” The top money launderer for Mexican drug kingpin El Chapo laundered $300 million to $400 million a year for a total of $1 billion over the course of a decade, according to Mexican law enforcement.
The practice of making so-called “dirty money” clean has ballooned in the last couple of decades, and these days some $1.25 trillion to $1.5 trillion is probably circling the globe looking to get clean, Robinson estimates.
“It’s out of hand,” he said. “The people who own this money are actually the most powerful special interest group in the world.”
What is money laundering and how does it work? Here’s what experts told MarketWatch:
What is money laundering?
The first step in money laundering is to commit a crime that makes you some money — a lot of money. Only people who have a bunch of cash they’ve made through illicit means need to launder money. The process takes “dirty money” — ill-gotten gains -- and turns it into “clean” money that appears to be legitimately earned.
“You have a bulk problem. If you’re a drug trafficker, your friends will steal it from you. So you have to get into the banking system.”
Authorities say Manafort acted as an unregistered agent for a foreign government (Ukraine) and failed to pay taxes on the income he earned doing that. Manafort and his associate Rick Gates allegedly earned “tens of millions,” and, over the course of a decade, allegedly used several corporations, bank accounts and partnerships to hide the Ukrainian payments from U.S. authorities. (Read the full indictment here.)
Why do people have to launder their money?
Though spending large sums of cash would seem to be as American as singing the National Anthem, it is almost impossible to do so without attracting the attention of the government and law enforcement — even if you’re a law abiding citizen.
Every time someone spends $10,000 or more in cash in the U.S. — in some cities, like New York, the amount is lower — the transaction is reported to authorities. Banks, casinos, sellers of gold and jewelry, even mortgage lenders and insurance companies must file what are called “suspicious activity reports” with financial crime investigators.
They review the reports and look for red flags. Beyoncé and Jay-Z walking into an auto dealership to drop a pile of cash on a new car doesn’t raise eyebrows, but Joe Shmoe who’s unemployed and hasn’t paid taxes in several years would probably get a second look, said Kevin Sullivan, a former New York state police investigator who used to read the suspicious activity reports.
Large amounts of cash wasn’t an issue for Manafort — he allegedly used wire transfers from offshore accounts to access his money. But cash can be a burden for drug traffickers and others who deal in dollar bill-intensive enterprises: $1 million in $100 bills weighs about 22 pounds and stacks about 8 to 10 feet high, Robinson noted. “You can’t get them into an attache case the way James Bond did,” Robinson said. “You have a bulk problem. If you’re a drug trafficker, your friends will steal it from you. So you have to get into the banking system.”
How do people launder money?
“You work very hard for your illegal money and you want to enjoy the fruits of it. You have to seem like a legit guy. The government is watching you,” said Chris Mathers, author of “Crime School: Money Laundering.”
“This is an industry that’s in flux with all the new technology that’s out there. It’s a good time to be in money laundering.”
In Manafort’s case, authorities allege he used shell companies (which he controlled, but weren’t linked to his name) to funnel millions into accounts in the Seychelles, Cyprus and St. Vincent and the Grenadines. Using the shell companies, he wired the money into the U.S. to buy real estate in New York and Virginia, then took out mortgages on the properties to get cash, authorities say. He also allegedly paid for a “lavish lifestyle,” spending millions on high-end rugs, antiques, clothes and upgrades on a house in the Hamptons. Bills for the those items were paid by the shell companies.
Other classic money laundering techniques:
• Trade price manipulation
Let’s say a drug dealer makes $1 million selling heroin. Instead of putting the money in the bank, the dealer creates a fictitious company and uses it to buy 200 Rolex watches at $5,000 each. He ships the watches overseas, but on the ship’s bill of lading, he lists them as fake watches worth little money. Once the watches reach their destination, a partner in that country sells them at their full price, and the dealer recoups his $1 million.
• Commingling dirty money with clean money
This method is well-known to fans of the AMC TV show “Breaking Bad,” in which lead character Walter White and his wife laundered drug money by mixing it with money they made at a car wash they owned. To do so, they would ring up charges for say, 1,000 car washes in a single day, when in reality they had sold only 500 car washes that day. They would use their dirty money to pay for the fictitious car washes, which they could then claim as business income. The recent Netflix show “Ozark,” starring Jason Bateman as a financial adviser who launders money for a Mexican drug cartel, featured a similar plot line, captured in this handy how-to guide:
• “Smurfing”
With this older method, criminals with large sums of cash, say $1 million, would send 50 guys into 50 different banks to deposit $2,000 each.
‘It’s a good time to be in money laundering’
The same new technologies disrupting how we handle money in person and online are also affecting the money laundering business. “This is an industry that’s in flux with all the new technology that’s out there,” Sullivan said. “It’s a good time to be in money laundering.”
Mobile payment systems, virtual currencies, and currencies used in online gaming all provide new territory for money launderers to mine, he said. But one positive for law enforcement is that high tech methods generally leave a trail of digital bread crumbs for investigators to follow.
Who does it?
Classic money launderers include terrorists, arms dealers and drug traffickers, but these days most of the dirty money around the world is linked to corporate and political corruption, Robinson said.
One reason for its growing prevalence: prosecutors are increasingly reluctant to pursue money laundering cases. That’s because cases are time-consuming and sometimes very complicated to explain to a jury. And at the end, the accused may not go to jail, because he’ll probably cop a plea and pay a fine, Robinson said.
“If you look at Mexico or Russia, you understand that dirty money is doing to these countries what it did to Colombia, which is pollute the political world,” Robinson said, noting that Medellin drug cartel leader Pablo Escobar influenced Colombia’s politics for years by “buying and selling” politicians. “It’s a very very destructive force,” he said.
Another side effect? Money launderers don’t pay taxes on their money, which means governments are missing out on that tax revenue, and leaving the rest of us to foot the bill.
What skills does money laundering involve?
Like many jobs, being a successful money launderer depends on who you know. Just like we use professional mechanics to fix our cars, sophisticated criminal groups use professional money brokers to fix their money-washing problems. It also helps to know good accountants, have contacts at financial institutions, and most of all, have highly skilled lawyers who can help create shell companies that are structured to leave no trace of their true owners.
Lawyers are important because in some jurisdictions they’re not required to report unusual financial transactions the way banks and other institutions are, Mathers said. And what happens between them and their clients is privileged information, he added.
“In order to launder money, you need human beings,” Mathers said. “You need cooperation from other people, particularly attorneys. You can’t launder effectively without attorneys, period.”
By Leslie Albretch
Source: https://goo.gl/FbxEWj
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