Imagine that you have tens of millions of
dollars sitting right next to you, and you gained them through not-so-legal ways. Congratulations, you’ve come to the right
place. Now the question becomes how to actually use
that money to buy a sports car, a nice boat, or anything and everything else that you want,
and to do that we need to learn about money laundering, which by the way is for entertainment
purposes only and it’s illegal so don’t do it, but nevertheless I’m going to show
you 10 different ways to launder your money. But first, we need to learn the basic principles
of money laundering. As these principles are the basic foundation
of all of the 10 ways that I will describe. So, money laundering is just a process of
making not-so-legal money appear legal by integrating it into the legitimate financial
system. Essentially you’re making dirty money appear
clean, that’s why it's called laundering, as in cleaning. But you might think, I have tens of millions
of dollars right next to me, so why do I have to launder this money rather than just start
buying everything I want? Well, 3 reasons. The first is that the legitimate financial
system is the best and safest place for you to place your money, as keeping your tens
of millions under the mattress is just dangerous and unproductive. The second is that you need to move your money
quickly across the globe to be able to buy everything that you want, which is exactly
what banks and financial institutions are set up to do. And the third is that you can’t really spend
as much as you wanted to, spending recklessly without laundering your money will only attract
unwanted attention from your neighbors, businesses, and eventually authorities, and when they
began to dig deeper, then you’re done for. Money laundering essentially allows you to
spend as much as you want for anything that you wish for because it provides a cover story
for your ill-gotten gains. It usually involves a sequence of numerous
transactions used as a sort of smokescreen to hide the true source of your assets, so
it is vital for people like you, who wanted to spend your hard-earned money safely. There are 3 stages of money laundering. Placement, Layering, and Integration, let’s
look at the three of them in detail. The first part is placement. Simply, this is the act of physically taking
bulk cash proceeds and bringing them to a financial institution for deposit or transfer. This needs to be done because you have a unique
problem. As you have tons of dirty money, it would
be pretty suspicious if you just walked right into a bank with 5 briefcases full of cash. That’s why you need a good cover story. The dirty money needs to be transformed into
a less noticeable and more portable form and then “placed” into a legitimate financial
institution. For example, a common tactic is the use of
cash-intense businesses like pizza stores, bars, hotels, car washes, casinos, and laundromats,
all of them are businesses that normally have large amounts of small denominated cash. Then your large amounts of cash can be broken
up into smaller amounts and each of them is either deposited into a bank account or used
to buy other forms of monetary instruments like money orders and checks. The result is that the original money has
been changed and you’re now one step further from your original starting point. By the way, this is actually the riskiest
part of money laundering, as its most vulnerable to detection by authorities. And most money launderers got caught in this
first step. That’s why law enforcements refers to this
stage as the “choke point” The second step is layering. It requires you to distance the money from
yourself to make it difficult for authorities to trace. A common method is to involve foreign countries
that have strong banking privacy laws which make the cash trail hard to follow. It is also common to use as many layers as
possible, using several shell companies and moving the money multiple times through as
many jurisdictions as possible. Other techniques of layering include buying
expensive items like art, or using casinos as they readily take cash in. Once converted to chips, the assets appear
to be winnings you get from gambling. Layering works when it causes confusion among
authorities when they’re trying to follow the money trail. Constant movement and maybe even name-changing
will muddy the trail. A case might be going on for a year, and law
enforcement still has no idea where the funds ended up. Of course, the bad guys aka you have to stop
moving the money at some point in order to spend it, so the name of the game is to move
the money one more time than law enforcements are willing to follow. It’s essentially a game of cat and mouse. The third and final phase is integration. This is just a stage when those layered monies
are integrated into the financial system and it became fully legal cash that you can freely
spend. In other words, it's payday time for you,
and you have successfully become rich. Some common ways to spend this money are on
legal business investments or luxury items like a nice watch. Cash Intense Businesses, Structuring/Smurfing,
Bulk Cash Smuggling, Wire Transfers, Casinos, Prepaid Cards, ATMs, Black Market Exchanges,
Over&Under Invoicing of Goods, Underground Banking System. So now with that out of the way, let’s dive
into 10 ways of money laundering, this isn’t a complete list of course, as there are hundreds
of different ways to do this kind of thing, but I compiled some of the most common and
effective ways of money laundering. By the way using just one method is fine,
but you can even combine two or three methods for an even better result. The first method is using cash-intense businesses. It is an actual storefront that deals legitimate
goods and is mostly cash-based like bars and restaurants. The first rule of this method is that the
owner (at least on paper) must have a clean track record. You might be the true owner, but assigning
a registered nominee with a clean track record is paramount to evading suspicion. Laundering money through cash-intense businesses
just means that you combine dirty cash with legitimate cash that comes from the business. Because of the nature of cash-intense businesses,
it is hard to tell how many profits the business actually made on any given day. You may earn money by selling drinks, but
once dirty money is mixed, you can easily claim that the dirty money is actually earned
legally. You can say that the drinks are more expensive,
maybe it's Friday night so more customers are buying, the bottom-shelf drinks are being
sold at top-shelf prices, maybe costumers are charged when they enter the store, perhaps
there’s a band fee. This complicates the nature of the money and
it became very difficult to determine how much was made legally and how much was from
ill-gotten gains. The main risk of this method is if the reported
profits are unusual. A restaurant that serves bad food and has
few people coming probably couldn’t make $5.000 per day. And a laundromat couldn’t possibly make
$10.000 per day even if it's the only laundromat in town. The point is that if the reported profits
seem to be inconsistent with the businesses that you’re running, then it will become
suspicious. The key in this method (and probably in most
methods) is to fly under the radar. The second method is called structuring or
smurfing. Basically, this means that you or your underlings
conduct more than one currency transaction by separating deposits into several smaller
deposits of less than $10,000 each. Why $10.000? Because the U.S law known as the bank secrecy
act requires financial institutions to report cash transactions over $10.000. For example, if you want to launder money
of $100.000, you can’t just deposit all of them into one bank account since that will
generate a report called a currency transaction report. That would be bad because law enforcement
would take notice of the deposit and will begin to investigate. So to successfully launder this money, you
can order 3 of your underlings to make 4 deposits each of around $8.300 into a bank account
in several different branches. You then bypassed the reporting requirement
and successfully integrated the money into the legal financial system. The weakness of this method is that it gets
complicated real quick if you have more than a million dollars, as you need a lot of people
to deposit money in lots of different accounts. So as you have tens of millions of dollars,
this method is quite impractical. By the way, this is the most common method
for money laundering simply because lots of small-time criminals do this. The third method is bulk cash smuggling. And it is exactly what it sounds like, you
smuggle large amounts of cash hidden inside a briefcase, a car, a boat, a cargo, or anything
that can be used to hide the money to get U.S. currency past U.S Customs and smuggle
it out of the country. Some money launderers will also use airline
couriers, private planes, and maybe even the U.S postal services. For example, you drive a van full of your
ill-gotten gains from New York to Mexico, in order to get past the border and bypass
the reporting requirement on a currency and monetary instrument report (CMIR). After you crossed the border, you make a U-turn
and go back to the U.S border, only this time you report the money you have in the van actually
came from legitimate business dealings, show up some paperwork of the transaction and once
you get proper forms from U.S. Customs, then you’ve succeeded. Of course, the main risk of this method is
getting caught when trying to cross the border. So you need to hide it well. The fourth method is using wire transfers. There are approximately $2 trillion dollars
transferred globally every day and it's an essential part that enables global finance
to function. Using wire transfers is part of the layering
process, the cash has been placed in a bank and now it's time to confuse authorities. For this method to work, you need to use a
shell company, which is just a company that exists only on paper. The banks that held the account of the shell
company must also be placed in countries with strict banking privacy laws (Armenia, Cambodia,
Dominican Republic, and the Phillippines are some good examples). By the way, if you’ve ever heard people
talking about money going to an “offshore” bank or a Swiss account, this is what they
were referring to. For example, you have money in a U.S bank
account, then you transfer the money to a non-U.S account in a country like the Philippines
as a banking secrecy haven. Forge some necessary documentation using the
shell company, and then transfer the money back to the U.S. This method is most commonly used for laundering
large sums of money, as it’s easily scalable. The fifth method is using casinos. And you’ve probably heard of this since
it's quite simple and is pretty romanticized in popular culture. The mechanism of how this works has changed
a bit over the years, but the principle is still the same. Purchase casino chips with dirty money—and
cash out for either larger denominations of cash or a casino check. If someone asks you a question about the origin
of the fund, you can say that you won big at the tables. This all seems pretty simple, perhaps the
easiest method we’ve examined so far, but regulation has caught up in this industry. Any cash purchases of chips in amounts larger
than $10,000 are subject to be reported to the IRS on a currency transaction report. So to do this successfully you need to apply
the structuring method that we’ve learned before. For example, you want to launder $100.000,
if you buy all your chips in one casino then you’re subject to a currency transaction
report. To avoid this, structure your money to around
$8000 and play a few different games in each casino (blackjack, slots, etc). Then turn your chips back in with some losses. Of course, if you’re lucky you might even
make more money by hitting the jackpot. Historically, casinos were the preffered methods
of choice for organized crime to launder their ill-gotten gains. But as regulations are tighter nowadays, a
lot of criminals have moved to other methods. The sixth method is using prepaid cards. Prepaid cards are a type of debit card that
can be used to make purchases, pay bills, and used at ATMs to withdraw cash. It looks similar to a credit card as there’s
a Visa, Mastercard, or American Express logo in it, but it’s not linked to a bank checking
account. You don’t need a be a customer of a bank
to obtain a prepaid card, and identity verification checks are not conducted or are insufficient. People who do not or cannot obtain a traditional
banking account can buy products and have access to ATMs via prepaid cards. Because of the anonymity and the transportability
feature of prepaid cards. It’s a good way to move and launder money. You can buy numerous prepaid products without
any retailer, or seller asking for any form of identification, and there is no limit on
the number of cards you can purchase. So you can send multiple people to buy thousands
of dollars of prepaid cards using ill-gotten gains. Furthermore, because prepaid cards are not
considered as monetary instruments they are not subject to any reporting requirements
as it leaves the country. However, this is not a method that can move
lots of money as a wire transfer could since it's not so scalable. The seventh method is by using ATMs. ATMs can be divided into 2 categories, bank-owned
ATMs that you see inside a bank branch for example, and privately-owned ATMs that can
be purchased by individuals or entities and placed anywhere like convenience stores, bars,
restaurants, grocery stores, etc. If you own a private ATM, you link your ATM
to an ATM transaction network. The ATM network routes the transaction data
to the costumer's bank to debit the customer’s account and credit your account as the ATM
operator. Then you are paid by the sponsoring bank through
the automated clearing house system of ACH for short. How this works as a money laundering scheme
is that you can use your dirty money to replenish an ATM, and when an unsuspecting customer
uses the ATM, you are paid by the automated clearing house documented as a legitimate
business transaction. For example, let’s say you have numerous
ATMs and place them in various locations. You load all of that ATMs with dirty money
and wait for the money to be withdrawn by unsuspecting customers. After that, this will result in the ACH system
depositing money to your account that shows as a legitimate business transaction, and
you’ve successfully laundered money. To make this method work best, it is recommended
to buy the ATMs from another private owner instead of from a legitimate bank. So that the sponsoring bank may not even know
that you’re the one operating the ATMs. It is even better if the seller of the ATM
buys those ATMs from another private owner. An owner sells to a sub-owner that sells to
another sub-owner. Now, the last 3 methods that we’re going
to learn can be grouped into one category called trade-based money laundering. Unlike the methods we’ve seen so far that
move money through banks or move it physically across the border, trade-based money laundering
moves money through the trade system, and you can combine this with other techniques
that we’ve learned before to further obscure the money trail. So, the eighth method is using black market
exchanges. This is the most common method used by cartels
in Latin America, especially in Colombia and Mexico. Let’s say you are a Colombian dealer that
has $10 million located in the U.S as profits from selling substances. Your objective is to get the money to Colombia
in the form of Colombian pesos. First, you need to contact a third party,
commonly referred to as black market money brokers to essentially buy your $10 million
at a discounted price. After the money broker received the $10 million
in cash, they need to place the money in the US financial system. The next step is for the money brokers to
identify 2 things. An exporting company in the United States
that want to ship goods to Colombia, and an importing company in Colombia that want to
import goods from the United States. Once the money broker found both of these
and makes a deal, then they pay the exporting business with the US Dollars available in
the United States. After that, the goods will be shipped to Columbia
and received by the importing company. They will sell the products to their customers
and finally the importing company will reimburse the money broker in pesos, and the money broker
will forward this money to you. The result is that your money has been laundered
without the dollars ever leaving the United States. This is one of the most extensive methods
for money laundering and there are various ways to do this besides the method I described
before. For example in a variation of the scheme,
you bought products in the U.S yourself instead of relying on an importer, but the principle
stays the same. The ninth method is called over&under invoicing
of goods. Basically, this is just falsifying the actual
price of a product in order to indicate a higher or lower value of the product between
the importer and exporter. When a product is invoiced at a lower price
than the product is actually worth, then the exporter will transfer greater value to the
importer by shipping products of greater value than the real value, so it looks like the
money came from the product sale, not from ill-gotten gains. And the reverse is also true, when a product
is invoiced at a higher price, then the exporter can receive value from the importer because
the payment for the product is higher than the value that the importer will receive when
it is sold. To make this less complicated, let’s look
at an example. You start with $5 million of dirty money that
you want to launder, you then buy 100 cars at $50.000 each, and you export those cars
to an importer in a foreign country, let’s say the country is Brazil at $10.000 each,
not $50.000. And you also have forged documents indicating
the value of the goods is at $10.000. So, the exported price is much lower than
the price you pay for the cars. Now, the importer in Brazil is actually working
together with you. As soon as he receives the cars, he will sell
them at $50.000 each. After that, your friend in Brazil will deposit
the profit to your account of $40.000, while keeping a little bit for himself. Now, another technique that’s far simpler
than this is to buy a product that has a subjective value to falsify the prices (fine art, antiques,
and NFTs are some good examples). Because the actual price of an artwork is
hard to determine, it's easy to forge some documents indicating that the price of the
good is actually far cheaper or far more expensive than the actual price. The last method is using the underground banking
system. This is a great method if you don’t want
to use legitimate financial institutions to move your money and this method is commonly
used by terrorist organizations. The underground banking system is called differently
in parts of the world. The most well-known name is Hawala, although
Indians called it Hundi and the Chinese called it fei ch’ien. The system is totally unregulated and unsupervised,
so there are no reporting requirements and the main currency in this system is trust. For example, you want to transfer and at the
same time launder money to a friend in Cuba. You send the money to broker A, and this broker
sends you a code. Then broker A contacts his friend broker B
in Cuba and tells him how much money has been received. You send the code to your friend in Cuba,
and your friend received the money from broker B by telling the code. Therefore, the money has been transferred
and laundered without any physical money actually moving. Because the whole operation is cash-based
with no paperwork whatsoever, authorities following the money trail are out of the question
here, unless maybe there’s an undercover agent. A big disclaimer however, Hawala is illegal
in OECD countries. It is most commonly used in places like the
Middle East and Africa where the banking system sucks, or used by immigrants located in Europe
and USA who has no means to open a legitimate bank account to transfer money for their families
back home. Now, if you want to learn how criminal organizations
like the Mafia invests their hard-earned money into the legal economy, you can check this
video out. This is Doverhill, and see you next time.
