What is Money Laundering?
Money laundering is the process by which proceeds of crime are transformed into ostensibly legitimate money or other assets. The term 'money laundering' has become conflated with forms of financial crime and is sometimes used more generally to include misuse of the financial system (involving digital currencies, credit cards and traditional currencies) including terrorist financing, tax evasion and evading international sanctions.
Money Laundering is commonly defined as happening in 3 steps:
- Placement – Introduction of cash into the financial system by some means;
- Layering – To undertake complex financial transactions to camouflage the illegal source;
- Integration – The acquisition of wealth generated from the transactions of the illicit funds.
Money laundering can take several forms:
- Structuring / Smurfing – a method of placement whereby cash is broken into smaller deposits of money.
- Cash-intensive businesses - businesses that are involved in receiving cash, adjusting their accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings.
- Bulk cash smuggling – physically smuggling cash to another jurisdiction and depositing in a financial institution such as an off-shore bank.
- Trade–based laundering – Under or over valuing of invoices to disguise the movement of money.
- Shell companies and trusts – disguise the true owner of the money.
- Round tripping – money is deposited in a controlled foreign corporation offshore, preferably a tax haven where minimal records are kept and then shipped back as foreign direct investment exempt from taxation.
- Bank capture – money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls and then move through the bank without scrutiny.
- Casinos – purchase ‘chips’ with cash and after playing for a while cash in the ‘chips’, taking payment by way of a cheque or taking a receipt, claiming it as gambling winnings.
- Other gambling – money spent on gambling, preferably on higher odds. Wins are shown if source for money is sought, while losses are hidden.
- Real Estate – Purchase real estate with illegal money and then sell the property. Alternatively the price of the property is manipulated whereby the seller agrees to a contract that under-represents the value of the property and receives criminal proceeds to make up the difference.
- Black salaries – payment of cash to unregistered employees who do not have written contracts. Dirty money may be used for their payment.
- Tax amenities – those that legalise unreported assets in tax havens and obtain cash for them.
- Fictitious loans.
What is Terrorist Financing?
Terrorist Financing refers to the processing of funds to sponsor or facilitate terrorist activity. A terrorist group builds and maintains an infrastructure to facilitate the development of sources of funding for their own requirements and possibly to launder the funds used in terrorist activity.
Terrorist organisations derive income from a variety of sources, often combining both lawful and unlawful funding which can be grouped into two types:
- Financial Support – In the form of donations, community solicitation and other fund-raising initiatives. Financial support may come from States, from large organisations or from individuals.
- Revenue Generating Activities – Income from criminal activities such as kidnapping, extortion, smuggling or fraud. Income may also be derived from legitimate economic activities such as diamond trading or real estate investment.
Terrorist groups will want to disguise illegal funds while at the same time preserving the continuity of or maximising revenue from legitimate sources. The need to camouflage the sources of funds means that terrorist financing has certain similarities with traditional money laundering namely the use of the three steps i.e. to place, layer and integrate the funds in the international financial system.
One significant difference between traditional money laundering and terrorist financing is that:
- the investigation of financial transactions in traditional money laundering is done in order to link the funds to a criminal act that has already taken place and to strip the criminal and any accomplices from the economic benefits of engaging in criminal behaviour.
- in terrorist financing the investigation is done to prevent individuals gaining access to funds that could finance future criminal activity.
The offence of terrorist financing involves the provision, collection or receipt of funds with the intent or knowledge that the funds will be used to carry out an act of terrorism or any act intended to cause death or serious bodily injury. It also includes collecting or receiving funds intending that they be used or knowing that they will be used for the benefit of a terrorist group. The Criminal Justice (Terrorist Offences) Act 2005 gave effect to the 1999 United Nations Convention for the Suppression of the Financing of Terrorism. It created a new offence of financing terrorism and inserted a scheme through which An Garda Síochána can freeze and/or confiscate funds used or allocated for use in connection with an offence of financing terrorism or funds that are the proceeds of such an offence.
The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 as amended by the Criminal Justice Act 2013 sets out the measures to be taken to prevent terrorist financing. Under Part 4 of the 2010 Act credit and financial institutions are obliged to take measures to prevent the financing of terrorism such as carrying out customer due diligence, ongoing monitoring, reporting of suspicious transactions, training and having in place effective policies and procedures.
Financial sanctions are political measures taken to restrict the movement of funds to achieve a specific outcome. Targeted Financial Sanctions are a specific type of financial sanction with a stated objective, one of which is the prevention of terrorist financing.