Video 1:

This week’s topic is money laundering. John Forbes, friend to West Virginia University 
and retired U.S. Customs agent refers to money laundering as an adventure! I tend to agree. 
Much of the material you will see in the section was developed by Mr. Forbes. Participants 
should understand that money laundering is a topic for which extensive amounts have been 
written. In this week’s session, we will just see the tip of the iceberg. 

The International Monetary Fund estimates that between 2% and 5% of the world’s GDP 
involved the laundering ill-begotten gains. That’s around $1 to $2.5 trillion in 2006 dollars. 
In financial terms, some criminal groups have more wealth than and thus are more powerful than
small nations. 
The fight against money laundering has been a long one. It started back in the 1970’s and took
16 years just to make money laundering a crime. 
And 16 more to develop a global anti-money laundering regime. 

If we define “money” as “anything of value” – lots of good and services including real estate,
jewels, precious metals, and on-line accounts, can be used in money laundering. 

As an example of new forms of value – considering a drug dealer willing to trade airline or 
hotel loyalty points for illicit drugs. Another challenge is that banks and the international banking
system are no longer at the center of transactions 
consider virtual currencies such as Bit-coin. 

Money laundering is all about the three V’s volume, velocity, venue. How do you quickly move
large amounts of cash?

How can you disguise value? 

How can you exploit locations, venue, that provides privacy protection? 
I cite just a few trends. For example, worldwide, mobile payments are projected to hit $1 trillion 
dollars by 2017. Mobile phones and mobile technology, such as the financial transaction atop
Mount Everest in 2013, can be used to transfer money and value.

Consider a drug user who flashes his phone at a drug dealer, transferring the money for 
a drug buy. How does law enforcement deal with that – there is no cash, only drugs. 
While the drugs are illegal, drug trafficking, the more important charge, lacks physical evidence. 
The problem is bigger than local law enforcement. According to the Task Force on Financial
Integrity and Economic Development (2010), “up to $1 trillion in illicit money is drained from 
developing countries each year.” 

Still, most money from street thugs and extortion comes in form of cash. This illegally obtain 
cash must be laundered to look as if it comes from legitimate sources. 
On March 17, 2007 in a Mexico City mansion, US DEA seized $205.6 million dollars 
weighing more than 4,500+lbs. 

This is more money than the budget of the Mexican Senate. 

Such amounts are staggering and the underlying power generated from such activities, creates
huge problems for society. 

One last example – this appears to be a normal 7 inch pipe wrench. In fact, it is solid gold, worth
far more than the pipe wrench you might find at the hardware store, Lowes or Home Depot. As a
customs agent, if packaged properly, how does one detect this? 

These initial examples, facts and figures should open your eyes to the challenges faced 
by forensic accountants, fraud examiners, law enforcement and even policy-makers with 
regard to detecting money laundering. The size of the problem is massive and with 
such large amounts involved determined people will figure a way to beat the system. 
At a basic level for fraud examiners and forensic accountants, the goal of the fraudster, whether 
it be mass organized credit card fraud or the garden variety embezzler, is to make the 
money look like it came from legitimate sources – an inheritance, a loan, a gift from a 
family member, gambling winnings. 
Efforts to make ill-gotten gain look legitimate is 
money laundering in its most basic form.
Video 2:

Money laundering is the disguising of the existence, nature, source, ownership, location, 
and disposition of property derived from criminal activity. The criminal is trying to disguise 
that the funds exist, where they came from, how he acquired them, who owns them, and where 
they are located. That is the essence of money laundering -- hiding and disguising illegal 
funds. 

Money laundering consists of three stages – placement, layering, and integration. 

Placement of funds into a financial institution is the initial step in the process. It is 
at this step that legislation has been developed to prevent launderers from depositing or
converting large amounts of cash at financial institutions or taking cash out of the country. 
Money laundering schemes are most often detected at this stage.
If the placement of the initial funds goes undetected, financial transactions can be designed in
complex patterns in order to prevent detection. This stage of the process is referred to as
layering and represents the most difficult area of detection. The more layers, the harder it is to
trace the funds, particularly if the money is moved offshore. 

The final stage in the laundering process is the integration of the money back into the economy
in such a way as to make it appear to be a legitimate business transaction. 
It’s hard to spend large amounts of cash. 

It’s also hard to store and transport large amounts of cash. 

That’s why many criminals seek to launder their ill-gotten gains. 
For example, purchasing a $50,000 automobile using cash would arouse suspicion, and the
transaction would have to be reported by the car dealer to the government. However, there are
other instances where an individual seeks to launder funds just to disguise the location. 

For example, if you want to hide funds from your spouse pending a divorce, hide money from
judgment or bankruptcy creditors. 

Laundering can also be used to make many types of illegitimate income (such as through fraud;
kickbacks, bribery; securities manipulation) appear legitimate.

The objective of money laundering is to get illegal funds back into a legitimate financial system. 
This is not as simple as a criminal taking profits from the illegal activity, and depositing them in
the local bank. That simple path would likely result in the capture of the criminal and the end of
the activity. Inherent in the laundering process, is the requirement that the origin and ownership
of the funds or assets be concealed. 

As a forensic investigator, you have to understand the intent to disconnect the funds from the 
origin and owner. At the same time, the owner has to maintain control the funds, so an indirect 
connection will continue to exist. Another laundering issue is the physical presence of the cash or
asset. Part of the laundering process involves storage and transport of currency and other
valuables. Earlier today, we discussed a large cash confiscation that weighed over 4500 pounds,
or over 2000 kilograms. As in investigator, it is important that you understand what you are
looking for – if you are looking for US currency, each note weighs approximately 1 gram. Other
currencies, such as the Euro, vary in weight by the bill size and denomination. While smaller
denominations are easier to disseminate back into circulation, larger bills are easier to use when
concealing large values for laundering. 

To be charged with money laundering, in general, you must meet several criteria. 
First, is the source of the money an SUA? 

- A Specified Unlawful Act? 

If the source is not a specifically listed SUA, there is no violation. 
Second, does the perpetrator know the source of the proceeds? Willful blindness is not 
a defence but in some cases, a party to the money laundering act does not know its source. 
Third, did the money launderer conduct, or attempt to conduct a financial transaction. 
Although overly simplistic, the financial transaction is the attempt move the money 
in such a way to make it appear to come from legitimate sources. 

Finally, did the money laundering use the laundered funds to promote the SUA, evade 
taxes, avoid currency reporting requirements or conceal the nature, source, ownership or 
control of the money. 

As an example consider – Joe… 

Joe is indicted for arson and mail fraud 
He burned his commercial building 
He filed a claim with the insurance company 
The claim was mailed 
As part of the claim he stated he did not 
know how the fire started. 
He stated he did not cause the fire. 
He received the check from the insurance company 
He deposited the check into his bank account 
Now, let’s examine the four criteria: 
First, are the proceeds from an S.U.A.? 
Yes – mail fraud and arson are both SUAs 

Second, did Joe know the proceeds were from an illegal activity? 
Yes – Joe stated the fire 

Third, did Joe conduct or attempt to conduct a financial transaction? 

Yes – Joe caused the insurance company to mail a check 
and he deposited that check into his bank account.
Fourth, did Joe attempt to violate any of the 4 types 
of prohibited activity? 
Yes – He concealed the nature of the proceeds.
Video 3
One of the issues that makes money laundering difficult to prevent and detect, is the wide 
range of schemes. In the USA, the Internal Revenue Service (or IRS) is interested in 
money laundering, because when money is laundered, taxes are not paid on the profits of the
crime. 

Annually, the IRS publishes examples of money laundering investigations. 

Money laundering activities reported by the IRS in 2012-2014 include a variety of schemes. 

A real estate agent falsifying information to help a drug trafficker, purchase a multi-million dollar
residence. 

A religious leader accepted known crime-profits for charities, then made the money, less his
commission, available through an underground network. 

An attorney knowingly accepted illegal profits, deposited them in his trust account and made 
payments for a client. A wide range of individuals making deposits of less than 10,000 US
dollars, of know profits from crime to circumvent legal requirements for banks to report
transactions. It should be noted that in MOST of the examples, profits relate to illegal drugs.
 
In addition to the criminal that generated the profits, usually money laundering schemes involve a
person that is reputable, or at least not previously known to be a criminal. As someone trying to
understand and detect fraud, you need to realize that money laundering includes a wide range of
schemes, limited only by the criminal’s imagination.

For persons looking to launder money, or hide their income from taxing authorities a traditional
technique has been to move the money offshore – move the money to jurisdiction with lower
taxes, lax laws, and lax enforcement.

Likewise, money laundering often involves hiding the money under a new identity. 
Sometimes, it is easier to create a new identity, one not tied to the money launderer off-shore. 
Of course, creating a new identity and opening an offshore bank account is just the start. 
The next question becomes one of how to get the money into and out of the offshore bank
account. 

One technique for moving money both within the US as well as around the world includes the
use of shell companies. 

The term “shell company” generally refers to a business entity with no significant assets or
ongoing business activities. 

Shell companies formed for both legitimate and illicit purposes typically have no physical
presence other than a mailing address, employ no one, and produce little to no independent
economic value.

The benefit of the shell company is greatly compounded when it is privately held and the
underlying ownership can be obscured or hidden. 

Lack of transparency can be a desirable characteristic for some legitimate uses of shell

companies, but it is also a serious vulnerability that can make some shell companies 
ideal vehicles for laundering money.
The technological landscape behind conducting monetary transactions is constantly changing, 
in large part to make payments faster and more convenient. 

Money is now easily stored on cards. Most people are familiar with prepaid gift cards, 
but some banks are now issuing prepaid debit cards with funds from the deposit holder’s
account. 
Mobile phone cards, mass transit cards, and even gaming cards can also be used to store
thousands of dollars without bank supervision. Storing funds on cards makes it infinitely easier to
transport out of the country or transfer to another individual without detection. Mobile phones can
also be used to store funds and make purchases. But mobile transactions are not just for
purchases—they can also facilitate transfers to bank accounts or other mobile device accounts.
Some carriers, including those providing prepaid phone accounts, allow users to deposit
thousands of dollars into their accounts, which are then transferable. 

Digital currencies, also called virtual currencies, have recently started emerging as a money 
laundering issue. Broadly defined, digital currencies are currencies that exist and are traded in a
digital format. They are not tied to or backed by any country or government.

There are several private organizations that have created various types of digital currencies 
designed for general use and exchange. Similar to the dollar, other private currencies have 
a floating value—their worth is defined by what users are willing to give for them. 

Bitcoin is one of the most popular digital currencies to date, due in large part to its 
innovative method of preventing the counterfeiting of bitcoins, through unique digital signatures.
Alternative remittance systems (also called parallel banking systems) are methods of transferring
funds from a party at one location to another party (whether domestic or foreign) without the use
of formal banking institutions. These systems are characterized by the lack of physical or digital
transfer of currency from the sender to the receiver. Instead, in the typical alternative remittance
system, the payer will transfer funds to a local broker who has a connection in the region where
the payee is located. 

The local broker will then distribute the funds to the payee. 

The parties involved in alternative remittance systems form a network, and keep track of 
their exchanges on an informal ledger. Because there is no government supervision of these 
currency trading programs, such payments are extremely hard if not possible to trace. 
This week, our focus was on money laundering. We began by looking at the scope of the
problem, as well as current trends. 

We then moved to a discussion of the basics of money laundering, including some of the WHYs
and HOWs. 

We finished the segment, with a discussion of the impact of DIGITAL MONEY on laundering. 
At this point, you should have a basic understanding of the concepts related to money
laundering. 

As always, you can find more information on this week’s topics on the West Virginia University
and Association of Certified Fraud Examiner websites. 

Thank you for your participation today. 

We look forward to working with you again next week And helping with your understanding
forensic accounting and fraud examination.
Video 4
Natalie Luna: Money laundering is the process by which a person 
takes illegally obtained money and conceals its existence, 
source, or location and then disguises that income to make it 
appear legitimate. 

It is estimated that as much as 300 billion dollars worldwide is 

laundered each year. 
Jonathan Turner: The key concept in money laundering is 
legitimization. 

In other words, I've got to be able to take criminal proceeds 

and be able to portray them as legitimate proceeds. 
The easiest way for me to do that is to move them through 
otherwise legitimate businesses. 

So if I can take the proceeds from an illicit activity and use 

those to purchase dishwashers, for example, and then sell those 
dishwashers, I can then claim the income from the sale of the 
dishwashers. 

So we're going to have lots of legitimate manufacturers, 

distribution places, but most importantly, the biggest 
category is banks. 

When I get a cashier's check from a bank, it doesn't say 

"illicit proceeds." 
It says "guaranteed funds." 

Phil Manuel: You can also buy securities, you can buy 
cashier's checks, you can establish real estate trusts and 
put the money here in the United States. 

There are just any number of ways that you can use this money 
to launder the proceeds so that it becomes useful money to you 
down the road. 

That first tier of movement is the most important. 

Once a criminal, or someone with criminally derived money, gets 
past that first crucial step of taking the cash or the money 
that's illegally derived and putting it into a legitimate 
institution, once he takes that step, then the whole world is 
his oyster in terms of where he can invest, what he can invest 
in, and he's limited only by his ingenuity and his business 
acumen as to how he's going to move from that point. 
JT: You could catch a money launderer at any of the stages. 
If you think about it, they have a risk in each place and the 
risk is going to be different. 

So depending on the sophistication of the money 

launderer, placement is obviously very risky. 
It's getting the illicit cash into the banking system or into 
the business system itself. 

The layering process is going to involve multiple transactions, 

each one of which could get discovered. 
And then of course, the final part is integration. 
If you are living a lifestyle above your means, that's an 
opportunity for discovery. 

So money laundering is often caught at one stage or another 

and unfortunately, money laundering is often caught 
because of an unrelated crime. 

PM: Cash now is a magnet for suspicion. 

All merchants, all automobile dealers, all jewelry dealers, 

anybody selling anything of value has to declare with the 
government, on a special form, whether they've received over 
$10,000 for payment of any type of merchandise or service. 
Dennis Lormel: That's why we have reporting requirements. 
That's why we have currency transaction reports. 

Any transaction greater than $10,000 has to be reported and 

the premise for that was drug money laundering years ago. 
So what the bad guys have done is they go below that threshold. 
They don't want to be detected and they don't want a currency 
transaction report filed against them. 

What they are doing is they are coming in and putting $9500 or 
$9000. 

It's usually a round amount but it's an amount under $10,000. 

And what's happened over time is money launderers are like 
fraudsters are adaptable. 

They understand that when the banks or law enforcement put 

mechanisms into place to identify what they're doing, 
these guys are going to take other steps to avoid detection 
and look for other ways that they can exploit the system. 

So, like with money laundering, instead of that $9000 threshold, 

what the money launderers will do, they'll what we call 
"microstructure" and they'll break those transactions down 
into two or three thousand dollar increments. 

Now if they're going to do that, and they have the resources and 
capability to do that, those 2 and $3000 transactions are going 
to be so difficult to detect as the proceeds of money laundering 
and basically what financial institutions have now, they have 
pretty robust software money laundering systems in place 
because of the bank secrecy act and the reporting requirements, 
banks are mandated to have a robust money laundering program, 
but again, because of the totality of transactions and the 
versatility of the bad guys, because of their adaptability 
and flexibility, it becomes very challenging on the part of the 
bankers to be able identify this. 

JT: One of the money launderer's favorite techniques is the wire 

transfer. 

The wire transfer allows him to move many anywhere around the 
world instantly. 
Wire transfers were always popular because otherwise you 
had to carry cash or you had to mail checks, whereas a wire 
transfer is instantaneous. 

But in ltoday's technology driven world, it's even more 

popular. 

You could have a money launderer sitting with his laptop logged 
into multiple online banking sites at one time, wiring funds 
back and forth between the various accounts, all from one 
computer. 

The best part about the wire transfer is it's almost 

impossible to track, because I wire transire money to a safe 
haven, maybe the British Virgin Islands, possibly Switzerland, 
the Isle of Man, anywhere around the world, and from there I 
withdraw it as cash and then deposit it again and wire it 
somewhere else. 

After making these transfers multiple times, it makes it very 

difficult for somebody to follow my steps because I'm in a 
different jurisdiction with a different law enforcement 
requirement, with different court issues, all of which makes 
it much harder, and by the time you get to me, it only takes 30 
seconds to move the money again. 

PM: The businesses that you want to look for, in terms of hiding 
money, especially cash money, are high intensity cash 
businesses. 

Historically, the best businesses for moving cash in 

and out would be restaurants, bars, theaters, businesses which 
take a lot of cash and where the infusion of cash is very 
difficult to separate from the sales of the institution itself.
Play video starting at 6 minutes 12 seconds and follow transcript6:12
Restaurants and bars and theaters, bowling alleys, all 
meet this criteria. 

You establish yourself a friendly banker, one who will 

take this cash money. 

You take the cash, you deposit it in the bank. 

It's not a good idea to do it in your own name, but you're 

probably going to establish an offshore corporation to which 
you will deposit these funds These lawyers in offshore locations
often have a shelf of shell corporations that they use for the specific purpose of 
assisting someone who wants to do a financial transaction in an 
offshore place and does not want to be discovered. 

Confidentiality in offshore places is often regarded as a 

very, very legitimate function. 

They view it as ensuring privacy, not assisting the 

criminal. 

Your favorite countries are going to be those that have 

created that type of tax haven offshore protection. 
There are any number in the Caribbean, southern United 
States area, off the southern coast of the United States 
starting with Bermuda, the Bahamas, Grand Cayman, the Turk 
and Caicos Islands, Panama has probably become the biggest 
banking center ssince money laundering laws were established 
in the United States. 

It seems like banks have sprung up all over the place in Panama. 
You have Antigua. 

You have just any number of places where these banking laws 
are favorable to the potential money launderer. 

JT: Money launderers can use a variety of techniques besides 

wiring money to transfer their money around the world. 
They can physically carry cash, but that gets bulky. 

One of the techniques is to physically carry checks, money 

orders, and other financial documents to transfer funds in 
those means. 

Travelers checks used to be used but travelers checks in this day 

and age are fading from view. 

It's much more common to see them use cashier's checks and 
money orders, because even though there is reporting 
requirements at certain dollar levels, you can buy a lot of 
them. 

PM: You go into any place that sells them and you buy multiple 
$200 money orders and you can fill a shoebox full and now you 
have a million dollars in cash that you can transport by mail, 
in person, or by common carrier, anywhere around the world. 
Many people mail cash. 

As simple as it is, mailing of cash outside the United States 

is a very common thing. 

Putting cash in containers of merchandise that are being taken 

out of the United States by ship or by plane is another very 
common way to get cash out of the country. 

It's a very simple process if you want to risk the discovery 

of the cash and the confiscation of it. 

Illicit money moves in the same way and through the same 
channels as does legitimate money. 

And once it gets out of the country, it can be used in any 

type of investment which is seemingly legitimate. 
It can come back to the Units States. 

Taxes can be paid and the criminal gets the benefit of 178 00:09:16,667 that circuit.