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.
