Money laundering or laundering of proceeds of crime

Chapters of the article

• What is dirty money
• Who washes dirty money
• Unwitting money launderers, or the unsuspecting man as white horse
• The penalty for negligent money laundering
• How not to become a white horse?
• Summary

What is dirty money

Dirty money is money obtained through illegal activities such as drug trafficking, corruption, fraud, smuggling, extortion and other crimes. This dirty money needs to be laundered before it can be used. Money laundering is the process by which illegally obtained money is converted into apparently legal funds in order to disguise its illegal origin. There are three stages to this process:

Placement (soaking)

The first phase, where illegally obtained money is introduced into the financial system. This usually involves:

• Depositing small amounts of money into various bank accounts (called “smurfing”).
• Buying expensive items such as cars, jewellery or artwork with cash.
• Using casinos to exchange cash for chips, which are then exchanged back.
• Investing in a legal business that generates cash (e.g. restaurants, bars) and mixing illegal income with legal income.

Layering (soaping)

The second phase consists of concealing the origin of the money through complex transactions designed to make it more difficult to trace the origin of the money. This may include:

• Money transfers between different bank accounts, often in different countries.
• Buying and selling financial instruments such as stocks, bonds or cryptocurrencies.
• Creating complex corporate structures using offshore companies to hide the ownership and origin of money.
• Using shell companies to disguise the real owner.

Integration (wringing)

The final stage, when the “laundered” money returns to the economy as apparently legal funds. At this stage, the money can be used for virtually anything – from real estate investment to the purchase of luxury goods to financing legitimate businesses.

Who launders dirty money

Typical examples are various criminal syndicates such as mafias, cartels and gangs. They launder money from drug dealing, human trafficking, extortion and smuggling. But they are not the only ones. Practically anyone can launder money, such as corrupt politicians and officials, businessmen and companies, or terrorist organisations

Corrupt politicians and officials launder money from accepting bribes or misusing public funds. Some companies or entrepreneurs may be involved in money laundering through fictitious invoicing, offshore accounts or complex business transactions.

Lawyers, accountants and bankers may be involved in money laundering, either knowingly or unknowingly, by helping to structure transactions and providing advice on how to hide the origin of the money. Terrorist groups then launder money to finance their activities.

Unwitting money laundering or the unsuspecting man as a white horse

Almost anyone can encounter the issue of money laundering. They can be involved in money laundering themselves, often unknowingly. And the bad news is that even negligent laundering of the proceeds of crime is considered criminal. Such a person is called a launderer or also a white horse.

What is the role of the white horse?

A money launderer, or white horse, is a person who engages in money laundering. However, he or she is not involved in the actual criminal activity from which the illicit proceeds are derived. This person is often used to conceal the true origin of the illicit money and to allow it to enter the legal financial system. The white horse therefore serves as a front or intermediary to hide the real perpetrators of the crime and to create the impression that the money comes from a legitimate source. The white horse is most often used to:

• Opening bank accounts: white horses can open bank accounts in their own name, which are then used to transfer and launder illegal money. These accounts can be opened not only in domestic banks but also abroad.
• Money transfers: the white horse transfers money between different accounts or institutions to cover the money trail.
• Fictitious employment or business: White horses may be employed in fictitious companies or may set up fictitious businesses that serve as a front for money laundering. These companies may issue false invoices and bills for non-existent services or products.
• Purchase of real estate: White horses may be used to purchase real estate that is financed with illegal funds. These properties may later be sold or used for other financial transactions.
• Possession of property: White horses are often registered as owners of property (e.g. vehicles, real estate, luxury items) that actually belong to the organizers of the criminal activity.
• Setting up complex financial structures: White horses are often used to set up and manage complex corporate structures, which may include company chains, offshore accounts and other mechanisms to conceal the ownership and origin of money. White horses may be appointed as the statutory bodies or owners of these companies.
• Use for anonymous transactions: White horses can be used to conduct anonymous transactions, for example in cryptocurrencies, where it is difficult to trace the beneficial owner or the origin of the money.

Methods for finding white horses

• Personal connections: Perpetrators often use acquaintances, family members or friends who are cooperative or can be easily persuaded.
• Financial or Social Vulnerability: They look for people who are financially distressed, in debt, unemployed or otherwise vulnerable, and are therefore easily persuaded by financial incentives.

• Internet recruitment: Perpetrators use online advertising and social networks to recruit people under false pretenses, such as job offers or investment opportunities.
• Manipulation and coercion: Sometimes white horses are selected through manipulation or coercion, where perpetrators take advantage of their weaknesses, addictions or fears.
• Romantic relationships: White horses can also be acquired by establishing a romantic relationship in order to gain their trust and loyalty. Often all of this is done online only.
• Snowball Method: This method involves recruiting one white horse, who then recruits others, often from their circle of acquaintances or friends.

What does the ideal white horse candidate look like?

Criminals looking for white horses usually select individuals who meet the following criteria:

• Financially Vulnerable: People with low incomes, debt, or those facing financial problems are more likely to accept an offer to get money quickly.
• Low levels of education and financial literacy: People with low levels of education who do not understand complex financial transactions. Alternatively, people with little or no financial experience who are unable to identify suspicious or illegal activities.
• People with a clean criminal record: People with no criminal record because they are less likely to be suspected of being involved in illegal activities.
• Socially isolated people: People with few social contacts who are less likely to consult friends or family about their actions.

Penalty for negligent money laundering

If you act as a white horse and launder money, you could face a prison sentence of up to one year, a ban from work or forfeiture. This is even assuming you had no idea you were acting illegally. This is because of your negligence. You could and should have known that you were committing an offence.

A more severe penalty, namely imprisonment for up to three years, is possible if the property is of considerable value or the proceeds of crime. It also applies if you have obtained a substantial benefit for yourself or another by your conduct or if you have violated the obligations arising from your employment, profession, position or function.

You can getfive years in prison if you committed the offence in connection with an item derived from a particularly serious crime or with a large value. Alternatively, if you have obtained a large-scale benefit for yourself or another.

How not to become a white horse?

• Do not open accounts at the request of others: do not respond to requests to open bank accounts, set up a company or other financial activity in your name for someone else. Be cautious about providing personal information that could be misused to open accounts or register companies.
• Check job offers carefully: if you are offered a job that involves financial transactions or money management, check out the employer carefully.
• Know the financial and legal implications: Be aware of the legal and financial risks associated with signing documents or conducting transactions for others.
• Avoid suspicious transactions: If someone asks you to make a transaction that seems suspicious to you, refuse and inform the police.
• Use common sense and be skeptical: If something looks unusual or suspicious, trust your instincts and be cautious.
• Increase financial literacy: Improve your knowledge of financial literacy and the law to better understand financial transactions and be able to identify suspicious activity.
• Consult with experts: If you are in doubt about the legality of an offer or transaction, consult an attorney.

Summary

Money laundering is a serious problem that allows criminals to launder the proceeds of illegal activities and conceal their origin. The money laundering process involves three main stages: location, layering, and integration.

Of particular note is the phenomenon of ‘white horses’ – individuals who are often unwittingly involved in money laundering. They can easily be used to open accounts, transfer money and set up fictitious businesses. To avoid becoming a white horse, it is important to be vigilant, increase your financial literacy and consult an attorney about suspicious offers.