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How do white collar criminals conceal illicit funds and assets?
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How White Collar Criminals Conceal Illicit Funds and Assets
White collar crime refers to non-violent, financially motivated crimes committed by businesses and government professionals. Examples include fraud, bribery, Ponzi schemes, insider trading, embezzlement, cybercrime, copyright infringement, money laundering and more. White collar criminals are often very clever in how they try to conceal their illicit activities and funds gained from them. Here are some of the most common techniques they use:
Shell Companies
One popular way white collar criminals hide assets is by setting up shell companies, which are legal business entities that exist only on paper and conduct no real business. The ownership of shell companies is often obscured through complex corporate structuring involving nominee directors and shareholders in foreign jurisdictions. This makes it very difficult for investigators to trace assets back to the real beneficial owner [1].
Shell companies can be used to launder money, evade taxes, commit fraud and more. They are commonly incorporated in known tax havens like the Cayman Islands, British Virgin Islands, Seychelles, etc. where secrecy laws make it easy to hide ownership. Setting up a web of shell companies across multiple jurisdictions creates very complex money trails that are hard to unravel [2].
Trade-Based Money Laundering
Trade-based money laundering involves using trade transactions to legitimize illicit funds and integrate them into the formal economy. A common technique is over- or under-invoicing trade deals to transfer value without moving actual goods or services. For example, a criminal entity exports goods worth $1 million but invoices the transaction as $3 million. The extra $2 million gets transferred as payment for the fictional goods, effectively laundering the money. Complex global supply chains make such trade mis-invoicing hard to detect [3].
Smurfing
Smurfing refers to breaking up large amounts of illicit cash into smaller deposits to avoid detection. Banks must report cash transactions over $10,000, so criminals make multiple sub-$10,000 deposits across different accounts and institutions so they fly under the radar. This technique uses money mules to make the deposits and launder the funds. Anti-money laundering regulations try to detect smurfing but criminals constantly adapt their methods [4].
Cryptocurrencies
The anonymity of cryptocurrencies like Bitcoin makes them very attractive to criminals looking to launder money. Law enforcement can trace cash and wire transfers, but crypto transactions are much harder to track. Criminals use crypto mixing services to obscure transaction trails, or setup complex chains of transactions across multiple wallets and currencies to break audit trails. However, blockchain analysis firms are getting better at unmasking these techniques [5].
Funnel Accounts
Funnel accounts refer to bank accounts set up to disguise the origin and destination of transfers. Illicit funds from one source are pooled into a funnel account, then transferred out to various other accounts and entities, obscuring the money trail. Law enforcement tries to identify these accounts through pattern analysis of transactions, but criminals regularly switch up accounts and banks .
Real Estate
Luxury real estate is a common vehicle used by criminals to launder dirty money. They purchase expensive properties using shell companies and stash their illicit wealth in high-end real estate. This also allows them to obtain mortgages and bank loans secured against the property as a way to access even more legitimate financing. Geographic targeting orders now require title insurance companies to identify who is behind shell company real estate purchases over a certain value .
Offshore Tax Havens
Notorious tax havens like Switzerland, Cayman Islands, and Panama allow anonymous ownership of companies and bank accounts with strict secrecy laws. This makes them prime destinations for concealing illicit wealth. While increased transparency initiatives have made it harder to hide assets in tax havens, criminals exploit loopholes like buying real estate via shell companies in these jurisdictions .
Trade-Based Value Transfer
Trade-based value transfer uses trade to move money between countries without actually transferring funds. It exploits the time delay between a payment being initiated and received. For example, a criminal imports goods worth $1 million from an overseas partner and promises to pay in 60 days. The partner immediately exports $1 million worth of goods to the criminal’s contact. This effectively transfers the $1 million to the overseas contact, while avoiding cross-border payments .
Mis-Invoicing Services
Some criminals use specialized services to falsify invoices and trade documents to help obscure transfers for money laundering. These underground services assist in creating fake trade deals on paper that justify cross-border money flows. They exploit inconsistencies between customs records, banking records and invoices to make transfers appear legitimate .
Black Market Peso Exchange
This system allows drug traffickers to launder and repatriate their USD profits. The traffickers sell USD cash to peso brokers based in Latin America who want to obtain dollars. The brokers use the USD to buy goods in the U.S. for Colombian importers who pay them in pesos, thus completing the money laundering cycle .
As you can see, white collar criminals employ a wide variety of clever techniques to conceal and launder illicit funds. However, increased regulations, information sharing and forensic accounting means law enforcement is getting better at piercing through these methods and bringing perpetrators to justice.