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How do wire fraud schemes differ from money laundering?

How Wire Fraud Schemes Differ from Money Laundering

Wire fraud and money laundering are two types of financial crimes that are often confused with each other. While they share some similarities, there are important differences between these schemes that are good to understand. In this article, we’ll break down what defines wire fraud versus money laundering, how they work, and the implications for those involved.

What is Wire Fraud?

Wire fraud refers to using electronic communications like email, phone, fax, or text to intentionally deceive someone out of money or property. It often involves some form of misrepresentation or lying to the victim. For example, common wire fraud schemes include:

• Phishing emails pretending to be from a legitimate company to get sensitive info
• Romance scams involving fake online dating profiles
• Fraudulent investment opportunities or business deals
• Fake invoices from vendors or clients
• Identity theft to access bank accounts or credit cards

Wire fraud is a very broad category that covers any plot to defraud someone by electronic means across state or national borders. It does not even require technology per se – even a phone call could qualify if used deceptively. The key elements of wire fraud are:

• Intent to defraud
• Use of interstate electronic communications
• Goal of obtaining money or property from the victim

One example is an employee diverting company funds into their personal account by submitting fake invoices to the accounting department. Or a hacker breaking into someone’s email account to send wire transfer instructions from that person’s account to their own.

Wire fraud is a federal crime that carries up to 20 years in prison. The penalties increase if the scheme victimizes ten or more persons, targets vulnerable populations like the elderly, or involves major financial institutions.

What is Money Laundering?

Money laundering refers to concealing the source of illegally obtained money by filtering it through legitimate businesses to make it appear legal. The goal is to hide the criminal origins of funds so they can be used freely. Common techniques include:

• Mixing dirty money with income from lawful businesses like restaurants or retail stores
• Breaking up large amounts into many small transactions to avoid attention
• Transferring money between accounts or shell companies in different names or countries to obscure the trail
• Overvaluing goods imported or exported to move money across borders
• Using cryptocurrencies and online transfers to add anonymity

Money laundering often works in three stages:

1. Placement – Introducing the illegal funds into the financial system in some way, like deposits to a bank account. This is where the money is most vulnerable to detection.
2. Layering – Conducting a series of conversions or transfers to distance the money from its criminal source. This may involve passing it through legitimate business operations to confuse the audit trail.
3. Integration – Making the funds re-enter the legitimate economy so the criminal can access and use the proceeds. At this stage the money appears clean.

The key difference from wire fraud is that the money has already been obtained illegally. The goal is to conceal its origin through transactions that give it the appearance of legitimacy.

Comparing Wire Fraud vs. Money Laundering

While both are serious financial crimes, there are some notable ways that wire fraud and money laundering differ:

Stage of the Crime

Wire fraud refers to the actual scheme of obtaining the money, while money laundering happens after that to conceal its criminal origins. You could say wire fraud generates dirty money, while money laundering cleans it.

Type of Deception

Wire fraud relies on misrepresenting or lying about key info to trick the victim into handing over money or property. Money laundering instead relies on concealing the source of funds or creating confusion about the paper trail.

Scale of Activity

Wire fraud includes small-scale crimes like phishing scams involving just one victim. Money laundering typically involves extensive financial activity and transactions in large amounts of illicit money.

Motivation

The goal of wire fraud is to directly obtain money from the target. Money laundering is about concealing the source of money that has already been illegally acquired.

Legality of Money

Wire fraud aims to obtain money that the perpetrator has no legal claim to. Money laundering hides the criminal origins of money, but the money itself may be from legal sources like drug trafficking or tax evasion.

Techniques Used

Wire fraud relies on things like impersonation, deception, and hacking. Money laundering uses more complex transactions like smurfing, trade-based laundering, and shell companies.

Penalties

Wire fraud carries up to 20 years in prison. Money laundering can lead to 10 years in prison per count, with additional fines.

Real World Examples

To help illustrate the difference between these crimes, let’s look at some real cases:

Wire Fraud Example – Payroll Scheme

An employee at a company secretly added false employees to the payroll system for over 15 years. She produced fake employment records, timecards, tax forms and more to support the fraudulent payroll. Over $3 million in company checks were mailed to addresses she controlled and deposited to her accounts[1].

This is wire fraud because she misrepresented info to her employer to trick them into issuing checks to fake employees that she pocketed. It involved lying/deception.

Money Laundering Example – Art Sales

An art dealer sold over $30 million in antique textiles, rugs, and other artifacts to private collectors and museums. But authorities found he was actually a fencing operation for stolen artifacts trafficked by smugglers, unapproved digs, and terrorist groups. The art sales served to launder money from the illegal artifact trade[2].

This conceals the criminal origins of money gained by trafficking stolen artifacts to fund criminal networks. The money was already obtained illegally.

Implications for Criminals

Both wire fraud and money laundering can lead to serious penalties. Beyond prison time, there are a few additional consequences criminals should be aware of:

Asset Seizure

Authorities can seize assets connected with financial crimes through forfeiture laws. This includes property like houses, cars, and boats purchased with proceeds of illegal activity. Bank account funds linked to wire fraud or money laundering may also be frozen or seized.

Fines

Courts can impose hefty fines in addition to jail time as punishment. Fines are often calculated based on the amount of money involved in the crime. For large-scale schemes, fines could total millions.

Restitution

Criminals convicted of wire fraud or money laundering may have to pay restitution to compensate victims for losses from the crime. For wire fraud, this reimburses the target of the scam. For money laundering, it strips the criminal of their illicit profits.

Tax Evasion

In addition to the criminal charges, people involved in financial crimes often face civil penalties from the IRS for not reporting illegal income on their taxes. There are steep fines and back taxes owed on undeclared funds.

Defenses Against Charges

Fighting accusations of wire fraud or money laundering relies heavily on the circumstances of the case. Here are some potential defenses:

Lack of Intent

Proving the defendant did not mean to defraud anyone or conceal funds can defeat charges. This may involve showing they were an unknowing participant or had no intent to deceive. But it can be difficult when the schemes involved extensive planning.

Duress

Claiming the defendant only participated under threat or coercion could undermine charges in some cases. However, they need strong evidence of duress.

Entrapment

If the entire crime was instigated by law enforcement encouraging the target to do something illegal, an entrapment defense may apply. This is rarely successful as a defense though.

Statute of Limitations

The statute of limitations sets a maximum time prosecutors have to file charges after a crime occurs. This deadline varies by state but is often around 3-6 years. If charges are brought after that, the case can potentially get dismissed.

Avoiding Trouble

To steer clear of wire fraud and money laundering crimes, here are some tips:

• Never participate in any scheme to deceive people out of money or falsify financial transactions.
• Watch for red flags like pressure to act fast, guaranteed returns, or requests for secrecy.
• Verify any investment opportunities and business partnerships thoroughly first.
• Keep diligent records of all financial transactions.
• Consult legal counsel if you have concerns about any activities.
• Report suspicious financial activity to appropriate compliance or law enforcement authorities.

The Main Takeaway

While wire fraud and money laundering both involve deceit around money, they are very different crimes. Wire fraud is about directly tricking victims out of money or property using electronic communications. Money laundering conceals the criminal origins of funds that have already been illegally obtained through separate criminal activity. Both are federal crimes that carry stiff prison sentences and fines. The details of each case determine the technical charges and penalties. By focusing on running legitimate and ethical operations, individuals and businesses can avoid the risks and consequences of these financial crimes.