dIFFerent phases oF
money launderIng
Money laundering is a complicated and multistage process that can consist of many single transactions. The model of the U.S. Customs Service distinguishes three phases of money laundering (Bongard, 2001, as cited in U.S. Customs Service, 1989; Madinger & Zalopany, 1999). Properties from illicit activities are converted in other form to allow investment in other legal properties during the placement phase. In the layering phase, a set of transfers occurs between ac- counts of different institutions and persons with the purpose to conceal the identity of the launderer. In the integration phase, the legal as well as the illicit assets are combined with each other and integrated into the business cycle. The transactions of money laundering are quasi legal in the integration phase, while transac- tions for terrorism financing remain strictly secret. On the other hand, the preparing of a terrorism action will be successful only if the money circulates through the (business) cycle (from collection to withdrawal) without disclosure of its illicit origin.
Payment systems are mostly suited for the real- ization of a single phase of money laundering. Most electronic payment systems (transfers, mobile payment systems) are suited merely for the layering phase, for a set of transfers among different accounts, countries, and persons. Prepaid cards (especially anonymous cards) are suited for the placement phase of money laundering. The important restrictions for the use of cyber systems for money laundering often present the registration or identification duties for custom- ers and no possibility of person-to-person transfers. Nevertheless, the traditional payment methods can use other methods, for example, shell corporations, camouflage companies, charities, anonymous e-mail accounts, back-loan schemes, and over- and under- invoicing, to help reintegrate illicit money into the business cycle (with the purpose of spending money for terrorism financing).
Gold currencies seem to be an attractive payment system for money laundering and terrorism financing, because they could be used for the realization of every phase of money laundering (U.S. Treasury—TFI, 2003). In the placement phase, the funds can be deposited through an agent on the Internet, a shell corporation, a trustee, or a private transfer system (e.g., the Hawala) in the form of a postal order, checks, payments from charities, or from already existing anonymous users of gold currencies (person-to-person transfers). The network of numerous providers and agents on the Internet creates ideal conditions on the movements of money between physical persons and companies and from offshore countries (layering phase). The cash withdrawals with the so-called Gold ATM cards back exchange transactions with gold currencies and central bank currencies, or payoff of profits, for example, from the fictitious e-commerce activities, reintegrate the laundered money again in the legal transaction systems.
conclusIon
Gold currencies appear based on their qualities well suitable for money laundering as well as for terror- ism financial transactions. Other electronic payment systems support only certain qualities and, thereby, are suitable only conditionally for a single phase of money laundering. However, the differences between money laundering and terrorism financing are also in relation on single methods. The banking transfers are not suited for money laundering, for instance, due to the electronic tracks in the system, but well suited for terrorism financial transactions combined with other techniques, like the Hawala, camouflage companies, or shell corporation. Money laundering as well as terrorism financing change constantly. Hence, the development of suitable countermeasures and detecting methods appears to be important. The sug- gestions, for example, of regulation of the maximum value for loading of prepaid cards, of no possibility of person-to-person transfers, or of restriction of the
application possibilities on national level, are not in- novative. Therefore, the research should concentrate on the development of suitable solutions (technical, cryptographic, monitoring systems, etc.) that consider new technologies and techniques.
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terms and deFInItIons
Hawala: This is an informal value transfer system (also known as parallel remittance transfer system) for international money transfers. The payer deposits a sum of money at a Hawala broker in his country who communicates with another Hawala broker in the country of the payee (disposition to pay out of the money sum). Instead of moving the money, the brokers carry out a settlement of debts internally.
Integration: This refers to the legitimization of laundered assets.
Layering: In money laundering, this is a set of transfers of assets between accounts of companies, institutions, and other persons to conceal the origin of assets and the identity of money launderer.
Money Laundering: This term is defined as an intentional committed offense with the purpose of concealing or disguising of the true origin, the nature, the disposition, or of the controlling rights of proper- ties, which were acquired illegally.
Placement: At the beginning of money laundering process, assets derived from criminal activities are converted into other forms of properties to allow their investment or movement in legal properties.
Shell Corp: This is a company with no real assets or operations, with a pyramided structure of owners, and with many bank accounts used often for fraudu- lent purposes.
Smurfing: Smurfing, or structured payments, are carried out to avoid reporting or scrutiny by law enforcement. The smurfing method refers to dividing of large payment sums into multiple deposits below a given limit.