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The Art of Money Laundering
In simple terms, Money Laundering is washing of dirty money!
Money laundering is the process of making large amounts of money obtained from illegal dealings such as drug trafficking or other criminal activities – Dirty Money, appear to have come from a legitimate source.
Dealing with large amounts of money obtained from illegal sources is dangerous and hectic. Hence, guys dealing with dirty money must find ways to ensure that the money is laundered and it comes back to them in a legal way.
Money launderers undertake 3 stages in order to clean the dirty money. That is:
This is moving money from the illegal source to a legitimate financial system. This is can be done through cash deposits, gambling, smuggling across borders amongst others. Placement is the most dangerous stages as large cash deposit transactions attract attention. Banks are required to report high value transactions. Most money launderers might have an insider in the financial system to cover up such transactions.
Once placement has been done, money is sent through various financial transactions in order to change its form and make it hard to trail. Layering consists of several bank transfers; wire transfers between accounts which are of different names and mostly in different countries. Deposits and withdrawals are done to these accounts to ensure the amounts vary. The dirty money may also be layered by purchase of high value items such as houses, boats in order to change the form of the money. This is where shell companies come in. This is a very complex stage as the launderer has to ensure the dirty money is as hard to trace as possible.
This is the final stage in money laundering. The dirty money which has undergone through the placement and layering stage re-enters the economy in a legitimate form of transactions.
This can be through bank transfers into the accounts of local businesses such as hotel in which the launderer is “investing”. The “investment” may be in exchange for a cut of the profits, sale of a house bought during the layering stage or purchase of a cheap item at a very expensive price from the launderer’s company.
Once the launderer has gotten to this point it is very hard to catch him if in all other stages, he left no documentation. Hence, he enjoys his money as he wishes.
Money laundering happens in almost every country in the world and one single scheme involves several countries.
In Kenya, in aim to fight money laundering, there is The Proceeds of Crime and Anti Money Laundering Act which is supplemented by the Proceeds of Crime and Anti Money Laundering Regulations.
Section 122 of the Act mandates the Office of the Attorney General to initiate investigations relating to money laundering offences.
Also, globally, the Financial Action Task Force on Money Laundering (FATF) was formed in order to fight most high-level laundering Schemes. The World Bank and International Monetary Fund also have anti-money laundering divisions.
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