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From Teddy Bears to Trump Towers, Here’s How Money Laundering Works

David Howard - Daily Beast
go to original
November 3, 2017

Money laundering is the term for any process that “cleans” illegally obtained funds of their “dirty” criminal origins, allowing them to be used within the legal economy. And the practice is about as old as money itself. But how does it actually work? Delena D. Spann describes the ins and outs of money laundering. (TED-Ed)

Update: Mexican Government Notes Serious Shortcomings in Its Fight Against Money Laundering (Reuters)

The Sinaloa drug cartel has long been the most powerful and sophisticated operation of its kind, a criminal enterprise that reaches into 24 of Mexico’s 32 states and as many as 50 countries. But for all its military-style sophistication and expansive taproots, the billion-dollar organization keeps bumping up against a basic, old-world problem: how to move cash.

The cartel sells most of its drugs in the United States to addicts who often pay for their heroin fixes in wads of singles and fives. That eventually adds up to more than $20 billion that has to make its way back over the border every year, which is a logistical nightmare: One kilogram of cocaine translates into three kilograms of cash. Smugglers shoehorn stacks of bills into air mattresses, washing machines, cereal boxes, and anything else with a cavity and decent odds of sneaking past border guards - but the sheer glut of greenbacks mandates savvier solutions.

Which is how Sinaloa got interested in clothing and teddy bears from China.

In recent years, according to the U.S. Drug Enforcement Administration, massive amounts of cash from narcotics sales have flowed into businesses in Los Angeles’ fashion district as part of what’s known as the black market peso exchange. This is how money laundering works in the age of hard-charging international trade. Those California businesses use the drug proceeds to purchase cheap clothing and footwear in bulk from China. The goods are stored in warehouses in L.A., then driven to Mexico or shipped to Colombia. Cartel operatives at these destinations sell the items at profits that the drug lords then pocket as legitimate revenue.

In one variation of this scheme, runners dropped off bags containing up to $100,000 at the L.A.-based Angel Toy Company. The toy company’s Chinese executives then deposited this in the company bank account in quantities of less than $10,000 at a time, to avoid triggering what’s known within banks as a Suspicious Activity Report. Then the toy-company operatives wired money to a factory in China to purchase stuffed animals and dolls, which were then shipped to Colombia, where another party facilitated their sale.

Trade-based money laundering is only the latest iteration in what is now a massive and growing global problem. Tsunamis of cleansed money - unleashed by Russian oligarchs, from Taiwanese counterfeiters, from corrupt governments in Africa and Eastern Europe, and many more illicit sources - now roil around the planet in immense quantities. The UN Office on Drugs and Crime estimates that between $800 billion and $2 trillion in dirty money gets laundered annually.

These offenses are hardly victimless.

Read the rest at Daily Beast

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