How Money Is Laundered
When people earn money through illegal activities, they need to find ways to make it appear as though this money came from a legitimate source to avoid legal penalties. This process is known as money laundering.
California has strict legal penalties against money laundering, and this offense is vigorously prosecuted by the federal government, particularly in cases involving drug trafficking, organized crime, income tax evasion, and international terrorism.
If prosecutors suspect that your organization has accepted money that was tainted by criminal activity, they will ruthlessly investigate you and threaten to charge you with crimes that carry a long prison sentence and massive fines. It’s crucial to have an experienced Los Angeles criminal defense attorney on your side who won’t be intimidated by overzealous prosecutors.
How Money Laundering Works
There are three steps involved in money laundering: placement, layering, and integration:
- Placement simply means transferring money into a legitimate or seemingly legitimate institution, such as a business, bank, or trust.
- Layering is taking steps to conceal the origin of the money by performing as many transfers as possible, making it more difficult for investigators to discover its actual source.
- Integration is the point where the money from an illegal operation is almost untraceable, and it appears to have been legitimately earned.
Examples of Money Laundering
- Smurfing. Federal law requires banks to report all deposits of more than $10,000 to the IRS. That means the people who make large bank deposits must be prepared to explain how that money was legitimately obtained. Through smurfing, or structuring, the money is broken up into smaller amounts and then deposited in separate bank accounts by friends, relatives, associates, and others.
- Real estate transactions can be used to launder money. For example, you can secretly transfer $2 million dollars in assets by paying $5 million for a property that’s actually valued at $3 million.
- Art auctions. Overpaying for works of art is a convenient way to launder money because the prices fluctuate wildly, and appraised value is often accepted without question.
- Paying employees under the table. Paying employees with cash is an effective way to hide money while increasing the value of a business.
- Currency exchanges. These markets fluctuate rapidly, making it possible to report illegitimate income as money earned through trading.
- Trusts and shell companies that only exist on paper can be used to shuffle money around, making it seem as though it was gained through legitimate activities.
- Cryptocurrencies are difficult to trace, making them ideal for hiding illegally earned money.
- Hard commodities such as gold and gems can easily be moved to other jurisdictions and then sold to recoup profits that someone wants to conceal.
- Peer to peer (P2P) laundering involves moving funds through multiple small-scale transactions across multiple platforms. It’s often used to finance terrorist activities.
- Undervalued, overvalued, or double-billed invoices can be used to launder money within the workings of a legitimate organization.
Prosecution and Penalties for Money Laundering
The federal government takes an active role in prosecuting money laundering. The Money Laundering Control Act of 1986 makes it a federal crime to hide and reinvest illegal profits from a criminal enterprise. And the US Patriot Act gives jurisdiction to the IRS and the Treasury Department’s Financial Crime Enforcement Network (FINCEN) for enforcement of money laundering.
Money laundering proceeds from the following types of crimes are frequently investigated and prosecuted by the federal government:
- Tax evasion
- Mail fraud
- Wire fraud
- Drug offenses
- Violent crimes
- Theft crimes
- Human trafficking
- Child pornography
- Trade and export violations
Federal penalties for money laundering include prison sentences of up to 20 years, massive fines, and asset forfeiture.
California law makes it illegal to withdraw, deposit, or exchange funds that were obtained through an illegal activity. Penalties include up to 4 years in prison, asset forfeiture, and fines up to $250,000.
Were You Arrested for Money Laundering?
The nationally acclaimed criminal defense attorneys at Werksman Jackson & Quinn LLP have been featured on CNN, Fox News, ABC News, CNBC, and the BBC.
Our team will defend you against money laundering charges and find the best strategy to get your case dismissed.
Call (213) 688-0460 to schedule a case review today.