Money Laundering

Mechanisms, Methods, and Instruments

In each stage of the process, the money launderer can employ a variety of mechanisms and monetary instruments to disguise the illicit nature of the criminal proceeds. No single method exists: On the contrary, numerous techniques have been uncovered by police [Page 1073]investigations. As Beare and Schneider (1990: 304) have pointed out, the choice of money laundering method is limited “only by the imagination” of the criminal. Methods vary from the simple purchase of luxury items to more sophisticated techniques involving the transfer of the money through a transnational network of banks and other financial institutions.

To dispose of the illicit proceeds, the launderer may make use of financial or nonfinancial mechanisms—that is, institutions that (knowingly or otherwise) participate in the laundering process. The most frequently used method is to work through banking institutions, mainly in the first stage of money laundering. Besides banks, other sectors are used, notably financial inter-mediation (because of the higher interests on the capital invested), leasing (i.e., granting use or occupation of property during a specified period in exchange for a specified rent), and factoring (i.e., accepting accounts receivable as security for short-term loans). Other financial institutions, such as wire transfer companies and exchange offices, are also often used to launder ill-gotten gains. Finally, launderers are making increasing use of the gold market, casinos and gambling houses. The instruments used for money laundering operations also vary widely. Besides cash, the instruments most frequently used are stocks, life insurance policies, letters of credit, bank checks of all kinds, wire transfers, and precious metals.

In general terms, the laundering of small or episodic amounts of illicit proceeds requires a less sophisticated process than that used to launder larger amounts. The simplest money laundering methods are employed at the local or national level. One of the most common is the commingling of licit with illicit funds. The latter are disguised as part of a business turnover and may be claimed to be the proceeds of a legitimate business. This has the advantage of providing an almost immediate explanation for dirty money. Retail outlets like restaurants and supermarkets, which handle a great deal of cash, are popular mechanisms for this purpose.

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