Response to Financial Crimes Challenge by @interpretation
Actually, I have not been so active on the platform. I do some comments here and there but have never made any post. However, I keep reading a lot about the development on #hive.
Few days ago, I saw the challenge posted by @interpretation on writing the piece on financial crimes. I found this challenge very interesting. I have not been directly involved in financial crimes.
But I have always heard about the same from my neighbor. He works in a consulting company which imparts training programs on financial crimes in Europe. I met him in elevator yesterday and told him about the challenge and he said you need to write about the money laundering.
In this post I am going to try and explain the concept on laundering. Let me begin with the Cash Business Scheme as the first money laundering example.
The cash business scheme is one of the most interesting scheme for laundering large amounts of cash. Casino is by and large the example of a business in every country where cash is involved.
There are many businesses who handle most of their transactions in cash. Real estate could be another example of the illicit cash handling business. In some Asian countries Gas stations are also a source of cash generation.
Cash-intensive businesses were used by famous gangster Al Capone. Through a laundry he literally poured thousands of dollars. He evaded investigations channelizing proceeds of the crimes through his empire of laundromats.
The term “money laundering” was coined by the law enforcement agents investigating these laundry businesses.
Placing money in banks
One of the first term you hear in the financial crime world is money laundering and placement is the term where it begins.
Placement for a cash-intensive business scheme involves direct cash payments to the owners of businesses like casinos or real estate companies.
Cash is brought to the location of business. It stays in a safe vaults until it can be added to profits for the day. Once the collections are completed they are deposited in the bank accounts.
When the money is laundered through cash businesses, such as car washes and strip clubs, the layering stage takes place with dozens of fake transactions introduced into the books of accounts. Some times fake customers are introduced, or some times extra services are added to legitimate transactions to match the cash deposits.
Cash-intensive business schemes require the money to be laundered gradually to avoid the detection. Some additional amount is introduced every day to create the liquidity. Taxes are paid on the reported profits, and not on the deposits. This results into more and more cash getting introduced in the banks.
This whole process of introducing dirty cash into the business is also called as money laundering.
Now the irony
Due to the lucrative nature of the cash intensive businesses and the possibility of the growth in the same, many new generation entrepreneurs are going behind cash businesses and are burning their hands. I was told by my friend in the elevator that many in Indian suburbs are opening the small restaurants in the hope that they could make it big with the political money, just to burn their hands in the process.