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BTVisual: Hannah Kwah, Simon Ang
7 ways criminals
Launder money
Money laundering has become a complex affair over the years, and criminals have numerous ways at their disposal to “wash” dirty money.
The Business Times takes a look at seven ways criminals can launder money, industries that are susceptible to such activities, and the red flags that companies should look out for in their day-to-day transactions.
By Uma Devi and BTVisual
Warning signs that companies should look out for in customers
People who have complicated payment structures or plans
Customers who purchase items at of high value at a rapid pace, or buy items that are not consistent with their lifestyles or business needs
Lack of documentation such as proof of income or financial statements
Use of multiple payment methods for a single transaction
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Ways criminals launder money:
Manipulating property values
Renting out a property
Renovating and reselling
Waiting for property price to appreciate then selling
Selling properties to co-conspirators or friends
Setting up shell companies or offshore accounts to buy a property
Examples: Good Class Bungalows, condominium units, office spaces, factories, hotels
Ways criminals launder money:
Inflating or undervaluing the price of a vehicle
Using cash to purchase a vehicle
Structured transactions to buy multiple vehicles
Use of intermediaries such as car dealers or brokers
Property
Cars
Retail items
Art pieces
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Buying art pieces anonymously and shipping them to a freeport warehouse where sales can be done anonymously
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Purchasing and selling art pieces at inflated prices
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Employing middlemen such as art dealers or auction houses
1MDB case – 2 Picasso paintings were seized alongside other assets bought with 1Malaysia Development Berhad (1MDB) money
Watches
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Layering transactions to make it challenging to trace the money
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Using virtual currencies to pay for luxury watches from grey dealers in the market
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Buying with “dirty” money, selling for “clean” money
Jewellery/ precious metals
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Types: diamonds, precious stones, gold, silver
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Can be transferred across borders without detection and sold for cash
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Bought through cash or anonymous purchases
Wine/ liquor
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Buying wine estates and wine vineyards, wine prices are subjective and can be manipulated
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Using ponzi schemes or counterfeits
In 2018, French authorities seized 10 wine properties including vineyards in Bordeaux, France, acquired by Chinese businessman Qu Naijie on the grounds of suspected money laundering and tax fraud. The case is still ongoing.
Penny stocks
Definition
Counters which have a small per-value share and small market capitalisations.
Highly speculative in nature
What makes them money laundering tools?
These counters can reward investors with sizeable returns or tumble in value overnight.
Can be easily manipulated on stock markets
A buyer can cause the stock’s price to surge in value temporarily with a relatively small investment amount.
John Soh Chee Wen and Quah Su-Ling from August 2012 to October 2013 artificially inflated the share prices of three penny stocks – Blumont, Asiasons and LionGold.
On Oct 4, 2013, the share prices of these three counters crashed, wiping out S$8 billion in market capitalisation from the Singapore Exchange.
Shell companies
A shell company:
Has no significant assets linked to it
Has no active business operations
Can be set up in almost every jurisdiction
Typically used to obtain financing, to help a company hold assets or get more favourable tax benefits
How does money laundering take place?
Step 1
Criminals set up a shell company in a jurisdiction that is known for favourable tax regulations and privacy laws. This makes it tough for investigators to trace the money if the need arises.
Step 2
The shell company engages in transactions designed to “clean” money. Some examples include issuing fake invoices for goods or services that do not exist or were not rendered, creating a series of complex financial transactions to confuse the money trail.
Option 1
Option 2
Option 3
The shell company lends money to a regular company. The legitimate company then pays back the loan (with interest) to the shell company.
The shell company makes investments into legitimate businesses or companies. The shell company is then able to withdraw the investment after a certain period of time has passed, with the additional profits that the investment has garnered.
Option 1
Step 3
The company appears to be doing legitimate business on the surface, but is actually washing “dirty” money without attracting unwanted attention from regulators or authorities.
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Cryptocurrencies
Why cryptocurrencies?
The anonymity of cryptocurrencies allows criminals to conceal their identity. Criminals can use multiple crypto exchanges to transfer funds across different platforms, making it hard to trace the money back to its origin.
Creating a crypto wallet or account is also easy, and free of charge. Given the fluidity and volatility of the market, it is also easy to justify gains made from cryptocurrencies.
Examples of cryptocurrencies that are completely anonymous
Cash-intensive business
Definition
A business that legitimately transacts large amounts of cash, or a company in an industry that receives cash payments for services
Types of companies
Transacts large amounts of cash
Monero
Ways criminals launder money:
Cryptocurrency tumblers or mixing services
A service that mixes one person’s cryptocurrency funds with the funds of other people, making it tougher to trace the ownership of the funds back to the original source.
Peer-to-peer networks
Allows nodes to share and access resources directly without a central authority. This allows cryptocurrencies to be transferred around the world, without the need for a middleman or intermediaries.
Over the counter brokers
These brokers may have more lax Know Your Customer (KYC) standards than the exchanges require.
Crypto gambling sites
Bitcoin and Ethereum are the most widely used cryptocurrencies in crypto casinos, and they are not regulated by any government or financial institution.
Zcash
Dash
Industries that receive cash payments for services
Casinos
Restaurants
Car wash
Grocery stores
Construction
Trucking
Independent contractors
How does money laundering take place?
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Step 1
A criminal owns a legitimate restaurant that has physical stores. Money obtained from illegal activities is deposited into a bank through the restaurant.
Step 3
The S$6,000 is then deposited into the restaurant’s bank account, and appears as an ordinary deposit of the restaurant’s takings for the day.
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Step 2
The restaurant reports daily cash sales figures that are markedly higher than what it actually makes.
Step 4
The restaurant can then invest money into other businesses like real estate or stocks, which helps mask the traceability of these funds even more.
Warning signs that companies should look out for in customers
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People who have complicated payment structures or plans
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Customers who purchase items of high value at a rapid pace, or buy items that are not consistent with their lifestyles or business needs
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Lack of documentation such as proof of income or financial statements
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Use of multiple payment methods for a single transaction
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For example, a company makes S$3,000 in sales but adds an additional S$3,000 from illegal activities and reports that it made S$6,000 for that day of business.
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7 ways criminals
Launder money