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Money Laundering and Terrorism Financing: Patterns and Tendencies

money laundering
money laundering

Abstract

This paper aims to establish the significance of money laundering phenomenon and the link to terrorism financing, identify the risks and tendencies, and the schemes used by the criminals, both money launderers and terrorists.

The methodology used for this paper consists of literature and articles important for the analysed issue, retrieved from the web as sources of information to determine if some patterns can be recognized in terrorism cases counter to money laundering, and during the three phases of placement, layering or integration. Also, certain tendencies will be looked after, in money laundering versus terrorism financing.

Although during the last 20 years the relationship between organized crime and terrorist groups became both symbiotic and intertwined, it seems that money launderers and terrorist prefer distinctive techniques. The latter prefer to use less techniques for placement, layering and integration, and resort to the ones that can assure them the obscurity and unoffending image. The funds immersed in money laundering is and the ones involved in terrorism cases are on divergent levels.

This paper will display the aspects concerning the crimes commited, the techniques used, and the amount of money involved in the whole process.

 

Table of Contents:

1. Introduction

2. Money Laundering versus Terrorism financing – definitions

3. Money Laundering typologies by phase

3.1 Placement phase

3.2 Layering phase

3.3 Integration phase

4. Terrorism financing typologies by phase

4.1 Placement phase

4.2 Layering phase

4.3 Integration phase

5. Conclusions

 

1. Introduction

A large amount of literature is treating the aspect of money laundering and terrorism financing patterns ([1], [2], [3], [4]) analyzing different typologies of the above-mentioned crimes. However, the hidden aspects of money laundering and terrorism financing generate a complicated and wearing effort.

Handling the information about the various money laundering schemes and techniques [5], offered by certain AML/CFT (Anti  Money  Laundering/Combating the Financing of Terrorism) international bodies and institutions [6], this paper will try to find out if certain patterns or trends are found in the three phases of money laundering and terrorism financing.

 

2. Money Laundering versus Terrorism financing – definitions

There are many definitions of money laundering, depending on the point of view, however, we  will  refer  to  the  one  released  by  the  Anti-Money  Laundering  Compliance  Unit, Department of Justice and Equality, stating: Money laundering is the process by which proceeds of crime are transformed into ostensibly legitimate money or other assets. [7]

When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention”. [8]

Money laundering contains three phases:

    Placement phase: when the illegal funds are washed of the evidence of crime. It is the most ricky phase of all three, and different techniques exist, such as bank deposit boxes, use of cash to buy art, antiques, gold and jewellery, real estate properties.

•    Layering phase: when false records and accounting documents are made to cover the tracks of the funds.

    Integration  phase:  when  the  funds  are  introduced  back  into  legal  activities  and financial systems.

Terrorism financing on the other hand “refers to the processing of funds to sponsor or facilitate terrorist activity[7], thus concluding that the primary purpose is not financial benefit, but the use of funds to “encourage, plan, assist or engage in” acts of terrorism. [9]

The crime of terrorist financing includes the provision, collection or receipt of funds”

with the objective or awareness that the funds will be emplyed to commit terrorist crimes. [7] Terrorist organisations acquire funds from multiple sources, usually associating both legal and illegal funds which can be separated into two types:

1.  Financial Support – donations, charity actions, and other funds from states, private companies or persons.

2.  Revenue Generating Activities – Revenues from fraudulent activities such as drugs and/or  arms  smuggling,  human  kidnapping  or  other  crimes.  Gains  maalso  be gathered  from  legal  economic  activities  such  as  diamond  trading  or  real  estate business.

A significant aspect that differenciates money laundering from terrorist financing is that:

    the examination of money laundering crimes is managed in order to link the money to a crime already comitted and to stop the authors and its accomplices to use the funds.

    in terrorist financing the investigation is conducted to prevent criminals from gaining access to money that could be used to finance future terrorist acts.

Althought the motivations for committing money laundering (looking for financial gain) difer from the ones determining terrorist to carry out terrorist acts (non-financial goals: propaganda by political groups, spreading terror, intimidation), the two phenomenons have a symbiotic relationship.

Terrorist groups need funds in order to achieve their goals, and usually obtain these funds by committing financial crimes and money laundering: Abu Sayyaf – The Islamist Movement in Uzbekistan, operated in 2000, kidnapping acts that turned out into 20 mil $. The initial purpose of the group was to form The Islamist Independent Republic of Mindanco. [4]

Organized crime groups lately adopt the techniques used by terrorists, of spreading terror and insecurity among certaing groups or even general public, so as to intimidate government institutions: Sicilian Mafia in 1990, planted bomb cars in Rome and Florence to intimidate the Italian Parliament and determine it to drop the anti-mafia legislation. [4]

 

3. Money Laundering typologies by phase

3.1 Placement phase

Smurfing and structuring techiques were among the most used methods in placement phase, as opposed to currency smuggling, which does not have a high level of use, due to the weight of the carry out and risks involved. Gambling and casinos also have a low level of use, maybe due to the high level of control. [10]

Preferred placement techiques by type of criminals: drug traffickers preffer smurfing and structuring schemes, fraudsters are most  likely to resort to camouflage, tax evaders and human traffickers preffer smurfing and structuring. [11]

 

3.2 Layering phase

Shell or front companies is the favoured layering thechnique, wide-spread among money launderers. Fake invoices, fictious sales and purchases, money transfer and money exchange offices are the other techniques widely spread.

Layering techniques by types of criminals: shell or front companies are most popular amongst thieves, commodity traffickers, tax evaders, and fraudsters. Tax evaders also used fake invoicing as a layering method. Drug traffickers preffer bank cheques and bank drafts.

Human traffickers’ resort to money transfer offices.

 

3.3 Integration phase

Real estate acquisition is the most used scheme in the integration phase, as it implies the lowest risk of detection and can “clean upgreat amounts of money. The following types are: investments in capital markets, the establishment of import/export companies, cash-intensive business.

Layering techniques by types of criminals: drug traffickers, tax evaders and fraudsters preffer real estate acquisitions. Commodity traffickers’ resort to import/export companies to integrate the money. Human traffickers preferred cash-intensive business.

 

4. Terrorism financing typologies by phase

4.1 Placement phase

Smurfing and structuring techiques were among the preffered ones by terrorist groups for this phase. Camouflage and currency smuggling are the next schemes in order of preference. Purchase of travellers cheques and casinos gambling schemes are not widely used in this phase.

 

4.2 Layering phase

Money transfer offices is the most used method for this phase by terrorists, followed by shell or front companies, money exchange offices, back-to-back loans and bank drafts.

 

4.3 Integration phase

Similar to the money laundering, real estate acquisition is the most used scheme in the integration phase in terrorism financing. Investment in capital markets, gold bars, import/export companies are the next methods in terms of preference.

 

5. Conclusions

This paper shows that money launderers and terrorist groups preffer distinct schemes for the placement, layering and integration of the dirty money. The more techniques are used in the process, the greater the laundered funds or concealed amounts of money. Terrorist factions use fewer placement, layering and integration schemes than money launderers, although sometimes the methods coincide. They preffer the use of less techniques wich offer them anonymity.

 

Contributo selezionato da Filodiritto tra quelli pubblicati nei Proceedings “International E-Conference Enterprises in the Global Economy - 2018”

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Contribution selected by Filodiritto among those published in the Proceedings “International E-Conference Enterprises in the Global Economy - 2018”

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