Drugs and Money: Laundering Latin America's Cocaine Dollars

By Robert E. Grosse | Go to book overview

Chapter 1

The Basic Money Laundering Arrangement

Money laundering is the means used to convert funds that proceed from illegal activities, such as narcotics trafficking, prostitution, casino gambling skimming, and many others, into financial uses that involve legal instruments (such as bank deposits, investments in stocks and bonds or real estate, etc.). The Financial Crimes Enforcement Network (FinCEN) defines money laundering in three parts, from the initial disposition of funds received for drugs to the concealment of illicitly gotten funds in the legal economy. Each step in the laundering process is described briefly here.

First, the placement of cash into the banking system is the step in which the money launderer disposes of the criminally derived cash proceeds. Cash is the most common medium of exchange used in drug transactions, and drug traffickers quickly accumulate large volumes of cash. Because checks, credit cards, and other non-cash means are commonly accepted in legitimate financial transactions in today’s society, carrying out a large cash transaction may draw undesired attention to the criminal desiring to use his or her illegally acquired money. Accordingly, the drug trafficker will employ a money launderer to place the funds into the financial system unnoticed, or to physically transport the cash outside of the United States (for example, to Mexico or to Panama). Placement is the money laundering stage that is most vulnerable to detection.

After the funds enter the financial system, the launderer further separates the illicit proceeds from his or her illegal source through layering. This layering occurs through a series of financial transactions which, in their frequency, volume, and/or complexity, resemble legitimate financial transactions. For example, the use of a gold dealer who can sell gold to the drug trafficker enables the trafficker to obtain a financial instrument (gold) that can readily be converted into a bank deposit through sale to another gold dealer or user, and thus move

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