Money Laundering Inside the U.S.

With all the attention on foreign money laundering, we’re ignoring the problem in our own country.

How widespread is the problem? No one really knows for sure because the states “have no idea who is behind the companies they have incorporated,” says Senator Carl Levin (D—Mich.), who is trying to force the states to insist on greater transparency. “The United States should never be the situs of choice for international crime, but that is exactly what the lax regulatory regimes in some of our states are inviting.” The Financial Crimes Enforcement Network, the U.S. Treasury bureau investigating money laundering, says roughly $14 billion worth of suspicious transactions involving private U.S. shells and overseas bank accounts came in from banks from 2004 to 2005, the latest Treasury data available. That’s up from $4 billion for the long stretch between April 1996 and January 2004. Now, estimates the FBI, anonymously held U.S. shell companies have laundered $36 billion to date just from the former Soviet Union.

State governments provide plenty of cover for bad guys. Every year they incorporate 1.9 million or so private companies, but no state verifies or records the identities of owners, much less screens ownership information against criminal watch lists, according to a study by the Government Accountability Office. “You have to supply more information to get a driver’s license than you do to form one of these nonpublicly traded corporations,” says Senator Levin.

Tags: banking, crime, transparency, watch lists

Posted on February 28, 2007 at 7:59 AM • 33 Comments

Comments

aikimark • February 28, 2007 8:26 AM

and it appears that the current Whitehouse administration is laundering money to fund Sunni insurgents.

Iran-Contra redux anyone???

Spider • February 28, 2007 8:49 AM

I’ve heard rumors of this sort before. I think the problem goes beyond finding out who is behind the companies. Organized crime has been forced to maintain very loose links to the quasi-legitimate companies that launder their money. But definitely take the low hanging fruit first.

Tho • February 28, 2007 8:59 AM

And we know how effective criminal watch lists have been for air travel.

Johns • February 28, 2007 9:08 AM

@aikimark

While Bush is clearly the choice of some for all things evil, your money laundering accusation has no feet. While Congress prohibited the Reagan administration from funding the Contras, there is no such limitation vis a vis Sunni insurgents. If they wanted to fund them, they could legally take it from military or intelligence funds.

Let’s stick to the facts here.

nzruss • February 28, 2007 9:21 AM

John said:

If they wanted to fund them, they could legally take it from military or intelligence funds.

And thus it would appear (in some form) on a budget somewhere…. which is exactly what should happen, allowing the right people to track it.

Mind you, that $220m Halliburton charged in “questionable and unsupported costs” could just about achieve anything that needs doing on the sly.
http://tinyurl.com/27d3fx

swart • February 28, 2007 9:36 AM

You know how in “Office Space”, they have to look up “laundering” in the dictionary because they don’t even know how it works? I’ve done that (looked it up in a dictionary, not laundered money).

Harry • February 28, 2007 9:52 AM

I haven’t seen any discussion of the negatives and costs of “greater transparency” and verifying the identity of business owners. There are sound business/economic reasons for making registration easy – it encourages the creation of small businesses, which are the engine of entrepreneurship in this country.

Before leaping to the conclusion that simple registration is a bad thing, I want to learn about the pros, cons and costs of each proposition. Is a background check of all business registrants a cost-effective solution that balances privacy against security? Would a background check improve security at all?

Roxanne • February 28, 2007 10:40 AM

If Congress eliminates the shell corporations that blur what money goes where, how will they fund their election campaigns?

My guess is that this is a non-starter. People in Congress like this situation the way it is.

Skippern • February 28, 2007 10:41 AM

The next would be a public money laundromat service. I can see the advertisement boards allready: “We take only 1 cent of every dollar!”

W^L+ • February 28, 2007 11:07 AM

We all know that proper identification prevents criminal and terrorist activity, right? The reason Al Capone could do all that he did was that no one knew who he was. So all we have to do is put RFID chips in driver’s licenses, and then we’ll stop all criminal activity immediately.

Only we know that it does not work that way. It isn’t WHO YOU ARE that makes you a criminal or terrorist. It is WHAT YOU DO that makes you a terrorist or criminal. Why can’t these people think?

Madman • February 28, 2007 11:32 AM

How about making more activities legal so there’s less need to launder money. By allowing a black market, we lose regulatory oversight, we lose taxability, and we typically create an atmosphere in which violence dominates. While some economic activity probably cannot be eliminated, certainly much of the illegal drug trade, illegal prostitution, etc. create huge markets to generate cash that has to be laundered.

And certainly, let’s not break the back of small businesses because some use their businesses for illegal purposes. Follow the money as that will help you find businesses that are moving money overseas, etc. — a little profiling goes a long way!

quincunx • February 28, 2007 11:49 AM

Bruce, why is money laundering bad (other than being a de jure crime) ?

It’s a natural outcome of state intervention in financial markets. Crack down even harder – and you will get more laundering, not less.

The most common form of laundering is for a firm to buy a product overpriced, or to sell the product underpriced from/to a laundry partner – the extra spread is the laundered amount. The only way to effectively fight this – is for the government to know at purchase time what the proper price should be.

Well, no biggie, why not just submit every invoice and purchase order to a central gov facility for market analysis and approval – that’ll solve it!

guvnr • February 28, 2007 12:31 PM

@W^L+ “It isn’t WHO YOU ARE…It is WHAT YOU DO that makes you a terrorist or criminal”
but it doesn’t matter what you do if nobody knows who you are. I think that’s the rationale for Sen Levin’s position.

@quincunx, state intervention in financial markets.
The state is inherently and inextricably part of the financial markets. Who do you think issues money?
And I don’t think you are correct about the most common form of laundering money, at least the anti-money laundering project I’m working on has nothing to do with that. The concern is cash changing hands and identifying when it’s moving through hands it shouldn’t be in (usually because the source is illegal).
Incidentally, that’s why it’s bad. By definition dirty money is the fruit of illegal activities (including fraud, official corruption, diversion of funds, identity theft, etc. as well as the more traditional forms of crime). The reason for making money laundering illegal is to impede criminal activity. Remember that Capone was finally jailed on tax evasion charges, despite the many other crimes for which his gang was responsible.

Bing • February 28, 2007 1:11 PM

Money laundering: When Conrad Black was a child he famously washed his money and hung it out to dry on the clothesline.

Adam • February 28, 2007 1:48 PM

Technically, “No one really knows for sure” because no one knows what money laundering is, but sometimes they know it when they see it.

Alex • February 28, 2007 2:13 PM

@quincunx: Money laundering is ‘bad’ because it erodes the integrity of your financial systems. Illegal (that is outside the rules we agreed on) gains are given a seemingly legitimate origin and then can be converted in power; power in the hands of people that do not care about the rules. It is a first step back to the world according to Thomas Hobbes where men live a cruel, nasty and shortish life.

Sam • February 28, 2007 2:24 PM

What, exactly, are you suggesting we change?

Are you proposing that section 326 of the PATRIOT Act be expanded ???

Or should we move the responsibility for granting corporations from the state to the federal level? Thats a pretty serious blow against states rights and for the increasing centralization of our big-brother society. How can you argue against RealID but for that?

Anonymous • February 28, 2007 3:43 PM

@ Sam: Well, for starters, trying to comply with the FATF recommendation #33 would be nice (see link under my name). As the US is eager to export its ‘moral’ standards through the international vehicles it dominates – like the FATF – one would expect at least compliance at home.

Anonymous • February 28, 2007 4:41 PM

Money laundering is bad because you’re doing something and not telling the government about it.

I don’t remember who said it, but there will always be money laundering becase politicians have to hide their bribe money.

Jon Sowden • February 28, 2007 4:56 PM

“Nasty, brutish and short”

quincunx • February 28, 2007 5:01 PM

@ guvnr

“The state is inherently and inextricably part of the financial markets. Who do you think issues money?”

Right. They want to counterfit and launder themselves. This is need not be so, and can be altered whenever people are ready for it.

“By definition dirty money is the fruit of illegal activities (including fraud, official corruption, diversion of funds, identity theft, etc. as well as the more traditional forms of crime). ”

Illegal as defined by who? And why do you presume, as does the RIAA & MPAA, that every user (in our case the money launderer) is up to no good. There are many legitimate reasons to launder [not endorsing].

” Remember that Capone was finally jailed on tax evasion charges, despite the many other crimes for which his gang was responsible.”

A great example of our pathetic legal system – they couldn’t convict him on any physical evidence – they had to get accountants to do the investigating.

“Money laundering is ‘bad’ because it erodes the integrity of your financial systems.”

But money laundering is part and parcel of the financial system – it is just a matter of UNrecorded mutually beneficial exchanges.

@ Alex

“Illegal (that is outside the rules we agreed on) gains are given a seemingly legitimate origin and then can be converted in power;”

What rules did we agree on? Do you know what they are? Do you think they are good? Do you think more dosage of the same rules will help? Do you care?

“power in the hands of people that do not care about the rules.”

How can people who engage in trade (money laundering) be violating the rules of trade?

“It is a first step back to the world according to Thomas Hobbes where men live a cruel, nasty and shortish life.”

The problem with this argument is that Hobbes was wrong. And to the extent that he was right, it appears to me that he was describing mid-evil socialism, not the ‘natural order’ of mankind.

Fred F. • February 28, 2007 5:12 PM

I had an economics professor that was doing research in money laundering in international transactions. He was actually putting dollar amounts on the value by simply looking at the import/export declarations. There you get a description of the good and a value. By statistically finding outliers either high/low he was able to find money laundering transactions. Mind you, the government was not doing anything about this about 3 years ago and these are the easy ones to find. Why would they do anything about interstate transactions (where the federal gov’nt would have a constitutional leg to stand on)?

There has to be some other angle to this.

sooth_sayer • February 28, 2007 5:43 PM

US Banks facilitate these and reap huge fees, US govt can claim ignorance but this is “not” a secret.
Doesn’t anyone remember a Mexican president’s brother who used citibank to do move more than a few Billion of drug and bribe money through US to European banks.

shanks • February 28, 2007 9:44 PM

This is very common. The Intel agency head in India has said the same thing. Because paperwork for companies are scrutinised that much, a lot of criminals have set up shell companies to launder money. Prime example is Bollywood, where given the amount of film flops, the industry should have gone under but never does.

nbk2000 • March 1, 2007 2:41 AM

Limited Liability Corporations (LLC’s) are useful to private individuals seeking to retain some privacy in their life.

The red-herring of ‘terrorist money-laundering’ is actually about removing this privacy screen and making money (in the form of taxation) off of the people savvy enough to use LLC’s.

Organized crime will always have their ways, regardless of any laws passed, as they always have.

It’s only the individual who suffers, and the Government who profits, from such laws.

Supersnail • March 1, 2007 3:22 AM

quincunx wrote:
” Well, no biggie, why not just submit every invoice and purchase order to a central gov facility for market analysis and approval – that’ll solve it!”

Already happens in europe! The Value Added Tax regime in force througout Europe means the tax people have access to records of every purchase/sale between companies. Doesnt seem to stop fraud, laundering etc. though.

supersnail • March 1, 2007 3:30 AM

What I dont get is how on earth the company managed to open a bank account.
Since 9/11 the screws have been tightened on banks worldwide, particulary, the “know your customer” regulations are enforced in a draconian manner.
I have experience of this both from the inside, specifing 100s of changes to existing systems to “prove” compliance with the regs; and from the outside, spending over an hour opening a bank account at a bank where I had held an account previously.

Is this another case of the US forcing the rest of the world to take actions it is not prepared to take itself?

Alex • March 1, 2007 5:33 AM

@quincunx:

“What rules did we agree on? Do you know what they are? Do you think they are good? Do you think more dosage of the same rules will help? Do you care?”

Well the rules of the democracies we live in. Like rules that theft, fraud, drug trafficking etc. etc. etc. are not activities that we allow in our societies. Seems pretty basic and if you do not think that they are good there are well established democratic procedures for changing them. And if you do not like that system, you could always go and live in Russia for instance where ignoring the rules is the norm. But believe me, only a very small percentage is gaining from that, overall it is a lose-lose situation.

quincunx • March 1, 2007 8:44 AM

@ Alex,

“Like rules that theft, fraud, drug trafficking etc. etc. etc. are not activities that we allow in our societies.”

REALLY?

Maybe you should look more closely at the kind of institutions we have. Theft and Fraud is how they operate. Only diff, is that they are given a free pass.

“And if you do not like that system, you could always go and live in Russia for instance where ignoring the rules is the norm.”

Been there, done that.

Jim • March 1, 2007 2:25 PM

The web of confusion grows. Check this out.

Among 1,200 Web-savvy consumers asked to view http://www.IRS.com, one-third thought it was an official U.S. Treasury site.

No one really knows for sure, how many non-savvy consumers are getting duped.
The fine print says, “This site is not affiliated with the IRS website, the United States Internal Revenue Service or any state revenue or taxing agency. Copyright © 2006/2007 Internet Revenue Services, Inc.
IRS.com includes tax information about irs tax forms, internal revenue service, state taxes, tax software, income tax preparation, tax refunds, and irs e-file.”
That’s at the bottom. On the top, they have a picture of the U.S. Treasury and the layout looks like the standard .gov
setup, so it could fool you I guess. READ THE FINE PRINT. It’s Internet Revenue Service. The site was “We are currently experiencing technical difficulties. Please try again later.” Yeah right.

another bruce • March 2, 2007 5:33 AM

this is bullshit.
i’ve created dozens of corporations for different people, and been involved in some of them. they weren’t created to launder money. they were created so that their owners could have a convenient management structure whereby they could have voting input proportionate to their investments, but no excess liability over that. they were created because joe blow and jane doe had this crazy business idea in which they believed enough to pay me to formalize it. that’s a fundamentally american thang. i’ve formalized several of my own business ideas in my time which, in retrospect, were so incredibly stupid that i could not be tortured to reveal them on a blog. carl levin isn’t primarily interested in controlling money laundering, he just wants to see what’s in my pocket, what’s in my wallet, and next, i’m afraid, what’s up my ass.

Gino • March 2, 2007 9:43 PM

I can’t come up with a good scenario for the White House to fund Sunnis — they’re the ones shooting at us. The Shia pretty much own the government and most of the militias. Of course, about 60% of Iraqis think it’s OK to kill Americans.

lararice18 • June 7, 2021 8:47 PM

There are ways and techniques to counter money laundering. You guys can check it here. Hope it helps. https://www.cybersecasia.net/newsletter/report-shows-how-cybercrooks-cash-out-and-launder-stolen-funds.

Money Laundering Inside the U.S.

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