Can you give me an understandable example of money laundering? So say it’s a storefront that sells art but is actually money laundering. How does that work? What is actually happening?
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Let’s say they sell a piece of art, they sold it for $100, on their accounts they write it as sold for $500. The other $400 could have been gained through illegal means.
But now they can explain how they obtained the money
You have a cash business such as a tea shop, restaurant or a laundromat.
Your sales is $5,000 a month but you tell the taxman that you made $100,000 a month and pay income tax accordingly. At the end of the month, you deposit $100,000 and since everything ties out, next year when you buy a million dollar house, you can prove to the bank that said million comes from a legitimate business and not from selling drug to teenagers.
This works because no one can really verify how much your restaurant makes. Your sales is whatever you say it is unless you’re on a radar and police sends over someone to verify foot traffic or audit your book.
The simple version is think everything in CASH. Cold hard cash.
Lets say I’m a mobster, dealing drugs, doing shit. I have tons of cash from illegal stuff. But I can’t really spend it too much. If I buy a house or car or start living extravagantly, people will notice, and wonder, “how did you get the money?”. So I need to find a way to make it so my illegal money looks like it comes from a legitimate business and no one knows its true source.
So, I open a bar. Bars operate in cash mostly. Lets say my bar is an OK bar, I have real customers, and I make $2000 in sales a day. Cool. Now what if I “buy” some extra drinks with my illegal cash. Say a $1000 a day. I never serve those drinks at the bar, I just get paid for it. Now my bar makes $3000 a day. Totally normal, and for bars, people paying in cash with no receipts is normal. Nothing seems strange. Each day, I just take $1000 of my illegal money and give it to the bar, that I happen to also own. I just put it in the register.
Pretty soon, my business is doing well, nothing seems strange, I have a good business, I operate a successful bar. I can take out loans, show people my books, pay taxes, I’m just a good businessman who runs a bar. Everything seems fine. Little do they know, my bar isn’t a good businesses, I just lie and take money from my other business and say we sold drinks that never existed.
There’s a reasons a lot of mob people often operated bars/restaurants/strip clubs/casinos and such. Cash businesses where its easy to launder money and nothing seems off.
For art, you just take this to an extreme, instead of say $1000 in drinks a day I’m fudging on the books, what if I instead “buy” a $1M piece of art? Same thing.
I have 100 dollars from illegal activities that I can’t put in a bank or spend without the IRS catching on. So I buy a painting for $2 and “sell” it to someone for $100 dollars, except that $100 is my illegally gained money. Well that money is now “legitimate income”. I have on the books I sold a painting for $100 and that’s how I got this money. Usually the businesses are real and generate some legitimate income and are supplemented with illegal gains, that way if there is suspicion it passes as legitimate.
Obviously they do way bigger numbers though. There’s also a seen in Breaking Bad that shows it simply. She owns a car wash and to wash the money or launder it she just processes a bunch of car washes that aren’t actually happening. Turning illegal money into seemingly legitimate income.
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“Always be wary of a cash only business”
Why do you thin the Mob owns so many restaurants?
Let’s say you own a pizza place, and in a typical week you sell 1000 pizza’s.
You then cook the books to say you sold 1500 pizza’s, and the extra 500 were paid for in cash.
That extra 500 pizza’s were paid for with illegal money, that has now been laundered. You may need to pay taxes etc on it, but it now appears to come from a legit source.
You can then go further and own a supplier, now you can buy flour, sauce, and peroration that only exists on paper.
You still have a legit business, and you DO sell pizzas, but the paper work says you sell a lot more pizza than you actually do. That’s how you hide the illegal money.
So why cash? Because it’s a lot harder to trace than debit transactions and credit cards.
You record more in transactions than you actually make, creating the documentation that allows you to add your illegal revenue into the legitimate stream and pay taxes on it. After that, you can spend it as you wish.
When I was in college, there were a few music stores on the shopping strip near college. One sold CDs for $10-12 while all the others were $15-18, so I spent a good bit more time in that one. They seemed really big on preventing shoplifters, though, since they always had someone in a high booth in the back watching the store.
Anyway, they were shut down for being a money laundering front the next year. The cheap CDs kept people coming into the store to have high turnover, and they could pad either the unit cost or number of units sold as ways to feed illegally-obtained funds into the legal sales data.
Actually, a lawn care business or a “high-end” detail shop would be better than a car wash and laundromat combined. A good professional detailer can charge close to $150 an hour or more. Chemicals can easily vacillate in price and there’s no way to really account for labor hours. One car can be charged $3,000 for a detail with paint correction, and that’s not even with PPF. You could use $20 ceramic coating and claim it’s the $200-300 stuff, who would know, that wasn’t an industry professional? If the agents use chemists to determine you were lying about the quality of your products, you could just say “yea, I was, I was ripping off my customers, so what?”. Which would work, because you’re making up customers and services anyway, but you’re still going through products, you’re just marking them up. Plus, with that sort of money, you could buy or rent exotics to bring through regularly, to appear legit. I would rent them, couple hundred a day to make thousands, that’s good laundry 😉
I worked in an arcade that I suspect was laundering money. The key point is that (as an employee) there was no, zero, way to know how much the store made in any given time. Most businesses want to know EXACTLY how much they made and when. This place had policies that completely stopped anyone from “accounting” for the money that came in the door. Tokens were used in the machines. When we ran out, we opened the machines and used them again. There was no register, just a “cash drawer” used to make change. Tokens were never counted and money was never counted by the employees. All money was added to a drop safe, uncounted, at the end of the shift. Here is the important bit: if the owner DOESN’T WANT TO KNOW how much he made, it might be because they didn’t want ANYONE to know their take. Could be any number, completely untracked. That was hokey and highly suspicious. If nobody knows how much you make, you can add to the stack of “income” at any time and there would be no practical way to discover it.
Money laundering has 3 phases: placement, layering, and integration.
Art often falls into the layering and integration phase.
First step, placement – that means you need to get illegal money, often cash, into the financial system. Common ways to do this: cash intensive businesses (laundromats) and selling illegal money to someone at a discount.
Second – layering. Now you do a bunch of legit transactions to confuse the trail of money in the hopes of getting it out as legit funds. Let’s say you, a mobster, own an art gallery. You sell a piece of art worth garbage for $1 million and buy it with your newly “placement”ed money. Now you have legit art you can turn around and sell at some point for likely even more legit money.
Last – Integration: now you sell that art, you get money that’s absolutely legit and you pop it into your Schwab account.
This is a simplified version, but should help.
Source: I’m in finance.
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