Typically they will just lie about sales right, so couldnt tax authorities just monitor the number of people going in and out of businesses where they can track easily sales from the outside?(for example barber shop) Then they could just shut down the operation easily by proving fraud? I might be stupid here but it doesn’t make sense to me
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Well the idea is to not get caught – to not be such a flagrantly obvious front business that the IRS immediately flags you and sends an investigator.
Front businesses aren’t necessarily a fake company, they can be profitable ventures on their own merits as well. Mob-owned bars, clubs, casinos, restaurants, they’re making money fine legally too and just reporting double that for laundering purposes.
They’re not reporting 1000 times the expected profit from an ice cream parlor in Alaska, that’s too obvious.
That can happen, but the authorities would only do so if they had a reason to suspect something in the first place. They don’t audit every new business. That would take a lot of time and money for very little reward.
As long as the business doesn’t seem suspicious, they aren’t going to get that sort of scrutiny.
Successful money laundering just isn’t interesting enough to manually be monitored, and by all automatic methods it appears normal.
For a laundromat or barbershop, this would mean that all the automatic monitoring (tax returns) look like they are normal. They are within reasonable measurements of what is expected of the area, and the launderers just don’t launder enough to exceed that amount enough to be suspicious. And then, if they ever do get manually monitored, either have a plan in place to detect that and be ‘normal’ for that time period, or they just get caught and written about in the news.
But much like the most famous spy is probably the least effective at not getting caught, the successful money laundering will be things that are unlikely to be thought of and thus unlikely to be suspicious enough to get that manual monitoring.
Sure, if law enforcement *suspected* that a business was a money laundering front there may be ways for them to prove that the revenue the business takes in doesn’t match what they report.
But not looking suspicious is the whole point of these businesses. It’s not obvious to authorities how much money a laundromat or restaurant “should” make. So they just see a business that does lots of cash transactions going to a bank and depositing cash, reporting their deposits accurately on tax forms, and paying taxes on it. It looks like a legit business owner following the law.
Also the law enforcement that can most easily see businesses financial documents would be tax authorities, and they mostly care about taxes being collected not where the money came from. For privacy reasons, a local police department or even the FBI cannot randomly look through every business’s accounts to find out who makes “too much” money.
So again, it is totally possible to prove and prosecute money laundering fronts when they are somehow found out, but not that easy to figure which businesses are sketchy to do further investigation.
Why would the authorities monitor every cash based shops? It’s a lot of shops…
The vast majority of them being completely legit.
Once they start being suspicious about a place, sure, but unless you’re living in a police state, it’s gonna take a while. The laundering is usually done in a way that doesn’t make it immediately obvious.
Also, money laundry fronts rarely remain open for too long once the authorities start getting suspicious. And even then, a couple of years is usually the maximum before the shop changes in some fashion (change of ownership on paper, closes and reopen as a new shop, etc.) The point is to shield. Current operations from the previous ones (it might have been a laundering front before, but that one closed or changed ownership and is clean now).
Even if under suspicion, the surveillance will be probably stop after of few months of no activity and one or two changes of ownership.
The most important thing here is that if you’re paying taxes on your laundered money as if it was regular business income, the tax agency isn’t going to be suspicious of jack all. That’s not their job.
> couldnt tax authorities just monitor monitor the number of people going in and out of businesses where they can track easily sales from the outside?
First, I don’t know where you think all these “tax authorities” get all that manpower to sit outside businesses and count people going in and out. That’s not the way the world works, bub.
Second, “number of people” doesn’t directly correlate to sales for almost any business. One couple goes into a restaurant and spends $40 on a few drinks and another couple spends $350 on a three-course meal. 100 people might go into a clothing store, but maybe only 60 buy anything. Of those 60, 55 spend less than $100 and 5 spends more than $1000. **_You can’t tell anything about sales by monitoring people going in and out of a business._** Entering a building is not an indicator of a transaction.
> Then they could just shut down the operation easily by proving fraud
You can’t prove fraud by counting customers. The only way to prove fraud is to follow the money, which means getting access to the business’s accounting — their sales records, their bank accounts, etc.
But for law enforcement to view a business’s accounting, they can’t just waltz in and demand it. They need to have a search warrant. And to get a court to issue a search warrant, they need to have probable cause — some indicator that a crime is taking place. (“I counted the people going in and out of the barber shop” is almost certainly *not* probable cause.)
But let’s say your imaginary authorities have probable cause, get a warrant, and get access to the business’s accounting. That likely doesn’t tell you anything, because accounting records can be forged.
That’s why law enforcement agencies have people with the title of “forensic accountants.” Like other forensic scientists, their job is to review evidence (in this case, the accounting records obtained through search warrants) to uncover clues indicating a crime occurred or who committed the crime. Frequently forensic accountants are looking for inconsistencies like “the burger joint claims to have sold 10,000 burgers last month, but they only bought enough beef for 3,000 burgers” or something. Of course if the criminal enterprise has its own really good money-laundering accountant, he’ll have covered up those inconsistencies, e.g. they might have fake invoices from the beef supplier for those extra 7,000 burgers worth of beef.
And *then* the law enforcement agency has to get access to the beef suppliers’ accounting (either through their cooperation or — more likely — *another* warrant) to see if the invoices recorded as sent to the burger joint by the beef supplier line up with the invoices supposedly paid by the burger joint and thus with the sales. And so on and so forth and so on and so forth. The more businesses involved, the more complex proving the money laundering case becomes.
A big, effective money laundering scheme can take law enforcement *years* to untangle.
Because money laundering businesses *very* specifically *don’t* lie about their sales.
The way money laundering works is you take “dirty”(read criminally acquired) money and spend it with a legitimate business that sells over priced Italian food(as an example). The price charged is on the menu and the food is actually delivered to the customer.
There is no law that says you can’t over charge for food and there is no law that says you have to accept credit cards for that over priced food.
The business then pays all of its overhead and taxes as normal and the owner of the business has “clean” cash that they can deposit into their bank account.
This needs to be expanded. It is not a single business, I have been to places where entire strip malls are money laundering, all of them are independently successful. This is not a case of layering millions of dollars in a single business but millions in dozens of businesses. As time goes on they become legitimate businesses.
This is why some places like Quebec, Canada now have mandatory “snitches” that have to be installed at bars and restaurants, basically advanced cash registers.
A LOT of restaurants closed in my area after the law was passed.
https://www.revenuquebec.ca/en/businesses/sector-specific-measures/mandatory-billing/mandatory-billing-in-the-restaurant-sector/persons-subject-to-mandatory-billing/
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