People always say mattress stores are shady and used for money laundering. Not totally sure I understand exactly what money laundering is. How would this occur at a mattress store?
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Money laundering is where you create a legitimate reason for why you have a bunch of money you gained through illegal means. Lets imagine you are a millionaire drug dealer. You still need to pay taxes on that million dollars. However reporting hey i made a million dollars from the drug trade to the government is probably not a great idea if you want to continue making a million dollars off the drug trade. This means you need to create a legitimate paper trail for how you got the money. The more money you can launder the more of it you can use at any one time. A good way to do this is by operating a business that primarily deals in cash. Your basically self reporting how much business you do and cash is pretty hard to track down. A government is going to have a very hard time proving exactly how many people use a store if the they primarily deal in paper currency. This means you can just lie and say business is doing better than it actually is. Then you claim the money from your illegal business comes from your totally “legitimate” business. Money laundered.
Money laundering simply put is taking money you didn’t pay tax on…. And paying tax on it. That way it is “clean”
If i go around buying 1 million dollar mansions with dirty money someone will ask “where did you get that money” and then people will know i earned it illegally
Noe imagine i have a mattress store. I can write down in my accounts that i earn a lot more than i actually do. Many transactions are done by cash so there is no way to prove otherwise. I put my dirty money into my mattress store account and act like it is earnings. Pay tax on it and voila! The money is clean and can now be used.
“Money Laundering” means faking a legal source of income for illegally earned money.
For example, you made some money selling illegal drugs. Now, you can’t really buy stuff with that over a certain threshold since the police (or your bank) might become suspicious on where you got that money and investigate.
That’s why you now open a legal business and tell the government “I’ve sold 100 mattresses this month at full price!” where in reality, you only sold 10 at a reduced price. But now, nobody will get suspicious if you buy yourself a new car because you said you made some money with your mattress store (where in reality, it is your good old drug money).
Hiding the income stream to make it look legitimate or from somewhere else. Hard to do electrically. Easy to do with a cash business.
Say that you make a $1,000,000 in cash doing really shady stuff, sold drugs, sold guns, ripped off the drug cartels, robbed a bank, etc.
That’s great you have $1,000,000, but you walk into the bank and with absolutely certainty someone will ask “where is this money from?”.
“Trafficking illegal guns.” Is not a legitimate answer that will let you keep your money or freedom.
But if you walk in with $2,000ish at a time and say “I run a laundry store” or “it’s from my car wash” then you can deposit the money and spend it.
But what if someone like the government asks “what store?”
So you need to get a business to make it look like you have a reason to have a bunch of cash.
Cash businesses with low physical goods are great.
Run a restaurant and get audited? It’s easy to see that there’s no way you made $25,000 in cash but only bought $400 in food.
But a car wash has no tangible products or at least very few that can be easily disposed of. There’s also ways to do it with abstract value things. Like art, or dumb pictures of digital monkeys.
Who is to say the value of art?
“Why yes, that’s a lovely painting. So lovely that I will buy your painting for 1,000,000 in cash. Wink. Wink.” So now when you go to the bank and questions get asked you can explain it was from an art sale and the value skyrocketed for some reason. Still will raise questions and the real life version is far more complex but pretty much anything with an abstract and intangible value works.
Weirdly.
This is one of the explanations that may actually work to a 5 year old.
Imagine you’re a kid and stole $100.
If you go home and suddenly have $100 worth of candy, your dad will get out the jumper cables and punish you for being a thief.
If you say you were selling lemonade they might catch on as well. You have no lemons. You have no sugar.
So you say you were walking the neighbors dog. Or your friends at school all really liked your drawings and thought they were worth $20 each.
There’s no real evidence of dog walking to check, or to prove that someone didn’t think a drawing was worth $20.
So now when you come home with $100 of candy, your dad doesn’t discipline you with jumper cables because you have a perfectly “legitimate” explanation for how you got it.
How would this happen at a mattress store?
More speculative since they have an actual physical product that can be audited to see “there is no way they sold $100,00 in mattresses and only sold 3.”
You could inflate transaction costs but that’s riskier since it’s easy to see how much one product can cost.
Lots of people explaining how money laundering works here. What I haven’t seen anyone mention is the mattress store angle.
In a lot of places, there seem to be waaay more mattress stores than there is business. There’s gotta be five of them within a few miles of my house, and they never seem busy. You’d also think there would be competition, like we aren’t buying enough new mattresses every year to keep all of those stores open, or or two should be closed by now.
Thus the assumption that they’re really fronts. Somebody is selling drugs or guns or something, and saying they made $100k selling mattresses when they really only make like $30k.
People just don’t understand how there are so many mattress stores when it’s a big ticket, infrequent purchase. So they assume something shady is going on.
The reality is that the stores are close together due to private equity firms buying up and consolidating the chains, but not closing redundant stores because the stores cost so little to run — commission salespeople, only 1-2 on shift, no store fixtures beyond the beds they sell as demos, inventory kept in central warehouses for delivery, etc.
Most mattress stores in south jersey especially in the Atlantic City area, most of the sales these mattress stores make are to the casinos/hotels in Atlantic City/resort town in the area. They rarely make sales to the general public
Furniture and mattresses have some of the highest markup in retail. Prices are negotiable on all of them. A customer may buy a mattress for $3400, but the books are “doctored” to show it was purchased for $5000. The laundered money will be put in to equal the $5000 selling price. Thus, the illegal money becomes legal. Watch Breaking Bad. 😀
The most powerful agency in the US government is the IRS, the IRS might let you walk away if you don’t report an extra 5k one year or another but if they catch wind that you’re not paying taxes on large sums of money they will begin to investigate. Their investigations are thorough and their business isn’t to implicate you in shady activity, it is to prove that you are committing tax fraud. It is REALLY HARD to prove that someone is a drug dealer if their network is large and intelligent, but it is REALLY EASY to prove that they committed tax fraud if, well… they don’t pay taxes. An easy way to prove that you aren’t paying taxes is to evaluate your net worth and see if you’ve been payed the IRS enough money to justify having such net worth, if you have a net worth of $100,000,000 but you’ve only payed $7,000,000 in taxes then it becomes easy to see that you’re not paying taxes proportionately and thus committing tax fraud. This means that you won’t be able to use your dirty money to make any purchases which can be used to calculate your net worth. No cars, no houses, no rentals, no investments, no assets. This sucks because you obviously worked really hard in order to afford such assets.
This is where the solution comes in, what if we didn’t have to hide our dirty money, what if we could take that money and clean it, launder it, give the IRS their cut and then spend it however we choose. So start an LLC and you get a loan, buy a space for a mattress store or car wash or auto shop, sell mattresses for a discount, claim to have sold them at full price when taking cash payments or report the discounted price which you sold then at if doing electronic payments. Now you bought those mattresses for $700 using your loan money but you sold them for $300, the electronic payment proves it, so you took a loss of $400, you report your loss to the IRS and they reimburse you for 60% of that loss this year, and then the remaining 40% over the next 2 tax years. You’re cleaning $900 every time you sell a mattress now. Say you sell only 10 mattresses a month, that’s $9,000 a month, open more stores, sell 15, maybe even 20 mattresses. Clean more. Now you have clean money and you can buy assets like fine art, sell the art for cash and report a higher price. Open legit businesses, circulate your dirty money into your vaults, an extra 10k a month for a business making 250k a month is easy to write off.
Even if you’re caught for tax fraud this doesn’t mean you’re caught drug dealing. Lots of drug dealers get caught for tax fraud and go to prison for tax fraud, not drug dealing. Tax fraud however is a very serious crime, the IRS can put you away for a very long time if you don’t pay up. To quote the king of New York, in reference to the IRS “if a dime bag is sold in Central Park, I want in on it”
I happen to have worked in a mattress store and am also a certified anti-money laundering specialist.
I’ve worked in the financial crimes space for several years, have never seen a mattress store used for money laundering, there are far better options.
Mattress stores generally aren’t very busy, but they’re usually fairly big ticket items with solid margins, so they don’t need to be super busy. Some products are price controlled, like Tempurpedics, so you’d have a difficult time falsifying an invoice for something like this. They’re also not cash heavy, have low inventory, and low inventory turnover, so really not appealing to money launderers.
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