Part 1 - AL-Tax
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Part 1 - AL-Tax

Part 1 - AL-Tax Part 1 - AL-Tax

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Chapter 13●●Layering. This is the transaction or series of transactions designed to concealthe origins of the funds and thus dissociate them from the activities that generatedthem. Layering involves converting the funds into another form andoften creating several layers of financial transactions (for example, the buyingand selling of shares, commodities, or property) between the originalfunds and the eventual form for which they have been exchanged. This secondstep will be used frequently by money launderers, even after the thirdstep (integration) has been implemented, to further disguise the source ofthe funds (via this loop).Integration. The third step involves placing the laundered proceeds back inthe economy under a veil of legitimacy. A money launderer will ofteninvest the funds in a legitimate business, permitting the laundering of evenmore money.The traditional methods to whitewash funds have included the use of shell corporations,offshore tax shelters, and cash-only transactions, as well as making useof the services offered by banks, money transfer businesses, and others acceptingcash deposits (for example, the operators of alternative remittance systems) toreroute the funds (El Rahman and Sheikh, 2003). While wire transfers enable fundsto be transferred cheaply and rapidly, a significant amount of money launderingalso involves the transport across borders of physical financial instruments (cash,paper bonds, and share certificates) via smuggling, airline travelers, or airfreight.Although the cross-border transport of financial instruments should be declared tocustoms officials, that is often not done (also by otherwise legitimate travelers), evenif it means risking seizure of the instruments and being the subject of a criminalprosecution. In addition, the electronic transfer of funds via the Internet is on theincrease and the obvious potential of such transfers for money laundering representsa major challenge for authorities (FATF, 2000, 2001; Trehan, 2004).13.4 TechniquesWhile it is practically impossible to generate an exhaustive list of the methodsused to launder funds (given the rapid development of new and hybrid methods),the following are amongst the most commonly used techniques:●Purchase of important assets. The trust is one of the principal methodsused by launderers to conceal the true ownership of assets (FATF, 2001;Kennedy, 2005). The assets are bought for cash and registered in the name317

International Taxation Handbook●●●●of a nominee or trustee who holds the assets for the benefit of the laundererand deals with the assets (and any income generated by them) in accordancewith the wishes of the launderer. In this way, the launderer is able toconceal ownership of the assets while continuing to have full enjoyment ofthose assets. The trustee may be a friend or relative and is inevitably someonewho is trusted by the launderer, does not have a criminal record, and isoften in good standing in society. Thus, the trustee’s ownership of the assetsis unlikely to attract unwelcome attention or raise suspicions. Apart fromreal property or high-value mobile assets such as cars and yachts, the proceedsto be laundered may be converted into gemstones, gold bullion andother precious metals, artwork, or antiques, which may more readily betransported out of the jurisdiction without being detected (FATF, 2003;Kennedy, 2005).Foreign currency transactions. The proceeds to be laundered may be convertedinto another currency, which can then be transferred by wire or evenphysically across borders.Identity theft. This is accomplished in such a way that the victims remainunaware of the fact that their identities are being used for criminal purposes.Within a short period of time, the stolen identity will be used to open bankaccounts, deposit and transfer monies, including to foreign jurisdictions.The accounts are generally closed after a few months and replaced by newidentities.Casinos. Large quantities of chips may be purchased with a certain amountplayed and the remaining chips redeemed for a cheque issued by the casino(Leong, 2004; Kennedy, 2005). To prevent the use of chips in this way to launderfunds, more and more casinos will only issue cheques for the amount ofwinnings. Increasingly, money launderers are turning to Internet casinos,which may have no or less strict anti-money-laundering measures thantheir ‘bricks and mortar’ counterparts (FATF, 2001).Deposits of less than the reportable threshold. This is perhaps the mostcommonly used method to launder money in more developed economies.The launderer may have his or her associates, friends, or relatives convertthe proceeds (often small-denominated notes or ‘street cash’) into largerdenominations for amounts less than $10,000 (which is typically thereportable threshold). Transactions below this threshold are not required tobe disclosed to the authorities, including the financial intelligence units ofthat country or other regulatory agencies tasked with combating moneylaundering.318

Chapter 13●●Layering. This is the transaction or series of transactions designed to concealthe origins of the funds and thus dissociate them from the activities that generatedthem. Layering involves converting the funds into another form andoften creating several layers of financial transactions (for example, the buyingand selling of shares, commodities, or property) between the originalfunds and the eventual form for which they have been exchanged. This secondstep will be used frequently by money launderers, even after the thirdstep (integration) has been implemented, to further disguise the source ofthe funds (via this loop).Integration. The third step involves placing the laundered proceeds back inthe economy under a veil of legitimacy. A money launderer will ofteninvest the funds in a legitimate business, permitting the laundering of evenmore money.The traditional methods to whitewash funds have included the use of shell corporations,offshore tax shelters, and cash-only transactions, as well as making useof the services offered by banks, money transfer businesses, and others acceptingcash deposits (for example, the operators of alternative remittance systems) toreroute the funds (El Rahman and Sheikh, 2003). While wire transfers enable fundsto be transferred cheaply and rapidly, a significant amount of money launderingalso involves the transport across borders of physical financial instruments (cash,paper bonds, and share certificates) via smuggling, airline travelers, or airfreight.Although the cross-border transport of financial instruments should be declared tocustoms officials, that is often not done (also by otherwise legitimate travelers), evenif it means risking seizure of the instruments and being the subject of a criminalprosecution. In addition, the electronic transfer of funds via the Internet is on theincrease and the obvious potential of such transfers for money laundering representsa major challenge for authorities (FATF, 2000, 2001; Trehan, 2004).13.4 TechniquesWhile it is practically impossible to generate an exhaustive list of the methodsused to launder funds (given the rapid development of new and hybrid methods),the following are amongst the most commonly used techniques:●Purchase of important assets. The trust is one of the principal methodsused by launderers to conceal the true ownership of assets (FATF, 2001;Kennedy, 2005). The assets are bought for cash and registered in the name317

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