When discussing crime, law enforcement agencies and stakeholders often overlook white-collar crimes. However, they are one of the fastest-growing criminal ventures in society, generating vast amounts of illicit funds. It affects the economy unimaginably.
“Fraudsters use Ponzi schemes and money laundering to play on the intelligence of unsuspecting victims. They target individuals and institutions alike. They usually make their nefarious activities appear real, believable, and legitimate,” says Ponzi scheme law attorney Scott Silver of Securities Fraud Attorneys.
This piece highlights how fraudsters acquire and hide illicit funds:
Table of contents
Understanding White-Collar Crime
White-collar crimes are money-related criminal activities in which fraudsters employ deceptive methods to defraud their victims of their hard-earned funds. Before defrauding their victims, white-collar criminals employ various methods to win their trust.
Ponzi schemes and money laundering are two types of white-collar crimes. The former involves a pyramid scheme in which fraudsters recruit investors into imaginary and nonexistent investments and use the funds of new investors to pay their old counterparts.
Investment crashes occur when a significant cashout occurs simultaneously or when new people are unwilling to join. Ponzi schemes often have the most severe impact on new investors.
Conversely, money laundering involves unlawfully obtaining a large sum of money and concealing it to make it appear legitimate. Money launderers know how to operate discreetly.
Ways of Acquiring Illicit Funds
Money launderers devise various tactics to conceal the origin of their illicit funds. Understanding how they acquire their money will help you stay vigilant. The typical means by which white-collar criminals acquire money include:
The Use of Mules
A mule is a person whom white-collar criminals engage to assist in carrying out their laundering enterprise. Like drug mules, a money mule may be a part of the Ponzi scheme or ignorant of their role. Fraudsters use them to carry funds.
Money launderers often target naïve individuals who are unaware of their scheme. They employ various tactics to lure their prey. For instance, they can promise their recruit a high-paying job.
Thus, they often target the financially vulnerable, especially those without criminal records. If they discover you are under the radar, you are a good prospect to them.
The mule helps criminals open bank accounts and deposit their illicit funds. Then, they use currency exchanges to wire the funds around the financial system. It will be challenging for the authorities to detect them that way.
The Use of Smurfs
A Smurf is a white-collar criminal who wants to evade government scrutiny. They hide their illicit funds through different strategies. For instance, if they want to deposit a large sum that can raise suspicions, they will deposit it in fragments with different financial institutions.
The authorities mandate that banks report any deposit exceeding $10,000 to financial regulators. Criminals use smurfing to appear legitimate, making it easy for them to go under the radar with this strategy.
Through Cryptocurrency
Digitalization has opened various avenues for white-collar fraudsters to commit crimes. Criminals acquire illicit funds through digital currencies and cryptocurrencies, which enable them to conduct cross-border transactions in the blink of an eye.
The lack of gatekeeping in blockchain technology has made it challenging to know the source or destination of illicit funds. Criminals have found digital currencies to be a haven for their illegal enterprises. On cryptocurrency platforms, you can transact millions of dollars without any personal identity.
A white-collar criminal can use the proceeds to purchase Bitcoin. They can transfer the crypto using different wallets. When the transaction undergoes multiple phases, it becomes almost impossible to trace.
The launderer can reconvert their funds to fiat currency in a country with loose financial regulatory frameworks after anonymously redistributing transactions and moving funds with multiple intermediaries.
The Use of Gambling
Financial fraudsters efficiently use casinos for their illicit acts because of the high volume of cash in the industry. The players are also relatively anonymous. Criminals engage in minimal gambling after purchasing chips with dirty funds.
They usually select low-risk bets to reduce their losses. They will withdraw their remaining chips after spending an insignificant amount on games. Authorities will assume the funds are from lawful gambling activities.
A white-collar criminal can buy $200,000 of gambling chips with criminal proceeds. They may spend a relatively small amount, such as $15,000, on low-risk games. Then, they will withdraw the remaining $185,000 in chips through checks or direct bank transfers.
The Use of Shell Corporations
Shell corporations refer to firms that have no business operations or activities. Such corporations have no assets or workers. Several shell corporations are legitimate business entities used as fundraisers to support the operations of a startup firm or to oversee an acquisition or merger.
However, fraudsters also create shell corporations to conceal their illicit funds and evade taxation. Criminals target safe havens that guarantee their anonymity to set up their shell corporations. They can deposit funds and make transfers in such jurisdictions.
Having a shell means taxes aren’t paid to the IRS, and income doesn’t need to be reported to anyone or any organization. That is why criminals can hide behind this provision and operate freely.
White-collar criminals also invest in mobile commodities such as gems and gold. They can move these items across borders to blur their source. They are also involved in businesses that offer cash incentives. They focus on enterprises that deal with cash as legitimate income to mix their corruption-laden funds.
Steps Used to Conceal Illicit Funds
The points highlighted in the preceding section show that financial criminals are not erratic in their operations. They deploy well-planned, highly structured, and results-driven strategies to acquire and conceal their illicit funds.
The three steps they use in hiding their funds include:
- Placement of Funds: The financial criminal introduces the funds into the system by fragmenting them into several deposits. They can also place the money in different investment schemes.
- Layering the Funds: The criminal shuffles the money to sever any relationship with the perpetrators. The criminal creates a distance between the funds and them, making it impossible to trace the money to them.
- Integration of the Funds: The criminal facilitates the return of the money to themselves after cleaning it through the financial system. They make it look as if the money is their legal earnings, like the funds bouncing back to them after undergoing cleansing.
Concluding Thoughts
Fraudsters employ various methods to acquire and conceal their illicit funds. They are always a step ahead. If you fall victim to their illicit acts, involve a local attorney who specializes in Ponzi scheme cases in the legal battle to raise your chances of a positive outcome.
