Money Laundering Process
Let’s
assume that Mr. A. is a billionaire who lives in USA, has several legal and
illegal businesses and therefore he wants to do some ‘money laundering’ This way he can
a) Continue
with his illegal businesses
b) Save
millions in taxes from his legal business (tax evasion).
What is money laundering? to hide the source of income whether legal or illegal.
Step-1: Company Registration
The
first thing that he needs to do is to register his company in a country that,
by law, keeps his name and other details a secret.
Switzerland, British Virgin Islands, Cayman Islands and Netherlands are all
good choices.
He
knows the simple rule of thumb: NEVER register in your home country. If you are
from Switzerland, then register your company in Netherlands or Virgin Islands
but not in Switzerland.
Step-2: Make a Chain of Companies
If
you’ve read John Grisham or Jeffrey Archer’s novels then you would know that if
you make a chain of companies, each owning some or part of the other, then it
would be impossible to trace them back to you.
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Mr.
A. would register a company in Switzerland called ‘A1’. Switzerland’s financial
sector is famous for their secrecy; they are never going to reveal the real
owner of A1 to anyone. Mr. A. will then register another company in Cayman
Islands, called ‘B2’ but the owner this time is going to be his Swiss company
‘A1’ not Mr. A. He will register another company in Netherlands, ‘C3’, and this
time the owners will be ‘B2’ and ‘A1’. Mr. A. has now effectively created a
complex chain.
The
chain can, potentially, go on forever. Mr A. will register one company after
another after another. Some companies will jointly own part of other companies,
some will have sole owners, some will be registered in underdeveloped economies
such as Bhutan, Nepal, Guatemala, while some will be registered in state of
Delaware.
Why
Delaware? Because it doesn’t collect any information on the owners of the
companies. This is the only US State that doesn’t want to know about the
origins of a business so, naturally, it attracts people like Mr. A.
What would these companies
do? All
of Mr A’s companies will operate under legitimate small businesses and will
stay ‘below the radar’, i.e. away from media and public attention.
Step-3: Register directly
with companies registrar
Mr.
A. will go directly to the respective country’s company registrar to register
himself because, often times, they ask the least amount of questions.
Governments around the world encourage registration of companies and Mr. A.
will use this trust for his business. He can also go to a firm that specializes
in registration of companies but usually; they are required, by law, to perform
security checks on the origin of business. On the other hand, Mr. A. can pay a
little extra and avoid all the scrutiny.
Step-4: Look clean
By
this time you might be asking yourself, wouldn’t it be a good idea to register
one of the companies in the chain in some legit sounding place like UK, or USA
or Canada? It would certainly make Mr. A’s illegal business look a bit more
legit, wouldn’t it?
Yes
it would and this is exactly what most of the people, like Mr. A., do. They would always have at least one company
in US or UK or Dubai, a place where all the financial records have to be maintained
and submitted to government. So Mr. A. will register a company in California,
called ‘D4’, and the owner of this company will be ‘C3’.
At
least theoretically, D4 will be transparent but practically, since its owner is
another company registered in Netherlands (C3), therefore it would be almost
impossible to trace it back to Mr.A.
Step-5: Hire Owners
Mr.
A. will now hire owners, that’s right, hire people to act as owners and directors for all of
his companies, especially for A1, to appear on his company’s books and sit in
its offices. Surprisingly, this is completely legal and is often practiced,
even by 100% legal businesses.
There are numerous specialist firms around the
world that can help Mr. A. in this regard. This will add an impenetrable layer
of secrecy and nobody, not even the government’s agencies, will be able to
trace Mr. A.
Why
especially for A1? Because that was the first company whose real owner was, in fact,
Mr. A.
Step-6 Open a bank account
and start spending
To
transfer money from one place to another, Mr. A. needs a bank account in a
place with minimum level of scrutiny and highest level of secrecy. The account
will be opened in the name of one of Mr. A’s companies, not a personal account.
- He can open an account in Switzerland. It will be kept super secret but he might have some problems in transferring the money around.
OR
- He can open an account in smaller eastern European nations that are a part of EU e.g. Latvia. Almost no security checks will be performed plus he can transfer the money freely within the European Union, without any chances of being caught.
Source:
“An Idiot’s Guide to Money Laundering” by Global Witness
