Money laundering typically involves disguising the true beneficial ownership of funds or other assets which are the proceeds of crime. Because money laundering often extends beyond just one nation’s borders, over 170 jurisdictions worldwide have adopted the anti-money laundering policies of the Financial Action Task Force. Some nations also follow the anti-money laundering recommendations and/or policies of the Wolfsberg Group, the Basel Committee on Banking Supervision, the Egmont Group, the European Union, or the United Nations.
Laundering circuits are sometimes used by: individuals protecting assets from lawsuits; spouses hiding marital property during a divorce; tax evaders hiding assets; debtors in bankruptcy concealing assets from creditors; terrorists financing their activities or other criminals concealing illicit proceeds. Depending on the specific facts, any of the above activities could conceivably violate 18 U.S.C. §1956 (Laundering of Monetary Instruments); and / or 18 U.S.C. §1957 (Engaging in monetary transactions in property derived from specified unlawful activity); and / or 18 U.S.C § 1961 (Racketeer Influenced and Corrupt Organizations Act), along with other U.S. laws.
Money laundering is often described as occurring through placement, layering, and integration. Illegally obtained money is first placed into a financial system. Layering then occurs as laundering links help disguise who the true beneficial owner of the money really is. As the laundering “link chart” from FINTRAC the Financial Intelligence Unit based in Canada partly demonstrates: bank accounts, shell corporations, and nominees may all be used as laundering links which act as the protective layers of a money laundering circuit. Many times laundering links are located in a Major Money Laundering Country and / or a tax haven where strong bank secrecy laws make them difficult to detect.
After it has been washed by a series of transfers between the laundering links, money in a laundering circuit is finally integrated into the financial system in the U.S. or elsewhere. A back-to-back loan is one of the countless ways money is sometimes laundered. It can be a loan which appears to be arm’s length, when in actuality the borrower and lender are one and the same. In a back-to-back loan, the lender may secretly deposit cash offshore and then use this deposit to fully collateralize a loan to him / herself.
Although some of the details have been changed for privacy reasons, the chart below accurately depicts how the”Divorcing Spouse” employed a back-to-back loan to disguise the U.S. origin of funds. As this chart reveals, the Divorcing Spouse laundered these funds by utilizing multiple jurisdictions and a fully collateralized loan. First, the Divorcing Spouse secretly deposited $30 million in undeclared revenue into a Swiss bank account. Based on the $30 million, the Divorcing Spouse secured a $29 million bank guarantee from the Swiss bank and used this bank guarantee to secure a $29 million loan from a bank in Germany. After the German bank paid the Divorcing Spouse the $29 million loan principle, the Divorcing Spouse intentionally defaulted on the $29 million German bank loan. Because of the Divorcing Spouse’s default on the German bank loan, $29 million was finally transferred to the German bank pursuant to the Swiss bank guarantee. As a consequence of the foregoing, the Divorcing Spouse washed the $29 million through the Swiss and German banks. Furthermore, because of strict compartmentalization one would not ordinarily recognize that the Divorcing Spouse was both the lender and borrower of the $29 million loan: