IDENTIFYING MONEY LAUNDERING THROUGH CASH-INTENSIVE BUSINESSES

Some of my drug trafficking clients, back in the day, did not launder all their profits through me; they used accountants who had connections to legitimate businesses that primarily received payments for their goods and services in cash, and who were willing, for one reason or another, to cooperate in a money laundering operation, for mutual benefit. Sometimes, businesses falling upon hard times lose track of their moral compass and agree to be used as laundromats; others simply have avarice. Either way, these businesses served their purpose well.

Such companies usually are in wholesale or retail sales, anything where they sell from inventory, and where traditionally only cash, and not plastic, nor credit, debit cards or any other form of payment, is king. Money launderers will seek out such businesses, even going so far as to outright purchase them, to fulfill their needs.

The technique is simple; dump large amounts of criminal proceeds into the system, recording it in the records as sales, spread out over a period of time. If they are retail sales, create receipts and book them, for accounting purposes, as incoming cash flow. They will vastly increase annual profits, and duly pay all taxes as they come due. The net profits you end up with are cleaned cash.

A supplemental way to take additional profits out is to engage your people as commission salesmen on the income, and show them having a banner year, giving them fat commission checks each pay period, which they pay personal income tax on, after taking all lawful deductions, and coming away with seed money for legitimate investment, personal use, or opening a new, legitimate business where they can start the cycle all over again.

Traditionally, identifying cash-intensive businesses as laundromats has been extremely difficult, because where does an investigator or a compliance officer even start looking, assuming he has a suspicion that it is ongoing, such as linking a known carer criminal to a specific business.

The weak link is the inventory; you must prove that the company failed to purchase sufficient inventory to justify sales, and this requires an analysis of the company's payments for the goods they sold from wholesalers or manufacturers. It also demands that the investigator have sufficient knowledge of the profit margin of this type of company, as well as a good idea of their business plan.

Ordinarily, such calculations are beyond the capability of most compliance officers digging into their customers' bank statements, but things have changed with the advent of platforms powered by artificial intelligence, and employing machine learning. Such systems can extract the data, and advise whether there is a telltale gap between listed wholesale purchases, and retail sales reported. These tools will expose money laundering through cash businesses, and foil the laundrymen who have always been able to clean their clients' small denomination drug cash sales in this manner for decades.