Lecture Notes on Money Laundering and Al Capone

Introduction to Al Capone

• Notorious gangster in history.
• Presided over a vast and profitable organized crime empire.
• Convicted only of tax evasion despite earning nearly $100 million a year (equivalent to 1.4 billion today) through illegal activities like:
  • Gambling
  • Bootlegging
  • Brothels
  • Extortion

Money Laundering Defined

• Definition: Process that "cleans" illegally obtained funds, allowing them to integrate into the legal economy.
• Origin of the term: Derives from businesses like cash-only laundromats used by criminals to hide their money.

Historical Context of Money Laundering

• Money laundering is an ancient practice, dating back to merchants hiding riches from tax collectors and pirates selling bounty inconspicuously.

Modern Money Laundering Techniques

Complexity of Modern Methods

• Recent innovations include:
  • Virtual currencies
  • Offshore banking
  • Dark net
  • Global markets

Basic Steps of Money Laundering

1. Placement:

   • Conversion of illegally obtained money into assets appearing legitimate.
   • Methods:
     • Deposits into bank accounts of anonymous corporations.
     • Use of professional middlemen.
   • Vulnerable step: Massive wealth introduction into the financial system.

2. Layering:

   • Further distancing the funds from their original source.
   • Methods:
     • Multiple transactions between various accounts.
     • Purchasing high-value items (cars, artwork, real estate).
     • Casinos as popular layering venues:
       • Large sums exchanged rapidly.
       • Possible collusion with casino employees to rig games.

3. Integration:

   • Clean money re-entering the mainstream economy.
   • Methods:
     • Investment in legal businesses.
     • Creating fake invoices for payments.
     • Establishing bogus charities, with criminals on the board of directors collecting large salaries.

Legal Context

• Money laundering recognized as a federal crime in the U.S. in 1986.
• Previously needed to prosecute a related crime (e.g., tax evasion).
• Post-1986 legal shift:
  • Confiscation of wealth possible by demonstrating concealment alone.
  • Positive impact on prosecuting major criminal operations (e.g., drug trafficking).

Concerns and Global Efforts

• Legal changes raised concerns over privacy and government surveillance.
• Organizations fighting against money laundering include:
  • United Nations
  • National governments
  • Various non-profits

Scale of Money Laundering

• Practice continues to play a significant role in global crime.
• High-profile instances involve:
  • Major financial institutions.
  • Government officials.
• Estimated annual money laundering totals range in the hundreds of billions of dollars.