Money Laundering
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What is Money Laundering?
The term “money laundering” refers to the activities and financial
transactions that are undertaken specifically to hide the true source of
the money. In most cases, the money involved is earned from an illegal
enterprise and the goal is to give that money the appearance of coming from
a legitimate source.
Why is IRS Involved in
Money Laundering Investigations?
One look at the daily news is proof that the crimes dealing with or
motivated by money make up the majority of criminal activity in the nation.
Tax evasion, public corruption, health care fraud, money laundering and
drug trafficking are all examples of the types of crimes that revolve
around money. In these cases, a financial investigation often becomes the
key to a conviction. For this reason, IRS is one of the key agencies
involved in money laundering investigations.
Money laundering is a very complex crime involving intricate details, often
involving numerous financial transactions and financial outlets throughout
the world. Criminal Investigation has the financial investigators and
expertise that is critical to “follow the money trail.”
Criminal Investigation focuses on money laundering where the underlying
conduct is a violation of the income tax laws or violations of the Bank
Secrecy Act. According to the IRS, money laundering is the means by which
criminals evade paying taxes on illegal income by concealing the source and
the amount of profit. Money laundering is in effect tax evasion in
progress.
When no other crimes could be pinned to Al Capone, the Internal Revenue
Service obtained a conviction for tax evasion. As the astonished Capone
left the courthouse he said, "This is preposterous. You can't tax
illegal income!" But the fact is income from whatever source derived
(legal or illegal) is taxable income.
Had the money laundering statutes been on the books in the 1930's, Capone
would also have been charged with money laundering. However, since October
1986, with the passage of the Money Laundering Control Act, organized crime
members and many others have been charged and convicted of both tax evasion
and money laundering.
When a criminal has a large amount of illegal income, they have to do
something with it in order to hide it from the IRS. They attempt to launder
it to make it appear as if it was from a legitimate source, allowing them
to spend it or invest it in assets without having to worry about the IRS
and tax consequences.
One of the ways to launder illegal proceeds is to move the money out of the
United States
and then bring it back in a clean form, often disguised as loan proceeds.
Another method is to channel or co-mingle the money through various
business activities to give the appearance that the money was derived from
a legal source.
Why
a Financial Investigation?
Financial investigations are by their nature very document intensive.
They involve records, such as bank account information or real estate
files, which point to the movement of money. Any record that pertains to or
shows the sequence of events involving money movement is important. The
major goal in a financial investigation is to identify and document the
movement of money during the course of a crime. The link between where the
money comes from, who gets it, when it is received and where it is stored
or deposited, can provide proof of criminal activity.
IRS investigations of illegal income cases involving money laundering are
critical components of the nations National Money Laundering Strategy. The
long hours of tracking and documenting financial leads allows an
investigation to go right to the door of the money launderers and
eventually to the leader of the illegal enterprise. A complete financial
analysis and reconstruction of the illegal activity (i.e. a drug
organization or an abusive trust scheme) will document the financial
activities related to unreported income on tax returns and money laundering
which is usually key to securing a conviction.
Money laundering creates an underground, untaxed economy that harms our
country’s overall economic strength. It is a global threat that erodes our
financial systems.
