HOW MONEY IS LAUNDERED

Criminals With Lots Of Cash Use Various Ways To Make It Look
Legitimate

Money laundering occurs when criminals turn cash made from illegal
activities into "clean" money through what appear to be legitimate
business enterprises.

The issue arose this week when RCMP announced that a 20-month
investigation into marijuana trafficking and cocaine importing led to
police executing search warrants at various locations, including the
legislature offices of two non-elected staff members.

"I can say that in general, the spread of organized crime just in the
past two years has been like a cancer on the social and economic
well-being of all British Columbians," RCMP Sergeant John Ward said.

"Today, the value of the illegal marijuana trade alone is estimated to
be worth in excess of $6 billion. We are seeing major increases in
organized crime-related murders, beatings, extortion, money
laundering, and other activity which touches many innocent lives."

Drug trafficking generates huge amounts of cash for organized crime,
which "launders" illegal profits to avoid prosecution, increase wealth
and evade taxes, according to an RCMP report on money laundering.

"The principal objective of money laundering is to convert cash to
some other form of asset, to conceal the illegal source or origin of
cash income," says the report by the RCMP proceeds of crime branch.

"Criminals eventually use these funds, ascribed to a 'legitimate'
source, which then cover the tracks of the illegitimate business that
generated the cash in the first place."

Police say the amount of laundered money in Canada's financial system
is staggering.

"Drug trafficking alone generates billions of illegal dollars for
criminal organizations every year," the report said. "Although it is
difficult to pinpoint the exact amount, it is clear that the problem
is vast."

The report says money laundering has devastating social consequences,
in that illegally gained funds provide financial support for drug
dealers, terrorists, arms dealers and other criminals to operate and
expand their criminal empires.

According to the report, money laundering methods include:

- - Smurfing. Probably the most commonly used method, it involves many
individuals who deposit cash or buy bank drafts in amounts under
$10,000. This method is common to both Canada and the U.S. Deposits of
more than $10,000 have to be reported by banks.

- - Bank complicity. A co-opted bank employee facilitates illegal money
laundering.

- - Currency exchanges. They provide a service that permits buying
foreign currency that can be transported out of the country. Money can
also be wired to offshore bank accounts.

- - Securities brokers. A stock broker can take large wads of cash and
issue securities in exchange.

- - Asset purchases with bulk cash. Money launderers purchase such
big-ticket items as cars, boats, planes or real estate. In many cases,
launderers may use the asset but will distance themselves by having
assets registered in the name of a friend or trusted associate.

- - Electronic transfer of funds. Wiring money from one city or country
to another. This can be done using "dummy" companies set up for money
laundering.

- - Postal money orders. Cash is exchanged for money orders, which are
then shipped out of the country for deposit.

- - Credit cards. Criminals often overpay credit cards and keep a high
credit balance that can be turned into cash at any time and place.

- - Gambling in casinos. Cash can be taken to a casino to purchase
chips. After gambling, chips can be redeemed at the cashier's cage,
where a casino cheque is issued.

- - Refining. Individuals change small bills into large ones by visiting
a number of banks so as not to arouse suspicion. The purpose of
refining is to decrease the bulk of larger cash quantities. Drug
deals, for example, often involve large amounts of $20 bills.

- - Legitimate business/commingling of funds. Criminals take over or
invest in businesses such as restaurants, hotels, nightclubs or
vending machines that handle a high cash volume, thereby mixing
illicit proceeds with legitimate business.

- - Reverse flip. A money launderer may find a cooperative property
seller who agrees to a reported purchase price well below the actual
value and then accepts the difference "under the table." The launderer
can, for example, purchase a $2 million property for $1 million and,
after holding the property for some time, sell it for its true value
of $2 million.

- - Loanback. A criminal provides an associate with a specific amount of
illegitimate money. The associate then provides a "loan or mortgage"
back to the trafficker for the same amount with all the necessary
"loan and/or mortgage" documentation. This creates an illusion that
the trafficker's funds are legitimate. The scheme is reinforced
through "legitimately" scheduled payments made on the loan by the
traffickers.

The RCMP says it has had considerable success in attacking the assets
of criminals through proceeds of crime legislation.

One five-year B.C. project that concluded in 1997 resulted in more
than $17 million in assets being seized by police and eventually
forfeited, including: an ocean-going freighter, eight luxury homes
worth $1 million to $2 million each, six tugboats, $800,000 in lottery
tickets and $1 million in cash, jewellery and other valuables.