CHANGING BAD MONEY TO GOOD TAKES 3 STEPS

While money laundering can take on many variations, experts say it always
basically works in a three-step cycle: moving illicit money, such as drug
trafficking profits, away from direct association with crimes; disguising
the money trail; and making the money available to the criminals again with
its illegal origins hidden.

Banks in offshore areas such as islands of the Caribbean and the Channel
Islands off Britain, where local laws foster bank and corporate secrecy,
often play a key role.

Profits from drug trafficking and other criminal activities often move
through a series of bank accounts to make them appear as proceeds of
legitimate business activity.

Several fundamental rules are at play in money laundering, according to the
U.N. Office for Drug Control and Crime Prevention, including:

- -- The more-closely money launderers imitate the patterns of legitimate
financial transactions, the smaller the chance they will be caught.

- -- The more-deeply illegal activities are embedded within the legal
economy, the harder it is to detect money laundering.

- -- Banks and other financial institutions with smaller proportions of
illegal transactions and larger proportions of legal ones are better for
hiding money laundering.

- -- The higher the ratio of services to production of goods in an economy,
the more easily money laundering can be conducted in it.

- -- Production and distribution networks for goods and services that are
dominated by small, independent firms or self-employed people make it
harder for authorities to distinguish between legal and illegal transactions.

- -- Countries with laws allowing liberal, deregulated financial transactions
are better for hiding criminal money flows.

- -- As financial markets become increasingly global and interconnected,
money laundering becomes more difficult to detect.