https://gijn.org/stories/new-money-laundering-trends-journalists-watch-out/

Forty years ago, drug traffickers and corrupt foreign officials would often land their small planes on Caribbean airstrips with duffel bags of cash in the cargo hold. Pilots would taxi these planes to small, brick-and-mortar banks conveniently stationed at the end of these runways — and push those bags out of the plane and into the arms of bank staff, who would ask no questions and deposit the sketchy funds for laundering — after a hefty mark-up.

According to Drew Sullivan, co-founder of the Organized Crime and Corruption Reporting Project (OCCRP), money laundering has exploded. “The sums used to be in the millions; they are now in the billions,” he noted. And the complexity has grown along with the sums. Money laundering is now much more sophisticated, and much cheaper to achieve — and investigative journalists need to understand several new trends.

“So, in the old days, you were charged 10 to 15% at the end of those runways; well, laundering is now below the cost of ordinary bank transfer fees,” Sullivan explained at a session on international financial crimes trends at the 2024 Investigative Reporters and Editors conference. “In the Laundromat projects we looked at, the [cost of laundering] was 0.1% of the transactions, which is below the fees we pay.”

At the IRE panel, Sullivan and moderator Martha Mendoza, a Pulitzer Prize-winning reporter at the Associated Press, focused on new money laundering strategies that make this form of hiding illicit assets increasingly difficult to track.

These include selling non-existent products to yourself, cryptocurrency manipulation, payrolls for non-existent employees — and simply buying entire banks if they ask too many questions.

Sullivan warned that it was important for reporters to not conflate money laundering with other abuses of financial systems such as bribery or tax evasion, and pay close attention to OCCRP’s definition of this particular crime: “The concealment of the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses.”

“‘Illegally obtained’ is really key, because there has to be some kind of baseline or predicate crime you can show that has proceeds you need to launder,” Sullivan said. “It’s actually one of the most difficult things to prove in court, and it’s even more difficult, as an investigative reporter, to prove something was definitively money laundering. So you don’t see many stories on this, unless law enforcement declares it.”

‘Follow-the-Money’ Remains the Best Reporting Strategy

The good news, according to Mendoza, is that — despite new asset camouflaging trends — many of the pieces to current money laundering puzzles can be found in freely available journalist-curated financial leaks databases.

That’s because the overarching strategy for hiding ill-gotten proceeds remains the same: pretend you are two different people. In addition, the go-to method to pull off this trick is to create offshore shell companies or trusts in secrecy jurisdictions such as the British Virgin Islands or the Seychelles, where leaks are often needed to reveal the true owners.

“You can access Panama Papers-type leaks data via ICIJ and Aleph, and start making connections,” explained Mendoza. “It’s a little slow, but once you make one tie-in, you’re off. Once you get one name you need there, you can start using tools like Companies House or OpenCorporates, where you can start to see similar or identical boards of directors; identical individuals.”

In short, the three stages of laundering are still essentially the same: “placement” (getting the cash into the financial system); “layering” (extra transactions to camouflage the cash source); and “integration” (turning the funds into accessible, investable wealth).

Current Landscape of Money Laundering Tactics

Old-school tactics losing popularity:

“Smurfing.” This is a technique where bad actors employ dozens of people to deposit cash sums slightly less than the amounts that trigger regulatory questions — such as $9,990 rather than $10,000. “People still do it with things like crypto ATMs,” Sullivan noted. “It’s a great way for drug dealers to smurf, with a lot of different crypto wallets and a lot of different people depositing, and it’s not easy to track, if you have a lot of different crypto wallets and people.”

Bulk cash smuggling. “That’s still done in certain places in Africa — huge amounts of gold and diamonds and cash going up to the souks in places like Dubai, where they are put into banks there. Dubai is one of the few places left on earth where you can deposit large amounts of cash without anyone truly asking you questions about it,” Sullivan said.

Cash businesses. “There is still the old-school method of having a cash business: casinos, car washes, parking lots — any place where there is a large amount of cash,” Sullivan explained. “But cash is going away. Very few people carry large amounts of cash anymore, and it’s the same for businesses. The exceptions are places like casinos, where you can go in, buy a large number of chips, and exchange them back for cash, and say ‘I got it at the casino.’ Food spoilage is another way, where you say: ‘Oh, a large amount of our meat spoiled.’ The problem with that is that these are small ways of laundering money, when, nowadays, bad actors are really laundering billions of dollars, not millions or hundreds or thousands, so new methods had to be invented to deal with those sums.”

Evergreen methods still being used:

Ultra high-value real estate. Criminals generally don’t like to hide their money in purchases of overseas houses or private estates, for reasons as simple as this: they don’t want to have to mow the lawn or pay for caretakers. And they don’t like buying a large portfolio of medium-sized apartments in a Western city, because it’s too much paperwork. Instead, Sullivan said they prefer buying ultra-high value apartments that can be essentially ignored while growing in real estate market value. “Once you’ve laundered the money, you want to move your assets abroad — for which you need one $200 million apartment,” he said. “That’s why you find these expensive apartments in places like New York or London that are completely empty. All of this has to be hidden under offshore companies and proxies.”

Offshore companies, trusts, and hedge funds. “All you really have to do is own an offshore company that no one knows you own,” Sullivan said. “Any transaction between your declared company and hidden company looks like a proper transaction, but it isn’t. Hedge funds are notoriously opaque, so a combination of hedge fund and offshore company is almost impenetrable.” He added: “Offshore trusts — say, in places like St. Vincent or Lichtenstein — are things you cannot find out the owner of, and so the money can come out via a trust in another location.” Tip: In addition to looking at corporate registries and digging into the company’s website, Sullivan said reporters can check whether a firm is a front by asking legitimate market competitors what they know of the company.

New and increasingly popular methods:

Trade-based laundering. This method involves manipulating invoices and transactions to persuade banks that large deposits are the proceeds of trade deals. “This is the most popular right now,” Sullivan explained. “Whether you actually have any steel isn’t really the issue: if you can list a buyer and a seller of this ‘steel,’ then you can go to a bank and say, ‘Look, I just sold $500 million of steel and made $200 million profit.’ There are actually companies that will help you do this fake paperwork… You might be moving that ‘steel’ from one offshore company to another offshore company, and then to another. You’re layering, and destroying the track of where the money originated. The one transaction might be for flowers; the next for steel; the next for computer parts.” He added: “That’s why I don’t trust trade data, because so much is just fake things supposedly moving around, and, at the end, the money comes out , looking like profit you made on some deal. And that’s the way you launder a billion dollars.”

Laundromats. A laundromat is a complex hidden money scheme — typically set up by a bank or a high-net-worth individual — that uses multiple shell companies in secrecy jurisdictions to allow clients to purchase large assets with anonymity. Sullivan said one Latvia-based laundromat was so brazen that it published a money laundering “guide”  for clients. Its tips included this: if you are pretending to sell steel, make sure you also create fake paperwork for a crane — because other banks might otherwise ask how you moved this heavy inventory. (See a video explainer of OCCRP’s Troika Laundromat investigation below.)

Offshore loans. “If you get a loan from a company you own, it’s accepted by banks because it has an origin: you got a loan,” Sullivan explained. “You can spend that money and of course you just never pay back that money to yourself. The fact that it came from an offshore company that you secretly own is lost.” Tip: When looking at financial records of suspicious companies, reporters can look for loans, and loans never paid back. Reporters should also flag loans where “cash” is listed as collateral. “If somebody is using cash for a business loan, it doesn’t make a lot of sense for legitimate business, because if you have the cash, why do you need a loan?” Sullivan pointed out.

Bank capture. “Some criminals just buy a bank,” he added. “You loan all the money to yourself and then just empty your own bank. It happens in Russia and Eastern Europe quite often. You can also move money between internal accounts at your own bank – transactions which are hidden from regulators.”

Fake humans as proxy owners. Criminals often hide assets by registering them in the names of others — but the nature of those proxies is changing. “In the old days, proxies were simple: it was your wife or kid,” Sullivan explained. “But journalists caught up with that, and started asking: ‘Why does your 12-year-old son own this company?’ So criminals started using registration agents as proxies — but that too became suspicious. We found one woman who worked at a Burger King in Singapore who ‘owned’ something like 6,000 companies. So now they’re creating non-existent people at fake addresses to own their companies. The nice thing about fake humans is they cannot be traced down.”

Failed contracts sent to proxies. “We saw emails going from an oligarch to a proxy, saying here’s a contract for a stock sale — but that signed contract didn’t have any dates or any stock prices, so it was essentially sending him a blank check,” Sullivan recalled. “And Russian oligarchs love to use failed contracts to bribe people. They’ll have a contract saying: ‘Here’s a deal — if we don’t close this, we will owe you $10 million, because we want to reimburse you for your trouble.’  So we saw a $10 million buy-out on this one contract, and they conveniently sent the contract and cancellation of that contract [to the proxy] in the same email!”

Cryptocurrency transactions. “You can move illicit money into a crypto account, you trade it with someone, and then send it through something like [the anonymous cryptocurrency] Monero, and you’ve just hidden where that money has gone,” Sullivan added.

Abuse of tax amnesties. “You see these wealthy people apply for a tax amnesty, where they say: ‘We’ve got a lot of money overseas; you should really incentivize me to bring it back because it will help the country,’” Sullivan explained. “And it’s basically bullshit, because they’ve been avoiding taxes for years. But we’ve also seen organized crime negotiate tax amnesties with countries — so large amounts of money can be cleaned very simply by governments themselves.”