4Ed_CCH_Forensic_and_Investigative_Accounting_Solutions_07

4Ed_CCH_Forensic_and_Investigative_Accounting_Solutions_07...

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© 2009 CCH. All Rights Reserved. Chapter 7 79 Chapter 7 Money Laundering and Transnational Financial Flows CHAPTER SUMMARY Overview The purpose of this chapter is to learn how money laundering occurs and to determine whether anything can be done to trace it and prevent it. Money Laundering: An Introduction The traditional money laundering process can be divided into three steps. First, the money is deposited in a bank or f nancial institution. Second, a set of complex transfers is made to disguise the original source for the money and to hide the audit trail. This is called layering the transactions . The f nal step is integrating the money back into the legitimate money supply. Not all processes would follow this order, depending on the speci f c situation. ¶7001 Legal and Illegal Laundering A de f nition of money laundering that covers both legal and illegal contexts is to take money that comes from one source, hide that source, and make the funds available in another setting so that the funds can be used without incurring legal restrictions or penalties. The primary purpose for money laundering is to make the funds spendable in a context that would have been unavailable otherwise. Consequently, the de f nition extends money laundering activities beyond the realm of drug dealers and criminals. It is possible to f nd accounting practices used within legitimate businesses and governments that closely follow the techniques used by international drug dealers to conceal the source of funds. ¶7011 Cybercash Creates New Laundering Opportunities In the very near future, using the Internet, it will be possible for anyone to transfer large sums money from one location to another without using a bank and with the transfers being totally anonymous. Today, cybercash transactions are beginning to take place without the need for third parties and the consequential scrutiny that might otherwise exist. Furthermore, cybercash transfers can be structured so that they originate in a jurisdiction where such activities are not considered illegal. ¶7021 Who Uses Money Laundering Practices? No list can contain all the examples of those who would use the techniques of money laundering. It should be remembered that the reason for money laundering is to convert resources into a format that makes them usable to their recipient. Grant Recipients. In recent years, a number of universities were caught using methods to convert federal grant monies into discretionary spending. Criminals. Many crimes, if successful, have the potential to generate large pools of money whose origin cannot be explained, thus prompting the use of money laundering procedures. Political Asylum Seekers. People persecuted for religious or ethnic reasons within a speci f c country may need help in escaping from that country as well as help in taking their personal wealth with them.
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80 Forensic and Investigative Accounting Chapter 7 © 2009 CCH. All Rights Reserved. Financial Institutions’ Role in Money Laundering
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