CLEANING MONEY LIKE A (CRIME) BOSS: UNUSUAL FORMS OF MONEY-LAUNDERING – PART 1

Dr Jason de Mink

Introduction

The term ‘money-laundering’ vividly describes the process by which the proceeds of criminal activities are sanitized so that they may be introduced into the mainstream economy without retaining any hint of their illegitimate source. 

 

When illegal cash is generated, it must be placed into the financial system, otherwise it is of little use to the criminal. . Then the money must be layered within the financial system, meaning it is broken up or moved around sufficiently so that the audit trail is obscured. This phase effectively ‘cleans’ the dirty money.  Finally, the ‘clean’ money is returned to its owner, or integrated by acquisition of an asset.

 

Criminals need to ‘launder’ money because their businesses – including production and sale of illegal narcotics and drugs, human trafficking and cybercrime – yield huge amounts of illegal cash. 

 

When illegal cash is generated, it must be placed into the financial system. Then the money must be layered within the financial system, meaning it is broken up or moved around sufficiently so that the audit trail is obscured. This phase effectively ‘cleans’ the dirty money.  Finally, the ‘clean’ money is returned to its owner, or integrated by acquisition of an asset.

 

How large is the problem?  The United Nations Office on Drugs and Crime (UNODC) conducted a study in 2011[1] to determine the magnitude of illicit funds generated by drug trafficking and organised crimes.  The report estimates that in 2009 criminal proceeds amounted to 3.6% (2.2 trillion US dollars) of global Gross Domestic Product (GDP)[2], with 2.7% (or 1.6 trillion US dollars) being laundered.   These figures are staggering when one considers that the entire GDP in the United Kingdom in 2018 was 2.8 trillion US dollars.[3]

 

Money-laundering takes many forms and embraces all manner of technologies, from the most basic to the extremely sophisticated.  In general, by its very definition, money-laundering involves money as its central store of value.  However, there is an ongoing difficulty for criminals, in that success in their businesses comes at a price – literally.  Cash is bulky and ultimately traceable, difficult and dangerous to transport in volume and of no intrinsic value unless actually spent to acquire an asset or service. So criminals need an alternative or an adjunct to money, as a store of value.

 

Money-laundering takes many forms and embraces all manner of technologies, from the most basic to the extremely sophisticated.  In general, by its very definition, money-laundering involves money as its central store of value. 

Latest trends

Money-laundering takes many forms and embraces all manner of technologies, from the most basic to the extremely sophisticated.  In general, by its very definition, money-laundering involves money as its central store of value. 

 

However, cash creates problems for the criminal.  It is bulky and ultimately traceable, difficult and dangerous to transport in volume and of no intrinsic value unless actually spent to acquire an asset or service. So, criminals have identified a need for an alternative, or an adjunct, to money as a store of value and

Trends are being detected that indicate that criminals are shifting from cash to everyday commodities and goods that are legal and can be easily obtained, transported and sold.

 

Latest trends indicate  It would appear as if there is something of a move back to the barter system, where criminals are happy to accept payment in goods as opposed to hard currency.  

 

In particular, criminals favour products such as razor blades, infant formula, gift cards, alcohol, perfumes, cosmetics and over-the-counter medications.  These goods are small and relatively expensive, they have a value that is disproportionate to their size and there is generally a steady demand for them.  As they are commonly pilfered, many of these items are kept behind shop counters, are locked up or are security-tagged.  Next time you visit a major retailer look around to see which products are being protected in this way. 

 

Unusual commodities utilized to further crime and launder money

Laundry Detergent

A bizarre example from the US is the widespread use of laundry detergent as a currency. While it is a little bulkier than most of the items listed above, a bottle of ‘Tide’ laundry detergent  has been identified by criminals as a stable and readily exchangeable store of value, with a healthy resale profit margin due to its premium status.  would seem to make a good substitute store of value because it is a leading brand, everybody needs it, and it is pricey. One bottle can cost up to US$ 20 retail.

 

Stolen bottles of laundry detergent are not easily traceable and businesses have a strong incentive to buy the product on the black-market as opposed to the official supplier. While a shop selling legally-sourced laundry detergent for US$ 20 may make a US$2 profit per bottle, purchasing that same detergent for US$5 from a black-market translates into a US$15 profit.

 

‘Tide’, as a premium and heavily advertised brand, has been recognised as a stable and readily exchangeable store of value, with a healthy resale value.

This phenomenon was discovered inadvertently when US police forces raiding suspected drug houses found large quantities of ‘Tide’.  At first it was suspected thought that ingredients in the detergent were used to manufacture drugs.  However, it soon became apparent that the detergent was being used as currency to buy the drugs themselves.[4]  Police then noticed an increase in organised and widespread theft of well-known laundry detergent brands, often on an organized and large-scale basis, and began to track a trend where bottles of detergent have become ad hoc street currency.  For example, US$ 20 bottles of ‘Tide’ laundry detergent are selling for either US$ 5 cash or US$ 10 worth of marijuana or crack cocaine, earning it a new nickname: ‘Liquid gold’.

 

However, laundry detergent is not just used as a currency in the drug market but has become the ultimate target of the theft, totally distinct from the drugs trade.  Criminals have performed a cost-­benefit ­analysis of stealing a bottle of laundry detergent and have identified it as high reward and low risk.  The penalty for shoplifting in most jurisdictions is often just a small fine, with no jail time, as opposed to the far more severe penalty for dealing in drugs.  The trade in stolen laundry detergent has, therefore, in some ways become more lucrative than the drugs it was originally traded for.

 

Stolen bottles of laundry detergent are not easily traceable, and businesses have a strong incentive to buy the product on the black-market.  One large bottle can cost up to US$ 20 retail, so a shop selling legally-sourced laundry detergent for US$ 20 may only make US$2 profit per bottle.  However, purchasing that exact same detergent for US$5 from a black-market translates into a US$15 profit.  The trade in stolen laundry detergent has, therefore, in some ways become more lucrative than the drugs it was originally traded for.

 

 

Stolen bottles of laundry detergent are not easily traceable and businesses have a strong incentive to buy the product on the black-market as opposed to the official supplier. While a shop selling legally-sourced laundry detergent for US$ 20 may make a US$2 profit per bottle, purchasing that same detergent for US$5 from a black-market translates into a US$15 profit.

 

‘Tide’, as a premium and heavily advertised brand, has been recognised as a stable and readily exchangeable store of value, with a healthy resale value. The black-market trade in this substance is so widespread that US law enforcement agencies have recently discovered that large quantities of stolen liquid detergent have been transported to other jurisdictions, particularly in the Far East.

 

 

Ironically, black-market trade in this product also has another aspect – it can be copied and fake laundry detergent packaged as the real thing can also be sold at a profit, as another means of utilising and co-mingling illegitimate funds or as a business in itself.

 

* BA LLB LLM (UCT) Certificate in Money-Laundering Detection and Investigation (UP), Lecturer, Brunel University London

[1] United Nations Office on Drugs and Crime Research Report ‘Estimating illicit financial flows resulting from drug trafficking and other transnational organized crime’ (October 2011).

[2] World Bank "Gross Domestic Product" World Bank national accounts data The World Bank Group, 2019 https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2009&name_desc=false&start=2008

[3] World Bank "Gross Domestic Product – United Kingdom" World Bank national accounts data The World Bank Group, 2019 https://data.worldbank.org/indicator/NY.GDP.MKTP.CD

 

[4] J Sanburn ‘People Are Stealing Tide Detergent and Using It to Buy Drugs’ Time (14 March 2012) <http://business.time.com/2012/03/14/people-are-stealing-tide-detergent-and-using-it-to-buy-drugs/>accessed 20 November 2019

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