Money Laundering Using Tax Havens

Money laundering is the process of transforming the profits of crime and corruption into ostensibly ‘legitimate’ assets, and the hiding of income/wealth from Governments to avoid taxation.

Placing ‘dirty’ money in a service company, where it is layered with legitimate income and then integrated into the flow of money, is a common form of money laundering. Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, and illegal gambling is ‘dirty’ and needs to be ‘cleaned’ to appear to have been derived from legal activities so that banks and other financial institutions will deal with it without suspicion.

Money laundering using tax havens normally take several forms:

• Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it into an offshore bank. The Bahama’s, for example, is only 293 km from Miami and can be accessed by a quick boat ride.
• Shell companies and trusts: Trusts and shell companies disguise the true owner of the money. 
• Round-tripping: Money is deposited in a tax haven where minimal records are kept, and then shipped back as a foreign investment, exempt from taxation.
• Use of a digital currency exchanger service which converts dollars into a digital currency that can be sent and received anonymously. The receiver can then convert the currency back into cash for a small fee.