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How Dirty Money Gets Cleaned

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How Dirty Money Gets Cleaned
Criminals have to get creative to launder money and avoid calling attention to their income.
SHOW TRANSCRIPT

When a criminal comes into ill-gotten money through political influence-peddling or drug trafficking, they have to get creative to stay on the right side of the law.

If they just pop it into a bank account, the feds will be knocking on their door by sunset. So they use a process called money laundering, cleansing dirty money of its criminal origins.

Investopedia breaks down the two most common methods: simple and complex.

First, the easy way. Let's say a drug dealer has $5,000. And let's say his friend or associate owns a pizza parlor. 

The restaurant can gradually mark up its earnings artificially by $5,000 and then deposit that dirty money in the bank without attracting suspicion, or, at the very least, have documentation to back up its earnings. Oftentimes, crime organizations own these front businesses, serving as pass-throughs for filthy dough. 

Now, the second, more complex route called "smurfing." Since federal law requires any deposit over $10,000 be flagged by bank officials, criminals have to break that big chunk of bucks into bite-sized deposits.

Like in the show "Claws," where a pill mill is getting too much cash, too quickly, they do frequent bank runs placing that cash into one or many different bank accounts in smaller sizes to avoid attention.

As for the name, smurfing, the University of Kentucky explains: "The army of persons who scurried from bank to bank to accomplish these transactions became known as 'smurfs' because, like their little blue cartoon namesakes, they were pandemic."

Congress tried to stop the smurfs in 1987, but it hasn't worked very well.

The last step to all this? After criminals go the simple or complex route, they have to decide how to get their money back. They can simply pull it out of the bank in the guise of a legitimate personal or professional transaction.

If they're concerned about detection, they can transfer the funds to yet another account, onshore or offshore, before withdrawing the money. Or, if they're super sneaky, make a big purchase like an office building, and then have their front business pay for it, giving them a paper trail, a giant profit and a pocketful of freshly laundered cash.