Money laundering can be understood as “a set of commercial or financial transactions that seek the incorporation in the economy of each country, either temporary or permanent, of resources, goods and values with an illicit origin”. The procedure includes disguise the nature, source, location, disposition, movement or ownership of property, values and rights originated by criminal or misdemeanors acts, with the scope of reinserting them into the formal economy with the appearance of legality.
The phenomenon of money laundering is essentially aimed at two goals: preventing ‘dirty money’ from serving the crimes that generated it, and ensuring that the money can be used without any danger of confiscation.
The interest of law enforcement authorities in detecting the link between an offender and the proceeds of the crimes he has allegedly committed is consequently also twofold: detecting the crimes that were committed in order to bring the alleged perpetrators to trial, and identifying the proceeds from crime so that they can be confiscated.
The effects of money laundering have repercussions beyond national borders, in order to destabilize financial systems and compromise economic activities due to the huge amount of property, rights and benefits, which are hidden or underhanded and begin to circulate in the market with legitimate appearance.
As pointed out, most forms of money laundering eventually result in the injection of ‘dirty money’ into the legal economy. To attain this goal, the cooperation of third persons is necessary. Irrespective of the specificities of the various domestic legislations in this field, the criminalization of money laundering can be generally defined as a criminalization aimed at disrupting the cooperation provided by third persons in hiding the proceeds from crime and giving those proceeds a legitimate appearance.
Stages of Money Laundering
As explained above, the money laundering process has as preceding the committing of a criminal offense – “illicit capital birth”. The process begins with the concealment of illicitly values measured. It develops in several succeeding operations to disguise the origin of goods and is completed by the reinsertion of the capital in the formal economy with the appearance to have derived from a legitimate source.
Accordingly, the entire process of money laundering comprises three stages: placement, layering and integration of assets into the formal economy.
Placement – The initial stage of the process involves placement of illegally derived funds into the financial system, usually through a financial institution. This can be accomplished by depositing cash into a bank account. Large amounts of cash are broken into smaller, less conspicuous amounts and deposited over time in different offices of a single financial institution or in multiple financial institutions. The exchange of one currency into another one, as well as the conversion of smaller notes into larger denominations, may occur at this stage. Furthermore, illegal funds may be converted into financial instruments, such as money orders or checks, and commingled with legitimate funds to divert suspicion. Furthermore, placement may be accomplished by the cash purchases of a security or a form of an insurance contract. This is the riskiest stage of the laundering process once large amounts of cash are conspicuous, and banks are required to report high-value transactions.
Layering - At this stage, the purpose is to distance the value of its criminal origin, changing quantitatively the property. At this point, the funds, security or insurance contract are converted or moved to other institutions further separating them from their criminal source and make them difficult to trail. Layering may consist of several bank-to-bank transfers, wire transfers between different accounts in different names in different countries, making deposits and withdrawals to continually vary the amount of money in the accounts, changing the money's currency, and purchasing high-value items (boats, houses, cars, diamonds) to change the form of the money. This is the most complex step in any laundering scheme, and it's all about making the original dirty money as hard to trace as possible.
Integration - At the integration stage, the money re-enters the mainstream economy in legitimate-looking form - it appears to come from a legal source. This may involve the transaction of import/export surplus or overrated prices, purchase and sale of properties with unequal values from those of the market, or loan back. It's very difficult to catch a launderer during the integration stage if there is no documentation during the previous stages.
The Brazilian law does not require the completion of the cycle to typify the crime of money laundering. The integration of “dirty capital” in the licit economy is not required, once just by the end of the first stage - placement – it’s possible to verify the materiality of this criminal offense, incurring on the same penalty applies to placement or integration.
Money Laundering: Brazil
In March of 1998, in order to continue the international commitments from the signing of the Vienna Convention, Brazil regulated the offence of money laundering by Law 12,683 of 2012, which expanded the scope of criminal law and conceptualize the crime as the "layering and placement of resource originated from any crime or misdemeanor".
Although the administration of justice is indirectly injured as a result of this offence, the socioeconomic order is suffering the injury directly as money laundering is intended to mask the illicit origin of assets, rights and values with purpose of putting them into circulation. Thus, money laundering offers serious damage to stability, regularity and credibility of the market economy, for which the economic order should be considered the legal interest protected by Law No. 9.613 / 98.
This law assigned to individuals and companies of several economic and financial sectors more responsibility (subjecting them to administrative penalties for the breach of obligations) for customer identification and the maintenance of all transactions and report suspicious transactions records.
With the purpose of materializing the fight against such crimes, the 9th article of this law demands that financial institutions, authorized institutions to operate through the Brazilian Central Bank and other companies, must implement prevention programs to the money laundering crimes (“AML Programs”), checking procedures and clients’ identification (KYC - “know your costumer policy”), and recording and communications procedures of suspect operations (“red flags”).
Also included under the legislation are insurance companies and brokers, banks, stock exchanges and futures markets; users of magnetic cards, or their equivalent, which permit the transfer of funds; companies that deal with foreign exchange, leasing, and factoring; individuals or companies dealing in commercial jewels, gemstones and precious metals, objects of art and antiquities; companies that distribute money, goods, services or their respective discounts by lottery and such like; companies that promote the purchase and/or sale of real state; individuals or companies that deal with luxury and very expensive merchandise; branches or representative offices of a foreign institution that operates with any of the abovementioned; and any company or institution that depends on authorization of any financial, exchange, securities or insurance markets’ government entities.
In addition, with regard to the prevention of money laundering crimes, articles 10 and 11 of Law nr.9.613/1998 set that the people subject to this law must observe, in general terms, the following practices:
(i) identify their clients and keep their updated record
(ii) keep records and communicate to the competent authority all transactions in national or foreign currency, securities, bills of exchange, metals or any asset that can be convertible into currency, which exceeds the limit set by the referred authority
(iii) keep the files and records described in the items (i) and (ii) above during the minimum period of 5 (five) years, to count from the conclusion of the respective transactio
(iv) keep records of the transactions mentioned in item (ii) above, when the natural person or the legal entity and its related entities have performed, in the same calendar month, transactions with the same person, conglomerate or group, which jointly exceed the limit set by the competent authority
(v) to fulfill, within the time period as set by the competent judicial body, the requests formulated by COAF, which will be processed in camera proceeding
(vi) monitor the transactions that may constitute in serious evidence of the crimes being studied, or relate to them and must also communicate the proposal or performance of said transactions to the competent authority.