Money laundering: How they do it? Here are practical examples

10 Feb 2018


Money laundering has become a major problem across the globe with hundreds of billions of dollars being sifted out out of countries, mainly poor states, through complicated schemes.

An interview with South African Reserve Bank deputy governor, Kuben Naidoo, reveals some of the popular schemes used by money launderers.

The monitoring system

The financial reporting system that the South African Reserve Bank uses give it records of every ATM, debit card, credit card, or electronic funds transfer (EFT) transaction, whether done in South Africa or abroad. If a South African uses their card to buy coffee at Starbucks in New York the bank knows.

The system provides the bank with an opportunity for further investigation if it picks out what it believes are patterns of money laundering.

The remittance gap

South Africa’s remittance system allows transactions worth R3 000 per transaction, or R10 000 per month. There are almost no questions asked, only proof of identity. And there’s evidence that the remittances system is being abused.

The trade gap

South Africa has a 40% duty on imported clothing. A trader can bring in a container load of shirts and tell the South African Revenue Service these shirts cost R10 each, and you pay R4 in import duties per shirt, but actually the shirts cost R100 each.

Now the trader has to get R90 out of the country illegally to pay for the shirts. What does he do?

He sends lots of gifts to somebody abroad. Alternatively, he sets up a new company and applies for an advance purchase authority to pay for the imports. Once the payment goes through, but before the goods are delivered, the company collapses.

Others claim to be importing software for R50 million. Then they transfer R50 million and the exporter sends to South Africa a box of compact disks (CDs). Customs officials have no way of knowing whether these CDs are worth R5 or R50 million. For all you know, they could be copies of Lionel Richie’s CDs.

The are many more grand scale money laundering schemes that occur at multi national corporations level. These include cryptocurrency fortified schemes and base erosion & profit shifting. We ill deal with these in a separate article.

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