INTRODUCTION

Money laundering could be defined as a process by which illegal resources or proceeds

of crime are converted into apparently legal resources thereby concealing or disguising
their criminal origin (Oloruntoba, 2005). Hiding wealth or sources of wealth is by no
means a new phenomenon. What is perhaps new is the complexity of methods by which
it is being committed as well as the international attention it generated in this century.
Money laundering is a transformation process for the proceeds of criminal activities
such as drug trafficking, armed robbery, prostitution, gambling, arms deals, fraud,
embezzlement of public funds, obtaining by pretences and many other acts which the
law forbids (Ohanyere, 2005).

Money laundering is a secondary offence that is inextricably linked with the underlying
crimes that precipitate its commission and spread. Financial and economic crimes have
come to the front burner since the emergence and triumph of capitalism. Both developed
and emerging economies are apparently not insulated from the impact of the prevalence
of financial crimes and importantly money laundering.

Consequently, the fight against money laundering has been made a priority as a result
of its impact on the global financial system. Nigeria is an emerging economy that has
been bearing the brunt of criminal activities over time. Money laundering organised
crime supports and facilitate other transnational criminal activities such as terrorism,
child trafficking, prostitution, drug trafficking and so on. Financing of terrorism, for
instance, is the underlying facilitating mechanism of violent attacks by terrorists and
insurgents all over the world including the Boko Haram in North-Eastern Nigeria.

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THE EARLY HISTORY OF MONEY LAUNDERING

Money laundering may not be the oldest crime in the world, but it is undoubtedly close
[LawTeacher. November 2013]. In his excellent book "Lords of the Rim", historian
Sterling Seagrave describes how, more than 2000 years ago, merchants in China hid
their wealth for fear that rulers would take the profits and assets they had accumulated
through trade (Nigel Morris, 2001).

Sterling writes that the government considers merchant activities with an enormous
amount of suspicion as they were found to be ruthless, greedy and they follow different
rules. Beside hiding their wealth, they would move it and invest it in businesses in
remote provinces or even outside China (Nigel Morris, 2001). Besides the illicit
movement of their wealth outside the country, a considerable amount of their income
came from black marketing, extortion and bribe. The merchants who remained invisible
were able to keep their wealth safe from the continuous exactions by bureaucrats
[LawTeacher. November 2013].

The merchant used techniques like converting money into readily movable assets and
moving the cash out of the jurisdiction to invest the money in the business. Many money
launderers still use this technique.

Legend has that; the term money laundering was originated in the 1920s during the
period of prohibition of sale or importation of “intoxicating liquor," in the United States.
The organised criminals in the United States were making so much money from
extortion, prostitution, gambling and alcohol smuggling industry (Dave Roos, 2019)
and they needed to show the illegal proceeds as a legitimate source of the money. One
way in which they could do this was to purchase legitimate businesses and mix their
illicit earnings with the legitimate earnings from these businesses. By so doing, making
money appears clean or legitimate.

According to Robinson, the money laundering was first used in 1973 in relation to the
Watergate scandal (Robinson, 1974). He says this case describes the money laundering
perfectly despite its origin; In that case, the dirty or illegal money was put through a
series of transactions, and the money appears clean or legal at the other end (New York
edition. 1974).

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Writers on this subject are almost unanimous about the history and origin of the term
money laundering. While there is a consensus that the traditional act of hiding wealth
or money is as old as man himself,25the modern concept is said to have originated from
the activities of organised criminal groups in the early twentieth century.It is submitted
that a prominent leader of one of the groups Meyer Lanskey is the originator of the
modern day money

MEANING OF MONEY LAUNDERING

According to Wikipedia, ‘Money laundering is defined as the process of concealing

the origins of illegally obtained money by passing it through an intricate sequence of
banking transfers or commercial transactions’.

The concealment of the origins of illegally obtained money, typically by means of

transfers involving foreign banks or legitimate businesses. – Oxford Dictionary

The International Convention against Illicit Traffic in Narcotic Drugs and other
Psychotropic Substances of 1988 also known as the Vienna Convention defines money
laundering. It sees money laundering as the conversion or transfer of property knowing
that such property is derived from an offence to conceal the illicit origin of the property
or assist any person who is involved in the commission of such an offence to evade the
legal consequences of his action. It is the concealment or disguising of the true nature,
source, location, disposition, movement, rights with respect to, or ownership of property
is derived from an offence or from an act of participation in such an offence

Global Financial Integrity (GFI) defined Money laundering as a process of concealing

the proceeds of crime and integrating/assimilating it into the legitimate financial system.
However, before proceeds of crime are laundered, it is difficult for criminals to use the
illicit money as they cannot explain where it came from and it is easier to trace it back
to the crime committed to getting such money. After being laundered/cleaned, it

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becomes challenging to distinguish money from legitimate financial resources, and
criminals can use the funds without detection

Legal Dictionary defines Money laundering as a term used to describe a scheme in

which criminals try to mask the identity, original owners, and destination of money that
they have obtained through criminal conducts. The laundering carried out intending to
make it seem that the proceeds have come from a legitimate source. A more concise
and straightforward definition of money laundering would be a series of financial
transactions that are intended to transform illicit gains into legitimate money or other
assets.

The Economic and Financial Crime Commission (EFCC) Act 2004 in section 18
subsection (1)(a),(b), (c) and (d) expand the anti money definition to include any person
engages in the acquisition, possession or use of property knowing at the time of its
acquisition, possession or use that such property was derived from any offence under
this Act; engages in the management, organisation or financing of any of the offences
under this Act; engages in the conversion or transfer of property knowing that such
property is derived from any offence under this Act; or engages in the concealment or
disguise of the true nature, source, location, disposition, movement, rights with respect
to or ownership of property knowing that such property is derived from any offence
under the law.

Money laundering according to the Act 2011, as amended, “is when any person in or
outside Nigeria directly or indirectly conceals or disguises the origin of; converts or
transfers; removes from the jurisdiction; acquires, uses, retains or takes possession or
control of; any fund or property, knowingly or which he/she should reasonably have
known that such fund or property is, or forms part of the proceeds of an unlawful act”.

An Unlawful act could be defined as behaviour that is not authorised by law. The
commission of or participation in an activity that violates criminal or civil law is
regarded as unlawful.

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As a judicial concept, the term money laundering was first used in the United States in
1982 in the case of US v $4, 255 625.39.21. This was a decision that emanated from
the US District Court for the Southern District of Florida regarding a civil forfeiture of
some money believed to have been laundered from Columbia. The court held that
moving drug money from Molina to Sonal to Capital Bank was, more likely than not; a
money laundering process presided over by managers whose total drug contacts may
very well have been no more than dealing with the business (Billy, 2015). In Nigeria,
the Court of Appeal considers money laundering as a crime; thus people that are found
guilty of the offence are considered criminals. The court in Kalu v Federal Republic of
Nigeria defined the term money laundering as the various means by which criminals
conceal the origin of their activities. The term “laundering” as noted by the court, is
used because the techniques employed are intended to turn dirty money in to clean
money. From the above, it is pertinent to note that money laundering can be viewed
from different perspectives.

The primary purpose of Money laundering is to turn the proceed of crime into monetary
value (cash) or property (housing, cars, estates etc.) that looks legitimate and can be
used without suspicion. One problem of criminal activities is how to account for the
proceeds without raising the suspicion of law enforcement agencies and regulatory
agencies. Considerable time, effort and resources may be put into strategies by the
criminals to enable the safe use of those proceeds without raising unwanted suspicion.
Implementing such strategies is generally called money laundering. After money has
been laundered/cleaned, it can be used for legitimate purposes. Law enforcement
agencies of many jurisdictions have set up sophisticated systems in an effort to detect
suspicious transactions or activities, and many have set up international cooperative
arrangements to assist each other in these endeavours.

PHASES OF MONEY LAUNDERING

Although money laundering is a complex activity, various studies have identified three
distinct stages through which illicit funds are systematically commingled or assimilated
into the legitimate economy (Arvind & Prashant, 2010). Scholars have agreed that
various factors are relevant in determining what happens during each of the stages.

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There are three phases in money laundering; The phases are placement, layering and
integration.

1. Placement

The first is known as the placement stage which is the process during which monies
derived from crimes are used to purchase assets or are deposited in a financial
institution. Shehu opined that at this stage, banks are by far, the most vulnerable entities
because the launderer may open a bank account either using genuine or fictitious
identity and after that lodge the proceeds of the criminal activity into the account (Ibid,
p. 221). Large amounts of cash are broken into smaller, less conspicuous amounts and
deposited over time in different branches of a single bank or financial institution.
Another methodology adopted by money launderers at this stage is the exchange of one
currency to another as well as the conversion of smaller notes into larger denominations.
Other assets too are purchased and will later be sold into monetary instruments. The
instruments at this stage are mainly cash, money orders, cheques, and many other types
that may not require reporting. Placement can also be done directly into casinos or other
gambling outfits, or the purchase of precious metals, automobile, aeroplanes or boats.
All this is carefully done with the sole purpose of commingling the illegitimate funds
within the legitimate financial cycle. It has been noted that while the launderers are
placing the illegal funds, they pay careful attention to national laws, regulations,
governance structures, law enforcement and techniques to keep their proceeds
concealed, their methods secret and their identities and professional resources are
anonymous.

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Generally, this stage serves two purposes:

1. It relieves the criminal of holding and safeguarding large amounts of bulky cash

2. Placing illicit money into a genuine financial system.

It is during the placement stage that money launderers are the most vulnerable to being
caught. This is because placing a large sum of money into the legitimate financial
system may raise suspicions of law enforcement agencies and regulatory authorities.

The placement of the proceeds of crime can be done in several ways. Some conventional
methods include:

Cash businesses – This is where cash gained from crimes are added to the legitimate
proceeds of a business.

False invoicing – This is where dummy invoices are matched with cash lodged, making
it look like payment in settlement of the false invoice.

Smurfing – This is lodging small amounts of money below the AML reporting
threshold to bank accounts or credit cards, then using these to pay expenses etc.

Currency Smuggling – This is the illegal physical movement of currency and monetary
instruments abroad, normally below the customs declaration threshold, lodging in
foreign bank accounts, then sending back to the country of origin. This method does not
leave any evident audit trail.

Bank Complicity – This is when a financial institution, such as banks, is owned or

controlled by corrupt individuals suspected of conniving with drug dealers and other
organized crime groups. This makes the process easy for launderers. The complete
liberalization of the financial sector without adequate checks also provides leeway for
laundering.

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The Layering Phase

After placement comes the layering Phase. This phase is sometimes referred to as
structuring. The layering phase is the most complex and often entails the international
movement of the funds. Layering requires the launderer to make numerous transactions,
possibly involving several front companies and entities. By doing this, the launderer is
attempting to distance himself from the money and make it harder for the authorities to
track. While moving these cash they exploit loopholes in legislation and take advantage
of delays in judicial or police cooperation.
The primary purpose of this phase is to make it more difficult to detect and uncover a
laundering activity. It is meant to make the trailing of illegal proceeds difficult for law
enforcement agencies.
The methods used for layering are:Cash converted into Monetary Instruments –
Once the placement is successful within the financial system by way of a bank or
financial institution, the proceeds can then be converted into monetary instruments. This
involves the use of banker’s drafts and money orders.

Material assets bought with cash then sold – Assets that are bought through illicit
funds can be resold locally or abroad, and in such a case the assets become more
difficult to trace and thus seize.

The Integration Stage

The final stage of the money laundering process is termed the integration stage. It is at
the integration stage where the money is returned to the criminal from what seem to be
legitimate sources. Having been placed initially as cash and layered through a number
of financial transactions, the criminal proceeds are now fully integrated into the
financial system and can be used for any purpose. At this phase, money laundering cycle
is completed and objective of launderer is accomplished without drawing attention of
law enforcement agencies.

The major objective at this phase is to reunite the money with the criminal in a manner
that does not draw attention and appears to result from a legitimate source.

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The known methods used for integration are:

Blending of Funds – The best place to hide cash is with a lot of other cash. Therefore,
financial institutions may be vehicles for laundering. The alternative is to use the money
from illicit activities to set up front companies. This enables the funds from illicit
activities to be obscured in legal transactions.

Asset Purchase – The purchase of assets with cash is a classic money laundering
method. The major purpose is to change the form of the proceeds from conspicuous
bulk cash to some equally valuable but less conspicuous form.

Fake employees - a way of getting the money back out. Usually paid in cash and
collected

Loans - to directors or shareholders, which will never be repaid

Dividends - paid to shareholders of companies controlled by criminals

TRENDS OF MONEY LAUNDERING

Methods, Trends or intermediaries are terms that are used interchangeably to refer to
various avenues or ways through which illegal proceeds are commingled and integrated
into the formal economy thus making it difficult to understand the true sources, origins
and ownership of such wealth. It has been noted that money laundering is a highly
sophisticated technical process that requires the adroit mobilization and application of
skills to accomplish. Since money laundering is a rapidly growing industry, channels or
trends of committing it are evolving depending on the sources and the volume of the
funds to be laundered as well as the legislative, regulatory, and law enforcement
environment in the commercial area in which the launderers operate (Damilola, 2013).
As with any criminal enterprise, the channels of integration of illicit funds are too many
to be counted and have developed rapidly with the sophistication of the financial
systems upon which they depend and the law enforcement plan of action which pose a
threat to their existence (Todd 2002).
We shall briefly consider some of the known channels of money laundering.

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Correspondent Banking
Correspondent banking is the provision of banking services from one bank (the
correspondent bank) to another (the respondent bank). By establishing multiple
correspondent relationships globally, banks can undertake international financial
transactions for themselves and for their customers in jurisdictions where they have no
physical presence.In this manner, large international banks typically act as
correspondents on behalf of thousands of other banks across the world.

Payable Through Accounts (PTAs)

This is an arrangement in which the respondent bank customers are allowed to conduct
their own transactions including sending wire transfers, making and withdrawing
deposits and maintaining checking accounts through the respondent bank’s
correspondent accounts without needing to clear the transactions from the respondent
bank. This is different from the traditional correspondent banking

Concentration Accounts
Concentration accounts also known as Special-Use Accounts or Omnibus Accounts are
internal accounts established to facilitate the processing and settlement of multiple or
individual customer transactions within the bank, usually on same day. This is one of
the methods used in facilitating transactions in private banking, custody accounts, trusts
and funds transfers.

Private Banking
Private Banking is another means of laundering huge funds within the layering stage of
the process. It’s the provision of highly personalized and confidential products or
services to high-class clients at fees that are often based on ‘Assets under Management
contrive’. Private banking often operates semi-autonomously in other parts of a bank
that carter for wealthy customers who seek confidentiality and highly personalized
services. This trend is very relevant in discussing corruption - related money laundering
in the African context especially in Nigeria where Politically Exposed Persons (PEPs)

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resort to private banking services which offer an opportunity for them to carry out
sophisticated and complex financial transactions that will further protect their proceeds
of corruption

Structuring
Structuring is one of the commonest avenues for money laundering through banks.
Structuring involves presenting a transaction in a form that avoids triggering a reporting
or record keeping requirement. Designing multiple transactions to avoid hitting the legal
threshold of mandatory reporting of transaction is at times resorted to by money
launderers.

Cuckoo Smurfing
The term refers to a form of money laundering linked to alternative remittance system
in which proceeds of crime are transferred through the accounts of unwitting persons
who are expecting genuine funds or payments from overseas. Cuckoo Smurfing requires
a collaboration of an insider with the financial institution and it starts with a customer
providing funds to an alternative remitter for a transfer to beneficiary, usually in another
country, then the insider will provide the details of the transaction to an associate in the
foreign country where the beneficiary is located.

USING NON-BANKS FINANCIAL INSTITUTIONS

Credit Card Industry

This includes credit associations such as Mastercard, or Visa which license member
banks to issue bank cards and authorize merchants to accept such cards. Credit cards
are likely to be used in the layering stage of money laundering than in the placement
stage

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Money Remittances and Money Exchange Houses
Money Remitters transfer funds for their customers and receive commission for doing
so. They conduct their businesses by receiving cash from their clients and sending them
to designated beneficiaries. This is a valid financial service that is conducted all over
the world.

USING NON- FINANCIAL BUSINESSES AND PROFESSIONS

Casinos and other Gambling Businesses

Casinos and other businesses associated with gambling, such as book-making, lotteries
and horse- racing continues to be associated with money laundering because they
provide a ready-made excuse for recently acquired wealth with no apparent legitimate
source. The services offered by casinos will vary depending on the jurisdiction in which
they are located and the measures taken in that jurisdiction to control money laundering

Dealers of High Valued Items (Jewelry, Precious Metals, Art)

The European Directive on money laundering provides a common framework including
trade in gold, diamonds and other high-valued items within anti-money laundering
monitoring systems. Effective January 2006, the USA Patriot Act required certain
dealers in covered and finished goods, including precious metals, stones and jewels, to
establish an anti-money laundering program.

Travel Agencies
Travel agencies can also be used as a means for money launderers to mix illegal funds
with clean money to make the illegal funds look legitimate, by providing a reason to
purchase high-priced airline tickets, hotels and other vacation related expenses.

Car Dealers
This industry includes sellers and brokers of new vehicles, such as automobiles, trucks,
and motorcycles; new aircraft, including fixed wing airplanes and helicopters; new

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boats and ships, and used vehicles. Laundering risks and ways laundering can occur
through vehicle sellers include structuring cash deposits below the reporting threshold,
or purchasing vehicles

Gate-keepers (Lawyers, Accountants/Auditors etc)

Countries around the world have been putting responsibilities on professionals, such as
lawyers, accountants, company formation agents, auditors and other financial
intermediaries, who have the ability to either block or facilitate the entry of illegitimate
money into the financial system.

CONSEQUENCES OF MONEY LAUNDERING

There are severe economic and social consequences of money laundering. These
include:

 Undermining financial systems: money laundering expands the black

economy, undermines the financial system and raises questions of credibility and
transparency

 Impact on economic stability: money laundering is thought to pervade, to some

degree, all economic, political and social institutions. Economically it is thought
to have an impact upon exchange rates and interest rates as large amounts of
money are moved from one country to another, thereby affecting inflation,
employment and economic stability. This is of particular concern to developing
countries, as the flight of capital (often against exchange controls) from
developing countries prevents internal investment and development.

 Expanding crime: money laundering encourages crime because it enables

criminals to effectively use and deploy their illegal funds

 ‘Criminalising’ society: criminals can increase profits by reinvesting the illegal

funds in businesses

 Reducing revenue and control: money laundering diminishes government tax

revenue and weakens government control over the economy

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 Impact at the social level: organised crime has an impact at the social level,
where it often leads to the development of an alternative, underground, economy,
which is untaxed and unregulated. The fact that it is untaxed often leads to
national budgeting problems and a government fiscal deficit, as public spending
exceeds revenue receipts causing governments to borrow. Whenever
governments try to control public spending, it is often social welfare programmes
that are the first to suffer

 Disintegration of social structure: the profits of crime, when suitably

laundered, are often ploughed back into the organisation and used to develop the
criminal enterprise and prevent detection. Dirty money is often used for bribes
and for the purposes of corruption of government, judicial and law enforcement
officials. This leads to a disintegration of social structure, to injustice and human
rights’ violations that can threaten democracy itself.

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Reference

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https://www.lawteacher.net/free-law-essays/commercial-law/the-early-history-of-
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2. Morris-Cotterill, Nigel. (2001). Money Laundering. Foreign Policy. 16.
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3. A Brief History of Money Laundering: September 30, 2017:
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4. Dave Roos. (2019) How Prohibition Put the ‘Organized’ in Organized Crime
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5. UNODC (2019). The Money-Laundering Cycle:
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14. FATF, See‘The Joint Money Laundering Steering Group.
http://www.jmlsg.org.uk/other-helpful-material/article/money-laundering-
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