Money Laundering 101

01 July, 2021

Imagine this...

I’m the schoolyard bully. I would be gaining a bit of cash from the other kids by bullying, threatening and scaring the other kids. Sustainable business concept, right? Not quite.

Think about this...

What if my mother was to notice the extra money I was getting with no gainful employment? That would raise a few questions that I wouldn’t want to answer.

So how am I going to be able to spend the money I’ve been “earning” through my illicit methods?

My mum would notice if I just started getting new clothes or toys with no obvious income, so I need to come up with a ruse to disguise my real source of income. And thus, I have the idea to open up a lemonade stand.

I sell lemonade after school and on the weekends, and during school I threaten and bully kids into giving me their lunch money. I collect all of my money into one piggy bank, my parents see it, and believe I have an insanely successful lemonade stand.

The more lunch money I take, the more cups of lemonade I add to my books, despite not having an increase in sales. This way, if my parents look into my sales, everything is balanced in terms of my profit margin. 

However, if they start looking at the actual amount of lemons, water, sugar and cups I’m actually using, it will be glaringly obvious there’s a discrepancy somewhere.

To completely eradicate any sign of my deceit, I start drinking the extra 20 cups of lemonade I’m adding to my books. Now that I have a system in place, I’m starting to turn a healthy profit with no one the wiser to my non-legitimate source of income.

To accelerate my profit margins, I employ my friend to start up as a lemonade stand consultant – and she ‘charges’ me large amounts of money.

I then decide to expand my business scope, creating new businesses that supply my lemonade stand, such as cup manufacturers and lemon growers. Then, any invoice I pay out to these companies actually goes back into my own pocket. This, in turn, is just creating another layer to my system that hides the true source of my income.

Why would I stop there?

I create a delivery service that delivers all of my goods to me, as well as a security firm that keeps my stall safe at night. To the untrained eye, these companies appear completely unrelated, with offshore holding companies (if someone was inquisitive enough to dig for the details).

But in actuality, I have a legitimate law firm managing my companies, and they do not have to disclose my information due to attorney-client privilege (yet another protective measure). I toss in some ‘overseas branches’ for extra cover, in places such as Luxembourg, Switzerland or the Cayman Islands. All the various jurisdictions would stop them from attaining any information on the beneficial ownership of the companies. After I’ve put in all these various layers, no one will ever deduce that most of my profits come from threatening kids on the playground.

Now, apply this system to the real world. 

Change out my penchant for threatening kids on the playground with an elaborate drug dealing ring, swap out my parents for the Department of Internal Affairs, and switch my lemonade stand with a laundromat, strip club or any other small business, and you have the fundamentals of money laundering: how to make dirty money look clean.

About First AML

First AML simplifies the entire anti-money laundering onboarding and compliance process. Its SaaS platform, Source, stands out as a leading solution for organisations with complex or international onboarding needs. It provides streamlined collaboration and ensures uniformity in all AML practices.

First AML transforms an otherwise complex and manual process into one that is simple, cost-effective, and compliant for businesses. By delivering efficiency and time savings, it protects reputations and enables companies to stay on the right side of history in the face of global threats.

Keen to find out more? Book a demo today! No time for a long demo? No problem. See what Source by First AML can do for your business in 2 minutes – watch the short demo here.