Money laundering. There are many definitions involving terms like criminal proceeds, illegal/illicit, processing, disguise, concealment, true nature and ownership. Some even describe it as a three stage process: placement, layering and integration. Most people who get convicted on money laundering charges are not even aware of different phases of things they did. They merely tried to make dirty money look clean.
Money laundering typologies
Some people get caught red handed. Guilty as charged. With money laundering, you rarely find a smoking gun. How do people get convicted on money laundering charges? During a criminal investigation, law enforcement (LE) gathers evidence against a suspect. With complex money laundering schemes this usually looks like a broken up trail of various transactions across multiple jurisdictions, involving different persons and/or legal entities.
Transactions across multiple jurisdictions for no apparent reason? That sounds a lot like fiscal optimization by a multinational corporation or asset protection by a high-net-worth individual. Illegal? Surely not.
How do you convince a judge of the illegal nature of those loosely connected transactions?
To tie those bits of (circumstantial) evidence gathered by LE together for a conviction, you need legal superglue. Legal superglue is sold under the brand name of typologies. If it looks like a crook, if it acts like a crook, it must be a crook, based on some study of the phenomenon, that is a typology. Proof beyond reasonable doubt is constructed by piecing the snippets of (circumstantial) evidence together with the typology superglue. Guilty as charged.
The main manufacturer of money laundering typologies is the Financial Action Task Force (FATF). On a national level Financial Intelligence Units (FIUs) also develop money laundering typologies to aid professionals with their know your customer, anti-money laundering and counter-terrorist financingobligations and to get people convicted in court.
Al Capone selling illegal liquor for cash and cleaning it through his laundromat business is a thing of the past. Today, people sell drugs online for cryptocurrency. The cash intensive business without actual customerstypologies don’t work with an online shop running on Tor, various forms of encrypted communication and payments without direct involvement of financial institutions.
So how do you get convicted on money laundering charges if you use cryptocurrencies?
Typologies for cryptocurrencies
Money has been around for ages, cryptocurrencies are relatively new. This domain is evolving rapidly. In 2014 the FATF published a report on Virtual Currencies with some key definitions and money laundering risks. With the implementation of the 5th EU Anti-Money Laundering Directive , cryptocurrency exchanges and wallet providers are obliged to do know your customer checks just like banks and other financial institutions.
But an actual list of activities involving cryptocurrencies that are deemed to be criminal? For that, look no further than the Netherlands. Country of origin of many substances sold online for cryptocurrency. The Dutch FIU and Anti Money Laundering Centre (AMLC) teamed up and published the following typologies in relation to cryptocurrencies:
1. In a relatively short period of time repeatedly withdrawing substantial amounts of cash from (a) bank account(s), wholly or in parts, without any obvious economic necessity and in combination with several times receiving scriptural money (which amounts, in the case of the trader in virtual currencies apparently originate from the sale of virtual currencies).
2. Purchasing virtual currencies by which at least two of the following features are met:
a. the purchaser offers his services via demand and supply sites on the Internet;
b. the purchaser does not establish the seller’s identity;
c. the purchaser protects his own identity;
d. the purchaser pays in cash;
e. the purchaser charges an exchange fee which is unusual high;
f. the transaction is conducted in a (public) place where a lot of people are present, which decreases the safety risks of the purchaser;
g. a legal economic explanation for the way the exchange was made is not likely;
h. the scope of the purchased virtual currencies is unlikely in relation to the average private use;
i. as an exchange institution, the purchaser is unknown to the Chamber of Commerce and the
Netherlands Tax and Customs Administration.
3. The purchaser and/or seller make(s) use of a so-called mixer at the sale of virtual currencies.
According to the AMLC the unusual high fee is in the 7-15% range, based on findings in criminal investigations and compared to a regular (online) exchange. That’s like comparing B2C and P2P. Different service, different fee. Apples and oranges.
The AMLC elaborates on the status of money laundering typologies:
The role of money laundering typologies is to give concrete and unambiguous form to
activities which have the characteristics and character traits of money laundering. For that reason they are of great importance in combating money laundering. Money laundering typologies may also contribute to a reasonable suspicion of money laundering. They provide points of reference when it comes to giving substance to the subjective indicator for those institutions which are under an obligation to report pursuant to the Wwft[Dutch anti-money laundering law]. Finally, money
laundering typologies can be used for the evidence in a criminal case. They can be used
to give substance to the component relating to the knowledge of the suspect for example. Or to make plausible the illegal source of the objects to which the money laundering relates. Ultimately
it is up to the Court to decide on the basis of all the circumstances of the case whether it deems it to be plausible that the objects originate directly from a crime.
Various cryptocurrency exchanges have been hacked over the past few years. Customer information, including bankaccount numbers and transaction history, was compromised. But apparently, protecting your identity and buying with cash contributes to a reasonable suspicion of money laundering and provides substance to the fact that you must be involved in some shady dealings!
“Ultimately, it is up to the Court to decide.” Well, what did the court decide?
Criminal court Utrecht, the Netherlands, 3th April 2018
Three men from the Netherlands, aged 21, 25 and 27, were convicted on (habitual) money laundering charges. The sentences ranged from 2-3 years.
Why? Over a period of almost two years they laundered around 10 million euros in Bitcoin, while they knew or had to know that these Bitcoins originated from illegal activities. Three of their customers were sentenced to 12, 24 and 30 months, for – amongst others – a cannabis plantation and over five kilograms of hard drugs.
Contributing factors were:
Money laundering typologies
Some people get caught red handed. Guilty as charged. With money laundering, you rarely find a smoking gun. How do people get convicted on money laundering charges? During a criminal investigation, law enforcement (LE) gathers evidence against a suspect. With complex money laundering schemes this usually looks like a broken up trail of various transactions across multiple jurisdictions, involving different persons and/or legal entities.
Transactions across multiple jurisdictions for no apparent reason? That sounds a lot like fiscal optimization by a multinational corporation or asset protection by a high-net-worth individual. Illegal? Surely not.
How do you convince a judge of the illegal nature of those loosely connected transactions?
To tie those bits of (circumstantial) evidence gathered by LE together for a conviction, you need legal superglue. Legal superglue is sold under the brand name of typologies. If it looks like a crook, if it acts like a crook, it must be a crook, based on some study of the phenomenon, that is a typology. Proof beyond reasonable doubt is constructed by piecing the snippets of (circumstantial) evidence together with the typology superglue. Guilty as charged.
The main manufacturer of money laundering typologies is the Financial Action Task Force (FATF). On a national level Financial Intelligence Units (FIUs) also develop money laundering typologies to aid professionals with their know your customer, anti-money laundering and counter-terrorist financingobligations and to get people convicted in court.
Al Capone selling illegal liquor for cash and cleaning it through his laundromat business is a thing of the past. Today, people sell drugs online for cryptocurrency. The cash intensive business without actual customerstypologies don’t work with an online shop running on Tor, various forms of encrypted communication and payments without direct involvement of financial institutions.
So how do you get convicted on money laundering charges if you use cryptocurrencies?
Typologies for cryptocurrencies
Money has been around for ages, cryptocurrencies are relatively new. This domain is evolving rapidly. In 2014 the FATF published a report on Virtual Currencies with some key definitions and money laundering risks. With the implementation of the 5th EU Anti-Money Laundering Directive , cryptocurrency exchanges and wallet providers are obliged to do know your customer checks just like banks and other financial institutions.
But an actual list of activities involving cryptocurrencies that are deemed to be criminal? For that, look no further than the Netherlands. Country of origin of many substances sold online for cryptocurrency. The Dutch FIU and Anti Money Laundering Centre (AMLC) teamed up and published the following typologies in relation to cryptocurrencies:
1. In a relatively short period of time repeatedly withdrawing substantial amounts of cash from (a) bank account(s), wholly or in parts, without any obvious economic necessity and in combination with several times receiving scriptural money (which amounts, in the case of the trader in virtual currencies apparently originate from the sale of virtual currencies).
2. Purchasing virtual currencies by which at least two of the following features are met:
a. the purchaser offers his services via demand and supply sites on the Internet;
b. the purchaser does not establish the seller’s identity;
c. the purchaser protects his own identity;
d. the purchaser pays in cash;
e. the purchaser charges an exchange fee which is unusual high;
f. the transaction is conducted in a (public) place where a lot of people are present, which decreases the safety risks of the purchaser;
g. a legal economic explanation for the way the exchange was made is not likely;
h. the scope of the purchased virtual currencies is unlikely in relation to the average private use;
i. as an exchange institution, the purchaser is unknown to the Chamber of Commerce and the
Netherlands Tax and Customs Administration.
3. The purchaser and/or seller make(s) use of a so-called mixer at the sale of virtual currencies.
According to the AMLC the unusual high fee is in the 7-15% range, based on findings in criminal investigations and compared to a regular (online) exchange. That’s like comparing B2C and P2P. Different service, different fee. Apples and oranges.
The AMLC elaborates on the status of money laundering typologies:
The role of money laundering typologies is to give concrete and unambiguous form to
activities which have the characteristics and character traits of money laundering. For that reason they are of great importance in combating money laundering. Money laundering typologies may also contribute to a reasonable suspicion of money laundering. They provide points of reference when it comes to giving substance to the subjective indicator for those institutions which are under an obligation to report pursuant to the Wwft[Dutch anti-money laundering law]. Finally, money
laundering typologies can be used for the evidence in a criminal case. They can be used
to give substance to the component relating to the knowledge of the suspect for example. Or to make plausible the illegal source of the objects to which the money laundering relates. Ultimately
it is up to the Court to decide on the basis of all the circumstances of the case whether it deems it to be plausible that the objects originate directly from a crime.
Various cryptocurrency exchanges have been hacked over the past few years. Customer information, including bankaccount numbers and transaction history, was compromised. But apparently, protecting your identity and buying with cash contributes to a reasonable suspicion of money laundering and provides substance to the fact that you must be involved in some shady dealings!
“Ultimately, it is up to the Court to decide.” Well, what did the court decide?
Criminal court Utrecht, the Netherlands, 3th April 2018
Three men from the Netherlands, aged 21, 25 and 27, were convicted on (habitual) money laundering charges. The sentences ranged from 2-3 years.
Why? Over a period of almost two years they laundered around 10 million euros in Bitcoin, while they knew or had to know that these Bitcoins originated from illegal activities. Three of their customers were sentenced to 12, 24 and 30 months, for – amongst others – a cannabis plantation and over five kilograms of hard drugs.
Contributing factors were:
- a reasonable suspicion of the criminal origin of the Bitcoins/money that was exchanged
- large sums of cash and transactions in public places
- the lack of administration on the identity of their customers (anonymity was guaranteed) and the origin of their Bitcoins
- a commission of (on average) 9%, while Dutch Bitcoin exchange Bitonic charges 0-1,5%
- the use of Shared Coin to obfuscate the origin of the exchanged Bitcoins
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