ML Question 3

Money Laundering – Frequently Asked Questions (p. 3)

What are some examples of money laundering?

Money laundering can happen in gambling. For example, one could buy another person’s winning ticket (using illegally-obtained cash) and pay the true winner exactly what he would receive when the ticket is redeemed. Next, the money launderer redeems the winning ticket and receives all of the money he just spent in purchasing the ticket (minus the face price of one ticket). Now he has “clean” money.

 

What types of businesses are considered to be conducive to money laundering?

Restaurants, casinos and banks are frequently the subject of Government surveillance. Such businesses are cash-intensive. In fact, high-density drug-trafficking areas (such as New York, Miami and other cities in South Florida) are saturated with restaurants that do not accept credit cards or checks.

 

What is a Letter of Credit?

In a Letter of Credit, a bank will guarantee payment to another bank (or investor) without money ever changing hands. In such a situation, the buyer (or investor) will pay his bank and the bank will hold onto the money until the seller delivers that which he promised. The seller will deliver once the bank promises to wire the money to the seller’s bank.

 

Which documents does a bank require before wiring money pursuant to a Letter of Credit? 

In most cases, a bank will require a Bill of Lading, which defines the subject of the transaction; a Certificate of Inspection, affirming that the subject of the transaction (as described by the Bill of Lading) is prepared and ready to be transferred; a Certificate of Freshness, stating that the goods have not expired; and a Certificate of Insurance, proving that the subject of the transaction is protected.