NCJ Number
224505
Journal
IALEIA Journal Volume: 18 Issue: 1 Dated: April 2008 Pages: 83-116
Date Published
April 2008
Length
34 pages
Annotation
This article provides State, and local field law enforcement officials with financial concepts and tools for the proper screening and identification of financial "red flags" for money laundering and the hiding of unreported income for taxation, with attention to the financial statements and information typically available in evaluating smaller businesses.
Abstract
A brief definition of "money laundering" is "the process by which income of illegal origin is transformed into money which appears to have been legitimately earned or obtained" (Financial Crimes Report to the Public, May 2005, Department of Justice/FBI). The FBI's two-pronged approach is the investigation of the specified unlawful activity and the simultaneous financial investigation that will uncover the financial infrastructure of the organization. This involves following the money flow of the organization in order to determine how some of it may be concealed or disguised. This article follows the money flow from the "top down." An initial discussion of accounting concepts and core financial statements is addressed in a general context. If financial information, revenue, resulting profits, and assets appear larger than observed money-generating activity, it is possible that money laundering is occurring. The major issue will be the reporting of nonexistent revenue and related nonexistent goods reported as purchased for sale, and expenses that were not incurred. Underlying accounting systems and source documents can then be analyzed to determine whether or not they support the core financial statements. A hypothetical money laundering case is presented in order to illustrate the principles of financial analysis. 2 exhibits and 3 references