The fight against international crime, especially in the fields of illegal drugs and other serious crime, has focused in the last decade on the phenomenon of money laundering. These offenses are mostly conducted by drug dealers and criminals belonging to organized crime, working at an ever-growing sophistication, as a means to keep the profits of their criminal activities.
Money laundering is a felony against property, usually using an existing financial system, with the intent of hiding illegally obtained property in legal property by obscuring the illegal source of the property.
The methods of money laundering are numerous and varied, however, the common denominator among these methods is the misuse of the efficiency, computerization and globalization of the world financial systems for the purposes of depositing funds and transferring from place to place by disguising the identities of the owners and the sources of the money.
The process includes, among other things "placing" money (mostly cash with a high value) in legitimate financial systems in such a way that significantly conceals the illegal source of the money and makes locating the money difficult. In addition, the process includes additional legitimate transactions that are conducted between the local authorities in various countries. These transactions are done by "hiding" the property in the legitimate financial systems, in order that the criminal source of the money can not be located. Typical methods of money laundering are:
- Smuggling money into countries in which the supervision of currency is lax, confidentiality laws in the banks are strict and there is no obligation to report suspicious bank transactions;
- Counterfeit electronic transfer of money, as a first step in placing the property in a legitimate financial system;
- Formulation" or splitting of deposits and transfers into a series of transactions which are exempt from the obligation to report and document, where such obligations exist, on bank transactions for certain sums;
- Use of fictitious companies as a vessel for money transfer, and the use of a frontal companies which engage in legitimate business, usually companies which have a high cash flow, which is hard to assess, by manipulating the business documentation of that company;.
- Exaggerating profits in reporting to authorities;.
- Importation and exportation of goods with fictitious invoices at a heightened price;
- Establishing underground banking systems, which enables international electronic transfer of money;
- Use of money changers for conversion and transfer of large sums of money;
- Fictitious "lending" transactions;
- Purchasing of valuable assets (diamonds, gold, art, real-estate);
- Investing cash in companies with high business capital (contracting companies, insurance companies and investment companies);
- Use of a "cover company" and "cover men" for the purpose of conducting laundering transactions.
These methods are conducted by misuse of the banks' confidentiality laws and by exploitation of the countries interests in financial and economic investments in these fields, including their readiness to look the other way as to the source of the investigated capital.
The awareness to fight against the phenomenon of money laundering as a main strategy in the fight against drugs, and organized crime, with international cooperation, is considered important by most countries.
Investing efforts into neutralizing the basis of profits from illegal transactions have a twofold result: first this money is taken out of the fiscal turnover and thus can not be re-introduced to fund further illegal transactions, and secondly, preventing the criminal from making a profit from these business dealings eliminates the incentive to commit the crime.
The international awareness as to the new strategy in the fight against drugs and organized crime is expressed by a number of steps that have been taken on the international level, with common standards and adoption of legislation which enables the implementation of those standards. This international awareness, together with the concern that the State of Israel is beings used as a base for money laundering and that the lack of organized, practical steps to deal with this phenomenon, Israel is in the danger of being used as a widespread base for money laundering, which might damage the reputation of the financial and bank systems of Israel, and the publics' trust in these systems in Israel- these brought forth the Prohibition on Money Laundering Law2 (hereinafter "The Law").
The deployment model which was chosen, suited with certain changes, was the European Union's model. Which is based on the obligation to report suspicious transactions and limited reporting of transactions bearing certain characteristics, unlike the American model, which requires an all-encompassing and general obligation to report.
The Department of Customs and VAT has taken upon itself to handle the physical transfer of money into Israel, and out of Israel, by creating a wide reporting system using legal regulations3, according to them, people who must report the transfer of money will report to the Customs Authorities using a reporting form, which will be transferred to a data base located at the Ministry of Justice.