1.1. A brief history of money laundering

Money laundering activities in the narrow and broad senses

1. Al Capone, 1920–30s

2. Meyer Lansky, 1930–50s

1930s

3. Watergate Scandal, 1973

1930s

The processing of criminal proceeds to disguise their illegal origin

The possession of criminal proceeds

E.g. income tax evasion

The possession of the proceeds of

an administrative offence

Hiding assets from a ruthless ruler who levies heavy taxes or tries to confiscate the assets

The origin of money laundering. Sterling Seagrave in his “Lords of the Rim” (1996) writes that in 2000 B.C. Chinese merchants banished their wealth by investing it in remote provinces or even outside the country.

Some countries use this approach, therefore unlicensed taxi-cab drivers, private tutors, flea-market traders, etc. should be prosecuted for ML.

1.2. The first stage: Al Capone tax evasion charges

Al Capone was born in 1899. By 1920 he became an influential lieutenant in the mob.

During prohibition (1920s) the mob started illegal brewing, distilling and distributing beer and liquor

The mob has acquired interests in legitimate business in the cleaning (a cash business) and dyeing field

Illicit earnings were mingled with receipts from the laundromat business and then paid back to the mobsters, making an impression of legitimate income

Gangsters were earning huge sums of cash from bootlegging, racketeering, extortion, and sexual exploitation

Cash

The U.S. Treasury Department had been developing evidence on tax evasion charges

The evidence was insufficient to convict Al Capone for commission of predicate offences

Al Capone’s expenditures were far beyond his legitimate income. The amount of money processed via the laundromat was insufficient to justify his income.

The FBI agents obtained statements to the effect that Capone had attended race tracks in the Miami area, that he had made a plane trip to Bimini and a cruise to Nassau

On October 18, 1931 Al Capone was convicted for tax evasion. Later he was sentenced to eleven years in federal prison, fined $50,000 and charged $7,692 for court costs. The back taxes amounted to $215,000 plus interest due.

The defense argued that the government cannot impose legal taxes on criminal proceeds

In 1939 Al Capone was released after having paid all fines and back taxes. During the confinement he deteriorated greatly from syphilis. Having the mentality of a 12-year-old child, Al Capone became incapable of returning to gangland politics, and died in 1947.