A Brief History of Money Laundering
Despite recent legislation and media attention money laundering is not a new phenomena. Although various methods of moving cash obtained from the proceeds of crime through companies and bank accounts has been around for some time it is generally accepted that the form of money laundering as we know it today originated during the Prohibition era in the United States. Two events precipitated this. In 1931 Al Capone was convicted of tax evasion and in 1934 the Swiss Banking Act created the principle of bank secrecy.
Despite recent legislation and media attention money laundering is not a new phenomena. Although various methods of moving cash obtained from the proceeds of crime through companies and bank accounts has been around for some time it is generally accepted that the form of money laundering as we know it today originated during the Prohibition era in the United States. Two events precipitated this. In 1931 Al Capone was convicted of tax evasion and in 1934 the Swiss Banking Act created the principle of bank secrecy. One of Capone’s henchmen, a fascinating character called Meyer Lansky, began to transfer “Mob” funds to overseas accounts. Lansky was highly intelligent and was very financially astute. He was known as the “Banker for the American Mafia.”
He knew that with the conviction of Capone the American federal authorities would be looking to seize Mafia funds. So Lansky actually bought a Swiss Bank (obviously with illegal funds) and began to transfer millions of dollars out of the country through a complex system of shell companies, holding companies and offshore bank accounts into “his” Swiss Bank.
He was so successful at “money laundering” that despite their best efforts the authorities were unable to convict him. It was said that no one could put a finger on him because he “left no fingerprints anywhere”. Even the FBI had a grudging respect for him saying that if he had gone into a legitimate form of business he could have been Chairman of the Board of General Motors or a similar Captain of industry. He died in 1983 aged 81.
However, one of the few exceptions where Meyer Lansky failed to thwart the authorities was when the Treasury Department seized Al Capone’s specially designed, custom-made bullet-proof cadillac.
There is an intriguing historical footnote to this. In later years President F.D. Roosevelt used this car as one of his presidential limousines. As the term “money laundering” also refers to property as well as cash, could it be argued that the American President was technically guilty of money laundering as he was personally receiving “beneficial enjoyment” from property obtained from ill-gotten funds original received as the direct proceeds of crime carried by the Mafia? History does not record whether any of his staff ever had the courage to mention this to “FDR”.
After the Second World War legislators in various jurisdictions attempted to address the problem. One of their main issues was that it was deemed to be in many ways a “victimless” crime. There was no dead body, no safe with its doors blown off or injured person lying in hospital. It was decided that confiscation of the assets of crime was the best way forward which led criminal gangs to invent more sophisticated methods of hiding money illegally obtained which often involved putting such proceeds though the books of legitimate businesses and even, strangely enough, paying tax on the money. Such activity was the true origin of the term “money laundering.” Stolen or “dirty” money is “laundered” through the books of a legitimate business and comes through “clean” at the end of the process.
There is an urban myth that the origin of the term came from the fact that Al Capone used to hide massive sums from his ill-gotten gains in laundromats. However, just like the fact that his business card described him as a “used furniture dealer”, this is generally regarded to be untrue.
It was the Guardian newspaper that brought the term into general media usage during its coverage of the Watergate scandal. On November 5th 1968 Richard Nixon became President of the United States. An organisation was formed in advance of the 1972 election called the “Committee to Re-elect the President”. Unfortunately, history records that their methods were not legal. It is a matter of public record that dirty campaign contributions were sent out of the country to Mexico and then brought back into the United States via a Miami based front company.
Despite winning the 1972 election by a landslide Nixon had to resign from office on August 9th 1974 as a result of the threat of impeachment for this and other related misdemeanours. The Guardian constantly referred to “money laundering” when describing the scandal and is probably rightly credited with bringing the term into popular usage.
A money laundering scandal had helped force the resignation of the President of the United States. This was a unique event in American political history. Money laundering, as an offence, had finally come of age.