Money laundering: no, it’s not when you leave a buck in your pants pocket and wash it

With this week’s headline-grabbing arrest of Silk Road founder Ross William Ulbricht – aka “Dread Pirate Roberts” to most of the sordid site’s nearly one million registered users – money laundering and gambling are once again in the headlines.  The process of using otherwise legal gambling as a viable – and fairly simple, seemingly untraceable – way of turning money begotten by illicit means into “clean” (i.e, “laundered”) money is a popular and time-honored one, dating as far back as the Mob in the early days of Las Vegas in the 1930s, if not before.

And for as long as there’s been money laundering, there have been Feds on the heels of the perps, and more often than not, they do get their men in the end- and often millions of ill-begotten dollars and illegal goods to go with. Silk Road, an online site that used Bitcoins – a crypto-currency that’s gained traction online, particularly among users who wanted to avoid any kind of banking scrutiny – was said to be a cesspool for these criminals: illegal drugs like cocaine, ecstasy and heroin were just the tip of the iceberg for the nature of transactions that occurred via the theoretically untraceable Bitcoins on the site.

The FBI and other federal law enforcement seized and shut down Silk Road this week, alleging that massive criminal money laundering was taking place on the Bitcoin-friendly site

Far more frightening were financial exchanges for things like computer hackers, illegal firearms, and even hit men; in the course of its joint investigation with the Drug Enforcement Agency, the FBI even intercepted a hit that Ulbricht himself commissioned for $150,000 against someone who was trying to extort him for half a million. Canadian authorities were never able to track down a homicide record for anyone matching the hit target’s name, date or location of the murder, but perhaps that just bespeaks how clever these guys are at covering their tracks.

Money Laundering in Casinos

Back in the 1930s, mobsters in early Las Vegas already knew how to run moonshine sales through the casinos during Prohibition

Running dirty money through casinos is nothing new, of course; the Mob did it from the early days in Vegas, and many say, it still proliferates today. When Al Capone was thrown in the joint for failure to pay his taxes in the ’30s, other mob figures learned fast that hiding their revenues from the feds was the way to go, and running that money through any legitimate business – like a casino – was one way to do it.

Casinos have to report transactions of $10K or more to the IRS to prevent money laundering

For illegal businesses like the mob or Silk Road, the idea is to make sure illicit funding cannot be traced back to its roots, while for individuals, it’s often for the purposes of tax evasion. Highly regulated land – and now online in Nevada and soon in New Jersey – casinos want to do everything by the book when it comes to the handling of this delicate issue; after all, they can have their gaming licenses suspended or even revoked if they don’t report anything suspicious in this area.

But what a delicate dance it is, whirling around, trying to placate the authorities, keep their betting parlors looking squeaky clean, and yet, inevitably, entertaining some less-than-savory characters who waive cash around like it’s candy at Halloween.

To help put a damper on large-scale crime, the IRS implemented a rule that any cash transactions in casinos involving more than $10,000 must be reported, so the clever launderers know to keep their cash outs on the smaller side, or spread it around so no one person is making a noticeably or alarmingly large cash out at one time.

Online Gambling Adds Anonymity

On a legal and regulated site, everyone’s identity is theoretically checked and verified for legitimacy, but by using Bitcoins and running Silk Road off an anonymous network, it was a challenge for the feds to move in for their bust. As often happens in these situations, it was Ulbricht’s own surprising carelessness – perhaps spurred on by a feeling of smug invincibility at his invisibility – that allowed the FBI to finally crack the case. A pseudonym in an online forum eventually led them to an email address, a gmail address that encompassed Ulbricht’s full name.

The money laundering paradigm, explained. For our purposes, gambling could be construed as a “business investment”

And so, as the Internet allows for more and more clever ways for money launderers to move their money here, there and everywhere, authorities must continue to stay one step ahead in their ability to track down sources. Land casinos will always unwittingly allow for garden variety and personal money laundering to occur at the very least; as Paul Camacho, who is special agent in charge for the IRS’s Las Vegas criminal investigation arm notes, “In a currency intensive industry, it’s virtually impossible to eliminate entry points for money laundering. We work hand-in-hand with the casinos. We want legitimate folks coming here and having a good time. Nobody promotes this as a den of thieves.”

And that’s exactly the way the bad guys want it, so they can blend, and “disappear,” almost as if they were in camouflage. Most likely, money laundering and gambling will always dance a dance together, because wherever there’s a boatload of dough, you can be sure some criminal somewhere will feel right at home.