How Do Criminals Launder Money Through a Restaurant?

http://www.eater.com/2016/9/1/12533030/money-laundering-restaurant

by nkurz • 10 years ago

78 96 10 years ago

carbocation2• 10 years ago

Has technology made money laundering through a restaurant any easier?
Actually, technology has made it more difficult to launder money. "Unless you’re using virtual currency such as Bitcoin, it isn’t easier today today than it was forty years ago," says Myers. "In reality, every bank has highly sophisticated software that can flag transactions much more easily than they could in prior years."

I don't see how Bitcoin would make it easy to launder money, since it's completely traceable and publicly auditable.

Neil44• 10 years ago

Bitcoins can be tumbled though I think?

gruez3• 10 years ago

Most tumblers' implementation are flawed, allowing the senders and receivers to be identified. AFAIK the attack can only be prevented by forcing every participant to use multiples of a common, low entropy amount (ie. 0.5BTC), which most mixers don't do

strictnein• 10 years ago

Yep. Theoretically they exchange your "dirty" bitcoin for one that has never been on the darkweb.

https://darknetmarkets.org/bitcoin-tumblers/

Retr0spectrum2• 10 years ago

Although they aren't 100% untraceable, bitcoin mixers do a pretty good job of laundering bitcoins.

carbocation2• 10 years ago

Thanks - that's a good point. Sending the output to new addresses not previously known to be controlled by you does sound effective (prima facie, at least).

tomjen33• 10 years ago

There are places where you can transfer your money, then they will mix it with other customers money, subtract a fee and send it out again. No real way to prove where your bitcoin came from.

gwern• 10 years ago

No real way to prove where your bitcoin came from.

That's exactly the problem. It doesn't help if your bitcoins are untraceable, your bank is still going to be suspicious when you deposit $1m out of nowhere from an exchange in order to buy a house. This is the problem the DNM sellers have: they have all this money from Bitcoin, and it is inherently suspicious since they can't account for where it came from and how they earned it legitimately.

Pitarou2• 10 years ago

Bitcoins can be made almost as anonymous as cash. Bitcoin wallets (accounts) are anonymous, and bitcoin launderers claim they can obfuscate transactions by mixing them with other transactions and sending them through complicated webs of temporary bitcoin wallets.

But bitcoin launderers aren't really money launderers. They conceal the source of your funds, but they don't create a plausible fake source. You still need to launder your money.

Retr0spectrum2• 10 years ago

Surely bitcoin gives you plausible deniability? Anyone with a dubious source of BTC could say they mined them "back in the day".

rwmj• 10 years ago

It would be good to get an idea of how much of this dirty money is because of the War on Drugs vs other sources of illegality.

nxzero2• 10 years ago

Unlikely, my guess is that most money laundering is somehow related corruption, tax evasion, etc.

Drug trade is estimated to be 1% of the global GDP, but money laundering is estimated to be 2-5% of the global GDP.

hannibalhorn• 10 years ago

That sounds a little high to me - sure, I'd bet it's around 50%, but there's plenty of other things going on, whether it be tax evasion, prostitution, fraud, etc.

Political corruption, for example, is common in the developing world - give your buddy the contract to build a road/dam/whatever, cut every corner possible or just completely fail to deliver, and if properly laundered, there's no way for the government to recover the funds.

And I don't know if anybody would go to the trouble of using a restaurant, but "asset protection" is a thing in wealthy circles, sometimes due to involvement in high risk businesses (porn, file sharing) or just being worried about an impending divorce.

nxzero2• 10 years ago

Author did some basic research on ML & AML and has no real idea what they're talking about.

Flip side of all cash business is tax evasion; meaning the owner does not report all the gross revenue and the spends the cash in a way that it's not traceable back to them.

Another reason to have access to the cash flow of an all cash business is to launder counterfeit currency; aka someone gives you a $20 an the business gives them back fake bills for the change.

Most interesting ML method I've heard of is book on hacking public databases to create valid fraudulent identifies to launder cash through: https://www.amazon.com/Baby-Harvest-terrorist-financing-laun...

gist2• 10 years ago

meaning the owner does not report all the gross revenue and the spends the cash in a way that it's not traceable back to them.

Exactly. For example taking money and buying expensive restaurant meals or liquor is not traceable. Or jewelry (which can be sold later). Also having home renovations whereby paying part by check and the rest under the table is also not (easily) traceable. Or paying employees in cash. I also don't buy into the idea that in actual practice banks are going out and seeing how many customers they have at their place of business other than in a cursory way by chance. Also whether they are writing checks or not, small businesses often operate out of multiple bank accounts. They could be transferring the money to an account that they use to write checks or even legitimately making deposits into multiple accounts.

unsignedqword2• 10 years ago

Hacker News - the only place on the internet where the term 'ML' refers to at least 3 or 4 different things.

finid2• 10 years ago

Yes, when you use an acronym on a page where it's not been used and defined, please tell us what it means. The only meaning of ML that comes to mind, mine at least, is Machine Learning.

Is that what it means?

tomjen33• 10 years ago

That's one way, another popular way (in Denmark at least) is to buy winning lottery tickets with dirty money and then legally cash them. Since it is not unreasonable for a person who has very little income to buy a lottery ticket, it won't be suspecious if they drive flash cars, etc.

Alternatively, if you need to launder money continuously, you can bet on sports, but buy more than one ticket, so that no matter what who wins you will have a winning ticket from which you can claim your recent money, should anybody ask.

Disclaimer: none of the above should be taken as legal advice or used for illegal purposes.

buzzdenver5• 10 years ago

How do you find somebody to sell you a lottery ticket that won a lot of money ? And somebody who also trusts you ? Or do you buy a ton of tickets and do essentially the same thing as with sport betting ?

gruez3• 10 years ago

I guess places that sell lottery tickets aren't as strict when it comes to KYC laws (if there are any to begin with)

ptaipale2• 10 years ago

I would think it's more the other way round, the guy who has a winning lottery ticket asks around in a pub "hey, I want my money now, who would want to buy this?" and the barman just might know.

Lottery's rate of return is worse than in sports betting, so buying a ton of tickets is probably not good business.

ergothus• 10 years ago

The latter: Buy a lot of tickets (which aren't tracked transactions, so there's no saying how much dirty money you spent), and lose N% of it to the "house". Take your winnings (and if you buy scratch tickets, you should be relatively statistically safe) and it's "clean".

Of course, I've read that the scratch tickets systems are often flawed, and with some you can calculate if it's a winner by examining the serial numbers. That means you have various ways to cheat the system to give you better odds, but the reference I just found to that is a wired article, so take with salt. Pretty believable though.

http://www.wired.com/2011/01/ff_lottery/ (anecdotes about laundering and odds being beaten are past the 50% mark, but the whole article is worth a read)

TheLarch• 10 years ago

Mobster Whitey Bulger of the Winter Hill Gang did in fact do this in Massachusetts in the early nineties. The papers reported it at face value, I guess for fear of libel suits.

nstj4• 10 years ago

This article in no way describes the process behind disguising the source of funds (ie: "money laundering").

A more appropriate title would be "Restaurant in foreign country is used for money laundering, US officials upset".

Hydraulix9892• 10 years ago

@dang?

Spooky234• 10 years ago

Pretty easily. Restaurants have lots of purveyors, tips and inventory that isn't trivially tied to sales.

Embezzlement and money laundering is pretty trivial and prevalent.

buzzdenver5• 10 years ago

Can't anyone say that they bought BitCoin when it was $1/BTC and now they're selling it for $600 or whatever ?

function_seven2• 10 years ago

If you're at the point where you're offering explanations as to the source of your cash, then it's too late. You're being investigated and that's what you want to prevent. Also, how do you sell BC for physical cash?

gruez3• 10 years ago

Also, how do you sell BC for physical cash?

Localbitcoins?

buzzdenver5• 10 years ago

Why do you have to sell for cash ? You're in the clear once you can explain where your money came from, so it can go to your bank account and then you pay taxes like a good citizen. I agree that it is ideal not to be investigated, but I'd think if you're making lots of money illegally, then authorities already have a decent idea of suspicion.

tempestn• 10 years ago

It wouldn't necessarily be quite that simple, but it does seem to me as well that BTC could potentially be used for money laundering, and could provide a reasonable cover.

mtkd• 10 years ago

I don't see how it is viable to launder through a restaurant

Some simple peer benchmarking of %cash vs %credit card transactions or looking at spend on produce vs revenue would likely show suspect operations quickly - I was talking to an auditor recently about similar benchmarking they do as standard but can't remember the context

codesterling• 10 years ago

Cash only businesses. Family, friends all eat there for free, like grandma's kitchen used to be. They gotta eat anyway, and it fills out a restaurant. The busier, the more you pad. Give options of top shelf scotches, etc... A guy is celebrating and wants table service, you provide that. Strip clubs, etc... Easy easy ways to either hide what's coming in, or pad what's coming in. Food trucks are brilliant for this, though stretching the definition of restaurant.

rdtsc4• 10 years ago

Food trucks are brilliant for this,

Yes, that would be pretty good. In the right kind of city. Buy a fleet of used food trucks. Pay someone to stick some labels on them. Find what local food trucks pay for produce and maintenance. Maybe ask some friend to drive them around town.

The only problem then is other food trucks would notice this fleet of trucks always driving around yet never stopping to sell anything.

They could sell something really simple -- just hotdogs. And it would be funny, other honest ones would see this plain hotdog business growing and expanding like crazy while they sell organic Korean bbq and don't seem to break even. So they go and expand into the plain hotdog market to capture some of the profits and then realize how unlucky they are when nothing sells. That's a plot of a short movie right there.

cperciva2• 10 years ago

Peer benchmarking of %cash is a constraint, but there will be a natural range depending on clientele, so you can safely get away with mixing some cash into the business. The same goes for expenses vs revenue -- alcohol has a higher markup than food, for example.

Heck, you can launder money through restaurant without anyone in the restaurant knowing: Have people go in and buy a few hundred dollars of liquor at a time.

Spooky234• 10 years ago

You forgot the back door.

How much fish did you buy from the fish guy? Were those oranges $40/case or $75/case? How about the linen guy?

Hydraulix9892• 10 years ago

I'm Italian American, and there's definitely family rumors of distant cousins opening pizza shops in Chicago in the early 20th century to do this for mob activity.

Obviously, I cannot provide specific names nor attest to their veracity.

jlebrech• 10 years ago

you could use an art gallery, you have normal customers walk into the shop and also have "mysterious" purchases of the more expensive items. you could also deliver it somewhere to store or destroy. then you buy more art from an unknown artist and put up in the shop at high prices. if the artwork becomes in demand you can then sell those items again legitimately (if you kept them in storage).

cperciva2• 10 years ago

People don't usually pay for expensive works of art with bundles of $100 bills. In fact, this applies to pretty much all high-value transactions -- the probability of a purchase being made in cash decreases as the value increases.

Restaurants work well for money laundering because they handle a large number of small transactions -- thus they can plausibly have a high percentage of cash transactions.

dsr_• 10 years ago

There's a balancing act between cash and credit cards that you have to watch out for. Once a table exceeds $80, the odds of payment with a card rise to 90%. If you run a nice fancy restaurant where hardly anybody gets away without paying $100 a head, your cash deposits ought to look like 15% of your totals, max.

At the low end, a coffee shop, or dive bar can reasonably establish 60-75% of their sales in cash, but unless you've got huge turnover, the overall amounts aren't great.

That's why strip clubs, where legal, are always watched for laundering. A remarkable percentage of their clientele want to use cash, and can drop it in high-end restaurant quantities.

lj32• 10 years ago

It used to work for laundromats too, until the feds started measuring water usage. In fact, I think it would be trivial to set up on a restaurant and be able to do fairly close calculations about how many tables a restaurant does per night vs how many table cloths get cleaned, how much water gets used for washing dishes, electricity, etc. It makes me wonder if this method actually gets used anymore.

rdtsc4• 10 years ago

Not a bad idea, but in the art world everyone knows everyone. It would become pretty noticeable after a while if a gallery is just a front.

Also has to be in the right part of town. If it is a Midwest Rustbelt suburb with Applebees and Burger Kings around and then an art gallery pops up selling post-modern art making millions a year in cash, it would stick out pretty well.

Synaesthesia2• 10 years ago

The big cartels launder money straight to the banks. Drugs are a huge business, 10% of global GDP by some estimates. The banks are all involved, they have to be. HSBC got caught laundering $670 billion. http://www.bloomberg.com/news/articles/2013-07-02/hsbc-judge...

imaginenore4• 10 years ago

HSBC got caught, and nobody went to prison. The fine was just $1.9 billion.

Our prosecutors are a f*ing joke.

a3n• 10 years ago

If we wanted to put a dent in this kind of thing, we'd put people in jail, and fine individuals. But we don't do that, so we must not want to stop it. I suppose the fines are just our cut.

rhizome• 10 years ago

There's a saying that crime is defined as the behavior of the losers in the class war. HSBC is not a member of that group.

digi_owl2• 10 years ago

I ran into a claim some time ago that the war on drugs exist in part to prop up the USD after all the printing and spending during the Vietnam War.

Synaesthesia2• 10 years ago

A more plausible explanation is that the CIA needs "dark" money (untraceable) in order to operate their shady activities, and that the drug trade is an ideal means for obtaining this money. This is no conspiracy theory but backed up by solid journalism and research - many books by respectable authors have been written on the subject. The CIA has been involved in drug trafficking for decades.

nstj4• 10 years ago

So the $670bn number is the volume of wire transfers which were not adequately monitored by HSBC, not a "total laundered amount"

HSBC was accused of failing to monitor more than $670 billion in wire transfers

I'm no Heisenberg, but laundering the annual GDP of Switzerland (USD665bn in 2015[0]) is probably outside the reach of a bank.

[0] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...

rando4442• 10 years ago

While I don't know about the exact numbers, I do recall that HSBC was actively coaching the drug cartels (and hezbollah) on tricks to alter their names on forms so they wouldn't get picked up by watch lists.

At which point the exact dollar amounts are irrelevant, and the fact that nobody was criminally charged over this is what concerns me more than anything.

rdtsc4• 10 years ago

It is not just banks, just regular people in the neighborhood notice. If a restaurant sits almost empty, has a pretty bad menu and service yet seems to hang around for years, it just looks suspicious.

finid2• 10 years ago

There was a fruit and vegetable stand in Bensonhurst, Brooklyn, NYC (USA). Never seemed to do much business during regular business hours, but somehow managed to remain open 24/7.

lj32• 10 years ago

That's actually pretty common. Every community has at least one or two businesses that don't look very busy, but the owners have managed to hang on for 10+ years. Could they be laundering money? Sure. They could also just be operating by the skin of their teeth. Or they could have made their money in real estate in a past life and are milking their savings. Or they could be in debt up to their eyeballs. Or they could have a rich uncle. I could go on...

jandrese4• 10 years ago

There's an Italian sub place down the road from me like this. The owner is the only employee as far as I can tell. He makes delicious sandwiches but there is never anybody in there. There's even a tiny grocery area in the front with imported everything (at import prices) that never seems to move. I really don't understand how this guy can keep so much expensive and perishable stock in there with no customers.

digi_owl2• 10 years ago

Or they could be gaming subsidies.

I recall claim that local extended family would pass a storefront around, each relative taking of the the storefront, apply for a new business subsidy from the local government, then ride that for as long as it lasted, and file for bankruptcy when it ended.

gist2• 10 years ago

Flip side of this are cash businesses (like restaurants) which are legitimate and the owner isn't reporting anywhere near the cash that they are taking in.

wmf• 10 years ago

Startup idea time: An app that connects tax-dodging restauranteurs with money-laundering drug dealers.

mschuster91• 10 years ago

There are other ways these days, at least in Germany with the massive explosion of sport betting offices.

So, the guy who wants to launder some money gives e.g. 1000 € to a low-level dude. This dude then goes to the betting office and places all day long 10 or 20 combo bets with 3 spares (i.e. 7 / 17 of the bets have to be won in order to win the total bet), and every sub-bet has a ratio of 1.01-1.10 profit (which means you're unlikely to lose, but you still have to know some basics, and you absolutely must distribute risk by betting small-ish amounts)... the dude gets to keep any winnings, and if he can provide the receipts, doesn't even have to cover losses to the launderer.

Another common method is to use gambling machines for small amounts. This again only works in Germany because our machines do not play with instant real money, but "points" - 1 point = 1 cent, and you can only transfer 20ct every 5 seconds, and only 80€ per hour. Needless to say, it sucks for the machine operator because a non-player is occupying the machine without generating losses (= income for the machine operator).

Source: worked for a long time in a pub/gambling hall located directly next to a betting office. Seriously, I've seen some weird stuff.

As for the question "how do the launderers find people?": easy, in the hood I worked the Bulgarians had quite a "monopoly", it were usually those who didn't find odd-jobs for the day that ended up with sitting around in betting offices, and for "how does a launderer prevent dudes running off?", well, you can imagine there's a load of violence and human trafficking involved, including threatening relatives back home, and outright selling of women into prostitution. It's sickening.

clueless123• 10 years ago

A small list of cash intensive business.

Restaurants, Night Clubs, Hostels, Gym's , Casinos, Spas, Nail shop, Food kiosks/carts/Trucks, Transportation / Buses / Taxi / Small airlines, Construction , roofing, lawn mowing ( Anything labor intensive where you pay labor with cash and overstate the profits)

And if you really want to launder big money... (Drum roll) Online university! (get paid monthly by hundreds of "people" around the country for non existing classes)

misingnoglic• 10 years ago

Online universities take cash?

shalmanese2• 10 years ago

How does an online university accept cash payments?

Spooky234• 10 years ago

Online universities aren't money laundering, they steal from the government using the student as a proxy.

legitster• 10 years ago

I've heard those little coin operated candy dispensers are often a front for some low level money laundering. They almost never actually make money otherwise. But it's really easy to buy an existing franchise with x number of dispensers for a few thousand dollars, enough to maybe conceal 5 or 6 figures of ill gotten gains.

Spooky234• 10 years ago

All of that kind of stuff is full of shenanigans.

My grandfather used to get the shakedown from mafia affiliated jukebox and cigarette concession guys in his bars in the 60s and 70s.

How Do Criminals Launder Money Through a Restaurant?

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