A quick and dirty explanation of money laundering. Also why so many are speculating that Michael Cohen’s businesses might have been money laundering operations.
The term “money laundering” is something that has become prevalent in popular culture when we talk about crimes committed by the rich, but it’s also considered to be generally obtuse. Truthfully though, that isn’t the case. While the details of money laundering can be tricky, the general concept is actually quite simple.
For money laundering to occur, you need three things:
- a pile of ill-gotten cash
a business professional (preferably an accountant or lawyer) with fudgeable integrity
a legitimate business that is moderately successful
In our example, let’s say you’re in middle-school and one day you find a paper bag with $1,000 dollars inside. At first, the rush of randomly finding that much money is too much to keep in. Thinking of all the things that you could buy with $1,000 as a twelve-year-old, the possibilities are limitless! However, reality starts to kick in that if your parents were to find out that you came across that much cash, they would ask questions or worse, make you return the money.
To make sure that doesn’t happen, you go to your friend Pete, who just so happens to mow lawns in the summer. You go and tell Pete about your situation, along with your brilliant idea. Your plan is to tell your parents that you got a job mowing lawns with Pete this summer. That way you can keep the $1,000 by telling your parents you got it from a summer job. Pete likes the idea but says he’ll only do it if you give him $100 out of the $1,000, which he promises you that you’ll get the remaining $900 by the end of the summer.
After you agree to his terms, for the next three-to-four months, Pete creates a few fake customers, saying that you mowed their lawns. Each week, you end up getting a portion of that $1,000 (minus the small chunk you give to Pete for his work in concealing where you got the money from) and by the end of the summer, you got to pocket $900, without your parents being none the wiser.
So this act of finding the paper bag of $1,000 (ie a pile of ill-gotten cash), going to Pete to fix the dilemma (ie a business professional with fudgeable integrity), and then finally using his lawn mowing business to funnel in the $1,000 to look like it was all through hard work (ie a legitimate business that is moderately successful) is the process of money laundering!
So now that you understand the basic idea of money laundering, here’s a completely hypothetical scenario for you to dwell on.
Let’s say, that you’re a very popular real-estate mogul running for president. Now let’s say, that in the past, you had a few extra marital affairs that you would like to keep from the public, while you’re running for office. Since you’re worried that news of these affairs will hurt your chances in becoming president, you go to your good friend – who also happens to be your lawyer – and tell him your current predicament. Since he’s been a good friend (and a good lawyer) to you in the past, you give him a large chunk of money – say $130,000 – to let him know that he’s appreciated and maybe hope that he uses the money to do you a solid on the whole extra marital affairs problem.
Somewhere around that time, your good lawyer friend was also moving money around freeing up $774,000 in liquidity through real-estate deals – you know, just in case – all the while your presidential campaign was in full swing. This wasn’t unusual for your friend, who quite regularly would buy expensive real-estate in cash and then would flip that piece of real-estate for two-to-three times its value. For your friend, it has been a very lucrative business. Also during this time, he recently saw how distraught you have been over your extra marital affairs potentially becoming public knowledge, so he decided to pay two women in particular – one with a $130,000 payment – in the condition that they would not speak about your affair.
Alright, the last example wasn’t a completely hypothetical scenario, but one that President Donald Trump and his friend/personal lawyer, Michael Cohen, find themselves in after paying Stormy Daniels hush money in hopes of keeping her affair with the president silent. Now if that last scenario had you saying to yourself, “hey, isn’t that money laundering?”, understand that you aren’t alone. Many others are also having the same thought.
Though to be fair, there are still many questions in this scenario that make it from being a one-to-one example of money laundering like:
- In what order did all the events take place? (We know that all of the above events did happen through various reports, but the order of events happening remain inconclusive.)
Was any of this illegal? (If Cohen were using campaign funds to do so, which he could have made that loan for campaign purposes, then that is VERY MUCH illegal!)
It’s also important to note, while having your friend/lawyer pay off mistresses is unbecoming, it’s not illegal. However, framing that action of Cohen using that money for campaign purposes puts President Trump and him in a lot of trouble. At that point, it becomes about intent. Or as Richard Hasen, a law professor at the University of California Irvine, told Vox:
“[Rudy] Giuliani has made things much worse for Trump. First, he’s confirmed that Trump repaid the money, meaning Cohen potentially made an unreported loan to the campaign. If this was campaign-related, and Trump failed to report the loan and the repayments of the loan, that is a campaign finance violation. And willful violations can lead to criminal liability. Much turns on Trump’s motive. On Fox News, Giuliani suggested Trump’s motivation was indeed campaign-related.”
Staff, Investopedia. “Money Laundering.” Investopedia, Investopedia, 10 Mar. 2018, www.investopedia.com/terms/m/moneylaundering.asp.
Rashbaum, William K., et al. “How Michael Cohen, Trump’s Fixer, Built a Shadowy Business Empire.” The New York Times, The New York Times, 5 May 2018, www.nytimes.com/2018/05/05/business/michael-cohen-lawyer-trump.html.
Rothfeld, Michael, et al. “U.S. Probes Cohen Over Cash He Built Up During Campaign.” The Wall Street Journal, Dow Jones & Company, 5 May 2018, www.wsj.com/articles/u-s-probes-cohen-over-cash-he-built-up-during-campaign-1525478682.
Illing, Sean. “Did Rudy Giuliani Just Get Trump in Legal Trouble? I Asked 11 Legal Experts.” Vox, Vox, 3 May 2018, www.vox.com/2018/5/3/17314790/giuliani-trump-repaid-cohen-stormy-daniels-fox-news-hannity.