Identifying Money Laundering in Business Operations as a Factor for Estimating Risk

Money laundering and terrorist financing can be performed in many ways, regular business operations being among them. Business activities go through a large number of business changes, which offers numerous options for money or assets to enter the company via seemingly legal business transactions, enabling money or assets to remain in regular business flows once money laundering is completed. On the other hand, the opposite scenario, in which there is interest in money to be transferred from regular flows to alternative flows, including terrorism financing, is also common. This paper will discuss legal business operations as a framework for money laundering and terrorist financing. Cash flow cycles are presented in form of an algorithm as connections between irregularly and regularly acquired assets in the process of money laundering through business operations, as well as re-entry from regular flows into alternative cash flows. The Butterfly Diagram, presenting groups of business changes enabling entry of larger amounts of money and assets owned by a company in order to be laundered or their exit with the effect or tax evasion or terrorism financing, evolved from the algorithm. Also, the “Butterfly Diagram” includes certain forms of legal and tax misuse which enable legalizing the specified activities. The business reality is exceptionally dynamic and needs of money launderers keep growing, this is why there is an increase in types and numbers of business transactions that can be used for money laundering or terrorism financing, resulting in the need to keep modifying the presented “Butterfly Diagram”.