The Laundromat: Frequently Asked Questions

Credit: OCCRP
Published: September 24, 2019

What is a Laundromat?

A Laundromat is an all-purpose financial vehicle set up, typically by a bank or other financial services company, to help clients launder money, hide ownership, evade taxes or currency restrictions, embezzle or move money offshore. Often they use seemingly independent offshore companies that are spread across the world but controlled by a single party – usually the bank. A client wires money to a network node, often using fake paperwork showing a good or service is being bought and sold. From there, the money is parceled out to the other network nodes, accompanied by more bogus paperwork. Money then is sent to the client’s offshore company, minus a commission. The ownership and the provenance of the money is lost in the dizzying myriad transactions that can be untraceable even by law enforcement. OCCRP coined the term with a story titled The Russian Laundromat Exposed.

Are there other Laundromats?

OCCRP has uncovered a number of them, including the Azerbaijani Laundromat, the Troika Laundromat and an early one we dubbed the Proxy Platform.

Many were set up by Latvian, Lithuanian, Moldovan or Russian banks. It’s likely that there are dozens of other Laundromats out there.

How are Laundromats detected?

These Laundromats operated for a decade before reporters discovered them. Law enforcement never seemed to identify what they were, although many people working on this issue suspected their existence. The problem is that they are hard to track. They are made up of dozens or hundreds of companies that often have bank accounts in different countries and are registered in secretive offshore jurisdictions where records are not transparent.

OCCRP gets bank records of many companies from confidential sources, from law enforcement and from court cases. By careful analysis, we can see how some companies act as nodes, identify movement of money and identify the structure and purpose of a Laundromat.

Are Laundromats illegal?

This is a very complex question, and it’s up to prosecutors to determine whether any laws were broken. But which prosecutors, and which laws? A Laundromat involves people in many countries wiring money to bank accounts in other countries operated by companies from a third country. And that’s a simple case. Each jurisdiction uses its own definition of money laundering and tax evasion to determine if a crime may have occurred. Though laws are national, many of these transactions are international.

The bank accounts in Laundromats are often denominated in U.S. dollars, rubles, euros, or other currencies. Countries where these currency trades must be settled often have jurisdiction over such accounts. This means that a dollar transaction in a Russian bank may come under U.S. jurisdiction. Using fake paperwork is illegal in some or all jurisdictions.

However, in many cases, a Laundromat user may have been engaged in legitimate business, and simply found that using such a system was easier than more regular or official channels.

But some transactions were clearly the result of illegal activities. OCCRP has found Laundromat transactions involved in dozens of frauds, including the theft exposed by the late Russian lawyer Sergei Magnitsky as well as transactions by the Mexican Sinaloa drug cartel. Both the Russian and Troika Laundromats showed major Russian businesses giving millions of dollars to a cellist who is an old friend of Russian President Vladimir Putin, which may have been a bribe.

What do we know about where the money went?

In some cases it bought yachts, luxury cars, estates. But in many cases we don’t know where it ended up. There is evidence the various Laundromats used each other. Transactions from the Russian Laundromat, for example, were also seen in the Azerbaijani Laundromat.

What type of checks should the banks have done?

Accounts known to have been used in Laundromats uncovered by OCCRP were usually at banks shut down for bad behavior, with the most notorious being Ukio Bankas in Lithuania, Danske Bank’s Estonian branch and ABLV and Trasta Komerzbanka Latvia. Many of these banks had dismal compliance records.

Bank compliance officers are supposed to watch for suspicious transactions. Many of the Laundromat transactions were highly suspicious, and should have been flagged. For example, a Laundromat company might claim to be trading computers one moment and food the next. There was almost no evidence that these companies ever did any real business. There’s no evidence that bank compliance officers ever asked for documentation such as a utility bill, a rental contract or other proof they were more than shell companies.

Transactions often went through correspondent banks in the U.S. and Europe including Deutsche Bank, Raiffeisen Bank, Citibank and HSBC without being stopped.

What’s wrong with rich people moving money around this way? What’s the harm?

When users evade taxes or customs fees, the state is deprived of badly needed money — especially when the Laundromat users are people who are most able to afford them. Why should rich and well-connected people who can afford the services of an investment bank benefit when an average businessman cannot?

The situation also creates an unfair playing field, making the goods and services of corrupt operators cheaper than those of responsible business operators who pay their taxes and customs fees.

There are some valid reasons to hide assets. In countries like Russia, showing legitimate wealth can get you in trouble with greedy people in positions of power. Corporate raids are a regular occurrence. Your family could be kidnapped. So it makes sense to hide what you own.

But some people try to hide assets bought with stolen funds. One way to catch corrupt officials is by looking at what they own in comparison to their legal income. If assets are hidden, the public may never know there’s a problem.

In the most blatant cases, Laundromats help launder ill-gotten money — literally making crime pay. These funds can disappear into offshore accounts and never be found. Almost every developing country struggles to trace and recover stolen assets.

Opaque money is also opaque power. Money that has passed through a Laundromat may show up in other countries to bribe local officials, buy positive news coverage, or empower extremist groups. It’s best to know whose money is whose.

How are Laundromats connected to the Panama Papers?

The Panama Papers were documents from the Panamanian law firm Mossack Fonseca leaked to the German newspaper Sueddeutsche Zeitung. The International Center for Investigative Journalists and the German paper distributed the documents to OCCRP and dozens of other media organizations that came together for the large international project.

Many of the companies in Panama Papers are offshore companies set up to hide business transactions. Some of these may have been part of Laundromat-like structures. Others were set up by people to use with Laundromats, including those uncovered by OCCRP.

Why is the movie titled The Laundromat?

Titles are up to the filmmakers and can vary by country. In Italian theaters, it’s called “Panama Papers.”

Whatever the title, the film is a fictional story based on the non-fiction book "Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite" by Jake Bernstein.

What’s important is the film’s accurate portrayal of company services firms like Mossack Fonseca and the banks that set up the Laundromats. There are people who just do this for a living. And many fraudsters then use these vehicles to rob innocent people.

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