How intellectual property is used in money laundering

The bricks-and-mortar economy is continuously being substituted with the economy of ideas in which Intellectual Property (IP) is a major exchange.

As the globe moves into the Fifth Industrial Revolution, wealth creation and generation is shifting to the capture and use of the value of knowledge. Today, knowledge is wealth.

Thus, intangible resources have become a good measure of commercial viability and future performance.

With advancement in societal technology and cultural norms comes new mischief with which the law must try to keep pace and mitigate.

One such mischief is the constant evolution of money laundering that enables lawbreakers to accumulate wealth, evade taxes, increase profits through re-investment, fund further criminal activities, and camouflage their proceeds. They are turning “dirty” money into “clean” money.

Criminals launder their illicit proceeds through financial institutions, international trade, precious metals, real estate, third party service providers, virtual currency and more recently intellectual property.

The process is three way: initial entrance of the proceeds into the financial system; placement, the more complex movement of funds; layering and integration, which divorces the criminal’s proceeds from their original cradle and creates a complex audit trail.

Violation of IP ownership has become an ideal scheme of laundering proceeds of crime because law enforcement does not treat intellectual property crimes as a high priority, resulting in shoddy investigation. Further, such investigations are focused on “seizure” and rarely do they spread out to tracing onward streams of money.

In addition, if law enforcers were to trail money, it would be difficult to establish with precision the end destination of the financial flows given the high level of complex cash flows and human ingenuity.

To succeed in concealment, a laundromat makes use of only the most unique elements of IP and in their original form or the most commercially viable. This is due to their huge market and future flexibility.

For an intangible asset to be used for this purposes it must be appraised before becoming part of the company capital. This making of value is the black hole whereby real value is distorted, hence creating future conditions for money laundering.

LIMITED EXPERTISE

Due to lack of expertise and investment in valuation, it is challenging to determine the real value of IP. Assessment depends a lot on diverse economic and market circumstances whose future flexibility is problematic to predict.

Economic value of intellectual property is determined by a human being and become more pronounced on obtaining legal registration. When IP is bought on estimated low price with dirty money then sold at its real future income price, money received will have been laundered legally.

It is not lost in us the number of times where right holders of IP made “a killing” by selling the value of their property to façade companies abroad, under deals tailored to round trip unaccounted money back to the economy as legal earnings.