How Common Money Laundering Techniques Work on eBay

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When we hear the words "money laundering" usually images of the Mafia come to mind when mobsters would set up legitimate cash businesses like restaurants or shops to funnel dirty money through. Now we are in the internet and electronic banking age, laundering money can be done online through legitimate websites like eBay. There are common scams on eBay that suggest laundering money, but let's take a look at how money laundering works, exactly what it is, and why it exists.

Definition of Money Laundering 

To set a foundation for this article, you must understand what money laundering is. According to Investopedia:

"The process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source."

How Money Laundering Works 

A traditional money laundering scheme works like this. Let's say Jim and Nathan are involved in selling illegal drugs, and have a huge cash flow coming in. It is dangerous and foolish to keep cash lying around, so they need a way to get the cash into a bank without looking suspicious.

The banking industry is required by the government to report any cash deposits to the IRS. The bank can also report any suspicious cash deposits, such as frequent large amounts of cash or customers keeping large amounts of cash in a safe deposit box. These IRS reports are so that illegal operations can be detected, and to ensure that businesses are paying taxes.

 

So people running illegal operations need a way to get the money into the bank, where is it safe, without tipping off the bank. Any large amount of cash, or frequent large cash deposits are usually not obtained legally. Jim and Nathan open a legitimate business where cash routinely flows in such as a restaurant, nail salon, car wash, ice cream shop, coffee shop, or gas station.

These businesses are called a "front" for money laundering.

So when Jim and Nathan submit cash deposits to the bank every day from their legitimate businesses, they add a little extra cash from their drug sales to the deposit bag, and their dirty money from drugs gets mixed in with the "clean" money from the legitimate restaurant or nail salon. This is where the term money laundering comes from. Little by little, the dirty money makes its way to the bank mixed in with money from the other businesses. So the dirty money appears to be clean.

How Money Laundering Works on eBay

Since we live in an electronic society, money laundering schemes have made their way to the internet. Online sales are tracked. Paypal sends sellers a 1099K if these two conditions are met:

  • $20,000 in sales
  • 200 items sold

So some sellers are exempt from receiving a tax document from the government. (eBay sellers should report all income from their business regardless of if this form is received or not.) So some sales on eBay can stay under the radar, so to speak.

One way that unscrupulous people who are trying to transact with dirty money is to set up fake listings on eBay. It looks like a real transaction, but the price is usually astronomically inflated for the type of item, and the sales price does not make sense.

One such scheme is using Disney Black Diamond VHS tapes, but it could be on anything. Here is how it works.

Let's say Jim has a customer who wants to buy something illegal, such as drugs, stolen property, or weapons. Rather than create a transaction with cash, which is dangerous and foolish, Jim tells his customer he will set up a listing on eBay for a particular item at a very inflated price, such as a Disney Black Diamond VHS tape. He will then send a link to the item to the client. This is called a "prearranged sale." So the video could be priced at $5,000. Since these Disney VHS tapes are not worth that much, no one will actually buy the item, Jim's client will purchase it, the money flows through Paypal. Also, eBay gets their fees so they are happy, and Paypal gets its fee of 3 percent.

 Jim ships a box of rocks or some insignificant item to the client's address and no one is the wiser. 

Once the transaction has taken place on eBay, and the money is in Jim's account, he meets up with his client to deliver the actual goods which again may be drugs, weapons, or some sort of contraband. The transaction takes place, the money has changed hands, the illegal goods are delivered, and all of this is done under the radar.

Why Launder Money on eBay

Well, really, for the same reasons money laundering is done in cash businesses. To shift the focus. To fly under the radar. To mix the transaction in where it isn't obvious. eBay creates a wonderfully confusing shield that unscrupulous people can hide behind. Millions of items are sold on eBay every week, and some legitimately sell for hundreds or thousands of dollars. So it is rather easy to blend into the crowd and successfully pull off illegal schemes on the world's largest online marketplace. 

If It Looks to Good to be True, It Probably Is!

This old adage holds true here. If you are searching completed listings and see something that doesn't look right, it probably isn't. Back the the Disney Black Diamond VHS tapes, some sell for over $50, but most sell for under $20. They just aren't that valuable overall as a category. When people find out I sell on eBay, one of the first things they ask is about the Disney Black Diamond VHS videos, how they have a cabinet full of them at home, and they should learn to sell on eBay so they can cash in. Sadly, I must tell them they have been grossly misinformed, and the whole discussion begins to unfold. If the sales price on eBay looks too good to be true, odd are, it is. Do further research and look at the law of averages. There could be much more to the story than you are seeing on your computer screen.