Startup Targets: Avoid Money Laundering Schemes

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By Ephrat Livni, Esq. on February 18, 2016 11:07 AM

You have a great new idea for a business and you meet a potential investor. This person, unlike most people you meet, seems exceptionally eager to part with money. Your investor wants to put cash into your legitimate business, which is great ... maybe, if this investor isn't shady.

Watching TV you've seen money laundering schemes dramatized. But how do you spot such crimes in real life?

Placement, Layering, Integration

There are three stages to a money laundering scheme, according to Entrepreneur, and startups are particularly susceptible targets. The stages are: placement, layering, and integration.

First an investor (read criminal) puts illegal gains into circulation by placing them in small shops and businesses. Because authorities target very large-scale money laundering operations, criminals who use small, young businesses to launder money can evade scrutiny quite easily.

Second, the money is layered. In other words, money from illegal sources is separated and spread around in a number of legitimate businesses, giving the impression that they are more profitable. This leads to the final step, integration, or cooking a bunch of books to make it look like these cash infusions have been earned legitimately through the businesses that receive them.

Targeting Startups and Small Biz

New businesses are susceptible to such schemes. You need enthusiastic investors and who are you to turn down someone who believes in your dreams?

You are someone who wants to be in business a long time and to do deals that are legal. So you will have to turn down a great offer from an investor if you can't ensure this person's also playing clean. This preserves your integrity, dreams, and possibly freedom, too.

There are funding alternatives. You can look to legitimate lenders for small business and startup loans, seek investment from people you know, find niche resources for your industry, and look to government agencies for programs that promote or invest in you or your type of business.

If you cannot come up with the funds to adequately run your business, the US Small Business Administration suggests waiting to begin. Most small businesses fail within 2 years due to insufficient funding, making a generous investor seem like exactly what you need. But you've watched TV, so you know doing business with shady characters will end badly.

Consult With Counsel

If you are interested in starting a business or curious about alternative funding sources, get guidance. Speak to an attorney.

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