Making too Much Money: And This Is Somehow Bad News?

 Lisa Dimosi, JD, MBA, CPA
Regional Financial Officer
Madrigal Electromotive

This is the first article of hopefully many by Madriagal Electromotive's new Regional Financial Officer. Lisa Dimosi, JD, MBA, CPA. Ms. Demosi has just joined the Albuquerque Branch after spending 5 years as a corporate attorney in our Houston headquarters. She'll take on the role of regional Chief Financial Officer and will also maintain a number of retail financial and legal consulting clients, a special management trait of Madrigal Electromotive.

Ms. Dimosi has extensive experience in numerous areas of finance and law. After graduating from UCLA with a degree in Economics and California Lutheran University with a Master's of Business Administration, Ms. Demosi Spent 20 years in the United States Marine Corp earning a Law Degree at Southwestern College of Law.  With law degree in hand she switched to the JAG Corp which enabled her to  manage cases across the globe supporting the Marine's mission.

Making too Much Money: 
And This Is Somehow Bad News?

 

As a financial consultant, I find at dinner parties and even at times in the office the hypothetical question arises: “What if I started generating lot's of money, not quite legally?” I bring this up as my first article because it demonstrates a unique situation not faced in daily life, and it's a great exercise in out of the box thinking along with how every operation requires thought and planning.

First off, this is all hypothetical discussion. Just for fun and to exercise the brain. Second, hopefully you never are involved in these activities, but if you are, make sure your financial adviser is an attorney, so your conversations are privileged.

Money is a good thing, taxes and the governmental police powers to collect a portion of that money are not. Remember, that “unexplained” money is taxable. So if your reported income is $20,000/yr and your living in a $1 Million dollar mansion, then, well you have some 'splaining to do or pay taxes on the assumed income. So 'splaining that income becomes an enterprise in all to itself.

Here's an example brought to my attention by Dr. Goodman. The article is about a physician running a “Pill Mill.”  I'm sure he referred to them as "Vitamin Pills"   He didn't have legal problems with the very questionable medical care, no, he went to jail for money laundering, All the effort of setting up and running this operation, and it fell down due to poor money management:

http://www.docstoc.com/docs/44129597/CINCINNATI-DOCTOR-RECEIVES-TWO-YEAR-SENTENCE-FOR-MONEY-LAUNDERING

Money laundering is the process of taking money from a questionable source, cleaning through a legitimate enterprise to create "clean money"

You find large flows of money coming down the pike, it's hard cash, and you don't want to really advertise the source of this money on a 1040.  You need to work it into a legitimate business which you suddenly find to be unbelievably successful. While taxes are paid on the final cash flow, that's one less legal authority nipping at your heels.  Just another cost of doing business and your civil duty.

Ideally the new business will take income in the form received in the legitimate business, large bills, small bills, coins, whatever. The bank needs to not get suspicious, nor should the authorities. There are multiple cash business with minimal inventory and therefore minimal records. While a casino sounds great on the surface, there's quite a bit of regulation, something that most in this area want to avoid.  For discussion, here's a few examples:

1 – Car parking lots. All cash business. Receipts might be issued, but extras can be printed up and destroyed thus increasing how many cars are going into and out of your lot. A great way to buy up real estate which can preserve capital and sold in the future when the funds are needed. Nearly impossible to audit unless time is invested actually counting cars coming in and out.

2 – Music groups. The music business always seems to be generating more money then the talent justifies, but in this cash flow lies opportunities. It also might get your half talent relative on the road and out of your hair. The band might not be good enough to fill up the room, but needs to be good enough to keep people in the room, and buying drinks, once they're there. So let's see how to launder money with “Jesse and the Tweekers”
The set up is simple. Send the band on the road. Make deals with the various venues that you'll fill the site up with “x” amount of patrons. They keep the drink money. The advance men go out to “sell” tickets. If they're able to actually sell the tickets, great, more money in their pocket and money to pay the band. Most likely they're giving the tickets away just to get folks in. Whatever it takes the venue needs to fill up. Each ticket “sold” is money from the underground business going through the legit business.   One can also do this in the "Let's put on a play" mode, but it's harder to fill a house on a daily basis in the same location.

Make sure to have lot's of fun T-shirts around and other material to sell. These needs to be items that a drunk will buy because it's cool looking, not because they care about the band. The shirts need to be made cheaply. Shirts sold, great, pays for the shirts you're going to donate to an African charity under the table, and hopefully will pay for the band. It's always nice if a laundering operation makes some money instead of losing.  Any shirt donated becomes a shirt "bought" by the illicit money stream.

3 – Gentleman's club. A well ran “Gentleman's Club” can generate huge cash flow. Conversions of small bills to large bills and back again takes place on a regular basis. There are no receipts, and except for alcohol, no records. The dancers are independent contractors, they collect money which they keep, however they pay a fee to be allowed to perform at the club. Patrons  bring in $100's, $50's and $20's to be converted to smaller bills (never give change in 1's, get a collection of $2 bills if available).  The dancer then often change money back into larger bills.  The bar usually has a huge markup. Large bills can easily be slipped into the cash flow of the cash exchange portion and the bar. Buying extra super cheap bottles of alcohol, calculating the amount of drinks one can make from it and then sending it down the sink is another way to transfer large amounts of money from the hidden business to the legitimate business.

Another major advantage of a gentleman's club: most males working in your enterprise will enjoy the chance to visit and work there. That will maintain loyalty and allows you to assign them tasks they may not normally accept. It also makes an excellent meeting place where one can meet in plain site, lost in the crowd.

Hope you enjoyed this exercise, of course it's purely hypothetical. I'm looking forward to developing a Legal and my Financial Consulting Clientele here in the Albuquerque area.   If you are in need of our services, feel free to  e-mail: LisaDimosi@MadrigalElectromotive.com

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