What is Money Laundering?
Money laundering is when funds from criminal activity are converted into “clean money” and cannot be traced back to the criminal activity. The goal is to conceal the criminal activity and the criminals involved. One of the main reasons people commit criminal acts is to make money off of it. Money laundering allows criminals to enjoy these illegal proceeds without law enforcement noticing.
Money laundering can be used in drug trafficking, terrorism financing, or tax evasion. Obviously selling drugs is illegal. The drug industry is known to turn out a pretty hefty profit. Drug traffickers will launder money to hide their illegal drug sales. The United States is always looking at ways to prevent terrorism. Terrorists launder money, so law enforcement cannot detect where their funding has come from. Some people may launder money as a way to evade taxes. They do not want to pay taxes on their income so they hide this money by laundering it, so they do not have to report it.
The Money-Laundering Process
Money laundering can sometimes involve multiple steps to conceal where these illegal funds came from. One of the steps is placement of the money. The goal is to deposit the funds into a bank account without drawing attention to it (Cliff and Desilets 2). It is likely the deposits will be structured, meaning multiple small deposits, possibly into several accounts at several banks. At this point the money can be switched to trade goods or even converted into other currencies. A lot of times the cash or trade goods are transferred away from the country the crime was committed (Cliff and Desilets 2).
Layering is the second step in the money laundering process. In this step the funds are moved multiple times to distance them from the original source (“Money Laundering”). They could buy a series of negotiable and investment instruments or wire the funds through multiple accounts at multiple banks across the globe (“Money Laundering”). The third step is integration, which is when the funds reenter the legitimate economy. Often times the illegal money is intertwined with legitimate money (Cliff and Desilets 3).
Why is Money-Laundering a Threat?
Money laundering can be detrimental to a country’s economy. It can be difficult for legitimate activities to compete, and it can cause unpredictable changes in money demand (“Consequences of Money Laundering”). It hurts businesses due to people being able to buy products for cheaper from people with laundered money in an effort to get clean money. Also these businesses have to deal with tax increases to make up for the loss of money the government is not receiving due to money laundering.
A lot of laundered money filters through financial institutions. This can cause financial institutions to risk their reputation. Whether they are an accomplice or had no knowledge of the dirty money, the bad name recognition can cause investors and customers to lose faith in the organization...