July 21 2021
Movies and shows try to showcase that money laundering is an art, a science, or something more glorious. Some of them even go as far as to showcase that the perpetrators seem cool and lawful. Whether these movies present a realistic picture of money laundering or change how it affects the lives of those affected, it’s all for earning money at the box office. In reality, money laundering is more serious than you think it is. Financial institutions all over the world face major problems because of money laundering.
The “United Nations Office on Drugs and Crimes” estimates that USD 800 billion and USD 2 trillion worth of money is laundered every single year. This is close to almost 2-5% of the global GDP, which is proof enough that money laundering is a major problem worldwide.
However, what exactly is money laundering and how does it work? Also, how do fraudsters convert their dirty money into legal money?
In other words, money laundering is the act where criminals use a series of sources to camouflage the money that originated from illegal sources. By converting, storing, transporting, or concealing or the origins of the money in a roundabout manner. Money laundering usually involves transferring money through several countries to hide the origins of the money and confuse law enforcement agencies. Without money laundering, criminals won’t be able to use illegal money because it increases the chances of getting caught. Without money laundering, criminals can get captured and lose their money.
Money laundering techniques are becoming more sophisticated and the methods to fight with them are equally sophisticated. While the parties and techniques involved may be different, the basic process of money laundering is still the same. It consists of three main steps:
The first part of the money laundering process is fraudsters placing their money in financial institutions like banks to start cleaning the money. All over the world, banks are legally obligated to report high-value, suspicious transactions. In this initial stage of money laundering, criminals face the most risk of exposure and arrest.
This is the step where illegal money is actually converted into legal money. To ensure that money is hidden from regulatory bodies and is as difficult to trace as possible, multiple transactions are carried out to move money through the financial system. Some pathways utilized in this step are:
After going through multiple pathways, the illegal money reaches the financial system as legal transactions. This step usually happens in terms of business investment, purchase of an asset bought during the layering stage. In this step, any criminal can use the illegal money without the risk of getting caught.
Money laundering is harmful and no country can save itself from money launderers. It is growing at an alarming pace and is heavily impacting the global economy.
The highly liquid and non-transparent nature of cash is what makes it a highly interesting option for terrorists, drug traffickers, and other criminals.
Money laundering also helps certain activities to flourish:
Corrupt politicians also launder money that they receive from bribes so that they can show the money as their legal income.
Drug traffickers and other criminals are often in need of efficient and hard-to-find money laundering systems. This is because all their dealing happens in cash. Huge amounts of cash are hard to store, protect and transport, and they are also under the eye of law enforcement agencies.
Countries that have huge cash-based economies have a tougher time dealing with money laundering. Also, most money-laundering schemes either go unnoticed or unpunished which leaves a huge impact on the social and economic health of the country.
The US Dollar and the Euro are the two most loved currencies by criminals. Both the currencies are heavily traded on international markets thus laundering volumes can affect the supply/demand cycles. This is one of the major factors that affect the national economy.
Governments and intergovernmental organizations worldwide are constantly making efforts to mitigate and eliminate the risk of money laundering. Needless to say, they have a huge way to go till they succeed.
In the US, organizations like the FBI, Department of Justice, DEA, and Internal Revenue Service all have sections that cater to the money laundering problem. The country has also passed multiple laws to eliminate anonymous banking and to make money laundering a crime in itself.
The international community is also taking action by forming groups such as the Financial Action Task Force on Money Laundering (FATF). Inter-governmental organizations such as the United Nations, the international monetary fund, and the World Bank also have anti-money laundering divisions.
