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Money Laundering

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What Is Money Laundering?

Money laundering refers to a practice by which fraudulently obtained money, such as piracy, dealing in arms, smuggling, and other acts of corruption, is made to seem like it came from legal business activities.

It is a diversionary tactic employed by individuals who have participated in criminal activity and amassed wealth illegally, thus creating a smokescreen and having legitimately sourced the funds.

Deeper Definition

Money laundering creates a situation where the perception of the source of funds is curated, especially to the financial institution, to make it appear ‘clean.’

To this end, large tranches of money deposition in one fell swoop to the bank are largely avoided. 

Instead, the money launderer deposits small sums over time to avoid suspicion by the financial institutions.

In a situation where money is illegally earned, another option that can be explored instead of trickling the sums in the holder’s accounts is outright transferring the funds to nations where money laundering laws are not strictly enforced. Still, this method requires the cash to be smuggled across the borders of the home nation of the launderer.

The sequence of money laundering is common as expressed below:

  • Placement: Here, illegally obtained funds are paid into a banking system once the deposition is made into a bank or used for business dealing.
  • Layering: This means that the source of the funds is not revealed due to the crafty accounting systems used to obscure the truth surrounding the source of the money.
  • Integration: By this, we mean that the illegal money is incorporated and reintroduced into the economy as passed off as legitimate.

One of the ways by which money is laundered is the establishment of legitimate businesses referred to as ‘fronts’ and declaring each day’s earnings to be way more than it is by the owners and handlers’ mixing of the ‘clean’ with the ‘dirty’ funds making the source of the money unknown to an outside observer.

These falsified earnings make it difficult to identify the exact number of illegal amounts compared to the legal ones.

Money Laundering Example

A family of 3 whose parents are in human trafficking rings and raise funds illegally from this might choose to divert their proceeds to establish a car dealership.

They would overstate the proceeds until the funds are merged.

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