Thanks to globalisation and international financial markets, money laundering has never been easier to get away with. It occurs in almost every country in the world and is a big problem for law enforcement, as well as the economy. In short, money laundering is the transfer of money through numerous locations, in order to mask its source; almost always, these funds are illegally attained.
Of course, using criminal money is a fast way to get yourself locked behind bars, so criminals try to hide the origin of their dosh. The most common types of criminals to money launder are corrupt politicians, drug traffickers, embezzlers, con artists, terrorists, and public officials.
So How Does It Work?
Money laundering begins with placement. This is when dirty money is ‘placed’ in legitimate financial institutions through bank deposits. As you can imagine, this is the riskiest stage of all, leaving money laundering legal teams having no case if unsuccessful.
Next, layering takes place. Dirty money, once successfully added to a bank account, is sent through a variety of bank-to-bank transfers, through different countries and under a number of names. Layering makes the money hard to trace.
Integration is the final step. At this time, the dirty money enters the economy in a legitimate form. This could be through a legal transaction, an investment, or it could just be a high price asset.
In a little more depth, criminals use the following tactics to ‘clean’ their dirty money:
Smurfing: this is when a large amount of dirty money is broken up into smaller chunks, in the hope that it will go by undetected by the authorities. In the USA, this sum is usually below $10,000, due to the greater checks and regulations on higher amounts of money.
Overseas banks: offshore accounts in overseas countries can provide anonymity, as not all areas of the globe are transparent about monetary transactions.
Shell companies: these are fake companies set up in order to facilitate money laundering. They only exist to help criminals clean their cash.
Investment: by choosing a legitimate business and investing in them, criminals can hide their dirty money and reap the rewards.
The Impact Of Money Laundering On The World
Depending on who you ask, criminals launder between $500 billion and $1 trillion worldwide, every year. Unfortunately, successful money laundering encourages further crime and has massive repercussions in every country, both morally and financially. Because laundered money is never taxed, taxpayers end up picking up the buck.
Although many countries have strict regulations, aiming to clamp down on money laundering, many criminals still slip through the net. It’s up to banks, and other financial institutions, to follow the law to the letter and identify depositors, as well as perform background checks. Any suspicious activity must be reported. Even the largest banks in the world are caught out by massive money laundering schemes.
This isn’t happening somewhere else in the world, it’s close to home. All you need to do is look at this year’s HSBC money laundering scandal to realise how prolific money laundering is.