You must have heard the term money laundering many times in your life. Many times in the news, there is a story revolving around a drug cartel or a criminal who was caught at the airport and charged with money laundering. If not in the news, you must have seen a Hollywood movie which involves a criminal delivering millions of dollars through money laundering. And even though the concept of money laundering may seem like a far-fetched and uncommon occurring idea, it happens more often than we think it does. Despite how it is portrayed in the movies, money laundering happens in smaller amounts as well.
What is Money Laundering?
Money laundering is the process of converting dirty money to clean money. This further demands the explanation of what is dirty money. In simple words, dirty money is an amount which is collected through illegal and criminal activities. For example, getting money through drug dealing or receiving money from a terrorism act. This sort of money comes without a legitimate source. There is no proper trail for the money.
When someone tries to buy something through this bad money, they do it to convert it into clean money. The purchased property or thing is mostly legal and hence cleanses the money. Some people try to put their bad money in a bank so that when they take it out later on, it becomes clean money and is not confiscated by the state. This whole process is known as money laundering.
Why Money Laundering Is Illegal?
Some people assume that money laundering is considered a crime when millions or at least thousands of dollars are involved. But that is not the case. If an amount of $500 is obtained illegally and people try to make it clean, it will be accounted for no matter what. Even this small amount will be considered as a criminal activity and penalties will be imposed similarly.
Around a decade or two ago, money laundering was difficult to catch. Various organizations had to face serious charges because they lacked to have proper checks to control money laundering. But today, there are strict policies present in every organization in order to keep a check and balance and minimize these issues.
Process of Money Laundering
As discussed before money laundering means the involvement of bad money. Criminals try and use several ways in order to convert this money into good money. They follow a process of three steps.
In the first step, a criminal places the bad or illegal money into a financial system which is legitimate.
Through various tricks of bookkeeping and account transactions, a layer is created on the various account transactions. This hides the money from the original source and does not appear as illegal.
As the last step, in order to integrate the money with the rest of the clean money, the owner of the bad money takes it out from the bank and uses it as they want.
In order to understand the whole money laundering process better, understand the concept of using a front. Most criminals like to open a restaurant to show that they are earning money through a proper channel. Then they may alter the receipts or bills and increase them in amount. This way they deposit the increased fake amount into the bank. And eventually start making transactions through it with proper legal channels. This way they make their illegal money legal by using the restaurant business as a front.
Alternatives to Money Laundering Process
Instead of using a front business, there are many other ways a criminal can convert their illegal money into a legal one. Two of the most common ones are:
1) Criminals take large sums of cash and divide them into smaller chunks. All these amounts are stored separately in different bank accounts. This way they can avoid detection of their illegal money. It can be converted into clean money more easily.
2) Some other criminals may take the amount overseas. Different countries have different laws regarding money laundering. This means that if they deposit the black or bad money in foreign banks, there is a chance that their laws might not be as strict. This means that rules can be bent easily and money can turn clean easily.
Money Laundering through Electronics
It is often quite difficult to catch the criminal of money laundering. But now with the introduction of online banking, catching a money laundering criminal has become even more difficult. Peer to peer payments have made it challenging to find the source of the money. There are many software which make the identity of a person anonymous. This makes it even harder to identify the source of money laundering.
There are online auctions and other sales which happen all around the world. Money laundering can be accomplished through them easily. Bitcoins is an online currency which is used in money laundering as well. All these platforms are used by criminals. They easily use their money to purchase auctioned items or bitcoins. And then eventually use their now product and liquidate it into clean cash easily. This is why because of online transactions, catching the criminals performing money laundering has become even more difficult.
Controlling Money Laundering
Different states have different money laundering controls implemented. There are several laws and regulations present to help institutions identify any suspicious activity that might happen in any account. Even though there are strict laws present today in the USA, until 1986 no rules or regulations existed to control money laundering. After the terrorist attacks in 2001, money laundering has become a serious issue. Strict regulations have been implemented and increased check and balance is provided. Tools have been introduced to control the laundering process and keep an eye on illegal activities. There are even some certifications which an individual can acquire. These certifications can help a person become a surveillance analyst and financial crimes investigation analyst.