What is Money Laundering

What is Money Laundering

Generally, money obtained from crime-related activities such as embezzlement, drug trafficking, terrorist funding, etc., are considered illegal. As such, people who generate such money often look for ways to make the money "legally usable" by making it appear legitimate. One of the most common ways they achieve this is by money laundering.

 

Money laundering in itself is also a grievous financial crime. And, with digital transactions becoming more rampant, money launderers find new ways to "clean" the money to make it more difficult to trace its roots.

 

So, what is money laundering and how do people do it? Here, we'll consider answers to this question and other things you need to know about money laundering.

What is Money Laundering?

Money laundering is the process of converting illegal money generated from criminal activities into something that seems legal. The process generally aims to disguise ill-gotten money or funds and attempt to make it legally usable.

 

Most governments and financial institutions establish anti-money-laundering policies to help identify and handle illegal transactions and money-related activities. Hence, people engage in money laundering to avoid being detected by these policies and find legal ways to spend their illegally obtained money.

Processes Involved In Money Laundering

To fully answer the question of what is money laundering, you need to understand the different processes it involves. The three major processes are as follows:

#1. Placement:

In this initial stage, launderers place the money gained from illegal activities into legal financial accounts through different smaller amounts in investments and deposits.

#2. Layering:

This stage involves moving and shuffling the money around under different transactions in a bid to make the source untraceable.

#3. Integration:

At this final stage, the launderers withdraw the legitimate-looking money for legal uses.

Methods of Money Laundering

Different methods launderers apply to launder money include.

 

  • Fronts:  Here, the criminal or group involved in money laundering may own legitimate businesses, for instance, a hotel. Then, they might decide to inflate the cash receipt as a means to channel the illegal funds into the business account so they can withdraw it later for use.

 

  • Electronic: With the advancement in technology, people now carry out transactions through several means that make the source difficult to trace. Examples include online auctions, virtual gaming or betting sites, etc.

 

  • Investment: The money will be an investment into several projects and commodities such as real estate, gold, and gems. Sometimes, the perpetrators create "shell organizations" - organizations with no actual business operations - and invest the money into them.

 

  • Smurfing: Here, the perpetrators spread out huge amounts into smaller bits and different accounts.

 

  • Cryptocurrency - It is mostly hard to trade crypto transactions. So, launderers seek to maximize this feature and dissolve the laundered money into different crypto assets.

 

  • Black Salaries- If the launderers have legit companies, they can as well use the laundered money to pay their unregistered workers.

Conclusion

Over time, the fight against money laundering has become an international effort. Many governments and institutions make efforts to sensitize people on what is money laundering and implement severe measures to minimize the crime. So, now you understand what is money laundering, it is best to stay away from such crimes to avoid the severe consequences.