What is money laundering?

Being in the investment business, I often get asked questions related to money, finance, etc. One question that comes up fairly regularly is:

What is money laundering?  

One definition of money laundering, also called “cleaning up dirty money” is:

“Legitimization (washing) of illegally obtained money to hide its true nature or source (typically the drug trade or terrorist activities). Money laundering is effected by passing it surreptitiously through legitimate business channels by means of bank deposits, investments, or transfers from one place (or person) to another.”

Money Laundering, at its most basic, is the process of disguising the proceeds of a crime or converting those proceeds into goods and services.  Any time that a person or business deals with ill-gotten gain to disguise its origin, it is money laundering.

The unexplained appearance of these proceeds may serve to “flag” illegal activities and law-enforcement officials would then seize them. So criminals deal with them surreptitiously, by money laundering, in order to avoid prosecution by law enforcement officials and so that financial institutions will have no suspicion or its origins.

There is a long list of crimes which result in financial gain. Among them are various types of fraud (bank, mortgage, government and corporate), insider trading, public corruption, Ponzi schemes, drugs, cyber crimes, illegal gambling, extortion, organized crime, and, increasingly, financing of terrorism.

Money laundering is unique in that it cannot exist alone. It, by definition, is a secondary crime, one that is used to hide the proceeds of a pre-existing crime. Its sole purpose is to hide the origins of “dirty” money, ultimately making it appear as if it is legitimate funds or other assets.


Industries Where Money Laundering Usually Happens:

To launder cash, small businesses are often used especially those kinds of businesses that usually receive large amounts of cash. Such as:

  • Banks
  • Insurance
  • Vending companies
  • Money Exchange Houses
  • Casinos
  • Credit Institutions
  • Supermarkets that sell remittances
  • Real Estate
  • Lotteries
  • Securities
  • Horse Racing
  • Restaurant
  • Art Galleries

Simply put, money laundering involves the transfer of illegal money into legitimate channels to conceal its illegal origin (and often destination).




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