Money laundering, how does it work?

Money laundering. What exactly does this involve? Of course you do not want to do this yourself, but you are just how it happens.

It may be a major criminal activity, but it is actually not that difficult. It’s just as well, because not every criminal is as smart, otherwise he or she would have used his or her talent in a more honest way.

Money laundering, how they do it

If you as a criminal get hold of a considerable sum of money in an illegal way you naturally want to do something with it. Depositing the money on an account is not possible because then you immediately arouse the suspicion of the bank. Moreover, you will have to deal with the tax authorities if you do not declare it. What is the best thing for a criminal to do with this ‘dirty’ money? Launder it of course!

Making illegally acquired money legal

Money laundering is in fact nothing more than making money that you have obtained dishonestly appear to have been earned legally. Even though that is not the case. Criminals do this laundering in various ways so that it is no longer clear where the money came from and certainly not that it ended up in their hands illegally.

Where does the term come from?

Have you succeeded in laundering the money? Then the money can be spent without anyone suspecting its origin. By the way, the term money laundering comes from Al Capone who put a lot of the money he got in illegally into the laundromats he owned. So the term money laundering could be taken almost literally with him.

Big problem that is only growing

Money laundering is a big problem in the world because it costs countries many billions in revenue every year. The money that is laundered in the United States for example represents about 2% of the economy of the whole country so that is quite a lot. Digital transactions are commonplace and you can do them quickly so it is done a lot by criminals. With online gambling, of course, that’s another catch because they launder a lot of money through the online casinos.

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Placement is the first step in money laundering

Money laundering has been done for a long time but of course the whole process has changed a bit over the years. However, three steps can still be distinguished in the overall process of money laundering. Placement, or positioning, is the first step.

This means that the money obtained by illegal means has to be deposited in a bank account in the name of a company (whether it really exists or not) or an intermediary. This step is where most criminals are caught because they suddenly, completely out of the blue, deposit a large sum of money into an account whose origin is unclear.

Layering is step two

After this step, it’s time for layering. This is the step where the money is divided into layers. This means that numerous transactions are made with it so that it is totally unclear where the money has come from. There are many different ways in which this step can be carried out, often involving accounts in different banks or spending the money in one go on idiotically expensive things like houses or cars.

Integration is step three

The final step is Integration. Here the launderer looks for ways to get his or her laundered money back. For example, transactions are carried out in which the money goes straight back to the criminal or it is invested in a new company, with all the trimmings so that it also seems real and legal.

As a criminal, you can, for example, create a company of which you are the owner and do a transaction that is booked as your salary. After all, no one is looking for anything behind that.

Different ways of laundering

The ways criminals launder their money can be very different. A good example is Structuring. Here the money is divided into smaller portions so it is less easy to trace. Through Casinos and Gambling the money is converted into chips at a casino. They are played with for a while after which they are cashed in the form of a check and the criminal simply goes home with the money.

Making agreements with each other also works

In Round Tripping the money is channelled to foreign companies. It is then returned to an account in the original country through the foreign investment tax. This can also be done between two companies that make agreements on something that they buy and sell again for the same price. This is also known as Lazy Susan.

New developments all the time

In Cash Intensive Business, companies mix the money obtained from illegal activities with that earned in a legal way. This way it is no longer noticeable that there is an illegal share. Often businesses like casinos, car washes or strip clubs are used for this. There are many ways to launder black money and this business is constantly changing so new ones are added all the time.

Suspicious transactions should be reported

In most Western countries, money laundering really came into vogue in the 1980s and 1990s. Measures are taken against it but not everything can be intercepted. For example, in many countries transactions above a certain amount are always checked and banks, credit card issuers and insurance companies are always required to report them.

Banks are also obliged to verify the identity of their clients and to check whether the company operates legally and in accordance with the law, in order to prevent criminal activities as much as possible. After this, special authorities examine whether action should be taken in order to prevent possible money laundering as much as possible.

Large penalties for money laundering

Of course there are penalties for money laundering but these vary from country to country. Money laundering often goes hand in hand with other criminal activities (e.g. tax evasion) and is subject to severe penalties. In the US, money laundering can get you up to fourteen years in prison.

Not everything can be traced

When trading in digital currencies such as Bitcoin, for example, the transactions are often anonymous and are only sporadically monitored. However, this makes it fairly easy for criminals to launder money. That is why laws are being drafted to overcome this. Many countries have already passed anti-money laundering laws to counter these practices and stop criminals. If a good way to counter this is found, then the person who invented it will definitely become richer.