Money Laundering – the Basics

Only reason for its very existence being the parallel economy that is mainly created by drug traffickers, embezzlers, corrupt politicians, mobsters, terrorists and even con artists. Well, the very process of money laundering can be understood by its name. The huge sums of unaccounted money which can attract law enforcement easily is laundered and converted into clean money by a series of steps. Drug traffickers seem to be in serious need for good money laundering systems as they mostly deal only in cash and also because it is quite heavy and here, I mean the value. For instance, 1 kilo of cocaine can be sold up to $30,000.

It is a crucial step in the success of drug trafficking and many other crimes including those white collar crimes and there are also countless organizations trying to get a hold on the problem. The basic money laundering process involves 3 steps.

1. Placement – this is the stage where the launderer inserts dirty money into the financial institutions. It is the    most riskiest stage as large amounts of conspicuous cash can easily attract the attention of the government.

2. Layering – it is where the dirty money is sent through various transactions thus making it difficult to follow.

3. Integration – at this stage, the money re-enters the mainstream economy in legitimate looking form – it appears to have come from a legal transaction.

Money laundering is a complex process and it is complex by design, by necessity. So mostly, people with a lot of dirty money hire financial experts to handle the laundering process for them. In 1996, Harvard educated Economist, Franklin Jurado went to prison for cleaning $36 million for Colombial drug lord Jose Santacruz Londono.

The above stated instance is one of many case histories that we have. There are lots of money laundering techniques that authorities know about and plausibly countless others waiting to be uncovered.

Some of the popular ones are as follows:

1. Black market Colombian Peso exchange
2. Structuring Deposits
3. Offshore Banks
4. Shell Companies.

Mostly money laundering schemes are a combination of these methods, although the black market PESO Exchange is more of a one stop shopping system, where the peso broker takes care of it all.

Depending on a census, criminals between $500 billion to $1 trillion dollars every year. Thus, it further encourages the criminals to continue with their activities as the criminal activity actually pays off. It also has a huge brunt when it comes to developing countries. Some impacts are however local and mostly relates to tax evasion at smaller scales compared to those that we discussed earlier.

We have uncovered many cases relating to money laundering but however there are plenty more and as long as it goes – it will lead to more crime and violence.