The United Nations Office on Drugs and Crime reports that money laundering transactions account for two to five percent of the world’s GDP. Although the use of the term money laundering is common, understanding what it means and all of its implications is trickier for some. After all, the majority of the world’s population would not willfully engage in sophisticated criminal activity.
It can be difficult to grasp these types of activities without direct participation or knowledge. As criminal lawyers in Springfield mo might explain, money laundering is the practice of disguising income generated from illegal sources as coming from legitimate or legal sources. For example, a criminal organization might make money from selling illegal drugs but use a casino or café as a front for that income.
Money Laundering Process
The process of laundering money usually involves three different steps or components. Once the money is made from illegal activity, it has to be put into the mainstream financial system. The sources of the money also have to be concealed and then the funds have to be withdrawn for use.
Depositing illegal or “dirty” money into the mainstream financial system is known as placement. By using another legitimate business as a front, the sources of the illegal money can be concealed through made-up sale transactions and bookkeeping entries. Criminals can then remove the illegal money from a legitimate deposit account.
For instance, a criminal organization may operate a restaurant and generate income from human trafficking. The money from the human trafficking ring becomes tied to the restaurant through exaggerated restaurant transactions that never occurred. The made-up transactions “legitimize” or “back-up” the inflated deposits in the bank account tied to the restaurant.
While there is a basic process to money laundering, using one account or business front can easily raise suspicion. By law, banks and mainstream financial institutions must report transactions containing large amounts of cash or activities that could point to money laundering. Smurfing or structuring is one method criminals use to allude the banks and authorities.
Structuring occurs when illegal money is deposited into multiple accounts tied to fronts or what appear to be legitimate organizations. Another common way criminals avoid detection is to use accounts in other countries, depositing illegal sources of money through currency exchanges, smugglers, or wire transfers.
Cryptocurrencies and Online Activities
Money laundering also occurs through online transactions and applications. Software and protocols, such as proxy servers, make it possible for criminal organizations to conceal the locations from which money is being transferred or withdrawn. Websites that appear mainstream, including online games and gambling, can serve as a front for converting illegal money sources.
The rise in cryptocurrencies has given criminal organizations additional outlets for money laundering. Since these forms of currency are more anonymous, they are attractive to organizations and criminals looking to convert and use illegal funds. It is also more difficult for laws and legal authorities to fight against money laundering activities tied to cryptocurrencies since the laws and detection methods are mostly tied to traditional financial institutions.
Despite existing laws and detection methods, money laundering continues to exist. The basic nature of the process and the ease at which it can be carried out via technology may be to blame. Preventing the practice is a complex undertaking tied to the promotion and enforcement of ethical behaviors.