What is Money Laundering?

Money laundering is concealing funds obtained illegally through banks and commercial endeavors to make it appear as if the money was acquired legally. It is a complex process, and money can be laundered in many different ways.

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Money Laundering Today

Money laundering is associated with a number of different crimes, including drug trafficking, insider trading, extortion, prostitution and any other illegal activities that produce large sums of money that must be made to look legitimate. Money laundering is also associated with the funding of terrorism. There are state, federal and international laws against money laundering.

Money laundering may be accomplished by setting up shell companies or trusts that do not have the actual owner listed and depositing the cash. Cash could also be smuggled to offshore accounts and tax havens where there are fewer banking regulations although many countries have tightened their restrictions. Money can be laundered through cash-based businesses or by purchasing chips in a casino, playing for a while, and cashing the chips back in and reporting the money as gambling winnings. Certain industries, such as art dealing, may be used in money laundering because there is so much secrecy involved in the process of valuating and purchasing art. Invoices may be inflated in these instances of money laundering. The rise of cryptocurrency has provided new opportunities to launder money in untraceable ways.

History of Money Laundering

Some people may think of modern money laundering in connection with the early days of organized crime in the United States and using tax evasion to put criminals away. However, as The Street describes, a form of money laundering has been in use for thousands of years as people have made efforts to move earnings around and hide them from bureaucrats. This includes Chinese merchants 2000 years ago, who hid their profits because certain types of commerce were banned. In the modern United States, in addition to the association with organized crime, money laundering also came to the forefront of public consciousness during the Watergate scandal when it was discovered that the Committee to Re-elect the President had raised unreported money that was laundered through foreign banks. Today, money laundering prevention increasingly focuses on terrorism.

Preventing Money Laundering

In 1970, the Banking Security Act was passed in the United States. It required banks to report any suspicious activities, such as cash transactions of more than $10,000, to assist domestic, international and foreign law enforcement and intelligence if necessary. However, as The U.S. Treasury Financial Crimes Enforcement Network points out, money laundering was not actually illegal in the United States until 1986 with the passage of the Money Laundering Control Act. Since then, a number of laws have been passed to strengthen money laundering investigations in the U.S. and internationally. Many banks worldwide now have increasingly strict regulations to prevent money laundering although some argue that the restrictions are unnecessarily restrictive and do little to prevent the practice.

As more laws are passed to prevent money laundering, money laundering operations become increasingly sophisticated. Technology offers more information-sharing opportunities on a national and international level for prevention, but it also provides more ways for money to be laundered. Detection of money laundering can be critical in an investigation in which there are few other ways to tie criminal activities to individuals.