Does money laundering make dirty money clean?

Money laundering occurs when money earned through illegal activities is put through a series of activities to hide its source of origin. For example, if a Florida drug dealer earns thousands in the sale of illicit drugs, he will not deposit that large amount of money in the bank at one time. If he did, he could potentially draw unwanted attention to himself and his account. Instead, he will deposit small amounts over time, or in different banks altogether.

How does it work

Laundered money makes dirty money appear clean by employing different means to keep the original source a secret. Those who practice this activity will sometimes smuggle the cash into other countries to evade stricter laws and prosecution in his own country. Criminals, including white-collar ones, often launder dirty money using three steps. They are placement, layering and integration.

Placement occurs when dirty money is surreptitiously deposited in a financial institution or used to fund a business enterprise. The next step, layering, involves using deceptive accounting techniques to shield the illegal origin of the money. After these two steps, the money is supposedly clean and can be withdrawn and integrated in society without detection.

This clandestine way to mix legitimate funds with those resulting from criminal activity is called “padding.” So, if criminals have a clothing store, for example, they can add illegal funds with those of the day’s sales. Thus, they pad dirty money with profits from their sales in the clothing store. In fact, the clothing store could be a “front” or a business set up to hide dirty money. Once the two sources of income have been successfully mingled, it is not easy to tell which funds came from which source.

No sign of slowing down

World governments have ramped up efforts to catch these criminals and stop money laundering. Yet, the estimated $2 trillion in business transactions proves that money laundering is very much alive and well.