Money laundering is a worldwide financial crime that hides the true illegal source of money. It helps criminals make their criminal earnings look legal through illicit operations, including drug business, fraud, and corruption. When criminals funnel illegal money in this way, the funds become more difficult to track.
Financial institutions and authorities worldwide have made money laundering against the law and created systems to find and stop such illegal activities.
In this article, we will discuss what is money laundering with examples and explain the different methods involved.
What is Money Laundering?
When criminals use dirty money to make it appear legal and acceptable, they are performing money laundering operations. Organized criminals depend on money laundering to hide their criminal profit source. Criminals need this system to use their funds openly without detection. FATF explains that money laundering has three clear steps: placement, layering, and integration.
Placement
In the beginning phase, criminal money enters the formal financial world. People relocate their ill-gotten money into banks or transform it into valuable property, including real estate and jewelry, through purchases. Drug dealers commonly put their unlawful cash in different bank accounts and then buy expensive cars.
Layering
During stage two, the money flows through advanced financial deals that hide its true origins. The clients use multiple transaction methods like account transfers and asset trades plus currency movements between nations with weaker money controls to hide illegal source funds. At this stage of money laundering, the criminals perform many transactions to hide the illegal money path, making authorities’ tracking efforts more difficult.
Integration
After cleaning the funds, the money enters the regular market to support legal operations and investments. The laundered money starts appearing legal after passing through multiple systems. The criminals who stole it can now safely use the cash. After money laundering, the criminal invests their funds to build up their business or to buy property at a high value.
Bonus: Proactive involvement helps create better security measures in money systems and fights crime against society by understanding 3 stages of money laundering.
Examples of Money Laundering
Throughout history, many different money laundering plans have come to light. Here are some real-world examples of money laundering at various levels.
The Danske Bank Scandal
The scandals at Danske Bank represent a major money laundering incident. During 2007 and 2015, suspicious transactions worth $200 billion entered the Estonian department of Danske Bank. Corrupt funds entered the system from Russian and Azerbaijani sources, together with other countries known for their corruption levels. This case shows how money laundering takes place across international bank systems as illegal money passes from one nation to another.
The 1MDB Scandal
The 1MDB scandal in Malaysia demonstrated that billions of state-run fund money disappeared through improper handling and money laundering. The stolen money went towards high-end real estate assets, and art items were purchased while also being invested in Hollywood film projects. This money laundering operation ranks as one of the most famous because government money was used for criminal purposes.
The Russian Laundromat
The Russian Laundromat money laundering scheme emerged in public attention in 2014. The Russian crime gang moved their $20 billion through banks in Moldova and Latvia. Russian money traveled through different business groups before it was sent back home. Experts identify this scheme as the biggest money laundering operation found in European territory.
How Money Laundering Impacts Global Economies?
Money laundering helps criminals operate their businesses but brings negative effects to both the economy and society. When criminals invest their illegal money back into the economy, the system loses its trustworthiness, and market values change.
Distorted Investment Markets
Crime profits that are laundered through assets and investments distort the normal activity of property and investment markets. Raised market prices make it challenging for ordinary companies and investors to find cheap ways to invest.
Encouraging Corruption and Crime
Criminal organizations continue their illegal operations because they have successfully sunk money into the legal system. Criminal activities starting from this point create an ongoing cycle that harms authorities’ honest working process.
Reputational Damage to Financial Institutions
Financial businesses that participate in money laundering suffer major damage to their public image. Money laundering issues involving banks or financial groups cause them to lose the trust of customers, investors, and regulatory authorities. The Danske Bank scandal damaged its image and produced significant business losses because customers and investors lost trust in the bank after the bank had to pay major penalties.
The Role of International Agencies in Combating Money Laundering
Money laundering operations have grown more difficult recently, so international institutions like FATF have established rules and standards for crime fights. Financial institutions must investigate their customers deeply and must report unusual transactions, plus work together with law enforcement agencies. To stop money laundering worldwide, the FATF lays out the 40 recommendations that countries use as international standards when implementing legal measures.
