Money Laundering Causes, Stages and Effects

By Rabeeya

Money Laundering Causes, Stages and Effects

Money laundering is the hidden movement of cash from one country to another without informing it to the government authorities with the purpose of ;

• Escape from taxes
• Disguising ill-gotten income
• Converting illegally earned money into legal assets

Money laundering is the unlawful process of making huge amounts of money generated by criminal activity, Such as drug trafficking or terrorist funding appear to have come from a legitimate source. … Money laundering is itself a crime.

• Illicit money
• ·Legitimate sources
• Criminal procedures

There are three stages of money laundering…

Placement
The placement stage is filtering stage. It is the first but most risky stage. In this stage, Placement injects dirty cash into the legitimate financial system or
We can say the placement involves introducing cash into the financial system by some means.

Its second but very high complex and critical stage. It is involved to carry out multiple transactions to camouflage the illegal source of the cash through the financial system. or we can say layering is a stage that conceals the source of the money through the series of transactions.

Integration

The third and last stage is integration. The money launder gets the result at this stage. In this stage, dirty money re-entered into the mainstream financial system as a legitimate transaction.

Causes of money laundering

Financial regulations Weak

The big cause of money laundering is weak financial regulations. Our institutions are not powerful enough, Even than tax collecting institutions are also inefficient.

Tax evasion

Tax evasion is also a cause of money laundering because money launder tries to hide their assets and their sources just to avoid tax. The general objective behind tax evasion is wealth accumulation actually. Money launder transfers his money to foreign accounts and reassigning ownership.

The bribery is also main and commonly observed cause of money laundering because a money launder gives bribery to different authorities as airport authorities. .It is also linked to weak financial regulations as financial regulatory authorities, Or airports authorities might be bribed by money launders to allow them to transfer funds abroad without paying the applied taxes, As a consequence, The money moves out of the country illegally. It’s also said that money moves out of the country.

Corruption

Corruption is a big cause of money laundering on a big scale. Its also said that money laundering and corruption are mutualistic_they typically occur together.

Nature of borders

Borders are the safest and easiest way of money laundering. Its quickest way also. Through borders because they don’t have to create any bank accounts and never to show their identity during online transactions. They remain uncovered and get money through secretive sources of money laundering. Online financial transactions and the smuggling of cash through airports are not the only means of money laundering. Cash is also smuggled physically through borders.

The Methods of Money Laundering

There are several methods that money launders and smugglers use to perform the crime of money laundering…

Structure of Money

In this method, a large amount of cash(laundered money) is divided into a smaller amount of cash and each divided amount is then transferred to foreign banks through money orders, Cash deposits, online transactions etc. The scheme of dividing a large amount of money into smaller portion is also named as ‘ smurfing’.

Smuggling is considered to be the most common method of money laundering. In this method, A bulk amount of cash is taking to the foreign country by deceiving airports and borders authorities of the actual amount of money being displayed.

Founding a non-governmental organization and registering it in another country and provide funds to it can lead to money laundering. Actually, Some N.G.OS. are linked with terrorists.

Round Tripping

Round tripping is used for money laundering as well as tax evasion. Actually, This is a way in which a company sells its assets to another the company at the same time, Signs an agreement to buy some or all of the same assets at the same price.

Bank Control

In this method, Money launders become major shareholders on a foreign or local region where there is weak security related to money laundering.

Cash oriented business

Some enterprise organizations are involved in cash-oriented businesses because they deal with large sums of cash and have multiple operations.

Money Laundering through a real state

Some money launders purchase property with cash earned through illegal means and then sell the property to reacquire the cash so as to justify it as legitimate money.

Effects of Money Laundering

The effects of money laundering are socioeconomic in nature. Money laundering affects the economy of the nation as well as giving rise to several social costs. Some of the major impacts of money laundering are discussed below…

Economic impacts

Money laundering reduces the control of the government over economic policy. It also raises the risk of the potential failure of banks businesses and government to implement economic policies. Furthermore, because of globalization, the impacts reach the international monetary system and can adversely affect international currencies and economies, depending upon the volume of money laundering.

As well as concerned about social impacts, money laundering creates a number of social costs and dilemmas. It also affects the reputation of a country at an international level. So if its appearance in financial institutions of that country might be involved in money laundering. Moreover, it can expose or encourage people of a country to smuggling, drug trafficking etc.

Money laundering has been recognized as a major crime at the international level. Terrorist, money launders, drug traffickers, smugglers back money owners etc use different money laundering methods to finance their activities. Whichever method is implemented, The three steps of money laundering_placement, layering and integration of funds take place.

Money laundering has negative effects on the economy as devaluing capital, Lowering the growth rate, Affecting interest rates etc. In addition, the social costs of money laundering are of an adverse nature as it can result in providing safe havens to criminals. Furthermore, it is essential for law enforcement agencies to curb the crime of money laundering by foiling the channels of money laundering.

Originally published at https://www.studentsofeconomics.com.