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What Is Money Laundering With Example?
What does “money laundering” really mean? It’s not about washing cash but about concealing illicit funds.
As Warren Buffett once said, “Risk comes from not knowing what you’re doing.” This is how money laundering works when criminals try to hide their tracks at the end of the trial.
Money laundering is the process of disguising illegal money as legal funds. Criminals use different methods to hide the true source of their money.
This article will explain “what is money laundering with example” and how it creates a base for other financial crimes.
What Is Money Laundering?
‘Money laundering’ is simply the process of making illegitimate money seem legitimate using advanced techniques.
Money laundering is when criminals use money laundering schemes to hide the source of their money. They shuffle or mask money around in convoluted transactions to make it difficult to track.
By learning what is money laundering through case studies, financial professionals can identify and put a stop to illegal activity.
Bonus: Learn about money laundering and protect your business by checking out our advanced tools.
Most Common Money Laundering Methods
Money laundering methods that criminals use to hide illegal money. There are a few common methods, as mentioned below:
Smurfing
Smurfing is a money laundering scheme in which large amounts of criminal cash are broken up and deposited in smaller quantities. The funds are then deposited into several different bank accounts so as not to raise red flags. For instance, someone puts in $9,000 and splits it between several accounts to avoid reporting limits of $10,000.
Shell Companies
Shells are phony businesses created to conceal or transfer amoral cash. They are basically shell companies and have no real business. Or a criminal creates a shell company to move money abroad without insecurity.
Trade-Based Laundering
TB laundering is one of the examples of money laundering. Such trade-based laundering involves falsely manipulating trade invoices to conceal the origin of illegal money. Criminals embellishing or downplaying the value of goods to disguise funds.
For instance, they export goods for the value of $10,000. However, they show these goods as $100,000 with the intention of cleaning the extra $90,000.
Real Estate Investments
Another way money laundering can occur is through the buying and selling of properties. Criminals obtain illegal money to buy real estate and then sell it for clean revenues.
Money laundering example includes a real estate asset is purchased with dirty money when it is sold at an inflated price to reflect clean returns.
Impact of Money Laundering
Money laundering is destructive to economies and financial systems. It enables criminals to finance illicit enterprises such as drug dealing or fraud.
Money laundering schemes like these could also hurt companies by providing an uneven playing field.
Governments miss out on tax revenue , and financial institutions face reputational risks. Money laundering continues to account for around 5% of global GDP in 2023.
As explained by real life cases of money laundering, such practices are likely to undermine trust in the economy. We can understand money laundering techniques to protect the financial system.
Laws Against Money Laundering
Many countries have strict laws in an effort to unwind money laundering. Financial Institutions are required to detect and to report suspicious activity. It is certainly helped by policymaking like that of the USA’s Bank Secrecy Act (BSA) and the EU’s Anti-Money Laundering Directive.
Identifying Money Laundering Operations
Money laundering and funding terrorism detection are achieved by searching for outliers. Financial systems monitor accounts for red flags, such as sudden large deposits.
Splitting large amounts into a number of smaller ones is an example of such a money laundering scheme. It is estimated that roughly $2 trillion is laundered worldwide annually, according to recent reports.
By identifying these types of activities, financial institutions can detect and report undiscovered cases of money laundering.
Internationally Preventing the Financing of Terrorism
International or global actions are needed to stop money laundering. Governments, banks, and businesses collaborate to monitor dubious activities. Such strong laws involving anti-money laundering rules will stem the flow of illegal money.
Pooling information across countries makes it more difficult for criminals to conceal their activities. For example, international collaboration exposed a money laundering operation in which stolen money flowed through phony companies.
Authorities on the global level seized more than $1.5 billion of illegal assets associated with money laundering operations in 2023. Financial systems can prevent such crimes by being vigilant and equipping themselves with the right solutions.
Challenges for Combating Money Laundering
Combating money laundering is no easy task. Complicated money laundering schemes are difficult to trace.
Limited cooperation between nations bogs down investigations. Such crimes can be lessened through the forces of global collaboration and technology.
Check our website to save your business from the risk of money laundering today. Knowledge of money laundering and its methods helps in protecting financial systems.
