Finance Crime: The What, Why, And How Of Money Laundering – Outsource your Accounting

Finance Crime: The What, Why, And How Of Money Laundering

Have you ever watched a crime series on a streaming site and wondered why criminals have to launder their money before being able to spend it all? The short answer is because the money they make is illegal and being caught spending it can land them in jail.

While the purpose of this article is to explain the what, why, and how of laundering, it is in no way a guide for you to start doing it. If you came here for a guide to start laundering money, you should think about a different career path and also probably get a really good lawyer.

What Is Money Laundering?

Money laundering is an illegal process that makes illicit cash seem like it was gained in a lawful manner. Some common terms for money laundering include washing, cleaning, smurfing, and structuring.

Fun fact: Al Capone’s method of cleaning his money was to run it through the books of cash only laundry mats, whose ownership could not be proven, coining the term: laundering money.

There are incredibly dubious ways to make large sums of money look like they came from a number of clean or legal businesses, Capone’s was just made the most infamous due to the insane amounts of money they were able to clean, roughly $100 million a year during his reign.

To make it clear, anyone can launder money, it isn’t just relegated to career criminals. In some cases, criminals will proposition legal businesses to help wash or clean their money for a certain amount.

Why Do Criminals Need To Launder Money?

Long story short, to prevent being caught and imprisoned. Ill-gotten gains in large amounts are easy to uncover. Being found guilty of illegally generating and spending this money results in jail time and that shouldn’t be anyone’s end goal.

Breaking it down even more, money is laundered to make it look like the money isn’t tied to any illegal activities or anyone known as a criminal. By keeping the money away from the illegal activities and less than savory characters that acquired it, it is easier to clean and harder to track.

How Is Money Laundered?

The concept of money laundering is easy enough in theory. You take large sums of illegally obtained gains, you push it through cash businesses, fix the bookkeeping ledger of said businesses, then the money is clean.

For example, in the series Breaking Bad, the drug lord Walter White opens up a car wash to…well wash the dirty money. As a cash-run business, without a real way to track the amount of money it actually generates, someone can add an additional amount of money to the bookkeeping ledger without actually ever having made that money from the carwash.

In a more modern real-world example, smaller cash-only businesses are still used, only the money is pushed through more than one company to make it even more difficult for the authorities to find.

In addition to cash-based businesses, criminals have begun to use cryptocurrency as a means of cleaning their money. With the ability to convert larger sums of money digitally and convert it all without a centralized system of governance, criminals have turned to this style of washing their dirty money.

Anti-Money Laundering Act

The Money Laundering Control Act of 1986 officially made money laundering a federal crime. Before this act, criminals accused of financial crimes had to be brought up on other charges, such as fraud or tax evasion. Since that time, the act has been amended several times with the most recent one being in 2020. 

The Anti-Money Laundering Act of 2020 (AMLA) strengthened the ability to fight against money laundering by giving the US government more subpoena power over financial establishments. In other words, any bank suspected of illegal activities could be called into court to be questioned. This extended to foreign banks and included foreign bank accounts as well.

This act also penalized institutions that warned anyone whose account was under investigation. Meaning if an account was being looked at for possible illegal activity, the bank that is being looked at cannot reach out to the account owner and notify them or else they would be charged as an accessory to the crime. Any bank caught breaking this rule is subject to hefty fines. In the event that the bank is noncompliant with any part of the rules, they are not allowed to bank with the US from that point forward, effectively putting a limit on who will be using the bank.

The Wrap Up

Money laundering is an illegal way to make illegally gotten gains look legitimate enough to be spent without drawing attention from authorities. While traditional money laundering was all cash based, with the introduction of the world market, online banking, and decentralized cryptocurrencies, both career and white collar criminals are finding new ways to clean their money. While all this is going on, authorities are working hard to fight this type of corruption and have even implemented sanctions in order to prevent it from happening. While not impossible, with the enactment of an amended AMLA, it has become increasingly difficult for anyone to launder money, with many recent offenders being caught and brought to justice.