eli5: How and why do people launder or clean money?
In: Other
To quote Office Space “money laundering is the act of concealing the source of money by channeling it through an intermediary”.
I feel like it’s best to work with a real work example here though. Lets say I’m a drug dealer who manages to make $300,000 per year by my illegal activities. I’m smart, have layers of people between myself and the customers, I’m pretty well insulated against getting caught directly selling drugs.
The problem is the money. Al Capone wasn’t brought down the FBI, he was destroyed by the IRS. Basically if you want to make any big purchases like a house or a car, you’re going to have to pay taxes on it, and that involves the IRS. I can’t buy a $500,000 house if I can’t demonstrate/pay taxes on an income that justifies that kind of house payment.
Now I could go the traditional drug dealer route, and live in a shitty house and drive a shitty car, but what’s the point of having money if you can’t spend it?
So instead I buy a car wash. It’s an all cash business, so it’s very difficult for the government to prove that I’m lying about my income. So my shitty car wash makes $30k a year, but I lie and say that it made $250,000 this year. Since it’s all cash, I just add my drug dealing money too it, keep the car wash in good working order, and the government can’t prove I’m lying.
I pay cash on the $250,000 per year, and suddenly that’s 100% legit money that I can show where it came from, and I can live like a many that makes $250k per year. Meanwhile I can blow that other $50,000 that wasn’t “cleaned” by running it through the car wash on nice close, fancy dinners, and other stuff that isn’t high value enough for the IRS to take notice. So I get the best of both worlds, a legit income, everything I want, and minimal taxes.
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