eli5: How and why do people launder or clean money?
In: Other
As for why: think about it this way. If an entity like a bank sees that you are spending large amounts of funds, they might alert the government that something seems potentially suspicious about the transaction. The IRS might get word that you purchased a $50,000 car despite claiming $10,000 in income last year. Either way, the government now knows that you have a lot of income either from illegal sources or/and that you’re trying to avoid paying taxes on, and you’re probably going to jail just for that alone.
So instead we need to come up for some excuse for where that money came from. So let’s just say we also happen to own a fairly busy landromat, a nice business where a lot of people pay in cash. Now we take a bunch of our own money and “spend” it at our own business, and then pay ourselves with that money. Sure we had to pay taxes on it, but that money now appears to have a legitimate origin.
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