If no one knows about your dirty money why do you need to launder it

Question

I know money from drugs, robberies, stolen goods, etc is “dirty” but, how does anyone know it’s dirty? Why can’t you just spend your money?

In: 316

Answer 1

“Dirty” actually means money that you acquired but haven’t paid taxes on … because you acquired that money illegally.

So you have to make it *look* like you acquired that money legally (and pay taxes on it), so that the remainder, after taxes, is “clean.” Criminals usually do this by falsifying the accounting at a business.

For example, let’s say you’re a criminal bringing in lots of cash. You need to put that cash in a bank account, but the government will gets suspicious if you’re generating a lot of cash that you haven’t paid taxes on.

So you find a business — usually one that does a lot of cash interactions, like a restaurant — and take over that business. You then *claim* more sales from the business than actually occurred. So you restaurant might make $2000/day on a good day, but you *claim* it’s making $5000/day and you deposit $5000 each night. That extra $3000 is the “dirty” money. Now it looks like it’s just cash income from the restaurant so it has been “cleaned.”

That’s a really simple example and it’s actually a lot more complex than that. For example, if the government ever audits the restaurant’s accounting, they’ll see they didn’t buy enough food to cover $5000/day in sales, so you have to falsify your expenses AND your profit. And sometimes a criminal enterprise will cover multiple different related businesses (say, the restaurant but also the parking garage next door and the meat supplier the restaurant buys from, etc.) so they can fudge numbers all up and down the supply chain.

But it would look suspicious if one person owned the restaurant and the meat supplier and the vegetable farm, etc., so the criminals set up shell companies owned by shell companies owned by shell companies, etc. to obscure who actually owns what. And maybe you don’t want to pay taxes so you invest some of that laundered money in things where you can show a loss to offset your tax burden. And so on and so on.

Basically, in a complex money laundering scheme, the whole idea is to make hard to determine all your businesses are owned by the same person, just doing business with themselves, and most of that business is *fake* so you can make it look like your money came from businesses instead of crime.