What is money laundering?
In: Economics
If you steal 1 million dollars you are going to need to explain to things like taxes why you suddenly have 1 million dollars.
money laundering is doing something to make an answer where you got the Money. Like you run a pizza Shop and pretend you sold way more pizza than you did to account for that extra million you have now
Money laundering is the act of making illegally gained money (aka *black money*) become legitimately gained money (aka *white money*.)
It’s basically a scheme that makes an illegal income appear legal, so that you can use the income for things that you are going to need legal proceeds for.
People do illegal things that generate a large amount of cash, such as selling drugs. This can be tens or hundreds of millions of dollars in cash.
The problem with physical cash is you can’t do a lot with it. You can’t buy property, expensive cars, etc. You also can’t just deposit it in the bank because governments and banks are very suspicious of large cash deposits and they start asking questions, and find out you’re selling drugs.
Laundering money is the process of making it look like your cash came from a legitimate source so you can deposit it in the bank and actually use it.
For example, a drug dealer will buy a nail salon because this is a kind of business where customers usually pay with cash. The drug dealer will then make fake transactions on the companies books (e.g., Linda paid us $100 for a pedicure) and they’ll take $100 from their drug money pile and deposit it in the bank.
Now if the government says hey where did that $100 come from, the drug dealer can point to their company books and say “oh Linda came in for a pedicure on Wednesday” even though that didn’t happen.
Effectively, it is paying taxes on money to make the money legal. Suppose I’m a drug dealer and I make $1M a month. I can’t easily spend that illegally gained money easily without possibly drawing the attention of the IRS or police. If, however, I start or get involved with a business that has a lot of cash transactions (strip club, bar, laundramat, etc.) I can simply add my money to the legal revenue, claim the total as the revenue for the business, and pay taxes on all of that money. Voila. My illegal money is clean and legal.
Money laundering is the act of filtering money obtained through illicit/illegal means through intermediaries to make it appear legitimate.
A classic example is owning a restaurant, which is why so many classic mobster movies show them owning restaurants.
Said restaurant is barely profitable, but at the end of each shift the gangsters put extra cash in the till from robberies and create fake receipts for food that they never served. On paper the restaurant then just appears to be far more profitable than it actually is.
This doesn’t really work anymore though because cops can keep an eye on the place and see that it doesn’t actually have that many customers. Digital payments are tracked, and food supplies coming to the restaurant don’t match what is being served on paper.
Much of money laundering today is done with real-estate, foreign investments, and bitcoin.
It is a process where you take illegally gained money (like from a bank robbery or drug sales) and find a way to get it on the books legally.
one if the older ways to do it is this way: commision an artist to paint a painting. Then put the painting up for auction. Then a person (who you gave a bucket of money to for this purpose) buys the painting at auction for a million dollars. The buyer pays cash for the painting. They get the painting, you get a million dollars, legally and on the books. This used to be very popular with art Auctions because auction houses would take cash, no questions asked. The various governments have closed some of these loopholes.
yes there are variety of ways to do even more weird and complex ways to hide and wash the money. This is the entry level version.
say you’re a criminal. Your criminal activities have made you a LOT of money.
But you can’t just go around and spend it – the police will get suspicious if you suddenly have expensive things that you can’t afford. and you can’t just put that money into the bank – if the police investigate you for your crimes or the IRS audits you, you can’t tell them the money came from your criminal activities.
Since you can’t explain where the money came from, it’s dirty and has to be cleaned.
So, you decide to invest in a local business – you buy an arcade or salon or some other shop that deals with lots of small cash transactions on a daily basis.
Then when you are open, you pretend to make some sales alongside your regular sales.
Say you made 1000 dollars today from coins in your arcade, well in your books you write down that you actually made 1700.
Then you take that 700 dirty dollars and deposit it into the bank, now it’s clean and you have an excuse of where the money came from.
so, you keep doing this, each day you just add some of your illegal money to your legal money and it looks like you’re just doing really well at your business and the cops won’t wonder where the money came from.
I’m honestly touched how many of yall took the time to explain this to me that i finally get it, thank you to everyone.
I’m a drug dealer (not really) and make lots of cash selling drugs. I can’t really report that to the IRS without going to jail and can’t deposit it into a bank without them telling the IRS.
Large pallets of cash aren’t really that useful in today’s society though, so I need a way to make it seem I earned the cash legitimately. I do this by running a business where people typically pay cash and then funnel the cash through that business pretending it’s from sales.
To stick with the term, I could buy a laundromat (or many). People normally pay in quarters or feed a quarter machine with dollars, so large amounts of cash aren’t that suspicious, especially since such a business doesn’t really track its sales that closely.
If I were a big-time drug dealer, I might buy a casino. If you’ve ever been to vegas, loose cash is everywhere. You simply walk up to the game of your choice, hand the staff a wad of bills, and they give you the chips. No identification required and the house always wins, so “losing” it all isn’t abnormal.
It’s a way to make illegally earned money look legitimate, for tax purposes, for income verification purposes, to create a cover for lifestyle, for ease of use day to day.
Say you’re a drug dealer making $5,000/wk dealing drugs. So you’re making $250k/yr dealing drugs, but can’t really live the lifestyle of that income when it’s all in $50 and $100 bills. But you also own a tanning salon, which actually generates $10,000 in weekly revenue, but you add your $5,000 in drug income to the books, deposit it into the bank with your real revenue, report it as income for the tanning salon, etc. so that taxes get paid on the money, so that you can go to a bank and get a mortgage based on that income, so that you have ability to get credit cards and such. So that you’re a successful businessperson driving that Mercedes, not some street punk with unknown means to afford such a car.
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