money laundering, how do criminals actually make the dirty money clean?
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Fun fact, Al Capone is the source of the term money laundering, since he used laundromats to hide the illegal source of his money, since its difficult to prove how many people actually used the business.
The problem with stolen money is that if you spend it, it registers with the tax authorities who can see that you’re spending more than you’re earning, raising suspicion. So if you have stolen money you need to “launder” it through a seemingly legit business. It could be a massage parlor where you charge imaginary customers, and presto the money is “clean” again.
They mix illegally earned money with legitimate income from a business, making it look like the legitimate business makes more money than it actually does.
So you are an illegal bookie or drug dealer, making $5k a week. You own a hot dog stand that makes $10k a week. But you mix the illegally earned money into the cash for the hot dog stand, claiming $15k in revenue. Money is deposited into the bank with the rest of your revenue, you can report it as income, pay the taxes on it, have that income be usable for things like home loans and credit cards, can use non-cash ways to pay for things, etc.
Laundering is best done in heavily cash-based businesses, since the illegal money is typically cash. And services are better because it’s harder to track reported sales vs. inventory. So something like a barber shop or car wash. Also, things like bars, where the markup vs. product sold is huge and it’s not tightly watched how much booze is poured or beer gets spilled from taps, etc.
It gets funneled into a non profitable business.
Say your a drug dealer or gun runner or something. You got 2 million in cash. You can’t deposit that amount without the banks raising flags. So you take a shady convince store or laundry mat or bowling alley and now that business made 2million in profits.
You buy a used carwash place.
Say you get 10 customers a day but in your books you right down that you had 100 customers.
Use the dirty money as payment from the fake customers.
Now the carwash business has all the dirty money but seemingly it’s legit now and after they pay tax they will consider it “clean”.
“Dirty” money is money with no explanation. Suppose that I’m selling drugs. If I’m only spending cash on things that don’t show, I’m unlikely to get caught, but if I suddenly deposit ten thousand dollars with no obvious way that I made it, I’m likely to be investigated.
What I would do is start offering some kind of service where people would normally pay cash that doesn’t require me to buy materials. I’d probably claim to be tutoring people on how to use computers, because I have a history of doing that and so it’s plausible.
I’d need some real clients to make the business look real, but since the transactions will be small enough that each lesson won’t generate paperwork I can pretend I gave five lessons instead of four and use that to explain my income.
Actually, since in-home tutoring is a thing, I could sometimes deliver drugs to clients and just say that we were discussing Excel.
There’s plenty of businesses that normally have a lot of cash transactions, salons, laundromats, restaurants. You just claim to be making your money at a legitimate business that’s hard to measure.
They basically funnel a believable amount of money through a business, preferably one that does a lot of cash transactions.
The business then registers the money as a business profit, lays required taxes on it, and then funnels it back to the person doing the laundering – either as repayment for a “loan” or because the person has an ownership stake in the company.
The amounts have to be somewhat realistic or you’ll raise red flags, you can’t launder $20 million through a single laundromat or nail salon or someone from the government will be around soon enough with some questions.
For big amounts of money more more sophisticated means are sometimes used involving property transactions or buying/selling of expensive art.
[Breaking Bad Explains Money Laundering](https://youtu.be/ez6xH-su2xI)
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