What is money laundering?
In: Economics
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.
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