money loundering


money loundering

In: Economics

Imagine you are running an illegal side hustle that gains you quite a bit of income. However the tax inspector starts getting suspicious of you since you seam to spend a lot more money then what your taxable income would provide. This is not a big issue as you just need to fill in a form to declare your extra income, pay taxes on it and you are good. But on the form you have to declare where your income comes from. And putting down your illegal operation is a sure way to get the police interested in you. So in order to spend the money you gain illegally you need to have some sort of explanation of how you got the money legally. And this is called money laundring. It usually involves some legal business or operation which in reality runs with a loss but you are providing it with the illegally gotten money in a way that can not be traced so it makes a great profit. For example it is very hard for the government to count how many goes into a business and pays cash.

It’s the process of hiding where illegally obtained money came from.

The easiest is to buy stuff with cash. The change is laundered money.

Imagine you’ve just gotten a few million dollars through something illegal. You can’t just roll up to the bank and deposit it, because then someone might start asking questions about where that money came from.

Now let’s say you happen to run a laundromat. You lump those millions, a little at a time, in with your money from the laundromat. After all, at the laundromat it’s normal for people to pay in cash and for you not to have a record of everyone who paid. You’re not expected to have a paper trail for the money anymore, and it won’t look as suspicious when you put it in the bank.

Of course, it costs money to run the laundromat, and you have to pay taxes on the money, so you don’t make out with quite as much, but the money is “legit” after it’s been laundered.