Why is money laundering necessary?
In: Economics
So that the government can’t get you on tax evasion.
Let’s say you are doing crimes to get money. If you are officially “unemployed” but always seem to have a lot of money, and someone from the government notices, there are two questions they’re going to wonder about:
1. Are you getting money from doing crimes?
2. Are you paying taxes on the money you’re getting?
To answer #1, they might watch/follow you until they catch you doing a crime. If you’re careful enough, they still might not catch you, but you’d still rather not have them watching you.
To answer #2, they’re just going to watch your spending habits. If they do the math and find that you have way more money than you paid taxes on, they can send you to jail for that, even if they never proved that you got it from doing crimes.
You can throw them off your trail on both questions by making it look like you got the money from a legitimate job.
For example, let’s say you open a restaurant. You might get some real customers who pay for food and drinks, but in addition to that you make a bunch of fake orders and pay yourself for them using the money you got from doing crimes. On paper, it looks like you just have a really busy restaurant that brings in a lot of money; you even pay taxes on your profits like a real restaurant would, so you look less suspicious.
Now if the government thinks you’re doing crimes, they have the additional hurdle of having to watch your restaurant to count all the customers, what they’re ordering, and comparing that to the ingredients you’re buying. It becomes much harder to prove anything, and the tax collectors aren’t hassling you because the amount you paid them adds up.
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