Why is money laundering necessary?
In: Economics
Because then you are running the risk of the government taking all of it.
If the money shows up without a trace in your account then the government will assume you didn’t pay taxes on it and will take it all.
Criminals are in even bigger trouble if they don’t pay taxes — that’s how the government finally got Al Capone, tax evasion.
Also, it allows criminals to live a normal life… show income so they can get a mortgage, get a car lease, have cash in the bank to use credit cards for purchases like a normal person. It’d look very odd/suspicious for somebody to want to buy a house with a briefcase of $100’s.
And it provides a plausible story for their spending… harder for a guy to explain his Escalade if he has no job than that he owns a successful bar or carwash.
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.
Laundering is only needed when you do anything that involves other people seeing your finances. So investing, buying luxury items (planes, homes, cars, etc) will expose the discrepancy between your income and what you’re buying, which will make feds wonder how a dude who only reported making $60k is spending so much money.
If you stick with a $100k home and keep your cash at home and away from banks then the government will never know.
The second the extra cash enters the system in any way questions start to get asked.
Car wash outlets in the UK are the biggest way of laundering dirty money into clean. And not by physically washing the cash. The average wash including inside is about £25, now not everybody wants the expensive detail they want the average bronze wash and go which is about £10….now you can work the rest out yourselves
Because if you come into a lot of money you can’t explain, then law enforcement will know something is up. And you’re more likely to get caught. IIRC Banks are required to report cash deposits over $10k. (Even when they are legitimate.)
So if you find yourself with dirty money, you have two options, use it strictly as cash. Use it for gas and groceries and save your legitimate income for important payments like mortgage and cars. But that means you’re really only benefitting like, $100/week. If you have a lot of ill gotten gains, you might not be able to burn through all of it.
If you want to actually use the money you stole as money, then you need to make it legal. You need to launder it. That way you can use the money for anything. Including your mortgage, cars, big purchases, etc.
You are five. You have $500 that you stole or accidentally recieved. Your parents are going to ask why you have $500 on $0 income. Laundering cash is spreading that $500 into many $20 birthday cards to show legitimate income.
Cash income is easier to hide from your parents’ parents, the IRS. If you can show enough birthday card income to cause a reasonable amount of your $500, it could be assumed you earned some from last year’s birthday money, showing less than $500 income
Simply put, if you deposit a large sum of cash into a bank account, it will raise flags and the IRS will be notified. They will want to know where you got that money. If you don’t have a paper trail showing your proof, then it’s considerred illegally gained money.
If you kept the cash and used a little bit at a time over time, you’ll be ok as long as you don’t make big purchases. Paying 30k cash for a car will also create flags and a notification to the IRS. I believe in the US, now a $600 transaction will also be flagged. They somehow snuck that into the last stimulus bill.
You do it so it hides where the money really came from, and gives a plausible explanation as to how you got it, so there is no suspicion of illegal it or anything.
Alternately: Because sometimes, you just need your money to have that nice fresh out of the machine smell.
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