Money Laundering: HOW DOES IT WORK? AND TYPES

Introduction

Over the course of time, there has bene an increasing emphasis on ensuring that there is top-notch transparency within companies so that companies, governments and other various institutions are able to protect the shareholder interest, at large. Therefore, in this aspect, it is rudimentary to ensure that all activities which can potentially harness the existing state of affairs is handled well by the organizations. Money laundering tends to be one such activity which gives rise to inefficient and ineffective behavior, as a result of which money is illegally handled.

Definition
Money laundering can be defined as the process of converting illegal money legal, through some mechanism that eradicates the previously formed money trail. In this regard, it is important to highlight the fact that money laundering in itself can be considered as an illegal process, because it justifies money to be gained from proper resources, when in reality, the scenario is quite different.

There are numerous different techniques that are utilized by money laundering agents in order to portray the money earned as legitimate. This has also been partially fueled by online banking and cryptocurrencies. This has made it easier for money laundering individuals to transfer and withdraw money from one source to another without being detected. Therefore, money laundering and respective prevention is something that has been the matter of international focus for a considerable period of time.

How does Money Laundering work?

Money laundering can be considered as primitive for organizations that work to move money around in an illegal manner. In this regard, they need to ensure that they are able to deposit the money into financial institutions so that they can make it appear to have come from credible and legitimate sources.

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Therefore, the step on money laundering is often conducted in three major steps: placement, layering, which is eventually followed by integration. The process of placement mainly involves putting the money that needs to be legitimized into a credible financial system. The money trail in this regard is then ‘layered’ by hiding the source of the money. This is done in order to ensure that these people are not tracked. The act of layering is mainly carried out using multiple transactions as well as bookkeeping tricks. Lastly, as far as integration is concerned, it involves withdrawing the money from the legitimate account, in order to get cash against the money that is now legitimized through the aforementioned processes.

Types of Money Laundering

There are numerous different techniques that are used by people in order to cover the various different grounds in terms of money laundering approaches. However, the common denominator between all these different approaches is the fact that they are mainly conducted in order to covert black money into legitimate money for the company.

Smurfing is one money laundering technique that is used in order to launder money. Also referred to as structuring, it can be seen that this particular technique involves breaking significant sums of money into smaller chunks, or multiple deposits. This can also be spread across various different accounts, in order to avoid the risk of detection.

Currency Exchanges can also be referred to as a widely used technique to launder money. Money laundering is often achieved through the usage of wire transfers, and other methods. The main goal in this type of technique is to take the money out of one country to another country, so that it can be legitimized.

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In certain cases, money is also laundered through mechanisms that include investing in jewels, and other various precious assets. However, recently there has been a significant surge in electronic mechanisms of money laundering. In certain cases, money laundering is also committed via online sales and auctions, which facilitates the transfer of resources from one end to another.

With fast paced technology that has taken place over the past few years, money laundering has justifiably seen a hike. However, with increasing cases of money laundering, it can be seen that there is an increased need to work along anti-money laundering policies, so that this crime can be prevented in itself. Financial Action Task Force (FATF), can be considered as one such example.

Conclusion

Therefore, it can be seen that money laundering can be considered as a serious crime because of which considerable loss occurs to the families involved. Consequently, it has called for governments across the world to come up with anti-money laundering policies, and various different mechanisms that can curb the act of money laundering in itself.

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