The term 'money laundering' is typically used to refer to any financial transaction that was meant to be kept secret, but was eventually found out. In many cases it refers to the process of concealing a source of money, which is often earned by illegal means such as drug trafficking, health care fraud, and smuggling, just to name a few. Various laundering techniques can be used by individuals, groups, officials, and corporations. The goal of a money laundering operation is usually to hide either the source or the destination of money; in many cases it aims to make illegal transactions appear legitimate and legal.
How Money is Laundered
The money laundering process usually involves several steps that make it difficult to trace the original source of money. Some of these steps include transferring the money between bank accounts, breaking up large amounts of money into small deposits, or buying acceptable forms of money such as money orders or cashier's checks. The process is usually planned and organized to avoid being caught and facing punishment.
Perhaps the best way to understand the concept is to take a look at some common techniques. Suppose, for example, that an employee was stealing large sums of cash from her employer without getting caught. If she was to make large deposits into her bank account, some regulator (or computer program) might notice the unusually large deposits, thereby increasing her chance of getting caught. Instead, the criminal might launder the money by simply using the cash to make purchases and then reselling the items in a legitimate market. The money gained from these sales is 'cleaner' and the criminal is drawing less attention to herself.
Quite often, criminals will use the Internet as a tool to launder money. One group of people that are often victimized in the process are job seekers, quite often from Australia. These job seekers will unknowingly apply for fraudulent jobs that require them to give their bank information to the criminal, as the position requires them to transfer money and process payments. In many cases, people who think they were hired for a new job were actually part of a money laundering scheme.
Another common scheme to launder money involves hiring employees to package and ship stolen items, most of which are electronics. The employee is reimbursed for the shipping charges and paid with a fake check. The criminal is usually selling the electronics, most likely to people in foreign countries, in order to launder their money without being caught. The transaction looks legal because it appears to be nothing more than a buy and sell situation, when in reality, it is part of a bigger laundering scheme.
Actual money laundering operations are often complex and include multiple transactions; needless to say, the practice is illegal and can result in large penalties, fines, or imprisonment for the person or people involved. Another consequence of money laundering is the effect it can have on society: when money laundering rates are high, criminal activity can increase because the source of the money is usually earned through illegal activities. The economy can also be affected when large amounts of money is tied up in the laundering process.