What is Money Laundering?

Published by Thomas Herold in Laws & Regulations

'Money Laundering' is explained in detail and with examples in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Money laundering refers to the methods for taking income from corruption and crime and turning them into legal assets. Many countries and jurisdictions have re-defined the term to focus on financial or business crime, often used to support drug dealing empires or terrorism financing. The phrase can also refer to improperly utilizing the financial system for a variety of reasons. In these cases, it might involve digital currencies, traditional currency, credit cards, and even securities.

In recent years money laundering has become associated with international sanction avoidance and financing of terrorist acts. The pursuit of this focuses on the source of money while that of terrorism financing is worried about the destination of this money.

Throughout history, countries, kingdoms, and rules created regulations designed to seize wealth from their citizens. This eventually caused the formation of tax evasion and offshore banking. Though these are not crimes in all countries, the ones that do penalize and pursue it consider it to be a form of money laundering.

In the early years of the 1900s, wealth began to be seized as a means of stopping crime. This began in earnest during the American Prohibition of the 1930s. Law enforcement agencies and the government became concerned with tracking down and seizing money involved in illegal alcohol sales. Organized crime had obtained an enormous boost because of the major new source of funds illegal alcohol vending provided.

The emphasis for fighting money laundering shifted in the 1980s to drug dealers and empires in the American led war on drugs. Governments and law enforcement became concerned with seizing the financial rewards from drug related crime as they pursued the drug empire founders, managers, and dealers. These laws required individuals to demonstrate that their seized funds were from legitimate sources in order to get them back.

The most recent focus of this illegal activities pursuit centered around terrorism empires that began with the 9/11 attacks in 2001. The Patriot Act in America and comparable legislation passed around the developed world gave a new motivation for such rules which would help fight terrorism and its financing.

The G7 Group of Seven wealthy nations created its Financial Action Task Force on Money Laundering to pressure other governments around the globe. They wanted greater observation and monitoring for financial transactions with information sharing between nations. This resulted in improved monitoring systems for financial transactions and stronger anti-laundering laws from 2002.

These regulations have created a far heavier burden for international banks. Enforcement of perceived money laundering breaches has led to severe investigations and steep fines against major international financial institutions. British banking giant HSBC received a hefty $1.9 billion fine from the U.S. in December of 2012. French bank BNP Paribas reeled from a steep $8.9 billion fine from the U.S. government in July of 2014.

A number of nations have also instituted stricter rules on the amount of currency which is allowed to be physically carried across borders. Governments have set up central transaction reporting systems to make all of the financial institutions report every electronic financial transaction. The American Department of the Treasury established its Office of Terrorism and Financial Intelligence to seek out and exploit weaknesses in the networks of money laundering operations through national and international financial systems.

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The term 'Money Laundering' is included in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.