Money Laundering

Money laundering is a world-wide epidemic and has taken over the criminal world. Basically, money laundering is a process in which criminals disguise the origin from which the illegal money came. It was believed to have originated from Mafia ownership of Laundromats in the United States. Gangsters would earn huge sums in cash from extortion, prostitution, gambling and bootleg liquor. In the process of money laundering the gangsters would merge money that was obtained through illegal manners and sent through a sequence of legal transactions whereby they are figuratively washed and as a result, the money earned in an illegal manner was coming out clean and legal. Because of this process money laundering was coined (Steel, n.d.).

Money Laundering and the World

For decades now, an annual estimated amount of more than five hundred billion dollars illegally earned enters into the economic flow. The bulk of the five hundred billion dollars is not all associated with illegal drug trafficking. Mainly, this huge amount of dirty money is associated with the uncontrolled crimes of the world today. With the astronomical amount of monies earned illegally it only makes the problem of money trafficking, crime rates, and organized crimes sky-rocket ("what is Money Laundering?").

The Process

Money laundering is a process or a system of procedures which are systematically and scientifically rooted and is completed in three essential steps. These basic steps can be done independently in well distinguishable forms or in succession of the other steps. The three basic steps are placement, layering, and integration (Layton, 2006).

During the placement stage, illegally obtained moneys are deposited into legal bank accounts or invested in other legitimate areas. During the placement stage is where the most risk is involved because when large sums of money is deposited banks are required to report it to the appropriate governmental agencies. At the layering stage it involves sending money through varied financial transactions. By doing this you are obscuring where the money is from and making it more difficult to follow. Some of the layering forms used by the criminals may consist of bank-to-bank transfers, wire transfers, different accounts with different names, and purchasing high valued items such as boats, houses, and cars. It's all about making the dirty funds impossible to trace. During the integration phase the dirty money re-enters the economy in a legitimate form. This may involve a transfer of funds into a legitimate business that the launderer is investing in for a cut of money or the selling of expensive items bought during the layering stage. During the integration stage it is very difficult to catch the launderer if there is no paper trail from stages one and two (Layton, 2006).

Money Laundering Methods

There are several forms of money laundering techniques that authorities know about and numberless yet to be discovered. Some of the well-known methods of money laundering are as follows: Black Market Colombian Peso exchange, Overseas banks, Underground or alternative banking, bogus companies, investing in legitimate business, and structuring deposits also known as "smurfing". Smurfing consists of breaking the money up into small amounts so as not to be detected or throw a red flag at the bank. The money is then placed into one or more bank accounts by one or several people over time (Steel, n.d.).

The Effects of Money Laundering

Because of the vast amounts of money being laundered every year, the global effect is mind-blowing in economic, social, and security terms. Money laundering has the greatest effect on the economic aspect of a country. One of the major effects of money laundering on developing countries is the collapse of bank. Since developing countries are still in the developmental stages of establishing their financial sectors this makes them prime targets for money launderers. Banks that are rumored to have accommodated laundered money tend to collapse because their main depositors and customers who legally deposit their money become fearful that they may be labeled as money launderers and lose their earnings. Another crippling effect that is placed on developing countries from laundered money is false inflation and once the laundered money has been moved to another bank in another country it sets off a downfall of the financial sectors causing a decline in that country's economy (Pahuja, 2009).

Socio-cultural

Successful money laundering allows criminals to remain in a place where they can do their dirty dealings