Dope Incognito

Where there's dope, there's hope

What is Money Laundering | Effect of money laundering on economic growth

Money laundering



What is black money?

Black money is the funds on which income tax and other taxes have not been paid. It is the unaccounted money that is not in the records of Tax administration. Simply the money which is earned by an individual but not shown in income records is called black money.

This black money is then transferred by different methods and finally get back to the original earning person. The process or method of launder this black money is called money laundering or Hawala bazaar.


What is money laundering / Hawala bazaar?

Money laundering

In simple words Money Laundering is converting black money into white money. Money laundering is the whole process of transfer the unaccounted money to the original owner without jeopardize the source. The profit of laundering money is distributed to the whole group of this laundering network. It is the process of concealing the proceeds of crime and integrating them into the legitimate financial system.

Other then Tax evasion, Many criminal activities generate large profit and the individual or group find the way to transfer this fund where there are less likely to attract attention. It is the process to give the legal image to the proceeds of crime.


How is money laundered?

The money laundering process done thru different methods:

 placement, layering, and integration are the three main part of money laundering.

           1.  Placement: The first entry of money into financial system.

           2.  Layering: In this step main source of money is hidden by   using a series of transaction.

           3.  Integration: The money laundered is withdrawn from the legitimate account to be used, and the money is returned to the criminal from the legitimate source.

 

Other methods are

Money laundering by Export: In this method money laundered by ship containers in form of cash.

Stock Market: Money can be laundered and displayed as a business by buying a stock or buying bonds.

Art and Antique items: Arts and antique items can be purchased by cash money and then sell them in foreign market.

Money laundering cycle

Example:

If a person generate huge profit and want to invest this whole money in legit way. He uses the money laundering process.

In first placement stage his total earned cash money will be divided into less suspicious smaller sums and transferred into different bank accounts. Then this money transferred to another location. Here all the money is now collected in cash again and sums up.

Here comes Layering stage, In which launderer transfer this money thru a series of transaction and finally move the money at a very distance from source.

Now third stage, integration of money will be done thru legitimate method and transferred the money back to source. This is done by transferring money into shell companies.

Shell companies: These refers to a company which have no any active business or assets.

Now these companies have fund from foreign investors (money launderers), and finally shuts down as announcing ‘Non profitable company’. The money, which is transferred as foreign investment, is used by source in Real estates or other investment.

 

The famous money laundering heaven countries are Switzerland, Mauritius, Cayman Islands. They have policies that they don’t reveal the name of foreign investing companies. That’s why most of the money, laundered by theses countries.



FATF (Financial Action Task force)

Financial action task force founded in 1989 to develop the policies to combat money laundering. Mostly money laundering is the source of funding to terror groups so FATF regulate the countries which are involved in money laundering.

In simple words, FATF have eye on countries and issue warning if any illegal laundering increases in their reason. FATF put these countries in Grey or Black list categories.

Grey list: If illegal laundering activities found in any country, FATF give warning to that country and asked them to control the laundering. FATF put that country into Grey list.

Black list: If repeated laundering activities found after warning then that country goes under black list category.

 

If a country goes into Blacklist, No any big investor invest in that country and that leads to GDP decline of that country. No any bank easily gives loan to the blacklisted country for their development.

 

One thought on “What is Money Laundering | Effect of money laundering on economic growth

Leave a Reply

Your email address will not be published.