Hammad Awan

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How does money laundering work? Understandably explained


In gangster films, the money is regularly laundered by bank robbers, mafia bosses and drug lords. You never see them taking a large pile of cash and start spending it at once. They first need to clean it. In this article, we will explain how money laundering works.

What is money laundering for?

  • There can be many reasons why "dirty" money needs laundering:
  • Dirty money comes from illegal activities such as theft and extortion, drug and gun deals.
  • Suppose a professional criminal officially has a poorly paid job or no work. In that case, he will find it difficult to explain if he regularly pays large sums of money into his account.
  • Suppose a criminal regularly earns dirty money or acquires a large fortune on a one-off basis. In that case, he cannot simply dispose of the cash without arousing suspicion.
  • Money laundering is required to find an explanation for this illegal income.
  • This means that the illegally acquired money must somehow be transferred into the legal financial and economic cycle without its dubious origin being traceable.
  • This can be cash as well as bitcoins or transfers.
  • A specialty is a bank robbery. It is common for notes to be "consecutively numbered". Their control numbers appear to be random, but all numbers are recorded so that other banks can recognize the stolen bills by the number and notify the police if they come across a stolen bill. This is precisely why you cannot simply deposit this money into your account at the nearest bank.

This is how money laundering works.

To launder money, i.e. to transfer it into the legal financial and economic cycle, criminals take various steps depending on the size of the amount of money and the origin of the funds:

  • When it comes to a few hundred Euros a month, criminals simply pay as much as possible in cash. That will even work with consecutively numbered bills if you buy in shops with as many customers as possible.
  • To wash several thousand Euros of consecutively numbered bills, a criminal can also buy goods such as electronic items. If he then makes use of his right to exchange, the refunded money is clean.
  • Often an exchange is not even necessary as long as there is no money shortage. Art and collector's items can usually be bought in cash and quickly sold again if necessary.
  • In casinos, too, criminals can exchange heaps of cash for tokens, lose some money while playing, and have clean money paid out after a nice evening. The customer's personal details are only recorded for the legitimacy check for large amounts.
  • These processes are called "injection". If the amounts involved are significantly larger, "concealment" is necessary.
  • The minimum of obfuscation is a front company. Here illegally acquired money, for example, from drug deals, can be declared as cash payment for a service.
  • For example, craft and catering businesses, cleaning services and much more are suitable for this. The legal business does not have to go well. The illegal income carries the bogus business. The apparent disadvantage of the method is that this income is taxable.
  • In order to disguise the illegal origin of the money on a large scale, the first step is to conduct a sham deal with a corrupt company. Often these are international transactions with companies in countries that give their own government only scant information.
  • These are often offshore companies and letterbox companies.
  • To hide the origin of the money as securely as possible, many transactions are carried out with various partners, and contracts are partially backdated, and, if possible, funds from several criminals are entangled.
  • At the end of a long chain of transactions, it is difficult to prove where which funds came from. It then often looks like the criminal has just made a very profitable investment.

So ordinary folks, who want to sell house for cash or a business should always make inquiries about their clients, before doing any significant exchange.

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