What is Money Laundering?


Money Laundering is an act of legalizing illegal income, mainly referring to disguising and concealing the source and nature of illegal income and its generated income through various means to make it legal in form. The term "money laundering" originated in the early 20th century, when a restaurant owner in San Francisco found that dirty coins often stained customers' beautiful gloves, so he washed the coins circulating in the hotel with detergent, which is the original form of "Money Laundering".


Broadly speaking, money laundering includes examples as follows: bank loans are used for criminal activities, such as the purchase of drugs and arms through money laundering, or legal funds are laundered into other apparently legal funds to achieve the purpose of possession.

Let’s take a look at another vivid example to help you better understand this concept. Suppose you are eight years old, and you suddenly find $80 at the gate of the school one day. You want to spend the $80 by yourself, but your parents will definitely find it and you will be asked to turn it in. So what should you do? You found the old grandpa who sells sausages at the school gate, and discussed with him to make a deal with him, saying that you are willing to give him $40 to let him go to your home later and tell your parents that you helped him sell sausages for an afternoon after school, so he rewarded you with $40. In this way, he can earn $40 for nothing, so the old man agreed on the spot.

Then when you got home, your parents saw that you had earned 40 yuan, and they asked you to turn in $20 and left you $20 to spend. So you can spend the $20 because it came from nowhere. In this example, let’s understand parents as the country, the old man as a money laundering intermediary, $80 as illegal income, and $20 as tax. This whole process is called money laundering.


Main forms of money laundering:

1. Cash smuggling. Many countries do not have cash transaction reporting systems, so smuggling the illegal money into such countries and depositing them in banks is an important way to launder money.


2. Distributing large amounts of cash into banks. Some countries have established strict cash transaction reporting systems. For cash transactions exceeding the limit, banks must report to the Anti-Money Laundering Intelligence Unit. Therefore, money launderers often split large amounts of cash into amounts below the reporting standards and deposit them in banks to avoid supervision.

3. Taking advantage of cash-intensive industries. More and more money launderers are using cash-intensive industries to launder money, using casinos, entertainment venues, bars, gold and silver jewellery stores as cover, and declaring the illegal income as legitimate income through false transactions.

4. Direct purchase of various movable or immovable properties. Some people directly purchase real estate, high-value vehicles, antiques, works of art and various financial securities, etc., and then gradually turn them to legal monetary funds.