The term “money laundering” can be defined as a process of converting dirty money into clean money. In simpler terms, it is a procedure of transforming black into white in which the source of earning illegal income is hidden. The illegal revenue earned from criminal activities such as drugs export or terrorism is shown as legal revenue in this practice. Having the intention of removing all traces of the crimes through which the money was obtained, a money launderer involves in three stages:
Stages of money laundering
- Placement: In the first stage, money launderers enter the illegal money into a legitimate financial transaction. This stage is often regarded as the most crucial stage as chances of being caught are higher in it. It is due to the reason that they can be questioned regarding the source of money. Placement is done in several ways such as currency exchange, loan repayment, and so on.
- Layering: The second stage involves layering of money into different financial transactions so that no one can suspect the original source of money. Money launderers often do international transactions to layer the illegal money.
- Integration: The last stage is termed as “integration”. Since the money has been used in legal transactions, the money launderer purchases a legal asset through it. This step is done to properly secure the criminal from being caught.
With the increase in criminal activities across the globe, money laundering is popping up in almost every country. It boosts the financial assets of the criminal groups, encouraging them to commit more crimes. It is imperative to look into this matter and take immediate steps to control this emerging crime. If proper actions are not taken, it is likely that money laundering will affect the world economy. By deflating the financial structure of the country, this sin is affecting the economic image of one country in the eyes of other country. Apart from it, money laundering affects the economic growth through diversion of money. With the rapid increase in crime, capital flow and international trade is highly affected. Thus, the overall economic growth and productivity is affected through it.
It is therefore imperative to report all suspicious financial transactions to the financial intelligence unit and have sound communication with the financial institutions of other counties. With the global exchange of data, collaboration between international financial institutions, and international awareness, money laundering can be minimized up to some extent. Not only is this, but bank employees should be well aware of the AML laws and they should know their customers. Though anti-money laundering policies do exist in every country but still there is a need to make new standards in the existing policies. Financial institutions and other regulatory bodies should take prompt steps to control this rising criminal act from the country. Beside this, financial connoisseurs should work on the cost and benefit analysis to have positive outcomes. Strong AML policies along with suitable governance system can bring a positive change into the economy of developing countries which are badly affected by money laundering.