Mechanisms and Effects of Money Laundering: Understanding the Process and Impacts

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MECHANISMS AND EFFECTS OF MONEY LAUNDERING
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Mechanisms and Effects of Money Laundering
Introduction
Most criminal actions are aimed at making a profit either for a group or an individual that
engages in the practice. The process of these unlawful earnings to camouflage the illegal origin is
known as money laundering. The proceeds of these significant crimes run into a few trillion
dollars. Primarily, the process benefits the criminals as they enjoy the profit without exposing
their source. A large number of proceeds are obtained from the sale of illegal weaponry,
smuggling, drug trafficking, organized crime activities as well as prostitution rings. Moreover,
embezzlement, bribery and computer swindle schemes equally contribute to the acquisition of
massive profits that create a reason for legitimizing the wrongly obtained benefits through
money laundering. In the event of generating considerable gains employing criminal activities,
the group or an individual involved has to establish means of controlling the funds without
drawing attention to the principal business and the people involved as well.
Occasionally, the criminals tend to move the funds obtained from one place to another
where little or no attention is drawn. Also, the disguise of the source is often taken to reduce the
likelihood of attracting attention. Being an illegal activity, money laundering takes place far
outside the financial and economic statistics. During the preliminary stages of money laundering,
the launderer breaks up the vast amounts of money into less conspicuous sums into the financial
system like in the bank account. Otherwise, purchasing the likes of money orders and cheques
which are later collected and deposited in accounts at different locations. Criminal utilize these
illegal proceeds in starting justifiable enterprises whereby the families of the criminals earn

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respect since the past becomes imprecise. The paper herein explains mechanisms of money
laundering with a critical analysis of direct impacts it causes on the legal businesses.
Mechanisms of Money Laundering
Money laundering is a dynamic process that one needs to keep shoulder to shoulder to
understand the current developments in the field since it continuously evolves. Mechanisms of
money laundering are herein divided into techniques at the national and international level.
Mechanisms at the National Level
i) Retail and Wholesale Businesses
Most of the fabricated sales mostly happen in businesses. For example, even with a
limited stock a business person could have fictitious sales in the books of accounts clearly
illustrated. This means that the extent of the fictitious sales reflects the amount of money
laundered which is ultimately considered as rightful proceeds of the firm. Convenient avenues
for laundering money include such places as fast food restaurants (Chatain, 2009: 45). . Such
retail businesses register huge earnings in disguise of rightfully acquired profits. Also, other
retail companies that engage in money laundering include retail businesses that deal with highly
pricey materials like sales of fashion garments that have brands of exaggerated prices. In such
instances, illegal money is drawn into the business and thus legitimized.
Furthermore, simulation of trading businesses is yet another possible means of money
laundering. An example is where an individual or a group set up a shop with modest although
genuine stock of items such as jewelry. Records would, therefore, be generated showing
distressed sales in the business categorized as counterfeit, although the sales production would

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record sale of genuine items of jewelry (Cassella, 2004: 89). Thus, the profit obtained less the
price of the fake items would now be the laundered money.
ii) Manufacturing Units
Forged manufacturing entity could adequately be used in money laundering. These
entities would have billboards even buildings showing factories. Therefore, false manufacturing
centers project forged sales that allow laundering of money as exaggerated invoices are produced
for the items and products being made. Substantially, the extent to which invoices are inflated
corresponds to the extent of the money laundered into the business.
iii) Raffle Tickets
Lottery businesses have thus far become quite prominent in many countries, like in India.
Often the people involved in money laundering buy the raffle tickets from the authentic winners
sing the illegitimately acquired profits. The cash obtained by these criminals become legitimized
through encashment of the gambling tickets.
iv) Charity Cinemas
Organizing entertainment cinemas has been a successful technique often used in
laundering money. In the process of assembling the event, the sale of fraudulent vouchers is
carried out. It’s a sure method of money laundering since the individual buying the ticket is
under no compulsion to attend the cinema. Here, the extent to which money is laundered is
dependent on the fraudulent vouchers sold. Nonetheless, the type of funds acquired through this
technique of laundering money is taxed in some countries as entertainment levy.
v) Casinos