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How Money Laundering Works
How Money Laundering Works
Legend has it the term "money laundering" dates back to the time of Al Capone.
The notorious Chicago gangster is said to have bought up of laundrettes in the
1920s to disguise his illicit earnings.
In reality, the practice has is indeed existed for decades, but the term only came
into official use in the 1980s. Criminals earning huge sums of money from drug
trafficking, weapon smuggling and extortion need to show a legitimate source for
that income in order to dodge the police and tax authorities. So they embarked
upon the so called Laundering Process made up of three stages.
The first Filtering: black market deals are often paid in cash, which is divided up
into smaller sums to avoid any large and conspicuous bank deposits. Each stash is
given to a front man. The money can be banked, gambled the way in casinos,
lotteries and sports bets, or invested in precious metals and luxury goods.
The second step is all about Camouflage: the money has to exchange hands
enough times for its origins become untraceable. Often is channeled into tax
havens known for the less vigorous checks or filtered through fake companies. By
purchasing an outwardly respectable business, criminals are able to obtain
relevant receipts to make everything look legitimate. Casinos, hotels, restaurants
and night clubs, are popular choices as they generate high levels of cash flow.
The final step involves putting the money into mainstream circulation by investing
in the luxury property market, making financial investments or buying art. The
extent to money laundering on today's global economy is hard to assess.
The International Monetary Fund estimates between two and five percent of world
GDP is linked to black market activity.
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