How would you explain money laundering in simple layman’s terms?
Payments
Asked by Question Bot06/Nov/20151 answer
1 Answer
F
Faisal Khan
Answered 06/Nov/2015
tl;dr: Moving Undocumented Money.
Money Laundering has many definitions. Not all the countries agree on a standard definition, yet they come close (which for many developed countries is still not good enough).
On the broader scope of things, laundering money is to use the existing payment and banking rails, to funnel or channel your money across. In many arenas this simply means making black money white, and in others it means, keeping the black money... black, yet being able to transport it across.
The end goals vary, but mostly it is to avoid taxation, avoid questions on the source of the income (which could be legal or illegal), to burrow through one financial system and emerge out onto another. To ingress from a particular country and egress from another. The combinations and motives vary. Like I cited, there is a disagreement on a standard definition pair. What could be illegal in one country, could very well be legal in another.
The short of it is, it is termed as undocumented transfer of money. Based on this premise, there are then models to look at money laundering on the whole and to also understand Money Laundering type: Hawala, Hundi, Fei Qian, et. al.
Each country's financial regulator has set up pretty much a monitoring unit that is some what autonomous to detect and deter money laundering. One of the governing bodies to manage this on a worldwide level is the Financial Action Task Force (See: Financial Action Task Force (FATF)), especially their recommendations (PDF Document): Page on fatf-gafi.org
Most of the payment systems are setup now, so as to flag transactions traversing through it. This is one of the most preferred ways in the detection of money laundering. Detection can vary in so many ways. Over 5 small transactions to the same person, sending chunks of money across to multiple people from the same payment instrument, in a given time period, large sums of money moving, etc. By tapping into a payment system, you then move outwards to determine how the transaction was loaded, from where the transaction was loaded from or off-loaded and start asking questions. The difficult part of money laundering is when people understand the flags and are able to by-pass them, or by-pass the system all together.
Money Laundering has many definitions. Not all the countries agree on a standard definition, yet they come close (which for many developed countries is still not good enough).
On the broader scope of things, laundering money is to use the existing payment and banking rails, to funnel or channel your money across. In many arenas this simply means making black money white, and in others it means, keeping the black money... black, yet being able to transport it across.
The end goals vary, but mostly it is to avoid taxation, avoid questions on the source of the income (which could be legal or illegal), to burrow through one financial system and emerge out onto another. To ingress from a particular country and egress from another. The combinations and motives vary. Like I cited, there is a disagreement on a standard definition pair. What could be illegal in one country, could very well be legal in another.
The short of it is, it is termed as undocumented transfer of money. Based on this premise, there are then models to look at money laundering on the whole and to also understand Money Laundering type: Hawala, Hundi, Fei Qian, et. al.
Each country's financial regulator has set up pretty much a monitoring unit that is some what autonomous to detect and deter money laundering. One of the governing bodies to manage this on a worldwide level is the Financial Action Task Force (See: Financial Action Task Force (FATF)), especially their recommendations (PDF Document): Page on fatf-gafi.org
Most of the payment systems are setup now, so as to flag transactions traversing through it. This is one of the most preferred ways in the detection of money laundering. Detection can vary in so many ways. Over 5 small transactions to the same person, sending chunks of money across to multiple people from the same payment instrument, in a given time period, large sums of money moving, etc. By tapping into a payment system, you then move outwards to determine how the transaction was loaded, from where the transaction was loaded from or off-loaded and start asking questions. The difficult part of money laundering is when people understand the flags and are able to by-pass them, or by-pass the system all together.