Understanding the consequences of money laundering

What are the consequences of money laundering? It is clear that money laundering and terrorist financing are damaging to a country. In fact, there are many negative risks and effects of money laundering, and governments would be wise to take action to protect their economies, businesses and societies. We will look at each of these areas in turn.

Consequences of money laundering

Money laundering is considered essential for the efficient functioning of transnational and organized crime. Money laundering, on the other hand, has an impact on the economy, government and social welfare of a country. Below are the consequences of money laundering:

Economic consequences

Let’s look at the economic implications. First of all, money launderers like to operate in growing economies. This is because the governments of these countries are usually so busy dealing with all the growing industries, businesses, etc., that they often put the fight against money laundering on the back burner. But let’s not sugarcoat it. It is a shortcoming and a weakness. This weakness is exploited by money launderers for criminal purposes, and they move their networks and operations to these countries.

This in turn will have a negative effect on the integrity of these economies, including the financial sector. Foreign investment and foreign companies will be very cautious and eventually refuse to set up their businesses in these economies, and investment funds will be channeled elsewhere. Once money launderers have infiltrated an economy and the economy has a reputation for having only lax money laundering controls, it will be very difficult to create a business-friendly environment.

Money laundering can also cause unpredictable changes in the demand for money, as well as huge volatility in international capital flows and prices. To understand this, look no further than the real estate sector. Let’s look at London real estate. Data shows that the London property boom is a money laundering abomination, and that criminals are laundering billions in London real estate. This is not limited to London, but is happening in every metropolitan area around the world, from Rio to New York to Tokyo. Criminals love luxury real estate, and governments around the world are trying to find ways to prevent them from buying up addresses in their most prestigious cities.

Business implications

Let’s look further at the business implications. Money laundering hinders the development of the legitimate private sector. Money launderers have different business economies and can offer their products below the cost of production. It sounds ridiculous, but they don’t need to make a profit from their products and earn a margin. Their primary goal is to launder the money, because they have already taken a cut through criminal activities. This makes it very difficult for legitimate businesses to compete, which ultimately drives them out of business.

Criminals can also buy companies that were originally productive and turn them into partners in crime to launder their money. This leads to a decrease in the productivity of these companies and, on a large scale, a decrease in the overall productivity of the economy.

Social consequences

Last but not least, let us look at the social consequences. Money laundering in principle rewards corruption and crime. Successful money laundering damages the integrity of the entire society and undermines democracy and the rule of law.

If money laundering is not tackled effectively, there will be negative social and political effects. Organized crime can infiltrate financial institutions, gain control of large sectors of the economy through investments, or offer bribes to government officials and entire governments. The economic and political influence of criminal organizations can weaken the social fabric, collective ethical standards, and ultimately the democratic institutions of society.

Normally, money laundering enables criminal activities, including terrorist financing, to continue.

Final thoughts

Money laundering is the way criminals make crime pay. It is required because criminals, whether they are drug traffickers, organized criminals, terrorists or arms dealers, must be prosecuted. Extortionists, also known as credit card scammers, conceal the source of their criminal money to avoid detection and prosecution when they use it. Money laundering is essential to the successful operation of virtually all forms of transnational and organized crime. Anti-money laundering efforts, which aim to prevent or limit the ability of criminals to use their ill-gotten gains, are an important and effective component of anti-crime programs.