Money Laundering Essay

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Money laundering is a process whereby one or more financial transactions are carried out in order to disguise or conceal  the  identity  behind,  the  source of, and/or  the destination  of money. Usually this is undertaken to obscure connections  with crime, and also to prevent payment of taxation, although the latter  is generally a lesser objective; much  laundering does take place through legitimate companies, and as a result, launderers incur tax bills.

There are many examples of money laundering  in history, especially in the Early Modern  Period when gold and  silver ingots were being replaced  in most large transactions  by coins.  When  Elizabeth  I was asked for money to pay for the “Northern Lords” who were fighting Mary, Queen of Scots, she ordered Lord Burghley to pay them  in coins excepting those that had  her  head  on them  to obscure  her  involvement in an attempt  to overthrow  her cousin. During  the American  Civil War, the Confederates  often had to disguise the payments being made to agents overseas, especially with payment  for the manufacture  of the CSS Alabama.  The decrease in the use of cash and the increase in the amount  of banking transactions made money laundering  harder  to some extent, but it rapidly took the form of “shell companies,” many of which were located in tax havens or countries  with strict laws against disclosure, such as Switzerland.

During  Prohibition  in  the  United  States  in  the 1920s, with vast profits being made from the illegal sale of alcohol, it was necessary to disguise the source of income. Accountants  established  companies  that transferred  funds back and forth, working through  a number of private shell companies, a number of holding companies,  and making heavy use of “offshore” bank accounts. Although Switzerland, Liechtenstein, and  Luxembourg  became  places  for  money  to  be stored and/or  laundered,  a number  of legal jurisdictions  also encouraged  this, with  British companies and individuals using the Channel Islands (Jersey and Guernsey)  and the  emergence  of extensive banking industries  in a number  of Caribbean  island groups such as the Bahamas, the British Virgin Islands, and the Cayman Islands.

Gangsters  Al Capone  and Meyer Lansky became associated  with money laundering  in the press, but the  word  was first  coined  by the  British  newspaper The Guardian  when, in the run-up  to the 1972 election  campaign,  U.S. President  Richard  Nixon’s Committee  to  Re-elect the  President  (CREEP) was involved in  transferring  illegal campaign  contributions to Mexico and then bringing them back to the United States through a company operating in Miami. The money that is to be laundered became known as “dirty money,” and the final money, after it has been laundered, is known as “clean money.”

To try to restrict  money laundering  in the United States, any “significant cash  transaction” has to  be reported  by banks to the Financial Crimes Enforcement  Network,  along  with  any  suspicious  activities. This is done  primarily  to  prevent  the  evasion of income  taxes  and  other  forms  of taxation.  This involves the  authorities  then  checking  on  the  payment of large amounts of cash into any bank account. To prevent unnecessary investigations into businesses that generate large amounts of coins each week, such as shops,  some  businesses  can  obtain  a license  to allow them to deposit cash. As a result some money laundering involves bringing money from illegal sources and paying it into an account of a legitimate cash business. This, obviously, means that income tax will have to be paid. In fact, one of the main means of money laundering is through  using an existing legitimate business.

Other  methods  of  money  laundering  are  using cash obtained from illegal sources to buy gold coins, diamonds,  gold, real estate, works of art, expensive postage stamps, and the like that are, at a later stage, sold to realize the money. This can work for a small number of transactions, but is not convenient for regular laundering. Another common method of money laundering  involves using a casino—somebody uses the money to be laundered  to buy casino chips and then  cashes  them  in  for  a check  from  the  casino, claiming that the money represents winnings.

More sophisticated forms of money laundering involve establishing companies specifically to launder money and then using them to transfer  money back and forth between countries.  If a government  or tax authority is trying to investigate, the money launderer relies on the fact that one of the links in the chain will remain  secret. Gradually, more  and more  countries have had to provide better regulation for their banking sector, and this has forced people to “park” what is known as “dirty money” or “hot money.” With the new homeland  security  programs  introduced after  September  11, 2001, the United  States and other  allied governments  have massively increased  the  requirements   for  reporting   international  transactions   to allow them to keep track of suspicious transactions.


  1. Margaret E. Beare and Stephen Schneider, Money Laundering in Canada: Chasing Dirty and Dangerous Dollars (University of Toronto Press, 2007);
  2. Thomas J. Biersteker and Sue E. Eckert, eds., Countering the Financing of Terrorism (Routledge, 2008);
  3. Charles Doyle, Money Laundering: Federal Criminal Law  (Nova  Science  Publishers, 2008);
  4. Financial Action Task Force, Third Mutual Evaluation Report Anti-Money Laundering and Combating the  Financing of Terrorism: Singapore (Financial  Action Task Force, 2008);
  5. Doug Hopton, Money  Laundering: A Concise Guide for All Business (Gower, 2006);
  6. Paul Hynes, Nathaniel Rudolf,  and   Richard   Furlong,   International Money Laundering (Sweet & Maxwell, 2008);
  7. Nick Kochan, The Washing Machine (Thomson, 2005);
  8. Peter Lilley, Dirty Dealing: The Untold Truth  About Global Money Laundering (Kogan Page, 2003);
  9. Guy Stessens, Money Laundering: A New International  Law Enforcement Model (Cambridge University  Press, 2009);
  10. Ann Woolner,  Washed  in Gold: The Story Behind the Biggest Money-Laundering Investigation in U.S. History (Simon & Schuster, 1994).

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