What are the Effects of Money Laundering?

What are the Effects of Money Laundering?

All over the world, people attempt to launder money to cheat financial systems and gain an illegal advantage. Therefore, money laundering is an attempt to make sure that crime does pay.

It is a type of corruption that involves criminal activity in the form of bribery, fraud or identity theft. The ‘proceeds of crime’ is a term that describes money gained from these criminal acts. Laundered money is put through a money laundry like a casino, and then it can be used in the economy with confidence.

It is a crime that accounts for a huge 5% of global GDP[1] every year. The favoured currency for money launderers has always been the US dollar. However, the Euro is increasing in popularity due to its stability and high circulation in a total of 19 EU member states.


Money Laundering Effects

The effects of laundered money are serious and far-reaching. It can have global, as well as domestic impacts on businesses, economies and societies.


Effects on Businesses

If organisations are found to be laundering money, especially if they are in the regulated sector, it can lead to long-term consequences.

Service providers may find that customers stop coming to their business. This is because money laundering offences are huge, headlining news in big companies. Being in the headlines for all the wrong reasons spells reputational damage. As a result, customers lose trust in the company. This impacts a revenue stream in a huge way and can affect daily business activities.

Furthermore, organisations will incur all sorts of penalties and punishments. Under the UK laws like the Proceeds of Crime Act 2002,[2] organisations could pay unlimited fines or face 14 years imprisonment.

This can translate into a bad reputation for whole countries, as “confidence in markets and in the signalling role of profits is eroded.[3] A country becomes synonymous with money laundering and corruption.


Effects on the Economy

Money launderers ultimately make businesses much less productive, leading to lower levels of money and tax revenue for the country. Individuals may “turn enterprises which were initially productive into sterile ones”[4] just to launder money.

Furthermore, organisations laundering money have a fundamental unfair businesses advantage. This is because they “can afford to sell a product for cheaper because their primary purpose is to clean money”.[5] This means smaller businesses lose customers as they cannot compete.

On a larger scale, developing economies may find it hard to break the cycle of corruption, as they have less money to spend on anti-money laundering (AML) regulations. Criminals are much more likely to target weaker systems. This means losing lots of money to laundering, but the government lacks the funds to prevent it. Consequently, developing countries need help from international and regional organisations to sure-up their economic systems.


Effects on Society

Governments will spend more money on AML regulations and law enforcement through a reaction. As a result, public spending decreases and normal people suffer.

Furthermore, as illustrated above, criminals make businesses less productive. This leads to a drop in the quality of services offered to customers. As a result, neither customers nor innocent businesses can trust certain organisations to deliver the services they need.

Corruption and the laundering of money spread like a wildfire. Once it begins, businesses, the public and government employees could be encouraged to follow suit. Under no circumstances should criminals be incentivised to commit further offences.

When money laundering exists in society, everyone loses out. Meaning, that governments need to draft effective anti-money laundering regulations for businesses to comply with. Compliance is in everyone’s interests for a safe and transparent society.


You can view our Anti Money Laundering online training courses here


[1] https://money.howstuffworks.com/money-laundering5.htm

[2] https://www.legislation.gov.uk/ukpga/2002/29/section/370

[3] https://www.hsdl.org/?view&did=3549

[4] http://www.fiumauritius.org/English/Pages/Consequences-of-Money-Laundering.aspx

[5] https://money.howstuffworks.com/money-laundering5.htm