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Are you an easy target for money laundering?

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money laundering

If the term “money laundering” leads you to imagine your mom pocketing the quarters you left in your jeans before washing your clothes, think again. 

Money laundering refers to any process through which profits from illegal activities are reinvested in order to hide their origins and thus make them available to use in the formal economy. This process of reinvestment gives the appearance that illegally-obtained profits were legitimately acquired. 

While this definition might lead you to believe that only folks involved in drug trafficking or other illegal schemes are at risk, money laundering should be a topic of concern for small business owners, university students, and others. Money laundering is a serious crime that can carry hefty financial penalties and even jail time.

Check out our article to learn more about this illegal activity and how you can keep yourself safe from it.

How does money laundering work?

Money laundering has probably been around for as long as money itself has been used. Merchants, pirates, alcohol smugglers, gangsters, and others have practiced money laundering throughout history in order to turn a profit.

Many activities can be used to illegally profit, including selling drugs or other illegal goods or services, accepting a bribe, or stealing. Once funds are obtained illegally, money laundering generally follows three steps: placement, layering, and integration. 

After obtaining a great deal of money, a criminal’s newly found riches might be suspicious and tip others off to their activities. In order to hide their nefarious origins, in the placement step of laundering, criminals may use one of several methods to associate their money with legal investments, transactions, or businesses.

A few popular methods include: 

  • Creating a shell company: Shell corporations are used to create fictitious but seemingly legitimate transactions to make dirty appear to be a legitimate profit. 
  • Playing casinos: Launderers may buy a lot of chips, play a few games, and then cash the majority of the chips back out as if they had been won in the games. 
  • Beginning or investing in cash-only businesses: Investing in such businesses (e.g. restaurants, laundromats, car washes) allows launderers to mix legitimate and dirty profits. 
  • Smurfing: Smurfing activity relies on paying off many individuals to use their bank accounts or purchasing power to make legal transactions under the threshold that would otherwise tip off authorities (usually $10,000). 
  • Electronic money laundering: This type of laundering relies on manipulating, buying, and trading cryptocurrencies, online auctions, online sales, and gambling or gaming sites. 

After the key step of placement, launderers layer their dirty money. This process seeks to further obscure the trail of the illegally-obtained funds through purchases, transfers, and other phony business transactions.

Following these layering activities, funds again become available to criminals for use through integration. They often make investments, purchase goods, and expand their (legitimate and illegitimate) enterprises. 

Who are targets for money laundering?

Given that money laundering often relies on individuals and businesses external to the responsible criminal organizations in order to eventually integrate illegal earnings into the formal economy, just about anyone could be at risk. Small business owners, university students, and pretty much any other average Jane or Joe could be targeted. 

  • Small business owners are particularly vulnerable to low-cost loans and other “business opportunities” offered by launderers posing as benevolent investors.
  • University students and others have been targeted as money mules to help launderers move sums of money through their bank accounts.

Ill-informed folks may find themselves caught up in and associated (and later punished) with criminal groups if they participate in any type of laundering. 

How can you protect yourself from money laundering?

While getting caught up in money laundering is quite a frightening prospect, there are a number of ways that you can protect yourself from it. 

Protect yourself

Individually, prevent yourself from becoming a money mule. Money mules transfer money on behalf of launderers between bank accounts, perhaps even to foreign accounts. Be suspicious of strangers who contact you online to make “easy money.”

Launderers often find potential mules via social media, fake job ads, email, and other means online. They typically target young adults and university students who may be strapped for cash. Reject offers to make money by completing transfers and transactions on behalf of others. 

Protect your business

To protect your business from money laundering, be weary of and research any potential business opportunities. Launderers often target small business owners who are eager for loans or to expand their businesses and who may otherwise not have many options.

If an unknown personal or group offers you a loan or investment, make sure to investigate. Verify the legitimacy of the source of their funds, run background checks, and conduct business through legal channels. You may even consider implementing anti-money laundering strategies in your business. 

The bottom line

Money laundering might seem like a distant issue, but it is a common threat to ill-informed individuals and small businesses alike. In order to keep your financial health in order, take steps to prevent yourself from getting tangled up in such schemes.

These steps can protect your financial wellbeing for years to come. For more tips on keeping your finances in check, refer to the Academy Library.

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