A car wash, wallet and apartment – laundering explained…
Money laundering might sound like something from a gangster movie, but it’s a serious real-world issue that affects banks, businesses, governments and individuals. In simple terms, money laundering is the process of hiding the illegal origin of money, so it looks like it came from a legitimate source.
The Three Stages of Money Laundering
Money laundering usually happens in three stages:
Placement: This is when “dirty money” (money earned from illegal activities like drug dealing, fraud, or corruption) is first introduced into the financial system. For example, a criminal might deposit large amounts of cash into a bank account or use it to buy a high-value item.
Layering: Here, the money is moved around to make it hard to trace. This might involve sending it through multiple bank accounts, converting it to cryptocurrency, or transferring it across borders.
Integration: Finally, the money is brought back into the economy in a way that appears legal—like buying a business, investing in real estate, or purchasing luxury goods.
Why Does It Matter to Business Students?
If you’re planning a career in finance, law, real estate, or even tech, it’s essential to understand how money laundering works and what to watch out for. Businesses that don’t take money laundering seriously risk fines, reputational damage, or even jail time for senior leaders.
Simple Real-World Examples
Let’s look at three simple examples that help explain how money laundering happens in practice.
- The Car Wash Business
Imagine a drug dealer makes £100,000 in cash from selling illegal drugs. But using that money to buy a house or car would raise questions. So, he buys a car wash and reports that the business made £100,000 from customers. He mixes the illegal money with the car wash’s real income.
This is money laundering through a “cash-intensive” business. It hides the origin of the money by blending it with legitimate earnings.
- Smurfing at the Bank
A criminal wants to deposit £200,000 into the bank—but that would raise suspicion. So, instead of doing it all at once, he asks 10 friends to each deposit £20,000 into separate bank accounts.
This technique, called “smurfing,” avoids detection by breaking up large amounts into smaller, less suspicious deposits.
- Using Crypto to Hide Funds
Someone running a fake investment scam receives money from hundreds of people. To make it harder to trace, he converts the money into cryptocurrency and transfers it through multiple wallets across the world.
Crypto transactions can be hard to track, so some criminals use digital currencies to “layer” and move dirty money anonymously.
A Few Big-Name Cases
While those examples are simplified, major money laundering cases follow the same principles—just on a much larger scale.
Danske Bank allowed over €200 billion in suspicious transactions to flow through its Estonian branch. Weak internal controls meant criminals moved massive sums with little oversight.
Binance, the world’s largest crypto exchange, admitted in 2023 it didn’t have strong checks in place. Criminals used the platform to transfer billions, including for groups in sanctioned countries.
Luxury London properties have been bought with suspicious funds using shell companies to hide the real owners. These purchases often go unchecked because estate agents don’t always ask enough questions.
How Are Governments Fighting Back?
To stop money laundering, governments have introduced strict regulations that businesses must follow. Some key terms include:
KYC (Know Your Customer): Companies must check who their clients really are.
AML (Anti-Money Laundering) laws: Rules that require banks, accountants, and even estate agents to report suspicious behaviour.
Suspicious Activity Reports (SARs): Filed when a transaction looks unusual or potentially illegal.
Final Thoughts
Money laundering may sound like a distant crime, but it can happen in ordinary places—shops, banks, offices—and in any country. As a business student, understanding how it works helps you become a more responsible and alert professional.
