about financial crime

2. Why do people launder money?

Criminals commit three basic types of crime – crimes of passion or honour, crimes of violence or vandalism and economic/financial crimes.

Published 1996

Ignoring minor vandalism, most crime is economic crime – that is crime that is committed to make money. They commit crime for two reasons – one is for kicks – to prove they can do it and get away with it; the other is because they think they can make more money from the crime than they can make from the same amount of legitimate endeavour.

When they make money from crime, criminals use it for one of three purposes – to invest in another crime, to hide to use later or to spend now.

One of the most tried, tested and successful methods of investigating crime is to follow the money. So criminals want to move the money further and faster than investigators can follow it – and from time to time they want to put it into a black hole so that investigators simply cannot follow it.

Sometimes, investigators who think that someone may have been involved in a crime may start with that person’s known finances and work backwards. This is now causing changes in laws which presume that a criminal who has been convicted of past offences can be subject to confiscation orders unless he can prove the provenance (origin) of his wealth to be legitimate.

So, the criminal needs to get the money out of the black hole in such a way that he can explain where he got it from.

One way in which suspicion is raised is by someone spending more money than their known income would support. So, that hairdresser who never has any customers but drives a new convertible would raise suspicions.

Tax evaders launder money so that they can lie about where money and assets came from in order to evade tax. Or they hide money in bank accounts that they think the revenue authorities find out about – sometimes in the names of children or elderly relatives. Or they simply operate outside that part of the economy where records are kept. How often have you been offered a discount for cash, provided you don’t want a receipt?