What is Money Laundering?
Money laundering is the unlawful way of making vast sums of money earned from criminal actions, such as drug dealing or terrorism funding, seem to have started from a reliable source. The proceeds of illegal crime are called "dirty," so the procedure "launders" them to make them appear clean.
Money laundering is a serious financial fraud performed by both white-collar and street offenders. Most financial companies own Anti-Money Laundering (AML) strategies in place to track and deter money laundering.
Illegal gun trade, bribery, and organized crime operations, such as drug trafficking and sex trafficking, can all raise large sums of money. Significant gains can be made by embezzlement, insider trading, corruption, and electronic theft operations, all of which provide an opportunity to "legitimize" the ill-gotten gains through money laundering.
When an illegal company earns notable income, the person or organization involved must find a way to keep hold of the funds without drawing attention to the underlying action or the individuals involved. Criminals conceal their origins, change the shape, or transfer the funds to a location where they are less likely to draw attention.
Money laundering can occur virtually everywhere in the world, and it is a result of almost any profit-generating crime. Money launderers, overall, choose to operate in countries or industries where there is a reduced chance of monitoring due to inadequate or unsuccessful anti-money laundering programs. Money launderers like to transfer funds across secure financial processes, and money laundering aims to return dirty money to the person who created them.
What Is Embezzlement?
Embezzlement is a type of white-collar crime in which someone misappropriates funds that have been assigned to them. The embezzler obtains the goods legally and has the freedom to keep them through this form of theft, but the properties are still used for unintended purposes.
Individuals who have access to an organization's finances are required to keep those funds secure and put them to their intended use. It is unethical to gain access to the money to use it for personal use. Diverting funds to accounts that claim to be allowed to accept payments or deposits is one example of such activity.
On the other hand, the account is just a front from which the person or a third party from whom they are working will receive funds. For example, to hide the movement of money as a legal activity, an embezzler might produce bills and receipts for commercial transactions that never occurred or facilities that never existed.
An embezzler may work with a partner classified as a consultant or contractor but who never conducts the services for which they are paid.
Embezzlement can take many forms, both tiny and massive. Embezzling money may be as simple as a cashier pocketing a few dollars from the register. Embezzlement happens on a larger scale as employees at multinational corporations falsely spend millions of dollars and pass the money to personal accounts. Embezzlement can result in high fines and imprisonment in prison, depending on the severity of the crime.
The Difference Between Money Laundering and Embezzlement
Money laundering and embezzlement are both financial offenses involving large transactions, but there is a difference between them.
Taking or using money that belongs to someone else is referred to as "embezzlement." Embezzlement occurs when a person who has been charged with the responsibility of looking after someone else's money uses the money for personal gain. In this situation, the rightful owner is completely unaware that his funds are being misused. The funds can also be diverted into an individual account by the money manager. Ponzi schemes are an example of embezzlement because they allow millions of dollars to be transferred unlawfully.
On the other hand, money laundering refers to earning money through illegal activity while concealing the true nature of that unlawful financial gain. This criminally obtained money is either turned into paper money by various methods or is used for unlawful actions such as drug trafficking, terrorism financing, and human trafficking. Since there is no accounting for this illegal income, the government does not tax it.
To summarize, an embezzler obtains funds lawfully but uses them for unintentional or criminal ends. At the same time, money laundering occurs when funds are collected unlawfully and utilized for such financial offenses and illegal practices.
How to prevent money laundering and embezzlement?
Money laundering and embezzlement are challenging to detect, especially in their later stages. Security is critical because it encourages strategies that firms may use to stop the problem at the roots or stop it completely. The following tips help prevent both money laundering and embezzlement:
- A single transaction management program that combines embezzlement and anti-money laundering (AML) laws, as well as applicable policies and procedures for when irregular transactions occur.
- Staff in the anti-money laundering and anti-embezzlement departments are cross-trained to improve interdepartmental expertise and familiarity with corresponding policies.
- A notification remediation mechanism includes standards for effective case settlement and supports both the AML and anti-embezzlement purposes.
- A single case management system allows the anti-money laundering and anti-embezzlement divisions to share and swap files between investigations.
