Money Laundering in 5 Questions | Step by Step Guide

Blog / Money Laundering in 5 Questions | Step by Step Guide

In this context, we will explain money laundering in 5 questions. You can find all the essential information you need to know about money laundering with this content. 

What is Money Laundering?

Money laundering; It is the process of showing the source of the money obtained from illegal income as regular income. Since the payments received from criminal activities are usually cash, it is impossible to use illegal income freely and quickly. Instead of depositing large amounts of funds in one bank at a time, criminals also deposit small amounts gradually. Funds earned illegally are provided by smugglers to countries where money laundering is not a crime or where laws are not strictly enforced. As a result, this method washes money, and the criminals cover up their crimes. It is a dangerous crime, and those who commit this crime are subject to large fines and imprisonment.

There are many techniques, and various institutions used for this. Some of these are explained below with examples.

Why Is Washing Money?

Criminals pursue two targets while laundering money. The first goal is to move away from the premise of crime committed to obtain money. Because the owner of illegal funds in large amounts in cash is easily detected by law enforcement units, for this reason, illegal funds should be cleared of this quality and laundered as soon as possible.


The second aim is to prevent illegal funds' seizure and use comfortably. Because for criminal organizations, obtaining crime income is the main reason. Researches reveal how important the proceeds of crime are for criminal organizations.

What Are The Methods Used for Money Laundering?

Various institutions and methods are used for laundering money. Some of these are described below with examples.

  • Smurfing:

It is a method of preventing the reporting of the said transactions to the authorized institutions within the scope of providing continuous information or identification by making transactions under the countries' legal limits regarding the obligation.

  • Opening an account with a fictitious or wrong name:

To not attract attention and prevent control in the banking system, the transaction is entirely fictional or on behalf of someone else.

  • Partnering in crime with financial institutions:

Companies that want to launder dirty money agree with accountants or managers to prevent these records from being kept.

A case study determined on the subject is as follows; Illegal earnings are provided to the intermediary institution to cooperate with the intermediary institutions' personnel. In return, checks issued by the brokerage house are received. These checks are deposited to the customer account opened by the brokerage firm under fake names, and the funds in this account are used to obtain bearer bills and deposit certificates. When the due date comes, the coupon prices and interest rates of the bond are withdrawn, and deposit certificates are sold to the bank account.

  • Benefiting from various companies:

In this method;

- Nonfunctional companies are used.

- Companies operating legally are used.

- Shell corporations are used.

  • Money laundering with workers:

It is a method used by criminals to think that the workers working in developed countries to their relatives in their country will not attract attention.

  • Partnering in crime with foreign financial institutions:

It is a method of cooperation with cross-border centers and other foreign financial institutions.

  • Exchange offices:

It is the receipt of illegal income in cash by foreign exchange offices and placement into the financial services. 

  • Cash smuggling:

In this method; The cash obtained from illegal activities is taken to countries where there are not many obligations either by the persons serving as courier or by any means. Later on, this cash is taken into the financial system in these countries. As a result of these transactions, these funds, provided with legal images, can be sent directly to the country or sent to different countries and used without risk.

  • Prize money from chance games:

In this method; The winner is found before he gets his jackpot, and he is given more money than the jackpot he has won. Then the grand prize is taken by the criminal.

  • Casinos, etc., businesses:

In this method, the criminals' cash is used to buy chips from casinos, but no gambling is played or played very little, and the chips are replaced with checks taken from the casino. The checks in question are then deposited in a bank; the check prices are transferred from here to another country or used to purchase the real estate.

On the other hand, this illegal funds can be transferred directly to the casino. Conversely, money remaining after commission can be processed by accountants as gambling earnings. The holders can point to supervisors as the source of this as gambling earnings.

Why Is It Necessary To Anti-Money Laundering?

The laundering of black money has reached terrible dimensions today. Although it is impossible to determine the exact amount, it is estimated that billions of dollars of washing money are committed every year. The source of it is always illegal, the drug trade leading to these crimes. Mostly behind the rising wave of terrorism in the world, drug traffic is often found. Drug traffic, which is in the hands of large mafia groups in the past years, is gradually under the control of terrorist organizations. This development results in the fact that terrorist organizations, which pose a significant danger for each country, are quickly out of control. Other activities include money smuggling, child and youth trade, white woman trade, organ trade, kidnapping, blackmail, and commercial fraud.

The illegal activities mentioned above create significant social problems in every society. The increase in the amount of laundered money every day increases the criminal organizations' powers politically and their dominance in the state institutions. On the other hand, this financial crime negatively affects national economies. For example; Although there is no change in the supply-demand amount of goods and services in the economy, sudden changes in the amount of money put on the market may cause fluctuations in prices. 

Therefore, the anti-money laundering aml is vital. Global regulators such as the Financial Action Task Force (FATF) and the European Union (UE) have some precautions and directives. Apart from international regulators such as FATF, most countries such as the United Kingdom and the United state also have their AML laws. According to these regulators' regulations, any suspicious activities related to the transaction should be created in the institutions and sent to the required authority. After the suspicious activity is detected, a report on suspicious transactions is created by compliance teams, and this report is called Suspicious Activity Reports.

Adverse Effects of Money Laundering on The Economy

The way to get rid of the social, economic, and political problems caused by the crimes that constitute money laundering is to destroy the organizations that commit these crimes.

What Are The Reasons for Choosing Off-Shore Financial Centres in Money Laundering?

Off Shore Financial Centers have a direct link with money laundering. Therefore, it is necessary to identify the reasons for the illegal use of these centers in general. In countries where cross-border centers are located or connected, there is no tax or low rates. On the other hand, in these centers, the procedure for establishing banks and non-bank financial institutions is straightforward, and the legal obligations that these financial institutions are subject to are almost non-existent. Namely, a bank can indirectly give credit to the group company in its own country through the bank established in these centers due to legal regulations.

Another reason for the illegal use of Off-Shore Financial Centers is money laundering. Financial crimes can occur through financial institutions or shell companies in these countries. Since the banks or shell companies established in these centers are companies that are legal entity partners who cannot obtain information about their partnership structures or whose intake is not available, and their real owners are not known, washing money transactions are carried on freely without any restrictions and funds can be transferred from anywhere in the world. The process of returning to the owner as a loan is shown as one of the main methods used for washing money.

The fight against washing money is continued through local and global anti-money laundering laws and regulations. Sanction Scanner helps financial institutions detect and prevent financial crimes with AML solutions. You can contact Sanction Scanner to support your AML compliance.

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