Impact of money laundering

The most common types of criminals who need to launder money are drug traffickers, embezzlers, corrupt politicians and public officials, mobsters, terrorists and conartists. Drug traffickers are in serious need of good laundering systems because they deal almost exclusively in cash, which causes all sorts of logistics problems. Criminal activities such as terrorism, illegal arms sales, financial crimes, smuggling, or illicit drug trafficking generate huge sums of money and criminal organizations need to find a way to use these funds without awakening suspicions about their illicit origin. When a criminal activity generates substantial profits, the individual or group involved in such activities route the funds to safe heavens by disguising the sources, changing the form or moving the funds to a place where they are less likely to attract attention. The logic of controlling the drug money trial is that profit motivates drug sales, and because most sales are in cash, the recipient of cash has to find some way of converting these funds into utilizable financial resources that appear to have legitimate origins. The impact be analytically understood as:-

• Potential damage to reputation of financial  institutions and market
• Weakens the “democratic institutions” of the society
• Destabilizes economy of the country causing financial crisis
• Give impetus to criminal activities
• Policy distortion occurs because of measurement error and misallocation of resour ces
• Discourages foreign investors
• Causes financial crisis
• Encourages tax evasion culture
• Results in exchange and interest rates volatility
• Provides opportunity to criminals to hijack the process of privatization Contaminates legal transaction.

The objective of criminalising money laundering is to take profit out of the crime. The rationale for the creation of the offence is that it is wrong for individuals and organisations to assist  criminals to benefit from the proceeds of their criminal activity or to facilitate the  commission of such crimes by providing financial services to them.

By: Parveen bansal