Why is Money Laundered?

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Money has lured man from good old days. Possession of money gave a sense of Power, Wealth  and a Sense of Accomplishment; Many wars were fought for treasures in countries that were having comparatively low military power. The Law of Diminishing Marginal Utility does not work in the case of this good called money. 

The main purpose of money laundering is to hide the origins of the proceeds of crime, so that criminals can spend the money without arousing suspicion. This activity is nick-named  ‘money laundering’ because it involves a complex process of ‘cleaning’ dirty funds to create the appearance of legitimacy. 


There are several reasons why people launder money. These include:

·         Hiding wealth: criminals can hide illegally accumulated wealth to avoid its seizure by authorities;

·         Avoiding prosecution: criminals can avoid prosecution by distancing themselves from the illegal funds;

·         Evading taxes: criminals can evade taxes that would be imposed on earnings from the funds;

·     Increasing profits: criminals can increase profits by reinvesting the illegal funds in businesses;

·         Becoming legitimate: criminals can use the laundered funds to build up a business and provide legitimacy to this business.


Flamboyant life style, Relationships with highly placed  people etc.. are by-products manifested in the society affecting social life adversely. The underpinning of any financial interaction should to be based upon ethical behavior and mutual respect. Illegal financial flows uproots the system itself. Some of the common factors that facilitate  money laundering include the following:

  • Vulnerabilities in (or complete lack of) regulatory frameworks and enforcement mechanisms
  • Fragmented and inconsistent AML regulations and standards across jurisdictions
  • Globalization and the ease of cross-border transactions
  • High levels of corruption and lack of transparency in some jurisdictions
  • Inadequate resources and capacity of law enforcement agencies to investigate and prosecute money laundering cases
  • Insufficient international cooperation and coordination among law enforcement agencies
  • Inadequate awareness and understanding of the risks of money laundering among businesses and individuals

When inherent attractions meet facilitating factors, money laundering takes place. The Financial Action Task Force, also known by its French name, Groupe d'action financière, is an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies to combat money laundering and to maintain certain interest. In 2001, its mandate was expanded to include terrorism financing.

Some anti-money laundering controls include Know Your Customers, Software filtering, and implementing holding periods.


Happy reading,


Those who read this, also read:

1. Impacts of Money Laundering


Formerly Faculty for Finance & Associate Dean, IBS-Kochi MBA (Banking & Finance – CUSAT);CFA. Accredited Management Teacher from CME of AIMA, Delhi has been in Management Education from 1988. Exposure is in the field of Mutual Funds, Market Research, Project Report preparation & evaluation, Advertising & NGO Activities. This Chief Manager, UTI Asset Management Co Pvt. Ltd(1992-2003), Mumbai. Undergone training in Case Study method of teaching under Mr. Trevor Williams and Mr. Scott M Andrews conducted by the ECCH, UK . Published Books & Book Review, Series of academic articles and maintains a column on MFs under "Fund scan" in Business Manorama since January 2007,Contributes "Portfolio Doctor" column for 'Sampadyam' a wealth mgt publication in Malayalam from manorama group since February 2007, Listed her case studies at asiacase.com.Presented papers in national & international conferences on Mutual Funds. Faculty Member @ ASIET, Kalady from 2010 to June 2019. Dean @ SNGIST, N Paravur, Ernakulam from Sep 2019 -Jan 2021, I continue my efforts to spread the knowledge in area of Finance and contribute to Management Education

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