Nakumatt And Money Laundering Allegations: What Is Money Laundering?

Money laundering or “cleaning of money is the practice of engaging in specific financial transactions whose sole objective is to conceal the true source and/or destination of money. Often this is due to the illegal source of the cash and or for the purposes of tax evasion.

It is said that money laundering was invented or initially brought to great prominence during the prohibition in the United States when alcohol selling and drinking were a criminal offence. Many methods were created for disguising the origins of money (usually huge sums) generated from the sale of illegal alcoholic beverages. The art was perfected by drug dealers who started dominating the underworld or so called underworld economy, in the 1950s.

Experts often describe money laundering as occurring in three stages, namely placement, layering and integration. Placement, as the terms suggests is the initial point of entry of the illegal funds, while layering refers to the creation of dummy companies and shell companies as well as the creation of complex networks of transactions whose aim is to hide the initial entry source of the funds. Integration is the entry of the funds into the legitimate economy for later withdrawal.

Let us take an example of a person making huge sums of money dealing in drugs or some other illegal business. One way of keeping his transactions secret is to give his money to an individual who is already legitimately taking in and banking large amounts of money daily. This individual (in this case an intermediary) would then deposit the funds in their account without raising any suspicion and naturally take a handsome commission for their trouble. They will then write out a cheque to the drug trafficker who can then deposit the money in their account without raising any suspicion. This will work perfectly for a one-off deal but for repeated transactions, the cheques will create a dangerous paper trail that can later raise suspicion. You can now understand the reasons for forming countless shell companies and dummy corporations who will pretend to be suppliers to the said company or business “cleaning the money”.

A politician wanting to hide the real source of his funding can also launder money by setting up trusts and non-profit organizations to move money between the sources he wants to hide, the trusted companies and himself.

During the Watergate scandal former President Richard Nixon’s “Committee to Re-Elect The President” moved illegal campaign contributions to neighbouring Mexico and then channeled back the money through a US based company receiving payments from out of the country.