Money laundering is the process of concealing the source of money obtained by illicit means. What does it means in simple terms is, it’s the act of making money that comes from Source A, look like it comes from Source B. In most cases criminals are trying to disguise the origins of money obtained through illegal activities so it looks like it was obtained from legal sources. Money laundering happens in basic three paces:
1) Placement - Cash is introduced into the financial system by some means
2) Laying - Involves carrying out complex financial transactions in order to camouflage the illegal source
3) Integration - Entails acquiring wealth generated from the transactions of the illicit funds
Making money is an aim of most of Criminal acts. It affects both directly and indirectly. So most organized criminal groups make sure to launder this money to prevent it being associated with criminal activities. Cash is what those Criminal organizations get last and it’s a considerable risk to Criminals. Cash is also bulky and cumbersome to handle in large quantities. When cash enters the legitimate economy, it is particularly vulnerable to identification and law enforcement intervention.
To avoid this, those organizations buy assets, or else they change locations including going abroad. Also use that cash to try and introduce it into the legitimate economy through businesses with a high cash turnover.
This is what has happened with British banking giant HSBC recently as the case ended up HSBC Holdings PLC agreed to pay a record $1.92 billion in fines to U.S. authorities. The bank violated federal laws by laundering money from Mexican drug trafficking and processing banned transactions on behalf of Iran, Libya, Sudan and Burma.
In the end, HSBC Holdings HSBC Holdings PLC admitted for having poor money laundering controls and apologized.
"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes" HSBC Chief Executive Stuart Gulliver said.
Reference
BBC: HSBC to pay $1.9bn in US money laundering penalties http://www.bbc.co.uk/news/business-20673466
BBC: HSBC money laundering report: Key findings http://www.bbc.co.uk/news/business-18880269
USA Today: HSBC will pay $1.9 billion for money laundering http://www.usatoday.com/story/money/business/2012/12/11/hsbc-laundering-probe/1760351/
SOCA: Serious Organized Crime Agency http://www.soca.gov.uk/threats/money-laundering
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