Money laundering is the illegal process of disguising the origins of money obtained through criminal activities—such as drug trafficking, organized crime, or financing terrorism—by passing it through a complex sequence of banking transfers or commercial transactions. The end goal is to make the illicit funds appear legitimate in the eyes of law enforcement and financial authorities.
This crime has evolved significantly over the years, with increasingly sophisticated methods being employed. As a result, it has become a global issue that governments and regulatory agencies are actively trying to combat.
Definitions of Money Laundering Across Legal Systems
While the essence of money laundering remains the same—concealing the criminal origin of money—its legal definition can vary from country to country.
French Penal Code
In France, money laundering is defined as:
“Any act of assisting by any means in giving a false appearance of legality to the origin of property or income derived directly or indirectly from a crime or offense.”
Iraqi Anti-Money Laundering Law (2004)
Iraq’s legislation defines it as:
“Anyone who conducts or attempts to conduct a financial transaction that involves proceeds of some form of unlawful activity, knowing that the property involved represents the proceeds of some form of unlawful activity.”
Egyptian Anti-Money Laundering Law
According to Egypt’s legal framework, money laundering includes:
“Any act involving acquiring, holding, managing, investing, or transferring funds derived from criminal activity, or altering their value to hide their true source.”
Jordanian Law on Anti-Money Laundering and Terrorist Financing
Jordan defines it as:
“Any act of acquiring, possessing, disposing, transferring, managing, or concealing money with the intent to obscure its origin, movement, ownership, or to hinder the identification of the person who committed the underlying crime.”
Council of Europe Definition
The Council of Europe describes money laundering as:
“Changing the form of money, transferring it, or investing it when the source of the funds is illegal, aiming to disguise the unlawful origin and avoid legal consequences.”
Historical Origins of Money Laundering
The concept of money laundering dates back to the early 1920s in the United States. Criminal organizations made large sums of money through illegal gambling, alcohol sales during Prohibition, and other covert activities. To hide the origin of their earnings, they funneled it through legitimate businesses such as laundromats—hence the term “money laundering.”
In 1986, the U.S. officially criminalized money laundering, establishing specific legal penalties for those found guilty of this offense.
Economic Impact of Money Laundering
Money laundering has serious implications for both national and global economies, including:
1. Distortion of Investment Climate
Illegally laundered money creates unfair competition for legitimate investors. This discourages foreign and domestic investment, reduces capital flow, affects interest rates, and destabilizes currency exchange rates. It can also shake investor confidence and cause distrust in financial institutions and markets.
2. Misleading Economic Indicators
When untraceable or criminal funds are integrated into the economy, they distort key statistics such as GDP and national income. This can lead to poor or misleading policy decisions and undermine both national and international development planning.
3. Misallocation of Savings and Investments
Resources that should support productive investment are diverted into the shadow economy. This misrepresents consumer behavior and leads to inefficient allocation of resources, weakening overall economic performance.
References
- Financial Action Task Force (FATF) – What Is Money Laundering?
https://www.fatf-gafi.org/en/faq/moneylaundering.html - United Nations Office on Drugs and Crime (UNODC) – Money Laundering Overview
https://www.unodc.org/unodc/en/money-laundering/introduction.html - U.S. Department of the Treasury – History of Anti-Money Laundering Laws
https://home.treasury.gov/policy-issues/financial-sanctions/aml-history - World Bank – Money Laundering and Economic Consequences
https://www.worldbank.org/en/topic/financialsector/brief/anti-money-laundering-and-combating-the-financing-of-terrorism - Council of Europe – Anti-Money Laundering Policies
https://www.coe.int/en/web/moneyval
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