Money Laundering: A Historical Perspective

June 30, 2016
Money Laundering

by Zenobia Sethna

The amount of money laundered globally in one year is estimated at 2-5% of the global GDP, or between a staggering USD 800 billion – USD 2 trillion, according to United Nations Office on Drugs and Crime. But how did the term “money laundering” come about? Yes, there is money passing around spuriously but why ‘laundering’?

The expression ‘Money Laundering’ is of a fairly recent origin, with the term first appearing in the US in a newspaper in 1973.

The term “money laundering” owes its existence to laundromats in the United States that were owned by the Mafia. The Mafia, back in those days, was earning massive sums in cash from extortion, prostitution, gambling and bootleg liquor and needed to show a genuine source for their earn1ings. One of the ways in which they were did this was by purchasing outwardly legitimate businesses and mixing their illegal earnings with the legitimate earnings received from these businesses. The gangsters honed in on Laundromats because they were cash-based businesses. This was, no doubt, an advantage to thugs like Al Capone who purchased them. Al Capone was famously prosecuted, though not for money laundering but for tax evasion. However, the conviction of Al Capone may have kicked off the nascent money laundering business and taken it to the new heights we see these days.

But other historians differ from this version. According to them, money laundering is called so, because it perfectly describes how dirty money is put through a cycle of transactions, or washed, so that it comes out at the other end as legal or clean money. In other words, the source of illegally obtained funds is disguised through a series of transfers and deals, such that those same funds can eventually be made to appear as legitimately earned income.
Imarticus Learning is organising it’sEDP-Anti Money Laundering first Executive Development Workshop on Industry Perspective on Anti-money Laundering on 28th and 29th July in Bangalore and 4th and 5th August in Gurugram.

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