Money laundering is detrimental to a country, although this is quite difficult to quantify. In fact, there are many negative risks and effects from money laundering, and governments are well-advised to take action against it to protect their economies, businesses, and societies.
First of all, money launderers like to conduct their operations in growing economies. This is because the governments of these countries are usually so busy to dealing with handling all the growing industries, businesses, etc. that they oftentimes make fighting money laundering a lower priority. But let’s not sugar-coat it, it’s a deficiency and a weakness.
This weakness is exploited by money launderers for criminal purposes and they move their networks and operations to these countries. In turn, this will then have a negative effect on the integrity of these economies, including the financial sector. Foreign investments and foreign businesses will turn very careful and eventually even reject setting up their businesses in these economies and investment funds will be funneled elsewhere.
Once money launderers have infiltrated an economy and the economy has a reputation to have only lax money laundering controls in place, it will be very hard to create a business-friendly environment.
Money laundering can also cause unpredictable changes in money demand as well as great volatility in international capital flows and prices. To understand this, you have to look no further than at the real estate sector. Let’s consider London real estate. Data shows London’s property boom is a money laundering horror and that criminals are laundering billions in London real estate. This is not limited to London, but happens in all metropolitan areas around the world from Rio, to New York, to Tokyo.
Criminals love luxury real estate, and governments around the world are scrambling to find ways to stop them from scooping up addresses in their most renowned cities. Money laundering through real estate is a growing, worldwide problem, estimated to have reached 1.6 trillion US-Dollar per year and this makes it virtually impossible for the cities’ residents to afford property.
Money laundering impairs the development of the legitimate private sector. Money launderers have different business economies and can offer their products below production costs. It sounds ridiculous, but they don’t have to make a profit with their products and earn a margin.
Their primary goal is to launder to the funds as they have already made a cut with criminal activity. This makes it very difficult for legitimate activities to compete, eventually forcing them to go out of business.
Criminals may also purchase businesses, which were initially productive, and turn them into partners in crime to launder their funds. This leads to a decrease in the productivity of these businesses, and, at scale, to a decrease in the overall productivity of the economy.
Money laundering basically rewards corruption and crime and successful money laundering damages the integrity of the entire society, undermines democracy and the rule of the law.
If money laundering is not dealt with effectively, there will be negative social and political effects.
Organized crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and entire governments.
The economic and political influence of criminal organizations can weaken the social fabric, collective ethical standards, and ultimately the democratic institutions of society.
Generally speaking, money Laundering enables criminal activity to continue