Worst Six Economic and Social Consequences of Money Laundering
Advancement in technology has primarily two facets that are completely opposite in nature, the good and the bad. While it has made life simpler; but surrounding it many complex problems and crimes have also started. The financial sector of the 21st century has also become heavily dependent on the modern technology. Now it is possible to transfer money from your account using a computer or a mobile phone. However, along with the legitimate dealings, many illicit transactions are also taking place using through these platforms for supporting unlawful activities. The mastermind behind the criminal activities be it drug trafficking or terrorism or frauds, needs to cover up the source from where they are getting the funds and individuals who are supporting them. So they need to launder their money to evade detection.
However, if this evil practice is not detected in the right time and severe steps are not taken in the right time it poses a serious threat to a nation economy, the financial institutions present in the nation as well as currency rates. Thus it poses a serious threat to global as well as national security. Here are some ways by which can affect the economic and social fabric of the developed as well as emerging nations around the world.
The Economic Consequences
Economic Distortion
Firstly, a money launderer might use a front enterprise to legalize his illicit funds. He can provide services or products at the front enterprise at a lower cost and thus give a tough competition to the rightful companies. As the front enterprises grow, the launderer gets more opportunity to invest the illicit funds and create economic distortion by capturing a large portion of the sector in a small span of time. The honest entrepreneurs suffer as a result of such activities. In the long run it might lead to monopolistic control.
Economic Instability
Secondly, money launderers have excess of funds which they want to invest in real estate, stock market or any other ways, not with the intention of earning profit but protecting and legalizing their funds. Most often, they invest on sectors which are not important for the growth of the economy of a nation. Once the purpose of the launderers is achieved, they tend to abandon the sector thereby causing the collapse of the entire sector of economy as a whole.
Impairs Economic Development
Thirdly, the financial organizations of a nation aid the economic growth of a nation. Money laundering has far reaching negative impact on the economy of a nation, as in such cases most of the funds will be invested on funding criminal activities. Winning over the trust of the clients is imperative for the growth of a sound financial sector. However, the influx of unlawful money would affect the interest of the customers and they would take interest in investing their money leading to the closing down of important financial institutions.
The Social Consequences
Criminals Expand their Operation
Money launderings help the criminals to expand their criminal activities as they can successfully launder the illicit money. Thus, implying more use of drugs, more frauds which will negatively impact the morale of the common people.
Transfer of Authority
If this heinous practice is not addressed at the earliest by the concerned authorities of the government, then it will gradually lead to the transfer of power from the government and people of a democratic nation to the criminals and mafias, and in the long term, they might capture the government.
Increased Expenses of Government
On the contrary, it increases the expense of the governments as they have to take serious measures for strict law enforcement. Moreover, spread of drug trafficking and smuggling would imply that people had to spend more in the health care sector.
Therefore, money laundering is a dynamic problem which is present in developing as well as established nations. However, the emerging nations are far more susceptible to the negative impacts of money laundering. Click here to know more about money laundering which is involved in many countries from all around the world and thus it is a global problem requiring worldwide cooperation for coming out of its clutches and stopping illegal activities.
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Category: Business Crime
