Effects of Money Laundering

  • Increased crime and corruption
  • Undermine the legitimate private sector by undercutting their prices Weakening financial institutions, possibly to the point of collapse (BCCI, Barings Bank for example).
  • Reputational risk of dealing with criminals, costs of investigations and fines
  • Loss of control over monetary policy in smaller countries, as the size of money laundering transactions causes measurement errors. This can cause currency exchange rate and interest rate fluctuations
  • Economic distortion, because money launderers are not interested in the economics of a transaction, they will put their money into schemes that offers privacy rather than economic benefit
  • Loss of tax revenue, as the funds are disguised, so the collection of taxes is more difficult. This increases the burden of taxation on normal tax payers
  • Risks to privatisation, as criminals can outbid legitimate purchasers, so key assets come under criminal control
  • Reputation risk for the country
  • Social costs e.g. treating drug addicts.

Next Topic: Money Laundering Techniques

Previous Topic: Classic Money Laundering Process

Get the Book & Pass First Time!

Includes all the study notes, the mock exam and detailed explainations of the answers

Get the AML Book & Pass First Time - Instant PDF Download