Anti-Money Laundering - AML

"News flash: you're not supposed to launder money. No, no one will come get you if you accidentally leave a $5 bill in the pocket of your jeans on laundry day. ""Laundering"" in the financial sense refers to the process of making dirty money clean in a more metaphoric way. If someone earns a buck doing something illegal, they need to be able to account for it in some legitimate fashion in order to spend it. Otherwise, the government is going to get wise.

There are lots of ways to launder (and yes, it's legal for us to tell you about them). In the good ol' days, the system was very straightforward: A bootlegger made a ton of money selling illegal alcohol but wanted to find another way to show that he had ""legitimately"" made the dough so the authorities wouldn't catch on. Well, a theater could show a cheap film but still be ""sold out."" So a bootlegger buys a movie theater and—voilà—the theater business shows itself to be hugely profitable with repeated ""sold out"" showings (even though there's never really more than a handful of people there)...and the bootlegging profits are now disguised as profits from the theater.

Today, money laundering usually involves fake accounts, fancy transactions faked on computer screens, and offshore accounts. The idea is the same: you create falsified documents in some way (called ""cooking the books"") to hide what you're doing from the IRS and the government. Anti-laundering laws are out there to catch people who do it and make sure their goose is cooked if they cook the books."