Money laundering occurs when people engage in criminal transactions with money derived from illegal activity for the purposes of making it look like the funds were obtained through a legitimate and lawful source. You might ask why criminals need to launder their money, and your question is a good one. However, the answer becomes obvious after examining the following example:
Fred is your typical marijuana dealer and as such, he has a number of problems. Besides the fear of going to prison or being robbed by his clients, Fred has large amounts of cash at his disposal. However, because this cash has been obtained by his illegal activities, i.e. selling marijuana, he has difficulty buying big ticket items like a home or a car. Why? Because if Fred – a man with seemingly no assets and no job – walked into a car dealership and plopped down $60,000.00 in cash to buy an Escalade, he knows that law enforcement officials will start investigating. And Fred does not want that kind of attention. So, what is Fred to do so that he can buy his shiny new car?
Launder it. Or, more specifically, clean his dirty money by integrating it into a legitimate business like a bar, restaurant, construction company, or grocery store. That’s right, Fred should take a page from the stories of mobsters and buy into a business that has employees, pays taxes, and receives large cash payments frequently.
Saul Goodman, the often-funny but rarely honest lawyer on Breaking Bad has a panache for explaining complex legal concepts in simple terms to his criminal clients. In the scene below, Saul explains to Jesse Pinkman why he needs to either buy or buy into a legitimate business to conceal the cash he has made by manufacturing and selling methamphetamine.
Saul’s explanation of money laundering is on point, but also sets forth a scheme that violates 18 U.S.C. §1956 and could land both him and Jesse in federal prison for a long time.
Banks and other financial institutions have numerous and stringent reporting requirements for large cash deposits and/or transfers. In fact, the institutions themselves can face penalties for failing to report this kind of activity. Additionally, while the activity in which illegal funds are derived is criminal, money laundering involves the U.S. Treasury, also known as the I.R.S., three letters that should scare anyone thinking of laundering money – according to Saul Goodman – as not reporting money made is tax fraud.