Money laundering in one of the most debated topics in our country right now. Cobra post revelations regarding involvement of the whole banking sector in laundering activities has pressurised the regulator to implement stringent rules and regulations to curb these practices. Money Laundering in a global problem and has serious socioeconomic impact. Let's try to figure out what money laundering is and why it is a global problem.
Economic impact of money laundering
As regulators internationally are so worried about laundering, it must have far reaching effect on the economy. No tax is paid on the laundered money and it's made to enter the legitimate system but there must be someone who is paying the cost. It's basically the whole country which bears the cost. Shell companies which are promoted for laundering process go bankrupt when launderers are caught. The invested money in these companies is wasted without any economic profitability in case of bankruptcy. Banks that finance such companies too, are in a financial mess post the revelation.
Money laundering also creates false demand and supply scenarios in sectors they operate leading to skewed economic policy announcements at times which are bound to fail once false demand dwindles. Money laundering has some social effects leading to increase in corruption, crimes and frauds. People who are not involved see money launderer racing ahead which motivates them to choose this path.
About the Author:
The author Bimlesh Singh is a financial advisor. He holds a Bachelor's degree from IIT and is a CFA Level 2 candidate. He can be reached at firstname.lastname@example.org