Sample Essay on Money Laundering on the Economy

While it might be difficult to quantify the effects of money laundering, it is clear that it impacts a countrys economy in a massive way. Money laundering impairs development of legit businesses through provision of supply of products at a price that is way below the cost of production.

Precisely for this reason, it becomes difficult if not impossible for the legit activities to competently compete. Criminals also turn to turn ventures which were productive into ineffective and sterile ones so they can find ways to launder funds and decrease the economic productivity.

What is more, money laundering also causes unpredictable change in the demand of money as well as volatility of exchange rates and capital flows. Financial institutions which are key to the growth of the economy are the worst hit by money laundering as production is reduced in the real sector by corruption, encouragement of crime and diversion of resources.

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The most impact is felt by the private sector since money launderers use front companies which in turn co-mingle the illicit activity funds with the legit funds. This in turn hides the gains that have been accrued as a result of crime or ill motives. Often, these front companies will offer products at below market prices than what manufacturers use to produce the goods.

As such, such companies get a competitive edge over other legit firms which draw capital funds through financial markets. In turn this makes it impossible for majority of legit businesses to compete against these front companies which subsidize funding. Consequently the private sector is crowded by these criminal organizations.

Management principles used by these criminal organizations are also not in line with the traditional market principals upheld by legit businesses and this further causes negative macroeconomic effects. Tax revenue is also significantly reduced as a result of money laundering since it then becomes difficult if not impossible for governments to raise and collect revenue from transactions that are related and which take place in an economy that is hidden underground.

What is more, there are criminal organizations which through money laundering turn enterprises that are productive into investments that are sterile in order to launder illicit proceeds. In such instances, they fail to profit maximize the enterprises to suit the demands of the consumer. In addition to this, it also facilitates increase of corruption and crime especially within economies that are still developing which hinders or antithesis sustainability of economic growth.

Countries should come up with anti-money laundering policies which will ensure that economic growth does not become stunted as a result of money laundering. In addition to this, they should also strengthen financial sectors in order to curb the practice and grow the economies.

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