What is money laundering?

What is money laundering?
What is money laundering?

Money laundering can be a serious offense. That’s why it is important for people to have a clear understanding on what is money laundering. Then you will be able to refrain from facing the negative effects that it would lead you to.

What is money laundering?

Money laundering is a generic term. It is representing the process, where people tend to disguise the original ownership of money. If you pretend that you are not the owner of money, you will be contributing towards money laundering. The main reason why people venture into money laundering is to keep themselves away from paying taxes.

How people use online money transfers for money laundering?

Everyone is talking about making money online and it would not be only you, who has been thinking about it, dreaming about it and even talking to friends to get a tip or two of how to go about it. You know that there is a lot of money online which can be earned without leaving the confines of your home, not commuting during the terribly busy hours and doing it in your own time.

You could have more time to spend with your family and friends and some cash to splash around too, because from what you have heard there is money online which others like you are earning. You would be your own boss and would not need to grovel before your superiors to get that increment you were entitled to half a year ago. Taking leave when you want and leaving on that cruise which you always wanted would be only dreams till you really take the bull by its horns and do what you always wanted to.

How you would get about doing what you have always dreamed of would be the biggest challenge because you would not know where to begin and leaning from those who are already doing it would not be an easy task as they are too busy to teach you. No matter how you earn money, you will need to make sure that you are properly reporting them to IRS. Otherwise, you will be committing money laundering.

You could have just escaped from the jaws of that Ponzi scheme which one of your acquaintances would have to sell you with some sweet talking, which you realized on time. Whenever you started researching and got close to doing something to earn money online you found it to be a scam or a fraud and of them there are many online and if you get on with the wrong people it would be nothing but tears for you.

Understanding the tax rules for international money transfers

In order to keep yourself away from money laundering, you will need to have a complete understanding about the tax rules associated with international money transfers. It needs to be noted that international money transfer tax rules are complicated and contain various pitfalls where the uninitiated could fall into, thereby causing unnecessary hardship. This needs to be kept in mind because, even though the wiring of money is convenient and secure, the applicable tax rules are complex. This is because huge amounts of cash and a lot of sensitive information are involved daily in this process.

The primary aim of regulatory authorities is to monitor and prevent any type of money laundering, illegal transfer of money or any tax avoidance schemes. Rules in place to curb the transfer of laundered money to untraceable offshore accounts could vary from basic, everyday rules to more stringent and complex money transfer rules. For example, a rule that many US citizens and permanent residents would encounter is that if they have a foreign bank account, then they are obliged to file a FBAR form with the IRS in every year in which any of their accounts has more than $10,000. This is an example of a basic way that the IRS attempts to keep a track of significant amounts of money kept in offshore accounts by US citizens and residents. 

The rules enforced on banks and money transfer companies are becoming increasingly stringent due to terrorist funding and money laundering by drug cartels where famous, established banks were found to be transferring funds to such illegal organizations. This has led to the imposition of laws like the Patriot Act which allows the USA to track money, which could be suspected as being part of money laundering activities. In this broader context, users need to be mindful of the fact that such money transfer rules, and tax rules could cause delays or cancellations of their transfers.

With regard to the applicable tax rules, the main concern with sending money abroad is whether a gift tax applies. The basic applicable principal is that when the sender is sending more than a particular predefined amount to the same individual within the same tax year, then that sender would have to file a tax return on that transferred amount with their tax body. From 2013, onwards, in the US for example, US citizens who transfer money abroad can transfer up to an upper limit of $14,000 as gifts without incurring any gift taxes.

However, once the transferor exceeds that set ceiling, he could be subject to be levied a gift tax for the amount over $14,000. The UK also has similar arrangements and the upper limit on what they call the inheritance tax is GBP 3000 for 2012 and 2013. On the contrary, Canada does not have any tax on senders for monetary gifts sent.

Furthermore, the tax obligations for transferors could very much depend on who is receiving this money transfer from them. For example, in the UK and the US, if the recipient of such a transfer is a child, then no gift tax or inheritance tax would apply as the money is taken as meant to be used for the welfare of the minor. However, in a situation where the child is not a dependent of the sender, then the applicable taxes come into play.

Moreover, if the money transferred out is for the use of the family of the sender, then in normal circumstances, a gift or inheritance tax would apply in the US and the UK. However, a provision exists which allows the sender to divide the total amount transferred out, by the number of people that he is supporting, whereby possibly avoiding this tax. Such a possibility only comes into the equation, only if the splitting of that transaction is justified through the presentation of personal identification when making the transfer.

Final words

Always be aware of what is money laundering and understand situations associated with it. Then you can try to keep your hands away from them. Otherwise, you will have to deal with numerous frustrating situations and penalties.