Money laundering refers to the process of making illegally-gained proceeds (i.e., "dirty money") appear legal (i.e., "clean") by passing it through a complex sequence of banking transfers or commercial transactions. While it is crucial to note that not all banking institutions engage in money laundering, those that do can have detrimental effects on their own country in several ways: Economic Distortion: Money laundering can distort the economic system by artificially inflating the demand for goods and services, leading to price distortions, like housing markets in English speaking Countries. This can result in misallocation of resources, as economic decisions are based on distorted market signals. Weakening Financial Institutions: Money laundering often involves the use of financial institutions to legitimize illicit funds. When banks are unwittingly or knowingly involved, it can undermine the integrity of the financial sector. This erosion of trust can lead to a loss of confidence in the banking system, potentially causing a financial crisis. Impact on Exchange Rates: Large-scale money laundering activities can affect exchange rates. The influx of illicit funds can artificially increase the value of a country's currency, leading to a loss of competitiveness in international trade. This, in turn, can harm the country's export-oriented industries. Erosion of Rule of Law: Money laundering often involves corruption and undermines the rule of law. When financial institutions are complicit in these activities, it erodes the foundations of a fair and just society. This erosion can lead to political instability and a breakdown of social order. Resource Drain: Money laundering activities can divert resources away from productive and legal sectors of the economy. Illicit funds are often invested in activities such as real estate, luxury goods, or other non-productive assets, depriving the economy of investments that could drive sustainable development. Increased Crime Rates: Money laundering is often associated with various forms of organized crime, including drug trafficking, terrorism, and corruption. These criminal activities can lead to increased crime rates within a country, threatening the safety and well-being of its citizens. Global Repercussions: Money laundering is often a transnational crime, and when a country's financial institutions are involved, it can lead to strained international relations. This may result in sanctions or other measures imposed by the international community, further harming the country's economic prospects. To counter these risks, countries and international organizations work together to implement anti-money laundering (AML) and combating the financing of terrorism (CFT) measures. These measures aim to enhance transparency in financial transactions, strengthen regulatory frameworks, and promote international cooperation to prevent and combat money laundering.