Money Laundering and National Security

Concealing or assisting in the concealment of illicit financial transactions. The term money laundering dates from the Prohibition Era of the 1920s, when large amounts of money generated from the illegal sale of alcohol had to be disguised as legitimate income. A common way of doing so was to purchase laundromats, which were cash businesses, and to hide illicit earnings by mixing them with legitimate profits.

Money laundering has become an important aspect of national security because terrorist organizations do not fund themselves like traditional governments. They support themselves instead through donations and illegal activities. The illegal arms and weapons trade is an important element in the maintenance and perpetuation of terrorist actions, and money laundering makes the source of these enterprises harder to trace. Money laundering also plays an important role in the illegal drug trade. The large profits generated by the sale of controlled substances have been used to finance terrorist activities, a problem referred to as narcoterrorism.

In 1996, the International Money Laundering Information Network (IMoLIN) was established under the auspices of the United Nations to develop a database to help detect illegal transactions. The United Nations has also launched the Global Programme Against Money Laundering. In addition, most nations devote federal law enforcement resources to combat money laundering. In the United States, both the Federal Bureau of Investigation (FBI) and the Treasury Department have money laundering task forces.

Besides facilitating the illicit sale of arms and drugs, money laundering has other adverse effects. It can hamper economic growth, particularly in the developing world where many illegal arms and drug dealers operate. Money laundering causes large amounts of cash to flow into and out of local economies, causing volatility in interest and exchange rates and contributing to inflation. In addition, money laundering activities in poor countries siphon billions of dollars per year away from legitimate projects that promote long-term development. This undermines political stability, which can create foreign security problems for the United States.