It can be easy to understand the impact of money laundering on the initial victims – those who lost funds as a result of the predicate crime – but there can be an even deeper, more lasting effect on society as a whole.

While some fear that Anti-Money Laundering (AML) efforts can have a damaging effect on commerce, especially in developing nations, let us take a look at a number of ways money laundering hurts us all. We’ll focus on emerging nations as the impact there can be magnified to extreme proportions.

The first, and most obvious, impact is the increase in corruption and crime. In many jurisdictions that are havens for successful laundering one often finds lax concern on the part of government and / or regulators – few predicate crimes, little or no reporting, enforcement, penalties or provisions to confiscate illicit funds, etc. Those conditions can then foster bribery of government and bank officials, lawyers, accountants and others. Once that beachhead is established, it is not long before bribery turns eyes away from other, even violent, crime.

The second impact (valid in any jurisdiction) is on legitimate businesses. Where a launderer uses a front company to hide his illegal funds, it is possible, even probable, that the operations of the front company may be subsidized. This can enable the front company to sell products at or below cost, driving their legitimate competition out and opening the door for expansion by the front company. As the front company grows, it provides a greater opportunity for the launderer to move even more illicit funds. In a developing country, it would not take long for the criminal / launderer to gain control of an entire industry.

However, it must be emphasized that the launderer does not share the same objectives of legitimate business owners, who strive to maximize their returns through the profitable, ongoing operations of their enterprises. The launderer’s primary concern is not his return, but the successful cloaking of the origin and ownership of the funds he controls.

It is in this disregard for normal business practices that leads to another area of concern – economic distortion. Launderers often invest their money in assets or activities that are not economically beneficial to the countries where the funds are located. For example, right now, in a world where real estate prices have dropped sharply in the last few years due to the mortgage bubble bursting and other global pressures, property prices in Nairobi, Kenya are soaring – increasing 2-3 times in the last 5 years. And is it any wonder? With lax money laundering laws and a 500-mile shared border with Somalia, it is easy to guess where much of the Somali piracy ransom money has gone. This has taken home ownership right out of the hands of many hard-working Kenyans.

Such distortions can, in turn, lead to governments misinterpreting economic data. Without seeing the true economic trends of their country, leadership is prone to make decisions that are not in the best interest of their country.

When conditions change in one of these locales, a launderer will get his money out as quickly as possible, often with little or no regard to any losses they may sustain. In an economy that has been driven or sustained by laundered money, the ripple effects throughout the community when this "flight capital" suddenly disappears can reach tsunamic proportions. A good launderer is not going to expose just his own money when he can use that of financial institutions and other investors. When the flight capital goes, values plummet, loans default, and banks collapse. Investigations and lawsuits ensue. The country’s reputation is tarnished at best. Legitimate investment goes elsewhere. In the end, even the government may not survive.

There are other risks as well, but those are reserved for the more serious students of money laundering and for another day.