How does money laundering affect the illegal drug economy?

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Money laundering, where successful, stimulates and encourages the illegal drug economy. This is true of all illegal operations: fraud, embezzlement, prostitution, and gambling are all supported and made profitable by money laundering. Undetected money laundering, or money laundering against which no official action can be taken, encourages criminal activity, because...

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Money laundering, where successful, stimulates and encourages the illegal drug economy. This is true of all illegal operations: fraud, embezzlement, prostitution, and gambling are all supported and made profitable by money laundering. Undetected money laundering, or money laundering against which no official action can be taken, encourages criminal activity, because it allows the profits to be spent without repercussions, subtracting one vital layer of danger and difficulty from the criminal enterprise.

Money laundering is expensive. The level of complexity involved necessitates expert personnel and makes money laundering a significant additional expense in the business of drug trafficking. This means that, in jurisdictions where law enforcement is particularly rigorous, the additional expense and trouble of money laundering will, at the very least, be a strong deterrent to concentrating operations in this jurisdiction. However, this expense is often mitigated by international drug cartels, which can divide their operations between jurisdictions, laundering money in developing countries where the financial regulations are less sophisticated and complete. These developing economies, less than averagely robust in the first place, can be significantly distorted by the influx of criminal funds. If the state acquires a reputation as a haven for money laundering, legitimate investors may withdraw their funds, concerned at the prospect of losing it when banks and other institutions are investigated or when sanctions are taken against the country. While it has the simple effect of encouraging the illegal drug economy, money laundering also has a considerably more complex and varied effect on the economy as a whole.

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