Quora Answer: Why is Money Laundering Bad for the Economy?

The following is my answer to a Quora question: “Why is money laundering bad for the economy?”

The purpose of money laundering is placing illicit funds into the economy under the guise of legitimacy.  Money laundering is not necessarily bad for the economy in the narrowest accounting sense.  Money enters circulation, GDP registers the transaction, and the funds make their way back into society.

The United Nations Office on Drugs and Crime estimates 2% to 5% of global GDP is laundered annually, between US$800 billion and US$2 trillion.  That is not additive economic activity.  It is capital entering the system specifically to disguise its origin, and disguised capital behaves differently from genuine investment.  UNODC’s own findings show laundered funds concentrated in real estate consistently inflate property prices beyond what local income levels support, and developing economies absorb the worst of it: laundering-linked outflows cost these economies an estimated 3.7% of GDP annually, roughly US$88.6 billion, while reducing GDP growth by 1.5 to 2.5 percentage points a year.  Nigeria’s economy contracted 1.8% from money laundering connected to oil-sector fraud.  Money laundering does not grow an economy.  It reroutes capacity toward asset bubbles and away from productive investment.

Why Money Laundering is Bad for Society, Even Where the GDP Effect is Neutral

Money laundering is bad for society because it directly incentivises criminal enterprise.  Funds laundered from tax avoidance deprive the government of revenue, even where the broader economy technically benefits from the spending.  Funds laundered through organised crime fund further organised crime, a self-reinforcing cycle that inflicts direct harm on the society absorbing it.  UNODC data shows 30% to 50% of public contracts in corruption-affected regions contain corrupt entries, actively discouraging the legitimate capital investment a healthy economy needs.

TD Bank’s own case, resolved in October 2024, illustrates the mechanism at institutional scale.  The bank pleaded guilty to conspiracy to commit money laundering, becoming the largest bank in American history to admit Bank Secrecy Act failures, after leaving 92% of transaction volume, roughly US$18.3 trillion, unmonitored between 2018 and 2024.  That failure allowed three separate criminal networks to launder over US$600 million through the bank, including US$39 million funnelled to Colombia with the active cooperation of five TD Bank employees.  Attorney General Merrick Brian Garland summarised the outcome directly: “By making its services convenient for criminals, TD Bank became one.”  The bank paid over US$3 billion in penalties.  No amount of that laundered US$600 million registered as economic growth.  It registered as fuel for the criminal organisations that generated it in the first place.

The Concentration Problem

Money laundering also exists to disguise the source of funds, a purpose more dangerous than tax evasion alone.  It allows state and non-state actors to fund low-intensity conflict and terrorism, and it functions as a direct mechanism for corrupting public officials and institutions.  The economy grows on paper from the resulting influx of capital.  The ordinary citizen sees none of that growth, because the wealth concentrates at the upper strata of society positioned to launder it in the first place, and every corrupted public contract, every inflated property price, and every captured official represents a cost the rest of society absorbs without ever sharing in the gain.

---

Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code