What Is Money Laundering?
Money laundering is the illegal process of making large amounts of money generated by criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. The money from the criminal activity is considered dirty, and the process “launders” it to make it look clean.
Money laundering is a serious financial crime that is employed by white-collar and street-level criminals alike.1 Most financial companies today have anti-money-laundering (AML) policies in place to detect and prevent this activity.2
- Money laundering is the illegal process of making “dirty” money appear legitimate instead of ill-gotten.
- Criminals use a wide variety of money-laundering techniques to make illegally obtained funds appear clean.
- Online banking and cryptocurrencies have made it easier for criminals to transfer and withdraw money without detection.
- The prevention of money laundering has become an international effort and now includes terrorist funding among its targets.
- The financial industry also has its own set of strict anti-money laundering (AML) measures in place.
How Money Laundering Works
Money laundering is essential for criminal organizations that wish to use illegally obtained money effectively. Dealing in large amounts of illegal cash is inefficient and dangerous. Criminals need a way to deposit the money in legitimate financial institutions, yet they can only do so if it appears to come from legitimate sources.
The process of laundering money typically involves three steps: placement, layering, and integration.
- Placement surreptitiously injects the “dirty money” into the legitimate financial system.
- Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
- In the final step, integration, the now-laundered money is withdrawn from the legitimate account to be used for whatever purposes the criminals have in mind for it.