What is money laundering?
Money laundering is the illicit process of disguising the origins of large sums of money obtained through criminal activities like drug trafficking or terrorist financing. By “cleaning” the money, launderers make it appear to have been earned through legal means.
This serious financial crime is not limited to any particular class of criminals—it’s practiced by both white-collar professionals and street-level offenders. To combat this pervasive threat, most financial institutions have implemented anti-money laundering (AML) policies. These measures are essential for detecting and preventing money laundering activities, ensuring the integrity of the financial system.
How does it work?
Money laundering serves as a vital tool for criminal enterprises aiming to effectively utilize illegally acquired funds. Managing large sums of illicit cash poses both inefficiencies and risks. Criminal organizations require a method to deposit their funds into legitimate financial institutions, but they can only do so if the money appears to stem from lawful sources.
The process of laundering money typically unfolds in three stages: placement, layering, and integration.
- Placement involves discretely infiltrating the “dirty money” into the legitimate financial system.
- Layering involves concealing the money’s origin through a complex web of transactions and accounting maneuvers.
- Finally, in the integration stage, the laundered funds are withdrawn from the legitimate account, ready to be utilized for the criminals’ intended purposes.
Source: Money Laundering: What It Is and How to Prevent It (investopedia.com)
