Money laundering is the illegal process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to be earned legitimately. It typically involves three steps: placement (introducing the illicit money into the financial system), layering (concealing the source of the money through a series of transactions and bookkeeping tricks), and integration (the money is reintroduced into the economy as legitimate for use by the launderer). This process is designed to deceive the authorities and allow the criminal to use their ill-gotten gains without detection.
The Financial Action Task Force (FATF) has declared that there are three broad categories for the purpose of hiding illicit funds and introducing them into the formal economy. The first is via the use of financial institutions; the second is to physically smuggle bulk cash from one country or jurisdiction to another; and the third is the transfer of goods via trade.
John A. Cassara
In Simpler Terms
Let’s say a restaurant owner uses their business to launder money. On paper, the restaurant records more customers and sales than it actually serves. The extra revenue reported is actually dirty money from illegal activities. By depositing this money into the business’s bank accounts and paying taxes on it, the owner makes it appear as if the earnings are legitimate. When the laundered money is withdrawn, it’s disguised as genuine business income.
The term “money laundering” is said to have originated from the notorious American gangster Al Capone, who used laundromats to disguise his criminal earnings as legitimate business profits during the prohibition era. These laundromats served as the perfect front because they dealt heavily in cash, which is difficult to trace.
