Legal Definitions - Money Laundering

Money Laundering is the illegal process of making money obtained from criminal activities appear to have come from a legitimate source. The core purpose is to disguise the true origin, ownership, or destination of illicit funds, making them seem "clean" so they can be used without attracting suspicion from law enforcement or financial regulators. This typically involves a series of complex financial transactions designed to obscure the money's illicit past.

The process often involves three general stages:

• Placement: Introducing the illicit funds into the financial system.
• Layering: Conducting complex transactions to distance the money from its illegal source.
• Integration: Returning the "cleaned" money to the criminals in a way that makes it appear legitimate.

Here are some examples illustrating money laundering:

• Example 1: The Luxury Car Dealership

  A criminal organization generates substantial cash from illegal arms sales. To launder this money, they acquire a struggling luxury car dealership. Each month, they funnel a portion of their illicit cash into the dealership's accounts, falsely recording it as revenue from the sale of high-end vehicles that were never actually sold, or by inflating the prices of legitimate sales.

  How it illustrates money laundering: The cash from the illegal arms sales (illicit source) is "placed" into the legitimate financial system through the dealership's bank accounts. By fabricating sales records and mixing the dirty money with legitimate revenue, the criminals "layer" the funds, making it difficult to distinguish between legal and illegal income. Eventually, the money can be withdrawn or used by the criminals, appearing as legitimate profits from the car business (integration).

• Example 2: The Online Gaming Platform

  An individual involved in large-scale credit card fraud accumulates a significant amount of illegally obtained funds. They create an online gaming platform where players can deposit money to participate in games. The fraudster then uses the stolen funds to "play" on their own platform, losing money to other accounts they control.

  How it illustrates money laundering: The stolen funds (illicit source) are deposited into the gaming platform (placement). By moving the money through various player accounts and fabricated game outcomes, the fraudster "layers" the transactions, creating a complex digital trail that obscures the original source of the funds. When the money is eventually withdrawn from the "winning" accounts, it appears as legitimate earnings from online gaming (integration).

• Example 3: The International Import-Export Business

  A drug cartel in South America needs to move its illicit profits to Europe. They establish an import-export company that deals in legitimate goods, such as agricultural products. The cartel then uses this company to create fake invoices for goods that were never shipped or to drastically overvalue legitimate shipments.

  How it illustrates money laundering: The drug money (illicit source) is transferred internationally under the guise of payments for goods (placement). By using inflated invoices or payments for non-existent goods, the cartel "layers" the money through seemingly legitimate international trade transactions, making it appear as if the funds are legitimate business revenue. This complex cross-border movement of funds makes it challenging for authorities to trace the money back to its criminal origin, allowing the cartel to access "clean" funds in Europe (integration).