Money Laundering

Loading the player...

What is 'Money Laundering'

Money laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.

BREAKING DOWN 'Money Laundering'

There are three steps involved in the process of laundering money: placement, layering, and integration. Placement refers to the act of introducing "dirty money" (money obtained through illegitimate, criminal means) into the financial system in some way; "layering" is the act of concealing the source of that money by way of a series of complex transactions and bookkeeping gymnastics; and integration refers to the act of acquiring that money in purportedly legitimate means.

One of the more common ways that laundering takes place is when a criminal organization funnels their illegally obtained cash through a cash-based business, slightly inflating the daily take. These organizations are often referred to as "fronts." In the popular television series "Breaking Bad," the methamphetamine dealer funnels his earnings from selling illicit drugs through a series of car-wash businesses.

Other common forms of money laundering include smurfing, where a person breaks up large chunks of cash and deposits them over an extended period of time in a financial institution, or simply smuggles large amounts of cash across boarders to deposit them in offshore accounts where money laundering enforcement is less strict.

Enforcement

Some estimate the size of the problem of money laundering as being over $500 billion annually. Although the act of money laundering itself is a victimless white-collar crime it is often connected to serious and sometimes violent crime. Being able to stop money laundering is in effect, being able to stop the cash flows of international organized crime. 

In 1989, the Global 7 formed an international committee called the Financial Action Task Force in an attempt to fight money laundering on an international scale. In the beginning of the 2000's its purview was expanded to combating the financing of terrorism. 

The United States passed the Banking Security Act in the 1970's requiring financial institutions to report types of transactions to the Department of the Treasury, like cash transactions above a $10,000, or any transactions they deem suspicious on a report called an SAR (suspicious activity report).

The information that these banks provide to the Department of the Treasury is then used by the Financial Crimes Enforcement Network (FinCEN)​, where it can then be sent to domestic criminal investigators, international bodies, or foreign financial intelligence units. While these laws were helpful in tracking criminal activity through financial transactions, money laundering itself wasn’t made illegal in the U.S. until 1986 with the passage of the Money Laundering Control Act. The new law removed limits on the amount of money involved, and it also removed individual intent to give the federal government more room to prosecute money laundering. 

In many ways, the new frontier of money laundering and criminal activity lays in crypto-currencies. While not totally anonymous, these forms of currencies are increasingly being used as currency blackmailing schemes, drug trade, and other criminal activities due to their anonymity compared to other forms of currency. 

RELATED TERMS
  1. Anti Money Laundering - AML

    A set of procedures, laws or regulations designed to stop the ...
  2. Financial Action Task Force (FATF)

    An intergovernmental organization that designs and promotes policies ...
  3. Smurf

    Colloquial term for a money launderer. Also refers to one who ...
  4. Certified Anti-Money Laundering ...

    A professional designation awarded by the Association of Certified ...
  5. Financial Crimes Enforcement Network ...

    A network administered by the United States Department of the ...
  6. Bank Secrecy Act - BSA

    Government legislation that was created in 1970 to prevent financial ...
Related Articles
  1. Investing

    Understanding Money Laundering

    The process of creating the appearance that large amounts of money obtained from serious crimes actually originated from a legitimate source.
  2. Investing

    What's Anti-Money Laundering?

    Anti-money laundering involves the laws and regulations designed to prevent criminals from generating income through illegal activities.
  3. Markets

    How The Patriot Act Works & Why Is It Important

    The USA Patriot Act gave the government more muscle to fight financial crime after the Sept. 11 terrorist attacks. Here's an overview.
  4. Managing Wealth

    Buying Luxury Property: How Private?

    A pilot program designed to cut back on money laundering in high-end residential real estate is bound to affect the transactions of cash buyers.
  5. Markets

    Obama Goes After Tax Evasion, Post-Panama Papers

    The Obama administration went after tax evaders and money launderers yesterday by releasing a set of new proposals that make ownership disclosures mandatory.
  6. Markets

    Why the War on Cash?

    Recently, the European Central Bank (ECB) announced that it intends to stop minting €500 notes, in a move that they say is meant to curb fraud and money laundering.
  7. Investing

    The Uneven Consequences Of Corporate Misbehavior

    The system doesn't appear to be punishing misbehaving corporations as much as it should be.
  8. Markets

    Macroeconomics: Money And Banking

    By Stephen Simpson TMoney can be thought of as any good that is widely used or accepted in the transfer of goods and services. Today, there are three common forms of money in use. Commodity ...
  9. Markets

    Read This Before Taking $10K+ to the Philippines

    There are many reasons why you might need to go to the Philippines with more than $10,000. If you do, follow these guidelines to avoid penalties.
  10. Retirement

    Money Market: What Is It?

    The money market is a subsection of the fixed income market. We generally think of the term fixed income as being synonymous to bonds. In reality, a bond is just one type of fixed income security. ...
RELATED FAQS
  1. Why does fighting money laundering reduce overall crime?

    Fighting money laundering reduces overall crime by helping identify perpetrators, restoring stolen money to victims and disrupting ... Read Answer >>
  2. If caught, what implications does money laundering have on a business?

    Understand the damaging effects of money-laundering on businesses as well as anti-laundering measures businesses can use ... Read Answer >>
  3. What methods are used to launder money?

    Learn about the methods that criminals use when they are looking to launder money. Many different methods are used, and they ... Read Answer >>
  4. Money laundering has become a specific concern in all legitimate financial institutions ...

    The correct answer is b). There are three phases to money laundering. Placement is the physical disposal of the initial proceeds ... Read Answer >>
  5. Who sets the global standard to stop money laundering and how is it implemented?

    Find out how the Financial Action Task Force and International Monetary Fund are working to resolve the problems of money ... Read Answer >>
  6. What regulations or taxes do I need to know about to bring cash assets to the US?

    I'm a green card holder. Recently, I sold my property in China.   ... Read Answer >>
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center