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. Smurf

    Colloquial term for a money launderer. Also refers to one who ...
  2. Financial Action Task Force (FATF)

    An intergovernmental organization that designs and promotes policies ...
  3. Anti Money Laundering - AML

    A set of procedures, laws or regulations designed to stop the ...
  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. Economics

    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. Term

    What's Anti-Money Laundering?

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

    Anti-Money Laundering

    FINRA/NASAA Series 63: Section 4 Anti-Money Laundering. In this section money laundering and the USA patriot act.
  4. Investing News

    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.
  5. Professionals

    D. Annual Compliance Review

    Annual Compliance Review At least once per year the member must conduct a compliance review of each OSJ and each registered representative. Branch offices are not required to be directly reviewed. ...
  6. Professionals

    Anti Money Laundering Regulations

    FINRA/NASAA Series 26 Section 8 - Anti Money Laundering Regulations. In this section the bank secrecy act and the patriot act.
  7. Real Estate

    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.
  8. Investing News

    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.
  9. Professionals

    Bank Secrecy Act (BSA) and Compensation

    FINRA/NASAA Series 63: Section 4 Bank Secrecy Act (BSA) and Compensation. In this section, currency transaction reports, the Bank Secrecy Act, suspicious activity reporting and compensation.
  10. Professionals

    D. Compliance and the Patriot Act

    The foundation of a firm’s supervisory system is its written supervisory manual, also known as the firm’s policy and procedures manual. All members are required to have a policy and ...
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. Why do brokers ask for personal information before they make any trades?

    According to the Securities and Exchange Commission (SEC), there are three main reasons why a broker will ask for personal ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center