Money laundering

Money laundering is the process of making illegally-gained proceeds (dirty money) appear legal, a process known as "cleaning". It usually involves three steps: placement, layering, and integration. Money laundering can facilitate crimes such as drug trafficking and terrorism, and can adversely affect the global economy.

History

The term "money laundering" originated from the practice by 20th century American gangsters of using laundromats to hide illicit earnings. However, the concept of disguising the proceeds of crime dates back to the beginnings of trade itself.

Process

Placement

Placement refers to the process of introducing the illicit money into the financial system. This might be achieved by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of instruments (such as checks or money orders) that are then collected and deposited into accounts at another location.

Layering

After the money has entered the financial system, the next step is to create complex layers of financial transactions designed to complicate the paper trail and make the laundering process harder to uncover. Layering may consist of several bank-to-bank transfers, wire transfers between different accounts in different names in different countries, making deposits and withdrawals to continually vary the amount of money in the accounts, changing the money's currency, and purchasing high-value items (such as houses and cars) to change the form of the money.

Integration

The final step of the process is to make the 'clean' money re-enter the legitimate economy. The launderer might choose to invest the funds into real estate, luxury assets, or business ventures.

Impact

Money laundering can erode the integrity of a nation's financial institutions. Due to the nature of the crime, it can be difficult to estimate the total amount of money that goes through the laundering process. However, the International Monetary Fund estimated that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world's gross domestic product.

Anti-Money Laundering (AML)

Anti-Money Laundering (AML) refers to the laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income. AML laws cover a relatively limited number of transactions and criminal behaviors, but their implications are far-reaching.

See also

• Financial crime
• Organized crime
• Tax evasion
• Corruption

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  Money laundering
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  1998 Senate Investigation Contribution Money Laundering