What Is Money Laundering?

Money Laundering Definition

Money laundering is the process of making illegally earned money appear to be “clean,”often through complex bank transfers and transactions.

Concealing the origin of money earned is often used in criminal enterprises so criminals can spend their earnings without raising the suspicions of the government, but it has also been used to hide money from debt collectors.

An estimated 3-5% of global GDP are actually money laundering transactions.

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Three Main Steps

There are three main steps to money laundering:

  1. Placement: putting the illegitimately earned money into the legitimate stream of commerce, often through a cash-only “front” business, such as a laundromat or bar.
  2. Layering: placing the money continuously, in smaller chunks, through multiple legal transactions to make its origin harder to trace.
  3. Integration: finally returning the money into the hands of the owner so it can be spent without drawing the suspicion of the legal authorities.

Each of these stages puts in place legitimate business transactions to make it more difficult for an investigator to discover the real source of the money.

Examples of money laundering techniques include:

  1. Cash businesses over-reporting their sales.
  2. Cash used to purchase casino chips, which are then reported as winnings when the person cashes out.
  3. Multiple people depositing small amounts into bank accounts to not trigger bank reporting requirements.
  4. Foreign investors in countries with loose laws taking cash owned by a launderer and investing it into the launderer’s legitimate business.

Each of these stages puts in place legitimate business transactions to make it more difficult for an investigator to discover the real source of the money.

Common Misconceptions

Cryptocurrencies like Bitcoin and Ethereum are the newest frontier in money laundering tools, as they allow for funds to not be traced back to the original sender.

Discuss it with an Expert

If you want to learn more about the process of money laundering, or are concerned that someone you know may be involved in criminal activity, contact a financial advisor in Tulsa, OK for a consultation. We can help you identify how your employee might have been exposed to this crime and what steps need to be taken next. If you live outside this locale, you can visit our financial advisors page for the the full list of areas we serve.

What Is Money Laundering FAQs

Money laundering is the process of making illegally earned money appear to be “clean,” often through complex bank transfers and transactions.
An estimated 3-5% of global GDP are actually money laundering transactions.
Different stages of money laundering put in place legitimate business transactions to make it more difficult for an investigator to discover the real source of the money.
Cryptocurrencies like Bitcoin and Ethereum are the newest frontier in money laundering tools, as they allow for funds to not be traced back to the original sender.
Typical money laundering processes include: cash businesses over-reporting their sales; cash used to purchase casino chips, which are then reported as winnings when the person cashes out; multiple people depositing small amounts into bank accounts to not trigger bank reporting requirements.
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.