What is Money Laundering? Types of Financial Crime

What Is Money Laundering?

What is money laundering? Money laundering, which is a type of financial crime performed by money launderers. The purpose is to hide the source of illegal funds and transfer them to another location or country using the financial system. Money laundering is the processing of criminal proceeds to disguise their illegal origin. Money laundering enables criminals to enjoy profits and funds without jeopardizing their source.

What Is Money Laundering?

What is Money Laundering?

When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.

Criminal activity is usually undertaken to generate revenue or provide a benefit to those undertaking the activity. Organized groups undertake significant criminal activity, and laundering is the process of disguising the illegal origins and ownership of the criminal property to enable the criminals to use and enjoy it without jeopardizing themselves or attracting unwelcome attention, such as from law enforcement.

The main purpose of money laundering is to take advantage of criminal activities. Money laundering is the result of almost all profitable crimes. 

The stages of money laundering include the processes by which illegal funds are integrated into the financial system. This money goes through many transactions and is incorporated into the economy, and criminals bypass rules and systems. Criminals hide, wash, and launder money to generate more money. 

Money laundering works to point out the source of funds legally. For example, the money collected from crimes such as drugs, bribery, and human trafficking is hidden by various transactions to be introduced into the economy and then re-included in the financial system by laundering. As a result, when it seems legitimate, this money is reused for other illegal activities to generate more illegal funds, and the process repeats constantly.

Stages of Money Laundering

Money launderers engage in the following activities to launder funds:

  1. Placement is the first stage, where the illegal funds are placed in the financial system, either directly or indirectly
  2. Layering is the second stage, where a series of accounts are used to transfer funds or assets from one account to another account. Very complex layers of transactions are created to disguise the trail and origin of funds.
  3. Integration is the third stage, where the illegal funds are utilized to purchase different assets, or the funds are invested in a legitimate enterprise to convert the black money into white.

Final Thoughts

Money laundering is essential for criminal organizations that want to effectively use illegally obtained funds. Large amounts of illegal cash are inefficient and dangerous to deal with. Criminals require a method to deposit money in legitimate financial institutions, but they can only do so if the money appears to be coming from legitimate sources. Laundering money typically consists of three steps: placement, layering, and integration.