Money Laundering

Money laundering, the "cleaning of money" with regard to appearances in law, is the practice of engaging in specific financial transactions in order to conceal the identity, source, and/or destination of money, and is a main operation of underground economy.

In the past, the term "money laundering" was applied only to financial transactions related to organized crime.

Today its definition is often expanded by government regulators to encompass any financial transaction which generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion.

As a result, the illegal activity of money laundering is now recognized as potentially practiced by individuals, small and large businesses, corrupt officials, terrorists, members of organized crime, and even corrupt states, through a complex network of “shell” companies and trusts based in offshore tax havens.

The term "money laundering" does not derive, as is often said, from the Al Capone having used laundromats to hide ill-gotten gains.

It was Meyer Lansky who perfected money laundering's older brother, "capital flight," transferring his funds to Switzerland and other offshore places.

The first reference to the term "money laundering" itself actually appears during the Watergate scandal.

US President Richard Nixon's "Committee to Re-elect the President" moved illegal campaign contributions to Mexico, then brought the money back through a company in Miami. It was Britain's Guardian newspaper that coined the term, referring to the process as "laundering."

After September 11, 2001, money laundering became a major concern of the war on terror.

Money laundering is often described as occurring in three stages: placement, layering, and integration.

Placement:

Refers to the initial point of entry for funds derived from criminal activities.

Layering:

Refers to the creation of complex networks of transactions which attempt to obscure the link between the initial entry point, and the end of the laundering cycle.

Integration:

Refers to the return of funds to the legitimate economy for later extraction.

If a person is making thousands of dollars a week from a business (not unusual for a store owner) and wishes to deposit that money in a bank, it cannot be done without possibly drawing suspicion.

In the United States, for example, cash transactions and deposits of more than $10,000 are required to be reported as "significant cash transactions" to the Financial Crimes Enforcement Network (FinCEN), along with any other suspicious financial activity which is identified as "suspicious activity reports."

One method of keeping this small change private would be for an individual to give money to an intermediary who is already legitimately taking in large amounts of cash.

The intermediary would then deposit that money into an account, take a premium, and write a check to the individual.