What is money laundering? You may already have an idea of what money laundering is. According to the verbatim, you might think about making something clean that was previously dirty; You might even say to launder or to clean the money. If you have something like that on your mind, you are not too far away from the actual explanation.
What Is Money Laundering?
Money laundering is the illegal process of making large sums of money obtained from a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. The money obtained through criminal activity is deemed dirty, and the process “launders” it to make it appear clean.
Money laundering is a serious financial crime that is used by both white-collar and street-level criminals.1 To detect and prevent this activity, most financial institutions have anti-money-laundering (AML) policies in place.
Money itself is the prime reason for engaging in almost any type of criminal activity. Money laundering is how criminals disguise their wealth’s illegal origins and protect their assets: this fuels corruption and organized crime, terrorism, and other illegal activities.
In simple words, the term money laundering describes the activity of concealing or disguising the identity of illegally obtained proceeds. This activity has the goal of making the illegally obtained proceeds appear to have originated from legitimate sources.
Money Laundering Definitions
Let’s quickly compare a few different definitions of money laundering.
Financial Action Task Force (FATF): The Financial Action Task Force, or FATF, describes money laundering as “the processing of criminal proceeds to disguise their illegal origin.”European Commission: The European Commission describes money laundering as “the process by which criminal proceeds are cleaned so that their illegal origins are hidden.”United Nations Office on Drugs and Crime (UNODC): The United Nations Office on Drugs and Crime, or UNODC, follows the definition of FATF and similarly describes “money laundering is the processing of criminal proceeds to disguise their illegal origin.”Financial Crimes Enforcement Network (FinCEN): The Financial Crimes Enforcement Network, or FinCEN, which is a bureau of the United States Department of the Treasury, explains that “money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them.” FinCEN further describes that “through money laundering, the criminal transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.”
The precise definition of money laundering varies slightly in each country, in which money laundering is recognized in criminal law. The definition also varies according to different relevant organizations and standard-setting bodies. However, all the definitions that we just went through have two major elements in common, which, in essence, describe what money laundering is.
These two major elements are:
Funds or assets obtained through criminal or illegal activitiesActivities to disguise or hide the illegal origin of these funds or assets
Crimes that are specific to money laundering are referred to as predicate offenses or predicate crimes. Law-giving and law enforcement bodies worldwide or continuously expanding the criminal activities that count as predicate offenses. The term “predicate” means “something said of a subject.” In logic, it came to mean to assert something. In legal usage in the United States, “predicate” is a “basis or foundation on which something rests.”
In the United States, these predicate offenses were initially created by the Bank Secrecy Act of 1970 and subsequently expanded by the USA PATRIOT Act of 2001. With the 6th EU Money Laundering Directive passage in the European Union, the European Union has also adopted a standard set of predicate offenses throughout its member states.
Exemplary predicate offenses may include narcotrafficking, tax evasion, murder, grievous bodily harm, corruption, fraud, smuggling, human trafficking, illegal wildlife trafficking, and forgery. If one conducts such a predicate offense, makes money from it, and tries to hide the funds’ illegal origin, this makes for money laundering.
Final Thoughts
Money laundering is the process of converting large sums of money obtained through criminal activity, such as drug trafficking, into funds originating from a legitimate source. In many jurisdictions, it is a crime with varying definitions. It is a vital component of organized crime and the underground economy.
