How does Money Laundering work?

Money laundering is the process of making illegally gained proceeds (i.e., “dirty money”) appear legal (i.e., “clean money”). This is typically done through a series of complex financial transactions designed to disguise the original source of the funds. Here’s a detailed look at how money laundering works:

Stages of Money Laundering

Money laundering generally occurs in three stages: placement, layering, and integration.

Placement: This is the initial stage where the “dirty money” is introduced into the financial system. This can be done through various means such as:

• Depositing small amounts into bank accounts to avoid detection.
• Purchasing assets like real estate, luxury goods, or vehicles.
• Using businesses that handle a lot of cash, such as restaurants or casinos, to mix illicit funds with legitimate earnings.

Layering: This stage involves moving the money around to obscure its origins. Techniques include:

• Transferring funds between multiple accounts, often across different banks and countries.
• Converting money into different financial instruments like bonds, stocks, or cryptocurrencies.
• Using shell companies and trusts to further distance the money from its illegal source.

Integration: In this final stage, the “cleaned” money is reintroduced into the economy, appearing as legitimate business earnings. This can be done by:

• Investing in legitimate businesses.
• Purchasing high-value items like real estate or art.
• Using the funds for personal or business expenses.