Money laundering can be defined as the process by which criminal attempts to conceal the true origin and ownership of the proceeds of their criminal activities.
Also, money laundering can be defined as the process by which money earned from criminal activities (dirty money) is transferred and transformed so that it appears to have come from legitimate sources (clean money).
Money laundering occurs in three stages:
- Placement: the introduction (placement) of illegal funds into the financial system. For example, using cash-intensive business such as betting shops to disguise dirty money as legitimate revenue, or using numerous bank accounts to make a lot of low-value cash deposits;
- Layering is disguising the original source of the funds by passing the money through a large number of transactions (layers).
- The integration – this is the repatriation of the laundered funds back into the legitimate economy, so they can be used for purchases and investment.
If undertaken successfully, money laundering allows criminals to maintain control over the proceeds of their criminal activity and to provide a legitimate cover for their source of income.
Criminal activities that may lead to money laundering activities include drug trafficking, terrorism, fraud, and tax evasion.